The Market Perspective

A Tad Overbought Short Term

Wednesday June 20, 2012

Most commodity plays are now overbought on the daily charts. It would be advisable to place a succession of orders under the market for your favorites. 

XME Metals and Mining 

The near vertical position of the parabolic indicator, the blue dots, emphasizes the launch these markets are undergoing,

This is happening in spite of rather all the blather about Europe. The public that left the stock market will be dragged back in.

But for now, Whoa Big Fellow as the Lone Ranger used to say. The FED announcement is also due to day. 

Let's try to add on pullbacks.....

Transports Move Ahead

Monday June 18, 2012

On June 10 we suggested Better Hurry the Bargains Won't Last Much Longer. Today the Transports confirmed that prediction. Interestingly last week Richard Russell issued a warning that we are now in a new Primary Bear Market. I don't think so Richard, though you have been publishing a lot longer than myself.

Dow Transports

The move down was designed to  run the sell stops of all the non believers who like Bill  Gross think this is not the real thing. Now the Transports have noved up in convincing fashion through both MAs, as well as the MACD turning up.

We bought more FCG, XME, and XES today.

Thoughts for Monday Morning

Monday June 18, 2012

1. We have noted that the markets are now pretty well aligned with the end of December 2011. So why aren't we seeing more traction?  Well the end of December provided a handy line of demarcation. The selling had to conclude to coincide with the calendar mandate for filing taxes. And once it did, the sellers were exhausted, bingo the markets took off. 

Now we lack such a line in the sand. So there is no William Travis to draw his sword at the Market Alamo. And we have slipped into the summer doldrums with fund managers on vacation. And so we wait. The Dollar is lower again this morning.

2. One of our themes and predictions is a major melt down in what passes for Higher Education in America. With over a trillion in debt and both a public and private industry dependent on Federal Loans, a collapse there will be just like the sub prime m,mortgage crisis, but without any collateral. 

Two items caught my eye in the morning WSJ, whoops make that three. On page A 12 Pell Grants Flunk Out. Studies reveal that colleges and applicants modify their behavior to obtain the grants, students with grants have lower graduation rates, etc. Well sure, the students are living on the grants, attending college is secondary, if that. 

On page B1 Computers Carry Water of Pre Trial Legal Work. We noted last week that law schools are decreasing enrollments. Now computers are scanning documents using a process of 'predictive coding.'  Unlike humans the computer does not get tired or have to run errands. One less reason for more lawyers. 

Also on page B 1 App Developers Who are Too Young to Drive. A happy 13 year old is pictured writing app programs in his bedroom. Like Gates and Dell, he may well decide college has little to offer him. 

The first signs of the coming housing collapse in other economies is here. Add the coming collapsed in the belief that everyone should go to college, which will join 20078's everyone should own a house as faulty conventional wisdom. 

3. Check out the articles on Section Four today on converting autos to natural gas, you heard it here first. 

 

The New World Order

Weekend June 17, 2012

The real story on Europe as Bret Stephens noted on the Wall Street Television show is the collapse of the Western European Welfare State. After decades of living under the US Nuclear Umbrella, never providing for their own defense, and offfering lavish cradle to grave progams the entire structure has collapsed under its own weight. Here is a graphic representation, indeed, Money Never Sleeps and Always Seeks a Productive Home.

The red black lines are Singapore via the EWS. The solid blue line is the French Stock Exchange. We have previously noted France enver really recovered from 2008 and is trading at those levels already. 

Singapore howev ever has rebounded nicely. 

Celebrate the Bull Rally with JR and Bobby!

Weekend June 16, 2012

 

1980, All Over Again

This ain't Dallas and this ain't Dynasty.

This is a real-life two job working family.

And I ain't J.R. You ain't Suellen

We're just a man and a woman holding things together.

 

Now we all like to watch those shows and we all like to dream.

You know J.R. is making deals and Alexis is making steam.

Joan and Linda, Victoria and Morgan they're a sight to see.

My ole lady said, "I know what you're thinkin'"

I said "Now honey, don'tcha know all of that is on TV.

Hank Williams Jr, This Ain’t Dallas

Those lyrics explain why now is the perfect retro-social mood stage for the return of the television series, Dallas. For younger readers, let’s explain how Texas today (1999-2012)  has experienced events quite similar to 1969-1980.

The price of oil in 1969 was at most $3 a barrel, and often less than that depending on the grade of the crude. Natural gas was just about free for asking. It was common to see a gas flare with energy  literally going up in smoke. All that changed  on October 16, 1973.

The Organization of Petroleum Exporting Countries OPEC raised the price of   oil by 70% to $5.11 a barrel.  OPEC stated this was in retaliation for the US Support of Israel. President Nixon requested more aid for Israel. OPEC then ceased shipping oil and the Embargo of 1973 began. The lack of supply quickly moved the price to $12. 

Diplomacy prevailed and the embargo ended in March of 1974. Meanwhile the US abandoned the gold standard and the stock market sank 50% from 1973 into year -end 1974.  Oil prices fell back to single digits. A second embargo in 1979 boosted  crude prices  to double digits. Within two years it would peak at $36.

This caused lots of economic problems for the USA but not for Texas. As a sort of min-OPEC itself,  Texas business boomed and the oil  fields prospered. The First National Bank of Midland added ten stories to its downtown building amid the second embargo of 1979, made loans to anyone who asked, and then went bust a few years later. 

Television responded with larger than life characters .Larry Hagman fell into the role of a lifetime as J R Ewing, the scion of Ewing Oil.  The conniving JR had an opposite in his ethical brother Bobby. Meanwhile the original patriarch, Jock Ewing and Miss Ellie tried to keep peace in the family.

The show resonated perfectly with the times.   No one lived the ‘bigger than Dallas’ Texas lifestyle in a more grand fashion than the characters on Dallas.   The women modeled fabulous gowns and jewelry,  the ever present Mercedes was always at ready, and as in any great soap opera, no one really seemed to have to go to work.

 Dallas had a rival show in Dynasty.  Featuring Linda Evans, John Forsythe, and Joan Collins as a sort of JR counterpart, it raised the ante even further on the luxurious lifestyle of the rich and famous.

Now consider the parallel. The price of oil in 1999 had fallen to $12. In three months several thousand simply left the Permian Basin in search of jobs elsewhere.  By July, 2008 however, those ‘evil speculators’ as politicians call them, had raised the price of crude to a level J R would love at $145.  By December, 2008 it had crashed to $35. Now three short years later, oil crested at $110 and today sits at $82.

The Eighteen-year period of 1966-1984 is the counter part to 2000-2018. Ads for expensive watches abound in Texas Monthly and the Wall Street Journal.   The storied brands of Aston Martin and Bentley now sell thousands of cars world wide, unheard of in prior eras of excess. Coach handbags starting at  $1,600 are in stock at local department stores across Texas. The MacMansion era returns with multiple pages of Distinctive Properties in the Wall Street  Journal.   Even Donald Trump is enjoying a comeback.

So the return of Dallas should reverberate well with a whole new generation.   Three original cast members return to mentor their offspring as Ewing Oil springs to life once again. The pace is faster and judging by the trailers, quite a bit racier.   Catch up on the background at  http;//tntnewsroom.com/dallas-recap. 

Set your Breitling Navitimer Cosmonaute for Wednesday nights at 8:00 PM CST. Word has it the new Dallas will be, a gusher of entertainment.

Dennis Elam blogs at www.themarketperspective.com

 

Green Means Go!

Weekend June 17, 2012

My Fidelity Account displays gain in green and losses in red. Friday, the losses frrom buying on the way down all turned to  a net green. That means collectively the portfolio is moving up, despite the numerous negative blogs, websites, and advisories. 

I first began in this whacky business as an employee of Ross Perot at duPont Glore Forgan. As we exited our six month training program everyone was optimistic about the market, Nixon had been re elected in a landslide and the Dow was near 1,000. In the next 18 months the Dow lost half its value bottoming in December 1974 at 577. Beware the crowded trade. 

One of my classmates talked me back in to obtaining a license again in 1984. After reading Ian McAvity's Deliberations I concluded, unlike Ian, that a huge turn was at hand in the bond market. And that oil prices were coming way down. I was able to convince one person, who happened to be in charge of a multi-million dollar bond portfolio, then under water. We went long and the profits rolled in. But the social mood was uniformly negative that bond prices would advance. one  career realtor told me she doubted we would ever see single digit mortgage rates again, period. Note by the way that we now have the exact opposite view, after thirty years of advancing bond prices. 

Our point is that market reversals begin amidst a mindset convinced the current direction of the market is the only possible direction. And a bull market begins amidst convincing negative news. Consider these snippets from the Weekend Journal.

Continental Drift Adds to Challenge

Europe Braces for Test of the Euro with Election in Greece

Italy Counter Talk It's Next to Fail 

Spain Debt has Fund Worried

Carrefour Checks Itself Out of Greece (at a loss)

Italian Bond Futures

Whatever is going to happen in Europe, it is already baked into the cake of events. Here Italian bond futures are higher than they were in january, and actually moved up the last three days. So our take is that all this blather about Greek elections and other headlines above are typical media rear view mirror thinking, all couched to keep the public in the wrong investment, long term bonds. 

In addition a market bottom is noted for the adoption of extremely defensive positions. Bill Gross added Treasury bonds to his portfolio, again, at a significant market top. 

So, we have social mood all one way, lots of negative news to re enforce fear, and gurus like Gross added to the fear by, as he has consistently the last two years, doing the wrong thing at the wrong time. So, the conclusion is obvious, a bull rally is at hand. 

There is no way the markets are going to crash with the public in full blown defensive posture, safely harbored in bonds. 

TLT

TLT is a full 20 points higher now than it was at the very worst of the 2008 crisis!  Yet the stock market DOW has doubled!  There is no way all these defensive positions will be rewarded. MACD is at a multi-year high. Gross has done it again. The market cannot collapse until the public is pulled out of bonds and back into stocks. 

US Dollar versus Aussie Dollar

The other main risk off asset is the US buck. The Aussie Dollar exhibits an almost perfect negative correlation, so they move opposite one another. The stock rally on Friday was spurred on by the drop in the US Dollar at far right. The Aussie has begun a significant move up. The rush for the exits in the Dollar has begun. 

If defensive, risk off assets of bonds and the Dollar are topping we should see gold taking off followed by stocks and oil, let's take a look. 

Gold

The weekly gold chart look to be picking up. MACD appears to be making a bottom. The MAs have converged above teh 55 week Exponential MA. The correction has been going on since last September. Gold is up $100 from its lows; and the Central Banks have rthemselves become buyers.

Crude Oil

Crude is lagging on the weekly chart but we think this is a higher low as crude has made each year for the last three years.

XES Energy Services

A return to 44 would be a near50% move in XES, Energy Service is always more volatile than energy itself. A further drop in the US Dollar will be the energy markets moving. 

XME Metals and Mining

XME  features a nice mix of companies. It has not moved up but is testing long term support like XES so these can still be bought. 

FCG Natural Gas

Our prediction of a low in natural gas was correct, our attempts at capitalizing on it have not done so well. But FCG looks a lot like XME and we think is worth a shot here. 

An alert reader of the Market Perspective sends this note.

Subject: The inevitable bolstering of natural gas prices

Natural-Gas Futures Up Sharply as Switching From Coal Continues

Natural-gas futures spiked 14.2 percent higher on an EIA report that gas in storage increased by a lower than expected 67 billion cubic feet last week, a sign that utilities were still switching from coal to gas in quantity, the Wall Street Journal reported today. The EIA raised its estimate for average gas prices in 2012, cut its forecast for the peak amount of gas in storage from 4.096 trillion cubic feet to 4.015 trillion cubic feet, and predicted that utility demand for the fuel will increase 20 percent in 2012.

Summation Indexes NYSE and NASD and SPX

 

Here is a look at the important lows of the last two years, as well as this one!  Note that the low in the NYSE, main chart, NASD top, and the SPX al line up pretty well. Again we rely on internal indicators for calling market turns. Recall that we exited long stock positions in early February, though the averages held up two more months thanks to Apple and a few other hot stocks. 

So there you have it. We think an important low has been made in gold, and  is being made in oil and gold. The next couple of months should see sharp rebounds in stocks, gold, and oil.

Socionomics

Our weekly newspaper column appears in the next post. The resurrection of the popular television show Dallas melds perfectly with the return to displaying wealth via lavish homes, jewelry, and expensive autombiles. Recall our observation that an early 1960s Ferrari GTO had become the world's most valuable car. A syndicated column in today's San Antonio paper features the $300,000 Ferrari FF. Costco now carries Breitling watches selling for well over $1,000.  This is the exact opposite of what was happening in March of 2009. So mood has shfited full tilt, Yes a stock market top is coming but the public has to be pulled back in first. 

What better way to celebrate a last bull run than with Bobby and JR?

Thanks for reading The Market Perspective

[email protected]

 

 

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.

 

Slowly the Market Turns

Thursday June 14,  2012

The investments we have recommended are in general making a series of higher lows. Risk off assets of TLT and the US Dollar are slowly stair stepping down even as the media announces the 137th day of death for Greece, Italy, Spain, and Lower Slobbovia. Take a look.

XME Metals and Mining

XME has round ready buyers at 38.5 and then moved up. each time it hit that level. 

XES Energy Service

Despite the hysteria over what OPEC will or won't do at their meeting this weekend someone is buying the XES Energy Service Sector and driving it higher. By the way the last recorded history of OPEC actually doing anything occurred in 1979 with the second oil embargo. Since then it has been all talk no action.When will someone notice that the chief function of OPEC is to support the hospitality industry in Vienna?

Central Fund

Central Fund advanced as gold crested $1600.

 

TLT Bonds, UUP US Dollar

Despite the numerous 100+ point moves up and down in the stock market, since June began the trend in TLT and the Dollar is down, not a great deal I grant but as our title today suggests, slowly we turn.

Inverse H & S SPX

An alert reader of TMP points out numerous inverse head and shoulder patterns, here is the big one. 

Thoughts on Euro Debt

The graphics seem better on Bloomberg than CNBC and the hysteria level among the Female Announcers  is even higher. Spanish Debt at 7% one screams. Well what has really happened is that the interest rates for Europe have returned to what one might term normal levels. As Dan Henninger suggests in his column in today's WSJ, if Europe would follow the lead of Wisconsin, New Jersey, and Indiana, cut taxes and spending and reward innovation instead of taxing it, everyone might go back to work. 

Here is the real irony that you are not hearing on television. 

In 2008 after years of denying reality, GM and Chrysler succumbed to decades of unfunded pension promises. They had never paid any debt off but always rolled it over in ever higher totals. Finally the cash ran out. The the US Government which has been doing exactly the same thing since Nixon abandoned the gold standards, rolling debt over never re paying any, bailed out GM and Chrysler. Uncle Sam paid the union pension funds doing exactly zero zip nada for stock and bond holders. 

Now the world beats a path to the US Debt Door. Following GM's lead the US response to its difficulties has been to pile debt ever higher in both the Bush and Obama administrations. In a final ironic twist, the world has flocked to buy US Debt which is paying a 30 year low in yield. Even a slight bump in inflation expectations would quickly submerge the US bond values. 

 

You tell me is the greater irony the Debt Conundrum above or

the fact that we sent nuclear powered ships to resuce carbon production in Kuwait since we refuse to power our cities the same way we power Navy ships (nuclear), and have for six decades.....

 

We report you decide....thanks for reading The Market Perspective and thanks to the media for ignoring hte obvious (higher lows in stock indices) otherwise what would we write about?

 

Gross Increases Treasury Holdings

Tuesday Morning June 12, 2012

Bill Gross at PIMCO has become a counter trend guru. This morning Bloomberg announced PIMCO has increased its Treasury holdings to 35% in one of their funds. He is doing this at the very top of the bond market. He has reliably gone the wrong way at each major turn the last couple of years. One wonders how PIMCO became a bond guru. 

So there is one reliable indicator.

Goldman sees a 29% rise in commodity prices the next few months. One of course can only know that Goldman is their own best client, but again perhaps unlike Bill Gross maybe they are reading The Market Perspective. 

All in all, 

The markets will not reward those on the wrong side as Gross is, all the individual investors who have scurried into bond funds will have to be lured back into the stock market. 

Watch gold, it is over 1600 this morning, higher lows in GDXJ and CEF.

XME and XES continue to look good. OPEC meets which has really nothing to do with the price of oil. Watch the dollar instead, the Euro is slowly reversing as we have shown. 

In class yesterday we were I showed the MSFT cash flow statement. MSFT is borrowing money. The reason is that MSFT does not want to pay a 35% tax on repatriated profits brought back from overseas. If the Government really wanted a free economic stimulus package, it would allow a tax holiday on money brought back to the US from overseas in 2012. This would bring billions back for investment in the private sector, but of course that would take from needed government programs, remember it's government that is in  trouble according to the Administration.

Tuesday Morning

Tuesday June 12, 2012 5:30 AM CST

Macb.        If we should fail?	64
Lady M.        We fail!
But screw your courage to the sticking-place,
And we’ll not fail.

Macbeth Act I Scene VII

Zero Hedge reports late May short interest is as high as it was November 2011 when the market was 6% lower. That explains the drop yesterday as well as our first chart below. 

At 5:30 AM CSST US markets are firming.

The summation Indexes are proximate to the best buy lows of 2010 and 2011.

NASD

 

NYSE Summation index

 

We are nowhere near the horrors of 

the Bear Stearns Rescue

the failure to rescue Lehman

the sale of Merrill an hour before Lehman collapses

bank bailouts all around

but the NYSI is about four weeks of trading off the March 2010 low, one of the great trade able lows of our lifetime.

Other indicators have not fallen as far but the Dollar and Bond Prices continue to form lower highs.

The comment from Zero Hedge about the short interest in November 2011 prompted me to examine the price action then and now, it is remarkably similart.

In November 2011 and now we have a sort of reverse head and shoulders formation. No doubt the pullback yesterday knocked many out of their long positions.  Then as now the market was toying with the MAs.

The European markets are up, even Spain.....

A reader asks about long term wave counts, I am going with the summation index instead, I will work on what I think that is and ost later. 

thanks for reading The Market Perspective

 

 

Re Thinking the Short Term Rally Idea

Monday June 11, 2012

Perhaps I should have paid more attention to my longer term update that I posted after the weekend update. I noted that it appears we are on the cusp of turning down in all major markets. Today that seemed to happen from Shanghai to Spain to the US.

Ramki posted this article suggesting much lower prices lie ahead. It is also under Great Speculations at forbes.com.

Richard Russell declared we are again n a primary bear market with the Dow Transports and Industrial both down.

I would always rather liquidate and step aside with than stay for what might be a genuine disaster.

Oddly the summation indexes for both the NASD and NYSE were slightly up today.

SPX turned down right at its 200 day MA. Other articles suggest that even with a Euro infusion Spain would not be able to meet the new debt requirments, the injection would be a loan after all.

We clearly finished five waves down, was this move up just a reflex bounce? If we are indeed headed dwon the daily summation charts would and could head lower.

More later, just letting everyone know this has not escaped my attention.