Memorial Day Weekend May 25, 2012
We are closer and closer to a market turn. About the only remaining question is how much longer CEF and GDXJ and other commodity plays will be available at these prices.
Reading Assignment
I don't always agree with Mark Cuban but his take on the coming education bubble is correct.
We have written about this at various times. But the number of articles warning of a financial armageddon in Higher Education seem to be more and more frequent every week. Higher Ed is of course oblivious to this possibility.
The Markets
Now to the markets. As was the case last weekend, the internal indicators are still in various stages of collapse. Bullish percent has not fallen as far as the High Low Weekly. Both lag the Summation index which is near the Fall Low.
So let's look at some markets.
Gold Priced in Euros
Gold peaked last August and has been correcting sideways since then. This is a chart of gold priced in Euros. While you hear and read that Gold has not been a hedge against the trouble in Europe, this is NOT the case if you are a European holding gold. In your currency gold has held up well. And this past week it began an advance, note the CCI at bottom. Gold bottoms before stocks and that process appears to be underway.
US Stock Market Priced in Gold
It was not accident that the Christmas story has the Three Wise Men bringing gold rather than shares of the new Aqueduct Project. Yes Water Power would overwhelm slave power but gold is forever. And here the fact is that in terms of REAL MONEY, gold, the market has simply been marking time moving sideways. In the meantime Apple has corrected and FB disappointed. Our point is that the market is in better shape than one might think overall. See our internal indicators later in this letter.
GDXJ Hourly
The process begins with a series of higher lows and higher highs. That is exactly what we are seeing with this rising channel. Gold is doing this DESPITE the rising dollar.
Central Fund CEF closed at a discount to its net asset value Friday. This is a rare opportunity to buy gold and silver for less than face value. This is the time to establish a long term core holding of the metals. CEF which is located in Canada and has been for decades is our chosen vehicle for this.
Dollar versus Euro
The Euro is in pink. the Dollar is in red green. The two have literally swapped places since May 2011. This is where they changed direction a year ago, will history repeat? The dollar broke to a new high. The Euro broke to a new low. Spain is throwing lots of money at its third largest bank Bankia essentially nationalizing it, see front page of weekend WSJ.
Fear Factor TLT Bonds versus WTIC Crude Oil
This chart plots TLT a fund of bonds in red blue bars against crude oil, a solid black line. The Fear Factor is greatest when the distance is the largest between the two. That was last October. The low price of oil, stocks, gold, forced lots of amateurs into bonds. But now crude oil is much higher, left scale, 90 versus 77, but TLT is at a higher high. The same is true if we substitute stocks for oil. That is a divergence. Bill Gross of course is again recommending bonds when bonds are at their highest point. He will be wrong again.
Summation Index
The NASD summation index is the main chart with the NYSE summation behind it. At bottom we have the OEX for the NASD index. It appears in the main panel that we are very close to getting the bottoming process underway. Note by the say that these two indicators may b putting in a higher low than last August, not a great deal but enough to notice. That same feature appears in the next two charts of different indicators.
Now eventually we should see some evidence that all our indicators are pointing in the same direction. In other words is all this coming together? The answer is yes. Stocks have corrected sideways in terms of gold, see Chart Two. The Summation Indexes are approaching the Fall 2011 lows. Now, above the actual index itself, the SPX exhibits several potential bottoming signs.
- At top RSI is as oversold as it was at the important low last August
- In the center panel, the index now approaches an intersection of the uptrend line from August-with the 200 day MA.
- Has anyone noticed that the 200 day MA is still moving to the upside?
- AT bottom MACD may be making a higher low.
- This would be a good point to re-examine the first chart today, the SPX priced in Gold.
If that pink uptrend line has validity, we should see its presence in other indicators as well, eh?
Bullish Percents 50, 150,200
Now step back and think about what we are doing here. This is a collective representation of millions of decisions regarding 500 companies. It appears the collective is about where it was in August and October but at a higher level.
At any rate, compare the last two charts. The former is the actual index. The one above is the collective action at three degrees of involvement of all 500 SPX stocks. The red line is the most sensitive with stocks rapidly moving above that MA after October. And then they fell from the internal hghs in early February. And so the 50 day MA has come full circle, or nearly so making a slightly higher low. The two slower moving MAs have also made higher lows, and right at the uptrend line! That is why we call this blog The Market Perspective.
At top the index has nicked the 125 day MA.
So the case can be made that the corrective process is perhaps coming to its end.
Now what about the other markets, are they out of synch or is there a pattern here? Let's look at them relative one to the other.
This is an interactive performance chart that compares one market with another.
Crude oi in red has outperformed much like stocks in blue.
For all the endless headlines about the EURO, it and gold have tracked one another.
Silver at the bottom has perhaps the most volatility. Its role as an industrial metal has meant a fade to gold as a currency alternative.
The Bottom Line
Markets in stocks, gold, silver, oil the euro appear closer and closer to a downside low. This looks to occur within the next two to three weeks.
Bonds and the Dollar are stretched to the upside.
We have recommended Central Fund and now GDXJ. We have accumulated these funds. Note in the third chart presented today that GDXJ is already exhibiting higher lows on the hourly basis. Central Fund has recently traded below its NAV. These are reliable indicators, take note.
Socionomics
This has enabled him to take on more than a dozen new projects for private clients-primarily Russians, Indians, Asians, and Americans. No French, Liaigre says almost mournfully. There is no money left in France.
WSJ Magazine, The Grand Minimalist, Christian Liaigre, page 63
Well judging by the re-decorated 18th century apartment Liaigre lives in, there is some money in France. but I had to wonder if the new French socialist President had read this comment. Indeed, money never sleeps, nor does it hang around to be absconded by politicians for various vote buying schemes. The 75% income tax proposed by the New President will chase more wealth out of France just at the same has happened to California and New York in this country.
Interestingly the building Liaigre lives in was built by the Marquis d'Aubigne, who was guillotined during the French Revolution. France is killing off its well to do once again, but this time the chopping instrument is high tax rates rather than the blade itself.
No Money Left in France
Here France trades at less than half its world wide market peak of Year 2000. Indeed, France has chased its wealth out of the country.
The Wild West of America in 1880 has re-appeared in lawless environments like Russia and China and other Pacific Rim outposts. But as with the West of 1880, it creates a good deal of wealth.
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.
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