SPX 1418

Weekend August 18, 2012

 

 

To the Reader

For some reason I keep spacing the paragraphs apart but after saving my work typepad runs them together. This looks bad and is difficult tor ead, not my fault, sorry bout that. I have tired several times but always get the run together look. 

Overview

GDXJ and XME for example have both flashed buy signals on the weekly parabolic indicator. There is little else to say about specific recommendations other than to ask new readers to review the last few weeks of posts. My holdings include

CEF - mvoing out to more aggressive positions like XME

COPX - COPPER MINERS

EWI - ITALY

EWZ - BRAZIL

FCG - NAT GAS PRODUCERS

GDXJ - JR GOLD MINERS

GM - GENERAL MOTORS, SEE POSTS THIS PAST WEEK, SOMETHING IS UP

GSB - SAN ANTONIO BASED SECURITY SOFTWARE

KOL - COAL PRODUCERS

PBT - PERMIAN BASIN ROYALTY TRUST

RAX - RACKSAPCE SAN ANTONIO BASED SERVER 

REMX - RARE EARTH METALS

SIL - SILVER MINERS

TLT - 122, 125 PUTS

XES - ENERGY SERVICE

XME - METALS AND MINING

Overall we look for commodities to top last as they did in 2000 and 2008. Various indexes should begin topping after Labor Day. 

Internals

Notice how the weekly High Low pulled back this week, tested the MAs, and the pink uptrend line, and now is heading higher. I believe we will regain 2250 which supports my idea of SPX 1500 or thereabouts. 

NASD Summation Index

The NASD is lagging the NYSE but turnign up through the ribbons of MAs. Note this indicator is only half way to the top, plenty of room left for upside. 

VIX

An alert reader asks about the low level registered by the VIX, one of the lowest in years. A great question, here is my take. 

 

My take is that the market is settling into the complacency that will lead to SPX 1500. the VIX traded at the 15-20 level from Dec 2010 to July 2011, eight months. It just touched 15 last March, this is only August. Notice that VIX stayed under 15 for most of 2005 and 2006.

 Complacency is a state of mind that comes from believing that markets have attained new permanent high. This was the case for oil prices in West Texas at $36 in 198. The oil price began dropping each year after that, yet I recall being at  Permian Basin Petroleum Club meeting in early 1986 when one producer laughed at my concern. Oh I have been hearing that for years he said. by July when the price dropped from the low 20s to $12, no one was laughing.  However I was doing well in the bond market.

 

Consider NASD 5,000 in March 2000 after the NASD rose 2000 points in six months after taking 18 years to rise 2700 from its start in 1982!. Complacency is not a one time high event for the day. for years gold bugs pointed to the $800 level gold achieved in 1981 but it lasted a bare two weeks. That is an event, not complacency.  People need to feel they have achieved something, a mental nirvana,  read every day in the WSJ that we just hit a four month high, today's headline, hear the blather on CNBC about rotating from defensive to cyclical or whatever mumbo jumbo is on today. The fact that TLT is just now approaching longer term moving averages, there are two articles on dividend stocks in the Weekend Journal, Bill Gross just declared stocks dead, all this suggests that most of the public has still not embraced the iddeas we have been promoting here. 

Good chart watching but this has to go on long enough to lure all out of TLT, that hourglass thing, and into stocks. RUT may just be  turning  up decisively, nearly all market highs involve the RUT or NASD making new highs. 

Ratio chart Russell 200 against the SPX

Euro

If the Euro is ever going to vault the 50 day MA the time is now. 

Socionomics

At the 2012 Socionomic Summit, a card was distributed listing both the tenets and applications of socionomics. One application is that some actions lag mood more than others. In short, all markets or movements do not top or bottom simultaneously.  TLT has crashed some 8%, the Dollar nearly refuses to decline, GDXJ begins a slow ascent. 

Striking CAT workers threw in the towel after 3.5 months. The economy is weaker than the Administration knows and the workers wised up before more plants were built in right to work states.
CAT recently buit an engine plant in nearby Sequin, TX.

The New Civil War Rages on. I strolled through a bookstore yesterday and here are a few titles that reflect the popular mood. Speaking of my New Civil War Concept, Better Off without Them actually outlines a plan for the South to seceded, it is written by a Yankee who dismisses what passes for Southern culture. When I began this blog a few years back I e mailed one Canadian reader about the secession culture in Texas, it was later mentioned by the Governor and now it is in print, that's social mood for you.

 

Sixty Miles of Border details the fight of the senseless and never ending War on Drugs. Now the government will spend millions on drones, moving the expensive technology from Afghan to the Texas Mexico border, insane.

Sniper Elite, tag line Explosive Action in Afghanistan, Iraq, and Northern Ireland is really just detailing how lots of potentially violent people went to graduate school on this topic in these places. Chris Kyle's American Sniper is also out. Interestingly his company Craft International is funded by Kyle Bass whose success is outlined in the introduction to Michael lewis Boomerang that I am now reading. 

Nothing could be more timely than 

Throw Them All Out: How Politicians and Their Friends Get Rich Off Insider Stock Tips, Land Deals, and Cronyism That Would Send the Rest of us to Prison [Paperback]

Jon Corzine is not going to be prosecuted, no doubt Jeff Skilling is going mad in jail reading this, and incredibly Corzine is planning a Hedge Fund. This attitude of throw the bums out is of  course is on display all over the world, just ask Sarkozy. I believe I mentioned that the incumbent well liked State Senator of 20 years here in San Antonio got beat 2 to 1 by a newbie who moved into the district days before the filing deadline. The Senator was defeated by changing social mood rather than his opponent. 

Can't get enough of one of the darkest movie series ever, Hunting the Dark Knight details the last three Batman pictures. 

Rock the Casbah, Rage and Rebellion Across the Islamic World details 'The Arab Spring.'

Weekend WSJ

On page A8 three female members of the Pussy Riot  were sentenced to two years in prison, observers see the heavy hand of Putin in this. Pretty audacious even for an ex KGB agent. Col. Ralph Peters calls Putin literally the most dangerous man in the world. Russia and China back the bloodbath in Syria. Who would not ignore our Secretary of State calling for, well whatever she is calling for, when the USA has to borrow money from the Chinese. 

On page A 13 the IRS and big tax preparer companies are joining to put your friendly across the dining room table tax preparer out of business with compulsory registration and CPE requirements. 

But all is not lost. ?vogue would not be printing 916 pages without lots of positive vibes 

Our point is that there is enough positive social mood at the moment, see next paragraph, for all these potentially negative events to be ignored. As the mood turns more negative after a stock market top, all the above  will rise in importance. As we say  the events are here it is the job of the socionomist to point them out. 

 about the economy. This will be enough positive mood to push the SPX higher, yes I am still focused on a potential 1500. The Ferrari F 12 at left is the most powerful model ever built at $330 K per copy. Such excess takes place prior to market tops. Note the bright positive colors in both photos, but then 40% of Ferrari production is in Italian Red. 

 

 

Our take on the article, Six Investment Moves to Make Now on page B7. the article recommends buying all  these. TMP does not. OUr comments after the dash

Dividend Paying Stocks  - These stocks are topping now, the article is way behind the curve. 

Cyclical Stocks - They mention energy and tech, I like energy metals gold silver

Municipal Bonds - New high prices make these a sale. With three cities in CA recently taking Chapter 9, there is a potential floodgate waiting. We have mentioned this numerous times, the cities will default in kind either to dwellers, bond holders, or employees or probably to all three before this is done by 2015.These chapter 9s are not getting much attention now, just wait a year. 

Mortgage Backed Securities - Just four years ago no one could figure out how backed what, why on earth get into that risk basket again?

Emerging Market Bonds --We are long EWI and EWZ and Fidelity's Emergin Market Fund, but the bonds will no doubt be heavily marked down in two years, that will be the time to buy. We expect to exit our positions in a few months. 

High Yield Bonds - No way, Jose, these typically top along with stocks,  a junk bond is a stock hoping you will believe Mike Milken was right after all

Below that is an article on Where to Find the Next Crop of Dividend Paying Stocks. This is typical Wall Street linear regression thinking, the trend never ends. The trend is ending, those stocks are turning down, as we showed a few days back, commodities topped last in 2008 and 2000. These stocks already have or will soon top, period. Stay tuned for an article in the WSJ titled, Time to Buy Miners now, after the group has advanced 40% or so. 

We have consistently highlighted the next Big Bust - the College Loan Meltdown, first cousin to the sub prime bust of 2008. My weekly newspaper column outlines a new plan for college, I will put it up tomorrow when it will appear in the papers that run it.  When the Kids Return Home notes that three of ten parents say one adult child has returned home. The article suggests counselling, budgeting, and networking but, as I noted earlier, some social actions  lag mood more than others. Today there is this article about college graduate children right back in the bedroom where they started. Earlier this week the same paper featured an article on Marketing Pros, Big Brand on Campus. Rather than coming up with affordable alternatives and cutting bloated staffs, the fixed cost of college  goes up to convince the other seven of ten parnets that an expensive college degree is still a great deal. Eventually mood will catch up with reality. When it does, there will be a trillion reasons for a meltdown. 

While this has nothing to do with investing, on page D7 Burrata, a cream filled ball of mozzrella, with roasted nectarines and pistachio heb oil, would surely require one to hit the Jack in the Box Drive in Window on the way back home....

So What Could Go Wrong

Quite a bit if Israel Attacks Iran.  Trouble in Iran ended Carter's Presidency.  Then it was the failure of an attemepted hostage resuce not to mention the hostage situation in the first place. Now, such an attack would spike the price of oil. I have no idea where the Administration would be on such an issue and suspect they don't either. 

Bottom Line

We look for TLT to continue its melt down, the Aussie and Loonie have rallied nicely, the Euro will do a bit better, commodity stocks are just beginning a strong run back to at least the highs of earlier this year, and gold should make yet another multi-year high by Christmas. Stay long our recommendations and suggest TMP to a friend. 

Thanks for reading The Market Perspective

Dennislelam@gmail.com

 

 

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.

 

 

Comments

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