The Market Perspective

Sold Some Gold

Friday Nov 30 2012

 

I sold my gdxj moo and xes in one account  this morning. 

An Uneasy Feeling

Friday Nov 30 2012

Peggy Noonan  has the best take on the fiscal cliff negotiations that I have read. I do not intend to turn this into a political blog. But, I will observe that Barack Obama is no Lyndon Johnson. Lyndon had been Senate Majority Leader when that meant something. He loved the process, working the phones, cajoling others to make a deal. As Ms. Noonan observes, the President is having lunch with the wrong guy; later today he has a campaign rally at a toy factory.  He sent Tim Geithner instead. The President is simply not part of the negotiating process . And that is a fact, not an opinion.  I am frankly amazed the market is flat this morning with no progress on the Fiscal Cliff. 

Kim Strassel  sums up the impasse here. 

I am up early this morning looking over the charts. And the hard facts are

-stocks are leading gold, and that is not a good thing

-bond prices  remain stubbornly high

-the dollar is lower but has not broken down in a way to really get gold and silver going to the upside

-oil struggles above 84

All this has the look of a counter trend rally rather than something larger. Yes the summation indexes look better. 

Daily NYSE Summation Index

But we really do not have a full fledged kind of confirmation I would like here. This could go the other way. 

McClellan Oscillator

This indicator in particular has me worried. The rebound has been swift but that is the case for rallies in bear markets. The Oscillator is about as overdone as it was at the September peak. So, is the rally for real or is this just a case of those in the market running the indexes back up so they can short from a higher level. And yes that is what happens in bear markets. Clearly the public is out of the picture which makes it that much easier to accomplish such  a feat. 

SPX versus Gold

This is a ratio chart of the SPX versus Gold. When the ratio is rising stocks are outperforming gold. But the problem here is that the overall chart is bearish. We have a series of lower highs and lower lows. 

Eyeballing the MACD in the lower panel I would give this chart about two more days, which would be Monday, to top out. This indicator scored an island reversal the day of the election. That would be the blue box in the middle of the chart. We might get a throw over (a spike above the MAs)  again but we might get a failure right at the confluence of the moving averages. 

I have been clear that I have not purchased anything else, and I am edging towards selling the positions I have unless things dramatically improve. Or as one of the most famous investors of all time put it

If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a peson a fortune if he has the sense to cut his losses quickly on the venrtures where he is wrong. 

Read more quotes from Bernard Baruch here

I served as a Federal Bankruptcy Trustee for several years. One goes bankrupt  by ignoring Mr. Baruch's advice. 

More this weekend, thanks for reading The Market Perspective. 

 

An Historic Pattern

Thursday November 29 2012

I have mentioned a parallel with the start of the bear market 40 years ago right to this day. That was the worst bear market since the 1930s, the 1973-74 decline of 50% in the Dow.

Dow Industrials Daily late 1972-1973

The exact high was January 8, 1973 at 1047.86. It would be early 1976 before such levels were re-visited.  Now let's fast forward to today. 

I am not pretending that we are having a day to day repeat forty years later but this may be playing out in roughly the same time frame. The big move up from mid November is impressive, now above all the daily MAs. Here is my thought for hte day and the weekend. Could the market top out in the next couple of weeks back at 8500?  Sure it could. Are we now in a third wave up or  an A B C ?  A three wave A B C might mean 8500 while a new five wave move could take us to new highs. 

At top the action in the summation index is impressive. We will of course continue to track that and other internal indicators. 

I will say that I strongly believe the same overall 1972-73 transition is playing out again forty years later. Exactly when the top will be remains to be seen. But once it is in place, one will only be safe out of the stock market. 

The New Civil War

Thursday Nov 29 2012

I have written about the schism I identified as The New Civil War. Finally here is a couple acutally doing their own small part to do something about that, in a positive fashion that is. 

This morning's paper has an interesting story bout a couple on their honeymoon no less, crossing America in a unique fashion. Their site, breakfast with strangers invites folks to audition for a breakfast so that the couple and meet and learn more about them. 

The result is both a blog and a forthcoming book highlighting who they have met. I am beginning a somewhat similar idea in that we will be sitting down with various individuals in San Antonio to relate their experiences in business via You tube interviews. 

 

Another Low Forming

Thursday Nov 29 2012

Sometimes the news is just too funny, I place this headline in the Gee Do You Really Think Category

Focus: Sharp Gold Decline Blamed On Large Sell Order, 

Yep those pesky sell orders once again...

At any rate our internals for the stock market have turned up and the SPX appears to be demonstrating the same pattern as at the last two significant lows. 

WE have outlined this pattern in past posts and it appears to be happening again. MACD lags at top but the CCI has turned up in the lower panel. Now can we look elsewhere and see a different indicator re enforcing this same idea, that a low has been made?  Of course we turn to the Summation Index. 

The Summation Chart goes back two more months but makes the same case for a reliable series of weekly lows as sown by the CCI in the lower panel and the red black stochastic overlaying the Summation index in the main panel. 

We argued for another low this week, it appears to have come in yesterday. 

SPX Two Hour chart

Amazing how that ribbon of MAs works, the two hour SPX bouncing just above the 50 bar MA. 

Gold

Where do we get the basis for the MAs?  Add 125 + 50 = 175 / 2 = 88 Days. That would be the purple line, Note that gold bounced right at that 88 day MA in August, early November and fell right to it yesterday. The extreme expression of social mood occurs near the end of a trend. 

Gold has resistance at 1740, the SPX at 1410 for now. 

The Dollar

Despite the $30 drop in gold the dollar dropped yesterday. It is now below four of its moving averages and the MACD has rolled over in the lower panel. We should be ready for a challenge of the previous resistance areas noted for gold and the spx as the Dollar breaks its 50 day MA, it nicked that level yesterday. 

As  usual we will wrap all this up over the weekend for you. Thanks for joining us at The Market Perspective. 

Biggest Equity Outflow of the Year

Tuesday Afternoon Nov 27 2012

U.S. equity stock funds had a net outflow of just over $9 billion in the week ended Nov. 21, the biggest outflow for a single week this year, according to research firm EPFR Global. It is hard to see how we can have a stock market collapse with so many in the Safe Harbor of bond funds.

Investors Fear Fiscal Cliff

This is classic Wave Two behavior. We rate the move up last week as some sort of Wave One. Wave Twos pullback with investors believeing that there is nothing to the move up. Wave Three proves them wrong. This is exactly what we should expect. With most investors out of stocks there is plenty of money to fuel a rally from those leaving at precisely the wrong tine.

The two hour chart for the SPX is staring to roll over to the downside with the sell off today. We still expect a significant low by the end of the week. Our suspicions that we should not have bought lst week are now confifrmed.

Short Term Pullback Gets Underway

Tuesday Nov 27 2012

This weekend and for that matter last week we recommended holding off buying. We suspected another low would occur at the end of this month. That pullback started yesterday. 

A writer at Forbes likes GM, I guess that makes two of us in the entire USA. 

SPX 150 MA

The Percent above 150 day MA has been making a series of higher lows since the low in June. It needs to continue this pattern. I drew a potential support resistance line across the rops from July. But it could fall back to the 50% level and stilll telegraph a bullish pattern. 

SPX Two Hour

We suggested the two hour chart was a bit overdone, note the FIB scale in the center. I spotted the first negative news on the Fiscal Cliff Monday Morning, more of that should hasten the pullback. 

For now, let's watch the action. 

Monday The News Confirms Expectations

Monday Nov 26 2012

Monday Morning WSJ is thin but informative on issues we have been discussing

Page A 2 - Canadians have been adding debt to create the million dollar bungalow, the melt down begins in Canadian real estate speculation

A 10 China lands jet on its new Carrier as the US cuts Defense

A 16 Moody's downgrades France from AAA, in thirty years the French debt has grown from 22% of GDP to 90%, this portends CA, IL, and other states and cities in the US that have followed a similar pattern

A 8 The Catalonia well to do region of Spain has been talking separation. The Basque regions, not wealthy, have talked of separation for a long time. I see a parallel with The New Civil War here, how long will the better to do regions willingly support the poor ones? And even 89 year old Hank Kissinger acknowledges that there may well be a split between better off Northern Europe and the Club Med party till you run out of credit crowd. 

We will continue to point out confirmations of the events that will be newsmakers once the overall social mood turns negative this next year, in the mean time gird for a  rally, again we expect a pullback this week. 

Gold Jumps to the Upside; Dollar Breaks Down

Weekend November 24, 2012

Ramki counts five waves down in IBM. IBM has pretty much benn a proxy for the entire market in my adult lifetime save for when it collapsed and was re made in the 1990. Identifying a fifth wave low here adds to the conclusion that a low of some significance has been made. 

Rich Karlgaard looks at Apple.  Pleae read this article as Rich does a fine job of showing how in just five years the profit margins on the iPhone have valuted Apple past the 1999 valuation of MSFT. It won't last he says. Rich holds the title of Publisher of Forbes. There are typically a few favorite stocks near any market top, RCA in 1929, University Compputing in 1966, the dot.coms in 2000. amd Apple now. Rich notes that the rich profit margins from the iPhone, a mere five year old gizmo, have propelled AAPL past the lofty valuation of MSFT in 1999. I expect Apple will make a secondary high beneath 700 and that will be it.

When Meredith Whitney predicted municipal defaults we suggested that she broaden her definition of default ont include municipal employees, citizens, and bond holders. Holman Jenkins looks at international defaults and then how the US Government will default in kind on promises politicians appear to have made. 

Andy Kessler  notes that Robert Rubin was a strong dollar Treasury Secretary. That was the standout achievement of the Clinton administration though Rubin certainly did not continue that success as  Co Board Chair at CITI. Kessler notes the string of also rans, from Alcoa's O'Neil (I never understood a miner as Treasury Secretary), John Snow who paid himself pretty much all the money his railroad earned for ten years, Hank I need $700 billion Paulson, and the Tim Taxes what taxes Geithner. Longer term I expect a low in the Dollar this next spring and then a move back up as the world scrambles for dollars to pay debt. 

A Look Back at Our Commentary 

For new readers we exited positions September 18. We began buying partial positions back at Election Time exactly one week too early. We improved by noting   mood change Friday November 16, indeed the market has rallied since culminating in Dow 176 points up November 23. We reiterated the similarity between the sell off of March to June with September to November this year in stocks. We remain focused on that similarity. If a rally of similar magnitude, June to September,  occurs it would take the SPX from 1340 to 1540. We ended the week at 1409, less than half way there. Commodity stocks rallied this past week. 

 

Overview

The turn we have anticipated appears to have gotten underway Friday June 16. The action on Black Friday Nov 23 seems to confirm that with stocks, gold, and silver significantly higher. Insider buying intensified this past week. 

The Dollar appears to have broken down Friday leaving a sort of island reversal over the last week. Bonds gave back recent gains but remain high. We look to add to positions on any pullbacks this next week. 

Insider buying soared this past week as reported at 

J3SG Summary <client-services@j3sg.com>

The corporate insiders are the most knowledge able about their own firms, spending their own money is a positive sign. 

Summation index NASD

We spiffed up our chart after an alert reader sent us a something along these lines. The full stochastics are overlaid on the main chart. The NASD Composite is at top.  The Commodity Channel Index seems to move with the summation index while MACD lags. So here you are. The actual summation index started up and the stochastic indicator confirms this. At top the price index bounced off an uptrend going back to last summer. This one has been pummelled by the drop in Apple, now down about 25%.

Weekly Stocks Over 150 Bar Moving Average

This indicator is also confirming a weekly market turn. Note the price at top, the 150 MA in the main chart, and the CCE at bottom are all turning up. 

Our reluctance to buy more this past week was based on the fact that the Dollar and Bonds were still not breaking in our direction. That appears to have changed Friday. 

The Dollar,  Gold,  Stocks

The Dollar is in the Main Chart in the red green bars. Gold is overlaid in the main chart with the gold line. The SPX is at bottom. 

We are attempting to demonstrate intermarket relationships. The Dollar bottomed as stocks topped arond our exit September 18. Gold moved higher and then fell. Gold bottomed just before the Election but stocks lagged. This is typical, gold leads stocks. Stocks finally made a low and then the Dollar collapsed, right at out 125 day MA line. Note the dollar has fallen through three longer term moving averages. 

TLT Bonds

No such collapse has taken place in the bond market. Complacent investors are getting about 2.5% annually but risking quite a potential drop in price here. This is the same time frame  chart as the dollar but we moved gold to the top panel as the interplay is not evident here as with the Dollar.  My guess is that bonds hold up another week as stocks have a short term pullback this next week. 

GDXJ SIL

Overlaying the full stochastic really emphasizes our exit in mid September. Now CCI is at its midpoint in the lower panel.  GDXJ suffered a big drop as programs sold it when the 200 day moving average was broached. But there was no follow through, I wonder how long funds will follow these computerized programs using obsolete benchmarks. The weekly stochastics will lag and have not bottomed yet. 

Agriculture MOO

MOO  is nicely invested across Monsanto, DE, potash and other ag based industries.  Every time Jim Rogers is interviewed he mentions farming and agriculture. 

Extreme Expression of Social Mood Occurs at the End of a Move

Here is an excellent example of the maximum inflection of mood occurring at the end of a move in the stock market. The Slope at bottom registered its maximum Nov 12. I drew three black lines under the price index. Note that the slope dramatically increases form line to line. As the market sold off, the need to sell grew more and more intense. More and more rushed to the exits. Then with the selling exhausted, the market was free to quickly advance. Why, the absence of any sellers in the market meant that buying had a positive result in pushing prices up. 

Short Term Expectation

I admit to having become a bit overly cautious the past five to six trading days. However, on the very short term two hour chart above one can see the market is a bit overdone. I suspect the market pulls back  this week. Blue arrows highlight the tops of the stochastic at bottom and the  RSI at top. In the main panel those have coincided with short term market tops all the way down. And note that none of the MAs have begun to even flatten yet, so let's continue to keep watching. This prompted my comment Tuesday that I was not buying anything else at this time. Even one negative article about the Fiscal Cliff could easily knock things back short term. 

Gold Silver Inverse Head and Shoulders Pattern Breakout?

Last weekend we showed a potential inverse head and shoulders patter in both gold and silver. Both appear to be emerging to the upside from those patterns. 

GDXJ to Gold

The Pattern of higher lows in the gdxj to gold needs to continue. So far so good. The idea of buying gdxj is that the mining stocks have been irrationally beaten down relative to the price of gold. 

An update from November 14 2012 - All Aboard!

The overall stock market is advancing when the NYSE index is moving higher relative to the VIX. We showed this rather busy chart back on November 14 and update it here. The solid black line in the main panel is the NYSE Summation index, one of our favorite indicators.  Bottom line

The NYA to VIX ration turned  up-those are the red black dots

The NYSI Summation Index turned up - the solid black line in the main panel

The NYA price index turned up in the bottom panel, so all three are confirming the move. 

Socionomics

The WSJ has a review of Mandelbrot's The Fractalist. Fractals are an essential part of our theme at TMP. Market moves contain smaller versions of larger waves. We show this in the two hour chart in our short
term expectation. It appears that the short term two hour chart is over bought, the daily has just begun to turn, and the weekly lags them both, welcome to the concept of fractals. This explains why stockcharts.com exists in fractals from as short as one minute to as long as one month.

I have three degrees from the largest University in the South, UT Austin. I have taught college myself now full time for twelve years. A letter to the Editor in the Friday Nov 23 WSJ however sums up the problem with our education system. It To wit

Years ago if a student dropped out of school after the 8th grade, he knew enough arithmetic to become a carpenter. Now that same student would only qualify to stack lumber. 

A student recently used the phrase, The Best of Times the Worst of Times in an essay. I stopped here and asked the original author, the title of the work, and the subject. She did not know the answer to any of those questions. Out of two of my classes, average age 32, only one person knew that Charles Dickens wrote that in a  Tale of Two Cities. While I do not teach British Literature, exactly what separates the college graduate from the non graduate. It used to be a bigger knowledge of the world....

Fernando Belaunzaran Mendez submits a bill in Mexico to legalize marijuana. He notes that pro pot votes in colorado and Washington have changed the debate. I have written for years that the solution is not a drug war but treatement as practiced in Japan and Britain, countries that have not locked up their own citizens for such minor offenses. The long war on drugs will end. This is one thing Obama could do in his remaining term. 

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.

Black Friday

Friday Nov 23 2012

I see several regular readers have been checking for updates. Rest assured we are already putting the weekend edition together. Not much else to say now, the rally has been a good start but I still expect a fall back into the end of month next week. Gold in particular has not vaulted past 1739 yet. We should see some higher lows and some lower lows. That would be typical Wave Two short term behavior. I see our picks of XME, GDXJ, SIL, XEES REMX are up today.  

Thanks for checking at the TMP. 

Again I see that student loan debt is front page news, ignored by most. A front page article in the WSJ today notes that students with college debt and no degree are really hung out to dry. By this time next year I expect this issue to be a roaring repeat of the sub prime meltdown. The trillion dollar debt is in the news, it is just not at the hand wringing we have to do something about this stage that brings forth the usual badly crafted Congressional solutions.