Friday May 18, 2012 6:00 AM CST Pre Market open NYSE
Mark Zuckerberg is now the 29th richest man on the planet thanks to the Facebook IPO. Now that your worry about Mark's future is out of the way, let's see what TMP can do your you and me....
We speculated yesterday that the low had been seen in gold this week. It has already rocketed to 1590 this morning, check out the informative KITCO chart.
We have recommended buying Central Fund CEF as it moved lower via a succession of lower orders. After sensing an apparent low in gold this week and a bounce yesterday, I entered these orders and got executions as follows. This is an actual screen shot of the confirms from Interactive Brokers.
Notice the orders for GDXJ were entered at successive lower prices from 19.14 to 18.81. The hourly chart was quite overbought so a pullback was in order. I did the same for GM which is again trading just over book value. The range was 22.01 to 21.81. I wanted to get a position on in both. I had a meeting later at 11:15 and will report my interesting findings there in a bit. But note the later orders were execute while I was on my way or at the meeting, all below the higher prices earlier that day. I make this post to demonstrate what I mean by a succession of orders. Note they are evenly space but all at 'odd' not ''even' prices, 19.14 not 19.20.
GM closed at 21.61 so I should have been aggressively lower but note I did not pay the high for the day. Still on a day when the Dow dropped over 150, not bad.
GDXJ closed at 18.59, but we missed buying at the thigh. And with gold up again this morning I suspect these low prices will now last long.
A Look at a Market Low GDXJ last October 2011
This is how GDXJ bottomed in October 3, 2011. Note the NYSI bottomed earlier below -500. Note the low price at 24 lasted a matter of minutes. This is why it is necessary to have your orders in before the low happens. You won't be fast enough nor visionary enough to guess the bottom just as I was not yesterday.
Now here is the same GDXJ update through yesterday's close.
GDXJ Now
It's the same pattern, then and now. GDXJ gaped below the MAs and then made a V shaped bottom and recovered. That may not be THE bottom but the evidence is sure piling up especially with the reversal in the gold price.
Gold
A triple bottom in price, a three day violent reversal, and the regression slope line looks near a reversal. If this is not the bottom or close to it I promise to give this up and go back to spending more time writing my accounting blog,www.professorelam.typepad.com. That's not a bad thing but does not potentially make you or ai any money....
Gold has bottomed before stocks. I am assuming we had that low this week though of course the Greeks could finally default this weekend or whatever it is that is going to happen there and send the dollar higher still. But if gold did hit its low the low in stocks lies ahead. How close are we?
NYSE Summation Index
The summation index has not reached the extremes of last fall at -600, but it is clearly on its way. And note that the last 400 points last August came quick and brief. No one can guess the fundamentals of what is going to happen the next few days, though the media tries. We might see a final blow off(blow down?) next week after some failure this weekend. At any rate the low is not in on stocks as the summation index has not turned up yet.
On the one hand crashes do not usually occur in May. On the other hand crashes happen at the end of a move not the start. That was the case last summer and in October of 1987 and during 9/11.
Crash Potential?
A picture is worth a thousand words, eh? While the summation index shown in the last chart is well on its way to a low, this indicator of bullish percent is nowhere near the fall lows. Will that be necessary to make a low? We have no way of knowing. However, we do know that once it bottoms we will have a meaningful turn in the market.
This is not time to sell existing positions. This is the time to anticipate a low and turn. If we get a collapse like last August, welcome it, this is the chance to buy low, as we have said, run toward your favorite stampeding buffalo herd.
Natural Gas
Your blogger attended a speech by Marvin Rush Chairman of RUSH Enterprises. The firm operates some 100 truck service centers. Their sales account for 35% of Peterbilt production.And so I inquired about the switch to natural gas from diesel. Marvin Rush himself could not have been more positive on this outcome. He did allow that it would be a ten year process. I inquired further after the talk with the fine team he brought along including the Marketing Director, Tax Analyst, and CFO. They confirmed that major interstate re-fueling stations will soon be installing LNG in partnership with Boone Pickens. More manufacturers plan to produce engines made for natural gas rather than diesels which must be converted.
Yesterday HGT and SJT both had big drops even though nat gas futures closed at 2.51 well above the late April low of 1.94. But all are short term overbought. I feel more confident that while we may still endure some vicious drops in the short term, our recommendation on natural gas as a fuel for commercial trucks is accurate. One hundred re-fuel stations along the interstates would pretty well make this a reality. Such vehicles can travel 350-400 miles between re-fuel so that would allow coast to coast coverage.
Other Indicators
The Dollar closed at 81.38 near matching its highs of early January. TLT surpassed its high with a big move of 1.77%. So investors have crowded into risk off assets as the summation index approaches its low, a classic divergence and sign of a forthcoming bottom. The Euro matched its January low at 127,just a few points about the absolute low then. So, all the Dashboard Indicators are lined up for a sharp reversal.
The Dashboard
TLT hits a new high at top.
The green Dollar matches its January high.
The red Euro matches its January low.
Central Fund returned to a 2% premium to NAV so it also reversed from premium to a one day discount to premium this week.
Stocks have been down by my count ten of the last twelve days. We are getting to a social mood extreme.
Now you should be mentally prepared for the upcoming turn and act accordingly.
thanks for reading The Market Perspective.
Any thoughts regarding coal stocks? These are Trading at a fraction of book value but are losing money.
Are these bargains or bankrupt?
ACI
PCX
JRCC
Also ERF, PWE, and PGH are below book value. Bargains or not?
Posted by: Robert Takacs | May 18, 2012 at 02:14 PM