The Market Perspective

The Week Begins on an Upbeat Note

Monday Nov 12 2012

I suggested that the impending tax increases might cause a lot of selling between onw and Dec 31. This article in the WSJ seems to confirm that idea.

Th e IEA believes the US will overtake the Saudis in oil production by 2020.  There will be plenty of demand in China for Saudi oil. I am alway leery of long range predictions. However we are at ground zero for the Eagle Ford Shale story and have a lifetime of experience in the Permian Basin. TMP is well equipped to keep you appraised of  these developments. 

I am guessing that the market is replaying the ame pattern we showed this weekend form earlier this year. If that is the case the market should move up a bit the next few days. Gold needs to end the week over 1737.   Gold  is trading at 1734-7  this morning. 

$1.7 Billion Presidential Elections Dollars Later, Nothing Changes

Weekend November 10 2012

Here is another typically gloomy article comparing today with the prelude to the 1987 crash.

But on the same page Mike Gayed explains their their model is completely out of equities, until the weather clears.  It will be hard for the market to crash without amateur positions to be cashed out. I wonder what indicator would suggest, the weather had cleared,  a move back to 1500 SPX perhaps?

The election in France lasts three weeks and I think nor more than three months in Mexico. Good idea, we have spent months of time and hundreds of millions of dollars to  arrive right where we were. 

We have the same President, the same majorities in the House and Senate, a few more Republican Governors. Surely voters in both parties would agree that shorter elections would be more efficient as to time and money.  Otherwise welcome to the United States of Ohio.

 The stock market sold off over 2% this week. Indeed the Dow dropped hundreds of points Wednesday and Thursday. 

At this point we suspect that 

• gold and silver may  have completed their multi-month corrections 
• gold and silver bottom before stock indexes  in general
• oil probably bottomed this past week, energy service stocks are probing for a bottom
• the internal indicators have NOT decisively turned up; note our charts in the previous post Friday November 9, the patterns of both the DJIA and SPX appear to be repeating their bottoming patterns from earlier this year

I wish I could tell you conclusively that the Internal Indicators have bottomed for stock indexes, they have not, given that indeed nothing has changed, expect the kind of up and down saw tooth climb up  in indexes with the Fiscal Cliff being batted around in the media. John Boehner has already said he does not expect the problem to be solved in a lame duck Congress, but then the majorities are not changing next year either John.

Gold and Stocks in 2008-09

Our point here is that gold bottomed some four months before stocks in the 2008 meltdown. 

With that in mind we fast forward to today. 

Gold and SPX Today

History Repeats. Gold bottomed Monday November 5 and has moved up every day since.The prroblem is the strength in the Dollar. 

SPX in green continued down, and may not have  bottomed yet.  Let's look at the master market of Crude oil.

West Texas Intermediate

This chart suggests that we crude oil completed five waves up and now an A B C corrective to the downside. Note it is making a higher low above the 200 bar red moving average. THis past week appears to be a weekly reversal at far right. 

One of our Recommendations Energy Service XES

Services are lagging oil but coming in for a hard pan landing on the 200 bar MA in red, right at the uptrend line in black.

SPX 150

The black  uptrend line traces out a bottom parallel channel to the 200 bar MA in red. At the top in September the indicator managed a move out of the channel. We sold up there and have begun accumulating again as it approaches the bottom of the channel.It recorded a slight turn up Friday but we need a good deal more than this to confirm a bottom. 

VIX

I am reading numerous bearish analysts. But the VIX is displaying the sort of non confirming divergence we expect as a market low is approached. In June and July the SPX was lower and the VIX higher. Now on a pullback the VIX made consistent lower highs this week as the market tumbled. That reflects a lower fear level in terms of put buying. 

Weekly High Low

THe CCI in the top panel and the MACD in the lowe panel have been good at highlighting the highs and lows.  A Bottom this next week in CCI and MACD might well make for  a higher low in those indicators. So far the indicator has respected the black uptrend line in the main panel. Not ethe outliers in August and october of 2011, that could easily happen again. 

On the Other Hand, TLT, the Dollar, and SPX

Stocks shown by the blue SPX line have been steadily advancing for a year now. However many investors are clinging to their bond funds as shown in the red and black bars. In the top panel the dollar topped out ab out when bonds did this summer. But both the dollar and bonds remain in an uptrend. 

MYSE Summation Index

So far NYSI does not show any signs of a bottom, in case someone accuses me of being overly optimistic. WE ahve consistently used this indicator to our advantage. We await a bottom here. 

Apple

Wil Apple bottom above its May low?  This is probably worth a close watch as just about all the funds DID own Apple, will they include it at year end December 31?

GDXJ, Our Lead Recommendation

Chart wise GDXJ is outperformiung the SPX.  CCI is making higher lows in the bottom panel. GDXJ bumped above all its moving averages in the main panel.

GDXJ versus SPX

When this ratio is headed up GDXJ is outperforming SPX, this is the case now. 

I have positions in

SIL Silver Miners

COPX Copper Miners

REMX Rare Earth Metals

MOO Agriculture, a Jim Rogers favorite

I do not have near the dollar  commitment I had at the top in September. I am content to hold here as the headlines play out on the Fiscal Cliff. This will take patience. Again the probable increase in tax rates in  2013 may prop up tax selling the rest of this year. 

The World Shifts East

Civilization  shows how exactly a dozen Western empries caem to control three firths of mankind and four fifths of the world economy.

Niall Fergusion argues the days of Western predominance are numbered because the Rest have finally the six killer apps the West once monopolized, whiel the West has literally lost faith in itself. 

Ferguson's killer apps are

Competition

Science

Property Rights

Medicine

Consumer society

Work Ethic

It was the last that caught my eye for what has recently been happening. I have repeatedly mentioned on this blog that Capital is moving East. Chris Dodd and Barney Frank congratulate themselves on their 2500 page legislation even as they lose enough support to stay in office. A majority of IPOs originate overseas; Hong Kong is cited as the world'e leading exchange. 

Socionomics

A Tale of Two Countries, One Headed up the other Down

The French Stock Exchange CAC is in blue, the Turkish ETF is in red and black. In the last couple of weeks the head of the WTO declared that France was not competitive with China or Europe.

Turkey has 74 M population, France has 65 M. The GDP of Turkey is half that of France, $17K per capita in Turkey and $35K per capital in Turkey. The French stock exchange has hit resistance at the point it was still climbing in 2009. Turkey however forges ahead. Sorry I missed the low in TUR this past January, a great  opportunity. One could however have easily been faked out in early 2011. 

As I have observed there are no French or Belgian personal computers. Granted their are not any Turkish PCs either but manufacturing is quickly moving there. The reason is simple. Europeans work less and less. The Eastern Bloc is willing to work more hours per week, and so their output increases relative to the On Permanent Holiday attitude of Western Europe and the US I might add. 

Meanwhile France moves ahead with a 75% top personal rate, the US wants higher rates for all who pay, and the US Corporate rate remains the world's highest at 35%. No wonder the overseas profits of US companies sit, well, overseas.

Thanks for reading The Market Perspective

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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.

 

Friday Morning, Is the Fog Lifting?

Friday November 9 2012

11:10 AM CST

The market have been selling off all week, or rather the stock markets have been. Gold has displayed its typical pattern of making a low before the overall stock market. Yesterday John Murphy at stockcharts.com announced that major stock indexes just might close under their 200 day MAs which would be a regrettable sell signal. Oddly the author of the major textbook on chart analysis has it backwards. Take a look. 

Dow Industrials

Sure enough the plain jane ole Dow Industrials are under the 200 day MA. I drew green boxes around the March to June and September to November patterns. Now focus on what is inside the box. Compare the two. They are remarkably similar!  Each displays repeated failures at a top and then a rapid collapse down through all the MAs. The decline ends just under the 200 day MA. In June  it only lasted two days. that is likely to happen again. And yes I can count at least three subsequent pullbacks to the purple 162 dya MA. 162 is hte average of 125 plus the 200 MAs  which might seem odd but look at how well that proved to be a support level, we do what others don't here at TMP! 125 is the average of the 50 and 200 day MA. I have not seen anyone using these indicators  but amazing how these other levels prove to be support.  

SPX displays the same patterns

As I write the gurus at stockcharts who continue to be a sort of reverse signal, have sent out an update now the stock market is about to fall apart. 

Maybe but I still added to SIL and GDXJ today. 

Friday, Washington Exhales

Friday November 9 2012

Stock Futures are unchanged this morning.

Don Thompson got the top job at MCD just four months ago. With the first drop in monthly sales since 2003, observers do not think his tenure is in danger, yet.  This is the sort of ridiculous short term thinking that robs US Companies of talent and keeps the focus short instead of longer term. The slow down is hardly Thompson's fault. And it is doubtful any one person could reverse this new longer term downtrend. As the article notes, some 40% of MCD sales are European, or were....

I suspect the Dem super majority in California is good news for Texas. California firms continue their migration out of the state.

While the media obsesses over the stock market pullback, gold and silver hold their own. This is a repeat of the same kind of bottoming action that occurred in  2008 and even earlier this year. Gold bottoms and then moves up while the general stock market takes a pounding. 

I have repeatedly warned that as we get closer to the 40th anniversary of the Disastrous  1973-74 Bear Market, Danger increases. One reason for the recent drops in the NASD is the sudden reversal of fortune for Apple. 

Tom McClellan
Editor, The McClellan Market Report
www.mcoscillator.com

Tom McClellan makes the point that RCA was the tech darling of the 1920s as Radio ownership soared. But after topping in 1929 it would take until the 1950s for RCA to reach those levels again. The weighting of Apple across multiple NASD indexes has caused the recent pullbacks to be magnified. Here is the flaw in fundamental analysis alone on display for all to see. Apple sold out its less than well received mini iPad white version in three days.Investors have still dumped the stock. Remember all parabolic rises end in a collapse. We have not recommended Apple recently though every talking head on CNBC has. 

Crude Oil the Master Market

As we often observe, crude oil is the most emotional market of all. Note that its spike up to 100 in September called the top, three days later it was  92. I have added additional multiples of the MAs. The shortest 25 day MA in purple bottomed at teh last low in July. I am guessing the four shorter MAs will come together this next week, then crude will move higher. XES is lagging. 

Fundamental Observations on Energy

Last evening we heard the CFO of Halliburton speak at the Financial Executives Institute here in San Antonio. He made the case that only two nations in the world, Saudi and Kuwait, actually have any excess capacity to produce, that China was buying reserves all over the world, that Schlumberger and HAL were the largest energy service companies and delivered the highest return on asset values. We recently heard a fine presentation on the paperless office by the CFO of HOLT CAT. Halliburton calculates its daily cost of capital at $80 million.  The CFO observed that it took some eleven days to go from work comletion to invoice.  They are going paperless so the field crew prepares the completion. Thei idea is to generate the invoice faster, and cut the cycle time of cash to cash. The general irrational negative press HAL receives to this day probably prevents this company from reaching higher valuations. If I had to choose between owning Apple or HAL at this oint, I would go for HAL. 

Semiconductors

Eyeball these two charts , crude oil previous and semi conductors here. Note the similar patterns. The similar patterns refelct the similar social mood prevailing at the time. Crude bottomed first. Semis followed suit topping days after crude in September. I suspect we need to see the same pattern of the MAs coming together this next week to signal a bottom. 

Gold

Gold bottomed just above its 200 day MA, the trend is up shown by the black line, and MACD bottoms in the lower panel, note the higher low in MACDl  Gold leads the way up out of the correction. 

Internal Indicators

To make a low, markets have to go lower until they stop doing so. This indicator threw under the trend line in June. A similar pattern may be taking shape now. Notice it peaked in mid September, yes that was our exit point. We have been accumulating this past week as the market has fallen into support zones. 

Keeping Emotion in Check

Throwing caution to the wind I added some positions Election Day which was an up day. I added small positions relative to my overall cash position. Since then SIL has come off a bit but GDXJ has advanced. The even smaller positions I have  of XES COPX have fallen but with ample cash reserves there is the opportunity to add on even lower prices. The better idea would have been to simply place  a succession of lower and lower orders. As it is the lower prices in many commodity plays are still falling. The media of course has no interest in recommending that any one buy, as usual gloom and doom prevails. 

Socionomics

The Mansion section of today's WSJ is a whopping 14 pages in length.  In fact the section now rates its own numbering system, M1-M14, a new height of expectations and assumptions in itself. If the section can go to 14 pages ona a multi hundred point fall in the Dow this week, perhaps we should be tracking how many pages it will number at an expected market top this winter or early spring? The average asking price in Aspen is north of $2 million. Expect wealth to be on display right to the top of the various markets and for some time after. 

Euan Wilson at the Socioonomics Institute recently ran down the recent  trend in television. The trend as befits an era of stagnation is definitely to the negative. Jack Bauer was hero in 24, in Breaking Bad a former high school chemistry teacher breaks bad inded as he descends into the world of manufacturing methamphetamine. 

The era of 1966-1984 underwent a similar transformation. It kicked off with a former television actor playing a brutal gun man in 1964's A Fistful of Dollars.  Expansionary periods are marked by inclusion of various groups, coming together is a hallmark of positive mood. Fistful was anything but that as the gunman played one warring family against another, to his own advantage. Made on a modest budget in Spain by Italians, Eastwood was paid $15,000. But tearing pages of dialog from the script he established just the right character for the time, action not talk.   Or as Tuco (Eli Wallach, a UT Austin grad by the way) remarks after killing someone in the third film, 'If you're going to shoot, shoot, don't talk.'

The haunting music soundtracks by Ennio Morrichone copmpleted the template for the time. 

1965's For a Few Dollars More  doubled  down on the idea of working opposing sides to one's advantage.  Finally Lee van Cleef found his role of a lifetime, in this one as a good guy, well as good as vengeful gunmen can become. Lee was the lone prisoner Gary Cooper lets out of jail as he heads out alone to face the returning criminals in High Noon.  He played one of Lee Marvin's sidekicks in 1962's The Man Who Shot Liberty Valance.  But he found his role of a lifetime in 1966's The Good The Bad and the Ugly.  it's hard to believe a movie featuring the Bridge scene with perhaps a thousand extras could be in a movie that IMDB says was made for a mere $1.2 M 1966 dollars but that's inflation for you. Eli Wallach was perhaps chosen to reprise the same sort of character he played in 1960s The Magnificent Seven.  Playing the outlaw, he gives the Seven Mercenaries their guns back and sends them on their way, he does not want any trouble from American authorities. in The Good, no one gets their gun back. 

The setting is the American Civil War as three characters set out to find $200,000 in gold. Life is cheap and everyone is out for themselves. The gore on screen would echo the futility of the war playing out and  just then ram-ping up in viet Nam. 

During my college years of 1966-1972 membership in Greek fraternties and sororities fell every year. The move was away from inclusion. A campus wide seminar, I the Starting Point was hugely successful in 1968. And so this trilogy set the cinematic stage for what was to follow. 

In 1965 and 1966 My Fair Lady and then The Sound of Music won Best Picture. By 1969 it would be Midnight Cowboy.  The mood was turning dark. This would finally result in ultra violent contemporary Black films like 1972's  Super Fly and 1971's Shaft.

The trilogy of Spaghetti Westerns that kicked off Eastwood's career are on Turner Classic Movies Tonight. We will continue our analysis of Eastwood's success over that era 1966-1982 in future installments. Our take is that Eastwood is much more a bear market figure, note the resurgence of his success since year  200 when this era of stagnation began. 

Thanks for reading The Market Perspective. 

Thursday Sell off, Cycle Low Continues

Thursday November 8 2012

MCD posts the first monthly sales downturn in nine years.  Some of this is Hurricane Sandy but MCD has  34,000 stores worldwide. The economy is just slowing down period. \

Jim Rogers predicts soaring inflation. He is early, first real estate prices need to collapse around the world where easy money policies have  led to rampant speculation. The Wall Street Journal has re branded its Distinctive Properties section as Mansions to accommodate the desire to display wealth in property.

The last time capital gains jumped in 1986 most of the selling happened in December.  This may make any sort of sustained stock  market rally very difficult this year.

Stock indexes closed down again today.  GDXJ advanced, SIL held its own, XME and COPX dropped again.

TLT in bonds made an impressive break to the upside above all its moving averages again displaying defense by investors. Those investors cannot possibly be rewarded by having the markets fall now.  Both the DowIndustrial and the SPX closed under their daily 200 day Moving Averages. This of course typically generates a sell signal in quantitative trading programs.

The low of June 1 took place in the same manner. There was a collapse of hundreds of points in the Dow, a one or two day closed under the 200 day moving average and then the market reversed to the upside. I suspect the same thing is going on now. With stock markets closing on the dead low of the day, I expect the weakness to extend into tomorrow.

1371 is a 50% re tracement and the SPX closed at 1377.51 with the 200 day MA at 1380.

The McClellan Oscillator and Summation Index are still headed down. The  percent of stocks over their 50 150 200 day MAs  indicator has pulled back to its uptrend line. All taken together if this is going to hold the low should be tomorrow and we start up Monday.

No charts, I am on the PC at schoolinstead of mymac book pro which is infinitely easier to post charts.

AGain the divergence in silver mining stocks and GDXJ is quite amazing and of course being missed completely by the mainstream media.

New Civil War Map Unchanged

Thursday November 8 2012

Daniel Henninger has discovered our concept of The New Civil War in his column today. 

The Republicans' self-inflicted wounds, however, pale against the willingness of an American president to use his office to blow up the country itself. That, too, has a price. Drill down inside the details of that electoral map and its votes, and you find a nation severely divided.

With every election, the southern and central states drift further from the coastal sophisticates obsessed with social issues, and from the heavily unionized industrial states around the Great Lakes. But open up those Obama states and you'll discover divisions: Their big-vote city centers sit like blue moats of minorities and comfy singles who are surrounded by red counties of married couples trying to cope. California's passage of Proposition 30, which jacks up state taxes to subsidize the moats, is a harbinger. More red voters (and companies) will move out, deepening the divide.

There's that famous saying: Is this a great country or what? With the way Barack Obama achieved his re-election, that's a good question: Or what?

Daniel Henninger

Our point is that three maps are all the same

the original Map of the North South CIvil War States

The Map of the Southern Right to Work versus northern Union Shop States

The Red Republican Blue Democrat voting map. 

It was a nasty divisive campaign, and nothing suggests any of that will change. We have written extensively about this to prepare you for a hurrican of negative social mood ahead. During the campaign the President referred to his opponent in four letter terms. Romeny was accused of being a felon and not paying taxes for ten years. This was all false but no one ever pulled back who made the accusations. No matter what you think politically, this is a negative for what lies ahead. 

Sandy Hits New York, Sell off Hits Wall Street

Thursday November 8 2012

Top to bototm June 1  was a 284 point day. Wednesday November 7 was a 352 point day. 

The markets have been falling since our  exit September 14-18. While technicians like to say that there is always a fundamental to validate the technicals, at the moment uncertainty abounds. In the past six weeks we had not only the election called a dead heat but two option expirations, an end of quarter window dressing, a literal hurricane on the Jersey Shore and now a snowstorm in the same place. 

John Boehner remarked that a solution to the fiscal cliff is not likely in a lame duck Congress. So here we go again. This may well  mean a series of up down market moves with no clear resolution until next year. That would suggest the end of Januaary 2013 given that hte inauguaration is not until January 21!

Yesterday GDXJ actually managed to close up for the day. It bottomed mid morming, found buyers and then closed up on the day. This is a remarkable accomplishment on a 352 point down day for the Dow. 

GDXJ

The four fibonacci based exponential moving averages have come together.

GDXJ managed to close above all of them yesterday. 

In the bottom panel Average Directional Movement has  not given a buy signal. That would require a move of the green line over the red line. The overall downtrend has not reversed but looks to be bottoming. 

Other major stocks we have mentioned CAT DD MCD had a terrible day. Every one of the 30  Dow Stocks was down with J P Morgan hit the hardest. 

This seems to be a significant enough low to engineer a bounce for the next week in the overall stock market. We will be watching to see if commodities continue to outperform stocks. 

Reuters CRB versus SPX

This is a ratio chart of the CCI versus the SPX. When the ratio advances commodity prices are outpacing stock prices.  That was a nice jump to the  upside yesterday. Now it needs to continue over the 200 day MA. 

Our overall position is at least 75% cash. We have positions in COPX GDXJ XES XME.  I have no more orders in at this time. 

In the Thick of It All

Wednesday November 7 2012

This might be a good time to review some Rudyard Kipling.

If you can dream---and not make dreams your master;
If you can think---and not make thoughts your aim,
If you can meet with Triumph and Disaster
And treat those two impostors just the same

The media of course is treating the sell off in the markets today as a Disaster. A socionomist knows that it is necessary as Kipling says to Triumph over such, and socionomics and market history provide the history for us to do just that.

Socionomics holds that maximum mood inflects at the End of a market move. Hence markets make bottoms amid gloom and doom after weeks of decline. That is what is happening today. The markets have been in decline since September 14, about six weeks. The sell off coincides with a potential news event, the election which the media is all too happy to link to what is happening.   September 14 was an instance of maximum positive mood when the HIigh Low Indicator nearly jumped off the chart to the upside. I suspect today will look like the very inverse of that day. The crash of October 1987 occurred after weeks of decline. The lows of November 2008 and March 2009 in stocks occurred aftrer considerable declines.

However we know from market history that gold typically bottoms before stocks, and I suspect that is happening today. Even with the Dow down near 300 points, GDXJ is higher than it was on Friday, a noteworthy divergence. Some of our picks are down but overall metals are bucking the downtrend.

And the Euro has hardly budged despite all the problems in Europe.

We will be back for a look after the markets close adn stockcharts updates its End of Day only indicators.

 

 

Stocks Fall Post Election

Wednesday November 7 2012 10:04 AM CST

The DJIA is now down some 288 points. But gold silver and oil apear to have reversed yesterday. Gold typicall bottoms before stocks. The emotional reaction to the election is probbaly just that. Stocks are now trading at August levels, still a reasonable re tracement. If I am wrong, well the recommendations have provided that we are still mainly in cash. 

November 7, the Election is Over

Wednesday November 7 2012 7:18 AM CST

Obviously Dick Morris was completely wrong and the University of Iowa poll was right. My article that the winner would be America's creditors and the 47% not paying any taxes seems to be on the mark. 

I added to metal mining positions yesterday.  Here is an article detailing  a rise in copper and gold prices on the Obama win last night. 

This seems reasonable, there will be more spending, gold is up and silver is flat this morning. The S & P and Dow are down about what they were up yesterday. 

I suspected a low in gold at 1650, the market hit 1674 and then bounced big yesterday. 

Note the $31 advance. At top RSI perked up and MACD looks to be making a low in the bottom panel. 

Again I committed a few hundred shares. As always watch the actual market which is pictured above. Silver displays the same pattern in the next chart. 

Note the Fib re tracement tool, the low in silver yesterday was 31.07 right at the 30.80 50% re tracement level. And price has corrected  right on the 200 day MA. If this is correct it should be validated across similar markets, let's look at crude oil, the most emotional of markets. 

On election day gold rose 1.86%, silver rose 2.63%, and crude oil jumped a whopping 3.16%.

Palladium, copper, and even Chicago Bridge and Iron CBI exhibit roughly similar patterns. 

Selling at a top amid confidence and buying at a low amid worry is always mentally  difficult.  The next few weeks will inidicate whether this was the correct course of action.  This morning the charts are supportive of this course of action. 

Thanks for reading TMP.