Weekend June 23, 2012
Brent Oil Prices Signal Possible Turnign Point
This week the Brent market made a surprising turn which could indicate th market may be near a turning point.
Weekend WSJ Page B4
Time to Sell Treasuries?
Treasury Bonds are priced for the end of the world. But the latest Europe induced bout of panic might be coming to an end some advisers and strategists say...Market forces have pushed yield to levels that can't be justified by the economy, says Cyril Castelli CEO of Rcube in Paris. it's hard to believe they can stay at these levels.
Weekend WSJ Page B9
Hmm, is the WSJ including TMP as one of those strategists I wonder? Our phone is not ringing but that is our opinion. I ran across these two articles this morning. I suggest you read them. Markets are at an extreme of negative sentiment.
The following article reflects the conventional wisdom on oil
Knowing that the ratings agencies were sure to downgrade the banks, do you supose those very bank trading desks shorted bank stocks, and then went long on the news?
A number of analysts are suggesting that the market is in the same position as it was this time last year, and therefore about to crash to 1200. I see some calling for $30 crude oil. Several things however are markedly different.
TLT Bonds
Note how far TLT is above its 200 week MA. It's time to come back down to earth.
Last June TLT was trading around 90, the public was not heavily invested in bonds. Now the public has pushed, with help from Ben B and FED Company, TLT 37 whole points higher. The public is out of stocks and along with Bill Gross, buying bonds. TLT is down the last month. Then TLT was moving up. If you have not read the article on page B9 of the Weekend WSJ this would be a good time to do so.
The Dollar
The Dollar exhibits the same pattern. The buck was trading at 75, today it is 82+, and down the past month. Our judgement is that it is far better to observe money moving to and fro from safe havens of the Dollar and Bonds than to look at the stock index chart alone.
Holman Jenkins makes the case on the opinion editorial page of the Weekend WSJ that the Euro crisis is never ending. That is probably the most accurate assessment I have read so far.
Crude Oil
And , crude oil has already crashed.
Crude oil, and as we will see, gold and silver has returned to the support level of last fall when stocks were at their worst. Crude may indeed fall further, the MACD not shown has not bottomed yet. Crude went to $35 in 2008 on massive world liquidation of futures contracts to meet margin and debt calls. I do not see that potential right now. The daily chart appears to have or be near completing five waves down. IF you have not done so, read the article now on page B 4 about Brent oil prices.
Socionomics - The next three charts illustrate just how volatile social mood has become. Investors are switching sides as in rapid fashion.
Internal Indicators
In scanning the information available, I noticed that SPXA50 has registered lows on the way up remarkably close to the same levels last fall, amazing eh? Now honestly, does this look like a market about to collapse or turn up?
Summation Index
Interestingly the summation index did not flinch on the Thursday sell off. The remarkable thing here is just how fast social mood went from a negative low in August to a high in February and right back down to the same low in June. Expect more, much more volatility like this the next few years. This is why buy and hold won't work in this kind of market.
Volatility Index
The action in the Volatility Index also confirms the bullish view. Note that VIX is headed down, failing right at the 50 day MA. it took from mid March to early June top top out. If the same time period holds on the way to a bottom, we have two more months which should take us to August. That is just an observation but it seems reasonable.
Note that crude overshot all three MAs last fall. It has done so again, causing quantitative trading programs based on moving averages to all short the market. I suspect this is another case of evey trading program imitating every other program. Now that they are all short, a reversal in the Dollar, Bonds and Brent should scurry all out of their shorts and into long positions.
Silver - A 50% Re-Tracement
Silver bottomed in 2001 around 3.50. It topped in 2011 at $50. Divide 53.50 by 2 and one gets 26.75. Friday silver closed at 26.82. Gold and silver futures and options expire this next week. Jesse notes that silver open interest expanded on the decline this week, an unusual circumstance. But as he says this trade is still dominated by professionals and banks. This is the slow moving monthly chart. On the weekly the CCI is quite oversold. Silver miners were slammed this past week. I bought SIL an ETF of silver miners on Friday and would buy more on further weakness into option expiration.
There are no major countries that plan on actually paying off their debt. All the big debt issuers are GM and Chrysler now. Longer term it is hard to see how gold and silver therefore can do anything other than go up as alternative currencies.
The Bottom Line
This next week is the end of a quarter so funds will be positioning themselves with what they perceive to be winners in the eye of the public. And gold and silver futures and options expire this week. So the fireworks may not be over yet. it appears to TMP that SPXA50, NYSI, and VIX are supportive of our idea for a continued rally. Commodity plays like XME, XES should be winners. This looks like a good time to accumulate Silver SIL and CEF on any further weakness.
Thanks for reading The Market Perspective
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