The Market Perspective

They Will Fluctuate

Thursday April 19, 2012 5:15 PM CST

Earlier this century,  a young reporter spotted J P Morgan leaving the Stock Exchange. Seeking a comment he hurriedly rushed and asked, Mr. Morgan what do you think stock prices will do?

Morgan thought a bit and replied

They will fluctuate. 

We have another post suggesting that stocks will undergo a Wave C down.Whatever a frustrating correction is underway with alternating up and down days. It will frustrate all trying to call it. 

Central Fund CEF

This chart looks constructive.

Selling is drying up at top in the Chakin Money Flow.

In the main chart price exhibits a higher right shoulder in a reverse H & S pattern. 

At bottom the MACD is slowing rising putting in higher lows. I have been accumulating a position and suspect more, much more needs to be added to that position. 

Nat Gas

The Wall Street Gang took Westport WPRT, a company that converts diesel engines to natural gas, out and shot it in the head today. It made the ten worst NASD stock list. So there is massive negativity about nat gas. CNBC shouted the new low in nat gas futures at 1.90.But wait, both SJT and HGT were up on the day?

San Juan Royalty Trust and Hugoton Royalty Trust make money from the production of natural gas. They are not pipeline companies as one reader asked today, good question by the way and thanks for the submission. My idea was that nat gas is irrationally undervalued. I showed a world map in an earlier post today, and prices are in the teens elsewhere in the world. And wealthy investors are buying reserves. 

My idea was to buy reserves in the ground. I am recommending the same sort of idea with Central Fund CEF. CEF owns gold and silver in Canadian vaults, a stable government not controlled by our politicians. In today's WSJ on page B1, Chemical Makers Ride the Gas Boom. Dow and Royal Dutch Shell and Conoco Phillips Chevron  are all  building billion dollar plants to take advantage of cheap nat gas. So there is the answer to, where will the demand come from to stem the supply?  The markets work, yep sure enough. 

HGT Perspective

This graph of HGT covers the very worst of the last financial crisis. A panic is an irrational mood in which even worthwhile assets are case aside. That happened with HGT and most other stocks in 2008 and 2009.

It is easy to look back now and say that it was only a matter of Oct 2008-July 2009 before it was all over. But one had to endure lower and then higher and lower prices. 

Is HGT going back to $6 again?  I doubt that but I cannot tell you where the bottom will be. Look at our recent post on how long it took for gold to bottom and recover in the 1996-2004 time period. All those that waited have been well rewarded. The difficulty of trading markets is running against the herd. 

Patience.......

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Herding and Low LNG Valuations

Thursday April 19, 2012 6:40 AM CST

Herding and Risk

Fund managers run together. They are usually all doing the same thing. A week ago talking heads unanimously recommended Apple. This week Apple is finally correcting. Last week they all bought Apple, this week they all sold Apple. 

Jeremy Grantham remarks on how this short term focused crowd behavior amplifies short term movements in prices, of everything. 

Mish Shedlock uses the same Grantham article to note that his clients since 2010 are restless and unhappy. Clearly Mish has tried to avoid what he sees as risk for the client, but as the saying goes, markets can stay irrational beyond a client's patience. 

Here at TMP we too attempt to avoid risk. We exited stocks at their internal high in February. But Mr. Market continued up for two more months. Now we are in a complex corrective phase, fund managers buy one day and sell the next, literally. 

Natural Gas

Arbitrage is the process of taking advantage of different prices in the same commodity in different markets. Here is an example of the disparity in LNG prices.  This article notes that Wilbur Ross and Jeff Gundlach are buying natural gas assets. Hmm The Market Perspective was not mentioned in the article, but we suggested doing the same. 

While it is painful to see HGT and SJT falling in price, this map suggests that natural gas in the ground has greater value world wide than the US markets asses it now. 

Natural gas is is as out of favor now as gold and silver were in 1999. Had one bought gold for $400 in 1996, one had a long long wait to be proved right. And with the price 35% lower by 1999, it would have been even tougher to buy more at the very bottom. Note it took until late 203 to regain $400. but everyone that did that is smiling today. This is classic bottom fishing running against the herd thinking, that pays off for the John Templetons in the long run. 

Gold 1996-2004

Even after the big one month move up in 1999, the clear bottom, one had to wait until 2004 for $400. 

Natural Gas Prices 2007 to Now

I do not know where the bottom is for nat gas. But it is surely worth more than this if you examine the world map above. How long this arbitrage play takes we cannot know. As Richard Russell notes, patience is a key to long term investing.  We have a small position in HGT and SJT. 

No Follow Through - Back to our Original Idea

Wednesday April 18, 2012 5:00 PM CST

The lack of any follow through has us thinking our original A B C correction is in fact underway. The banks were the problem in 2008, and still are. Let's take a long term look.

XLF

The XLF has hit resistance where it has consistently failed before. One can make a triple top or sorta kinda head and shoulders here. Either way this looks very toppy. 

Russell Smal Stock Index

The Russell has a double top that is already trending to the down side. Note this is a lower high than in 2011. This coincides with our idea that stocks are likely to top THIS YEAR. The only real question is whether the FED and TBTF banks can keep things up until the election. 

XME

The lack of enthusiasm for metals suggests the weakness we have noted since the November 2010 high in Brazil, India, and Shanghai. Note that the 34 week green MA has quite a negative slope to it. 

A/D Volume

This is an update from this same chart we showed yesterday. Here it is failing right at teh 13 day 
MA. The summation index for NASD and NYSE fell again today as did the high low daily indicator. 

So our conclusion is that our original A B C correction idea was the right one. Some readers have suggested we may not be even that lucky. They have suggested the top is in noting the poor performance of the banks. We are certainly not long stocks here having exited in early February. We do have a position in Central Fund, HDGE, and ouch SJT and HGT, the last being misses. 

SPX Possible Wave Count

This is an update of our original idea expressed last week. Indeed we wondered how the market stayed up in price while the internals have collapsed since early February. If Wave A = C, a 60 point drop would mean 1330 or so. 

Bottom Line - We expect lower not higher prices in the near term.  We suggest new readers go back to April 6 and read our original thinking at that time. There is a small arrow at the very bottom of the overall page, hit that to go further back. These are tough markets, which have exhibited great volatility both up and down the last ten trading days. 

Thanks to Steve Kaplan at True Contrarian for a mention on his site, we have had a nice spike in readership the last 24 hours, see Revolver Map at top right. 

Thanks for reading The Market Perspective. 

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Is A Low Creeping In?

Tuesday April 17, 2012 7:04 AM CST

While many analysts are expecting the market to head lower, and I was in the SPX 1300 crowd, it is beginning to look like we may find support at higher levels. As always we look to market internals first. 

 

NYSE McClellan Oscillator

This indicator has broken above its downtrend line in the main panel. At bottom the MACD has turned up. This is a positive suggesting a low is at hand. 

We showed this chart in pre-market Monday morning with a pink line trending up from the October low. Go back and take a look. We suspected then that the market might be making a low this week, and we said so. Here is an update. The MACD may be making a third higher low since last August. The index appears to be respecting the 200 day MA. 

Actually the rally Tuesday was broad based, take a look at the actual stats.

88% up volume on the NYSE is significant though AMEX and NASD could have been better. Apple did bounce back 5%. Moving the market is a matter of pairing price increases with volume increases. So is advancing volume increasing?

A/D Volume

This is a cumulative chart of Advance Decline volume on the NYSE. It appears to be attempting a move up, note MACD in the lower window. 

At the beginning of the week I suggested this may be a transition or attempt to bottom the correction. Let's conclude with the Summation Index.

NYSE Summation index of the McClellan Oscillator

As always I never claim to be an Elliott Wave expert. But I can count five waves up in the summation index. The index is approaching the previous fourth wave which in EWT is often a support level. At bottom the MACD argues for that as well. And it just broke the 200 day MA which will cause lots of traditional chart types to think it is going much lower. 

For now the market appears to be trying to make a stand here and now. More updates to follow this week. 

Unlike most sites that focus on the price indexes, we look to the unweighted market internals for clues about what might happen. 

Thanks for reading The Market Perspective. If you would like to be added to our update notification list send your e mail address to

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A Portent of Things to Come

Tuesday April 17, 2012

As we say, the news is right there in the paper our job is to piece together the random bits into some sort of meaningful pattern. 

Meredith Whitney has caught lots of flak for her call that municipal governments would default. She has defended that call saying she is being confirmed every day. I agree, the definition of default just needs to be expanded, that was here mistake. 

Governments will eat everything alive to stay afloat. On the front page of today's WSJ, Argentina's Kirchner's is expropriating YPF, Argentina's largest oil and gas producer. Frankly that confirms my claim in the last post that reserves in the ground are worth real money. Spain warns it may take control of regional governments. This parallels Michigan taking control of Detroit, not to mention the Federal Government bailing out both Michigan ad California via Build America bonds. 

Meanwhile on page A 7 Southwest Royalty has gone to court to argue that oil and gas extraction is in fact manufacturing. Why the tortured explanation, well if it is, productino is exempt from Texas Sales Tax. The Comptroller's Office of course argues it is not, never mind the logic here, the State wants the money. Again, governments will seize everything they can find to stay afloat. Damn the private sector, it exists to support govennment not the other way round. And this is in Texas not Massachusetts!

I leaned this weekend that Brazil is now seizing $6 of every $100 that comes into the country in an effort to curb speculation, sounds like a money grab to me. 

This reverse break down with larger bankrupt governments trying to rescue smaller bankrupts is a portent of the way the markets will collapse the next few years. You read it here. 

We're Not There Yet!

Tuesday April 17, 2012

NOTE, We are looking for a very short term bottom anticipating an overall top in the markets later this year. That top should  last for several years before the markets find an evenual bottomat  much lower than current levels. That is our expectation. 

Yesterday saw the Dow up but most other indexes down. 

NYSE Summation Index

As Business Insider says, here is what you need to know. The Summation Index broke the 200 day MA and continues down. Thank goodness they quote the DOW and SPX and not the NYSI or something noteworthy on CNBC, or we bloggers would be out of business, so to speak. Until this indicator bottoms the market is not at a bottom, period.

Daily High Low

As we say, one indicator should confirm another. Here the Daily High Low flirts with its 20 day MA while the MACD probes for a bottom. But this transmits the same message, we are not there yet. 

Our positions in SJT and HGT got hammered, hard. Clearly we were early and should have exited on the recent move up in both. Nat gas hit new lows, where is the bottom?  This is reminiscent of the November 2008 stock panic, 90% sellers, only a handful of buyers. Overall advance decline volume was about even yesterday by the way.  And yes someone bought HGT after 2:0 Pm yesterday. Or rather someone bought enough HGT to actually bump the price up a bit, was that significant?

HGT

Buying came in after 2:00 PM pushing HGT to an hourly buy signal!  Now we are not intra day traders here but that was interesting amidst the gloom and doom. There are important questions to ask before entering a trade like this. 

Will the assets of a nat gas royalty trust go to zero?  Well some blogs have suggested that with a surplus of gas and no way to ship or pipeline it, yes, producers will just have to burn it off as the storage facilities are full. Well producers have flared gas in the field since before I was born but I suspect the gas in the HGT reserves is still worth more than oh,  Instagram. Dot.coms did go to zero, actual commodity prices  can go below the cost of production, that is what brings in a bottom, forcing the weak hands out of any market. At the $5 low in Mesabi Trust MSB in 2008-09, the dividend was suspended and that indeed was the low and a fabulous buy. The same thing may play out here but one has to endure paper losses and the unending negative press. 

Where is the bottom?  I don't know.

Why is the price so low?  Short sellers are pressing all in this business. The XES ENergy Service index was down 2.11% yesterday. 

 

But then lots of things got hammered yesterday. 

Apple AAPl  down 4.15%

Valero VLO down 3.23%

Silver Standard SSRI down 2.82%

This is tough business because one has to be buying when others are selling, one has to run toward the stampeding buffalo herd, the exact opposite of what our hunter gatherer ancestors learned over thousands of years. Of course one also has to pick the right herd...

Speaking of being hammered.. we have been negative on emerging markets since their top in November 2010. Take a look an India's

INFY

This is why we tend to avoid individual stocks....but this may be a buy at 42, point is, the buyers loved it form 51 -60, now few want it at 48, the exact opposite of a sale at LULU. 

Europe was up nicely while we were waking up, let's see what today holds. 

We very much enjoyed visiting with our friends at the Socionomics Institute. More on that as we update this week. 

 

Fail to Deliver

Tuesday April 17, 2012

A bit of History

Back in the Day, membership in the Wall Street community was a privilege extended to elites. It was rather like  Yale's Skull and Bones Society.  First one had to possess a membership, called a Seat, on the New York Stock Exchange. Then one had to amass enough capital to handle th the trades. Exclusivity was insured as access to trading data and information was expensive. After all, if one had an NYSE seat, one would hardly want to spoil the experience by letting the rest of the retail rabble in through the back door so to speak. Edison invented the original stock ticker but the NYSE kept access to its software, the reporting of trades, expensive and exclusive. 

As recently as the 1960s, firms were still partnerships. See what I mean about exclusivity?  One did not just buy stock in the thing, one got voted in as a Partner. 

Ah those were the days. The Firms restricted membership and information, admission was by permission and it was expensive, What else could have been done to keep Fraternity Row in business?  Ah yes, tell you what, let's fix the commissions, and set them high as well. As recently as 1973, commissions were fixed. None of this $7.95 Wal Mart stuff indeed. Back then doing your first 100, was a big deal. That meant you had recorded $100,000 in commission in one year. With the standard Merrill payout at 28%, you got $28,000. That's a fast food manager's salary today but good money back then.  There was no dickering, and the NASD suggested a percentage limit on trading costs. 

But, if the firm made a market in a security, or claimed to, it functioned not as an agent. Functioning as an agent meant that the actual commission was printed on the confirmation, no fun in that!  If the firm could claim to 'make a market' which usually involved parking no more than a few hundred shares in the firm account, then the commission was not shown on the confirm. Now we're really having fun as a fraternity!

Offices were staid affairs often looking more like a British men's club than a retail trading center. All were downtown. The trend to suburban offices was just taking hold in the early 1970s. Downtown was harder to get to, but closer to the luncheon clubs atop the skyscrapers, we're exclusive don't you see. Houston, Texas even sports a street just for the purpose of conveying the Anointed from River Oaks to downtown, Allen Parkway it's called. Back then to get to the Lehman office atop Alen Center, one had to take not one but two elevators to get to the office on high. Just to re enforce the image, there were less than 100 Lehman brokers in America (Mr. Pigeon I can get you size!). And they sat in leather upholstered chairs crafted from seats in, yes, Citroen automobiles. Remember, exclusive.

Women on Wall Street were like women at Yale, there weren't any until 1969 or in Skul and Bones until 1992. It was pretty much a guy thing. Recall that women were only admitted to Rotary Clubs in the late 1970s, or was that the early 1980s?

The Big Firms sported legendary Wall Street names-Loeb Rhoades, E F Hutton, Smith Barney, Lehman, and so on. Ever heard of Reynolds or Spencer Trask or  Bache or F I duPont (yes the Delaware duPonts, not all were in the chemical business). They are al gone now, taken over or merged into larger entities. 

My manager in Houston, Texas with duPont Walston had been a 3% partner at Goodbody. By the time the Dow cratered to 577 in 1974, he was reduced to a desk and a phone at Rauscher Pierce.

 But when a firm failed then, the SEC NASD et al would move customer accounts elsewhere, no one had ever lost money due to firm negligence.

The real horror show debuting in America toay is not Hunger Games but MF Global and now 

Options Xpress.  MF Global was check kiting and using customer money. Options was as Jesse points out, stock kiting. 

The horror is that now one can lose money and not be compensated for firm negligence. Jon Corzine walks free today. As Jesse points out, breaking the rules is only for the To Big to Fail or campaign contributing hedge funds. 

In 2008 firms evaporated once again, just as they did from 1972-74. Bear, Lehman, and if another hour had passed, Merrill before John Thain quickly inked a deal with Bank of America. 

Bob Precther has a 400 target on his monthly newsletter. That was there a couple of decades back. In the big run up of the 1990s, he quietly removed it. Now its back.  Don't laugh too hard. The DOW was 577 in 1974. 

Such a number would probably require a bankruptcy of some Dow firms, come to thnk of it, didn't GM and EK both former Dow components go bankrupt?  Chrysler too. But as I say the real horror would be counter party risk. One might be right on the direction of the markets, but would there be any one to pay off on your SPX put at the bottom?

Customers of MF  Gobal are asking that question right now. 

(I had originally planned to write more about the 1970s time period and how things have changed. If you find this narratie interesting, let me know).

 

 

Monday Monday

Monday April 16, 2012 5:53 AM CST

Zero Hedge observes that the Euro difficulties just won't go away.

 

Spain versus the US Price Index SPX

As the Zero Hedge article suggests, repeated injections of LTRO (hooray, more debt!) were supposed to fix the European situation. But apparently not. Hmm come to think of it, the decline in EWP, Spanish shares, looks  a lot like the decline in the Summation Index for the NYSE!  Let's take a look, shall we!

Spain and the NYSE Summation Index

Now that is amazing, eh, but I said that last night about the indicators,  Note what a different picture this is.  Our thrust here at TMP is that the internal indicators which are unweighted for capitalization or price are better indicators of what is really happening in the overall market. The Summation Index in green  for the New York Stock Exchange, symbol, NYSI, is just such an indicator. It peaked in early February at which time we recommended exiting the stock market. But Mr. Market continue up, buoyed by the performance of large companies like Apple. We likened this to Wiley Coyote running off the Cliff with nothing but air under him. 

France versus the Summation Index

No wonder Sarkozy is having difficulty in  re-election. This is the same plot but with France substituted for Spain. France held up another month, and now is falling under its 50 and 200 day MAs. One can make the case that France has fallen back to an uptrend line from the October low, see it?  As we have said this looks to be setting up the case for a last weak rally in these other markets which appear to be diverging from the recent new highs in the US Market. 

Rendezvous with Destiny Europe Asia Far East and the Summation Index

Bear with us and okay we will end our presentation with this one. This is again the same plot but with the EAFE plotted. The greater strength of the Far East keeps this one right at the 20 day MA. And note this now intersects with an uptrend line from the October low. Hmm, will this foreshadow a low this week in the markets that will allow for a final move up in the averages world wide?

Let me be clear. Here we are suggesting that a short term low in stock markets may be at hand. The Summation Index is sufficiently over sold to set up such an event. That short term low should lead to a final high in stock markets by this May or June, at lesat this summer. This would then be the conclusion of the rise from March, 2009. From a social mood perspective, the Facebook IPO may well be near the final high. Facebook has now joined the delirium of the rest of the market by offering $1 Billion for Instagram. Instagram causes a digital photo to look like a polaroid or old instamatic print. As we previously noted this last week, an offer was made for the Plaza Hotel in New York City for $600 million. I would much rather own the Plaza and have $400 M in pocket than own Instagram. But then Facebook will be paying mostly in stock.....

The last chart in particular seems to suggest that we may be nearer a resoluton of low in stocks. The Higher levels of CEF which will bottom before stocks also suggest this. So this may be a week of transition and  short term bottoming for stocks. 

We shall see, in the mean time it seems reasonable to dub this one

Chart of the Week, an affirmation of our reliance on internal indicators rather than the price of weighted indexes. 

hanT

 

Wave C Gets Under Way

Sunday April 15, 2012 Sunday Evening 9:40 CST

We had access to one of four top notch Apple PCs in the lobby of the Georgia Tech Conference Center this morning but could not get typepad to load. So we have a few thoughts this evening. 

Overall

We postulated a corrective Wave 4 was beginning  We even drew out an A B C corrective pattern. Wave A finished this past week followed by a  181 point one day up move, of course heralded by the media as confidence restored. Not so, despite the confident comments by one noted technician about rail stocks. Friday saw what we believe will be a Wave C to the down side finishing in the SPX 1300 area. That should complete corrective Wave 4 setting us up for a final blast to say SPX 1475 and the IPO for Facebook. That will make for  a fitting social mood climax to the post March 209 rally. 

Dow Industrials

Our projection to the far right of where we think this  is headed, it is not necessarily to scale for price or time. By the way, we showed the DOW Industrial as the move failed right at the 50 day MA. For the QQQ the index is higher than the MAs. For the NYSE, the index never got to the 50 day MA.  

If this analysis is correct we should see Waves A and B in the opposite direction for indicators which display an opposite position. So let's check. 

VIX

The VIX will rally as the Dow falls. And Indeed, VIX fell right to the 50 day MA and then rallied. This iconfims our analysis. But let's look further, is there more evidence?

SPX Bullish Percent 

The number of stocks over the 200 day MA interestingly enough ALSO failed at the 50 day MA-amazing eh?

And it exhibits that same A down, B up to the MA, and then a failure, we assume C is underway. 

Summation Index

The summation index has registered nine straight weeks of decline. But the stock indexes are only just now beginning their decline!  Note that the NYSI knifed through both weekly MAs, a significant failure this past week. This divergence and now catch up is more reason to believe that the stock market has further to fall. At bottom the MACD is rolling over with a potential good ways to go before seeing a bottom. 

Indexes

Richard Arms, creator of the Arms or TRin index, takes great stock in the last half hour action. This is particularly true at the end of the week. It looks to us like traders went home short!

We look for more downside action this week. Some of our  lower orders for Central Fund were filled Friday. 

CEF

A reader asked why we preferred Central Fund over GDXJ, a closed end fund  of junior gold miners. Here CEF is in the red black bars and GDXJ is in brown in the along with CEF. Note that in late February  GDXJ and CEF parted company. GDXJ has headed significantly  lower. CEF meanwhile had formed a higher right shoulder in an inverse H & S pattern. 

The actual gold price is at top. CEF is  tracking actual gold very well. We believe quite simply that CEF is a stronger chart than GDXJ. A tsome point the miners may have their day but that day has not arrived yet. 

Natural gas fell below $2 this week. SJT is okay but HGT look terrible, we are evaluating.   We continue to hold TVIX ( bought more under $8.50 on Thursday) and HDGE. 

More tomorrow morning..

Thanks for reading The Market Perspective

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The Market Perspective bases its information on techniques and sources that have been found to be reliable in the past, and The Market Perspective tries to base opinions on sound judgment and research, however, we do not guarantee that future results will match past performance ands no guarantee can be made that advice will be profitable. The Market Perspective accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks.  Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with The Market Perspective may at times have positions in securities mentioned.  Nothing contained herein represents an offer to buy or sell securities. The Market Perspective encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital.  No guarantee can be made to the accuracy of text or charts.

 

It's Just a Bounce

Thursday April 12, 2012

We showed various re tracements yesterday and concluded the SPX 1300 area was a reasonable expectation. 

Yesterday's bounce was just that a weak Wave B in an ongoing A B C correction. 

I did not attempt to label the waves but the 60 point down from 1420 is not doubt Wave A, we are in a Wave B now and a C should follow to lower levels. Note how quickly CNBC et al jumped on the Dow snaps back bandwagon yesterday. This is typical of counter moves. Prepare for a low next week around 1300. That would lead to the final Wave 5 up from December and the end of the rally from March 2009. Of course we could be wrong but our recommendations to accumulate CEF stand, and even if we are wrong on the overall pattern CEF is a good buy in here. Gold shares and gold are making lows prior to the overall stock market low a typical pattern. 

don't miss the article on page C 12 in today's WSJ, the Fed's Four Trillion Dollar Man. The article suggests that Bernanke has been successful in stopping any dollar rally in its tracks, that the dollar is just beginning to rise. He knows a strong dollar will end the stock market rise here. But even short term the Dollar bottomed last September. The stock market has managed to rise in-spite of dollar strength. This next graph shows just how sensitive the stock market is to the BUCK.

Green is for go or up. Red is no go. Here it is clear that when the Dollar advances in the main chart, stocks go flat. When the Dollar flattens as it has so far this year, stocks rally in the top panel. 

This FED stuff is not that complex...nor is Bernanke that powerful and this is a picture of that power about to slip slide away. 

Siip Sliding away, slip sliding away

You know the nearer your destination the more you slip sliding away

Simon and Garfunkel