Thursday May 10, 2012
For new readers we recommending exiting the stock market in early February. The internal indicators all peaked then . The internals have fallen since then but the price indexes are just now playing catch up. The concentration of fund money in the latest Wall St darlings like Apple no doubt held the market up.
We recommended positions in HGT and SJT. Since April 19, natural gas has rallied 25%. That rally of course occurred amid the most negative publicity about natural gas. Some were speculating gas would go to zero, after all there was so much supply and no more storage.
Are we already at the same extreme for stocks, gold and oil? Past patterns suggest gold Will bottom before stocks, that was the case as gold bottomed in November 2008, while stocks meandered until March 2009.
Our indicators are a mixed bag. The NASD and NYSE summation index is back to the December lows.
New York Stock Exchange Summation Index
This blog is all about letting the market collectively tell us what it is thinking, Every day millions of decisions are reflected in the advance and decline of thousands of stocks. The above chart is a window on those collective decisions. The NYSI is the summation index for the NYSE. It has retreated back to its December low. And note at far right that it bounced there the last week. At bottom the CCI has not reached the extreme of the December low. And at top, the actual price index, the NYSE itself, looks ot be 820 points above the December low at 7,000.
So price is still playing catch up to the internal weakness.
VIX NYSE Bonds via TLT
This is rather busy but catch your breath and take a look. The VIX is the Fear Index which represents net put buying. IT has risen quickly from its March low. At top TLT moved just as fast to the upper level of its Bollinger Band just as VIX has.
VIX would need to go to 27.5, right scale, and the NYSE would need to drop to 7,000 to duplicate the December low. That low occurred amid year end tax selling. Will the market reach that level with out the tax selling impetus? We cannot know at this point. I don't sense a sort of maximum fear level yet.
US Dollar
We do know that US Dollar strength has caused the exodus in stocks. The shaky situation in Europe has money converting to Dollars. The Dollar is not at the extreme which has occasioned the recent peaks, see green arrows.
The markets are up a tad this morning, a likely bounce back given the way the VIX and TLT are hammering on the upside of their Bollinger bands.
Jesse quotes one analyst who notes that the Open Interest of gold and silver contracts has expanded on the move down in price. So there is no net liquidation by those long gold and silver.
A look at the long term Central Fund chart suggests the same thing.
CEF
If investors were leaving CEF there would be a volume spike as there was in May 2011. This is not happening. At this point CEF exhibits a very long term inverse head and shoulders pattern. The move down this week starts a right shoulder. CEF may well test the green 125 week MA however.
I added more CEF and Fidelity Gold in retirement accounts yesterday. I have additional orders lower and lower to buy CEF. And I have funds remaining to add to Fidelity Gold on further weakness. The key here is gradual accumulation into weakness, you know, that buy low idea.
CEF continues to trade at a 2.6% premium to NAV. Jesse on his site notes this is in line with previous lows for CEF and Sprott funds.
GDXJ
The junior gold miners have erased all their gains since the introduction of this fund. I have not recommended it yet, preferring the CEF gold and silver in the vault. Fidelity Gold represents the large miners.
GDXJ is trading at February 2010 prices. At that time Gold was trading under $1100 so we have quite a divergence.
I am also examining other Energy Trusts like PBT which currently pays a 6% dividend.
Stay tuned and thanks for reading The Market Perspective.
What are your thoughts on the Canadian energy trusts. ERF,PWE,PGH
Posted by: Robert Takacs MD | May 10, 2012 at 11:10 AM
ERF Enerplus is paying an indicated 12.7% dividend. That is a result of a big drop. It is now at June 2009 levels which suggests problems.
PEW Penn West is nearing its low from last fall wiht a 7.3% dividend. But both MAs are headed down, chart in falling knife position.
PGH Pengrowth looks a lot like PEW. With a 10$ dividend interesting. But again the MAS are both headed down in strong fashion.
As I said about PBT, Permian Basin Royalty, which by the way is a much stronger chart, these bear watching. I would need to do a great deal more fundamamental research on PEW, PGH and ERF. I have all these on our watch list, thanks for bringing this to our attention.
Posted by: Dennis Elam | May 10, 2012 at 02:31 PM