The Market Perspective

Jesse Makes a List

Thursday Feb 28 2013

Jesse notes that Chris Martenson has issued a market top signal, his first since  2008. this is exactly what we have been saying this year. And Chris imagines that it will be later this year when gold takes off. The scenario

markets topple

governments print even more money

capital flees into hard money, gold and silver, once their extended sell off has ended

Jesse makes list of mining stocks and prices at which to buy. 

As I noted in the previous post, it really cannot be that the metlas rally is over, just undergoing a government induced squeeze by the funds.  John Murphy's idea that we are on the cusp of a big breakout in stocks is not upheld by a look at the weekly indicators. Sure the markets can go higher into May or June but upside i stocks is surely limited as we see WMT and RAX and others taking hits.

Party Over for Gold ?

Thursday February 28 2013

The month end collapse of gold, the inability to hold the gains of the last few days, and the suggestion of poor future gold prices  given the poor performance of the mining stocks caused John Murphy today  at Stockcharts.com to suggest that the 12 year rally in gold and silver has ended. Among other things he showed a graphic similar to the one I showed this past weekend. His was a ratio chart of the Dow INdustrials to gold. We showed the SPX to Gold, hmm was John reading TMP?

At any rate again the stock indexes are now clearly outperforming gold.

One reader suggests gold  had a fourth wave with a fifth to follow. Most chartists peg support at $1525 for gold. I would note the 200 week Moving Average however is al the way  down at $1400. And given the strength of this move I would expect gold to over shoot that.

The story seems to be that QE programs by other governments have blunted gold as an alternative currency. And the US Dollar continues to strengthen so gold is priced lower in dollars.

It may be that gold eventually recovers but this feels a lot like the metals  markets after the 1981 high. On each dip the gold bulls were sure that was the bottom and the bull would be off again. Sometimes it is best to simply exit a market and watch.

Regular readers will rememember  our sucessful call of a top in commodity prices and gdxj  last Sept 18 when we exited numerous profitable positions. Our error was re entering. We also said that given the danger of a multi year stock  market top, it might be best to simply stay out of the markets until we have a sign of a top.That is turning out to be good advice. Investing involves the chance of error. Here at TMP the difference between ourselves and others are that we admit them. As I have noted my big error was in not realizing I was right and others I were reading were wrong, listen to self next time!  Clearly a short position would have been quite profitable.

It is hard to see how gold will not be of value in the future given the enormous money printing schemes around the world. But for now sentiment is low and gold continues tofall.

As the saying goes, the markets can stay irrational longer than one's money can hold out.

Stocks ram Higher

Thursday Feb 28 2013

Stocks Power up to Ramming Speed

WSJ article Section C today

As I recall that phrase was from Ben Hur just as the slave powered galley ships were about to ram one another. That didn't turn out well as you recall. But social mood has really turned positive for stocks. 

It's looking a  lot like 2008. Stocks are moving higher and higher and the market is ignoring some clear signs of inflation. That is how things ended in 2008. All the world wide money printing has resulted in speculation and higher energy prices. 

Stocks

The New York Stock Exchange index has moved relentlessly higher hardly stopping for a breather. Stocks bounce back from rapid sell offs, typical of bull market in full force. 

Gasoline

93 octane is near $4 retail. Gasoline futures have backed off to fill a gap but frankly I expect will find support at the $3 level.  Energy is the master emotional market. Crude soared from $100 to $145 in a matter of weeks in 2008. 

Pessimism is at an extreme for gold and silver. In some surveys bullish sentiment is in the low singel digits. It appears there was a concerted effort to drive the price down, which worked by the way. 

This is a thirty minute chart fo GDXJ. It shows a modest bounce from a terribly oversold condition. Gold rallied since Feb 21. We suggested it would come back to test 1600. Yesterday it fell through 1600. This morning it is slowly moving up from the sub 1590 level. This is the last day of the month. A more positive outcome would be a positive close today. We will continue to report. 

The US Dollar backed off a bit yesterday from its breakout condition. The Canadian and Aussie Dollars had a weak bounce yesterday. As always the commodity currencies of those two countries need to get going to spur metal and other commodity prices. 

Canadian Dollar

Oversold enough to rally?  The rubber bands of the Canadian and Aussie versus the US Dollar have really been stretched, this ought to be about the limit but we shall see. 

thanks for reading The Market Perspective. 

 

The Cost of a Gold Mine

 

Tuesday Feb 26 2013

The ccost to mine an ounce of gold  is about $1300 for ABX Barrick. So at $1550 an ounce which we briefly hit last week, margins are getting thin. This explains the lag between the nice jump in the gold price the last few days and the lag in the mining stocks.  As the gold price fell closer to break even at  1300, the mining stocks really got hit. If gold can rise over 1800 again, miner margins expand and they will support higher stock prices.  Gold will need to advance further to get the miners going.

Gold has biggest single day gain of the year.

A longer look at gold and stocks.

GOLD

After what appears to have been a coordinated bear move to push gold lower, it will take some time for this chart to recover. But on Ben's QE testimony gold ha a $28.90 jump yesterday. It will likely do some testing of 1600, as gold tends to like round numbers. Mining stocks are doing better but the MACD dailies have not turned up yet. The Two Hour charts are encouraging. 

After going to a discount to its Net Asset Value for one day, Central Fund is back to a 3.5% premium. The rare occaionss when CEF actually goes to a discount to the gold and silver it holds have been a buying opportunity in this ongoing bull market. 

The sequester 

Rep. Kevin McCarthy (R-Bakersfield) said Republicans are not about to budge.

“What we’re talking about is an $85 billion cut out of the $3.6 trillion budget – two cents out of every dollar. American households have been able to do this,” he said.

It appears that the President has overplayed this. Day to day business is weary of the continual battle. 

Summation Index

The market was up yesterday but the summation index has turned down, probably back to test its upward MAs. Note how NYSI reached the top of its trend channel. It may be that the market has another down day like Monday as the summation index falls but I doubt that two cents on the dollar will terribly upset this trend. 

Watch the Dollar

The dollar soared through its 200 day MA this week but looks rather overbought. At the same time gold made a low and rallied, Are they both right, is it possible we have a role reversal, each is seen as a safe haven, the buck and gold? We will report.

Thanks for reading TMP.

 

 

Dollar and Gold Advance

Tuesday Feb 26 2013

This writer suggests the US Buck is headed up.

But gold jumped $25 to the upside this morning, it has at least tunrned the mining stocks slightly positive.

But, can it be that currency woes are finally causing the dollar and gold to be the new currencies du jour?

GDXJ looks to be putting in an outside reversal day on the daily chart.

Sentiment on Metals Tanks

Tuesday Feb 26 2013

A reader brings this Contrarian Opinion from Bank of America to our attention.

Lacking any othe rnews event the media linked the stock sell off to the Italian election.  More likely as we have shown the stock market is quite overbought. Bfrett Stephens in today's WSJ notes that the Italian public sector accounts for 49.1% of total gross domestic product. US S government is 41% of GDP. It's  a good column on page A 13 of today's WSJ.

Markets are up this morning, higher highs in stocks ahead I expect. 

 

Monday Morning - The Game's A Foot!

Monday Feb 25 2013 6:28 AM CST

Celebrations of wealth accompany moves to new market highs. 

Land Yachts  are in vogue. A recent trend - a $125,000 make over for your Airstream!

Mark Hulbert  reflects our comment that hte 200 day MA is not what it used to be. So many programs now use it that it may in fact be a contrary indicator. 

The Oil Boom is One Again but I have seen this movie and it never ends as well in real life as in the movies . This is another clue in the run up in commodity prices. 1850 saw a gold boom in California and  the Comstock Silver Lode.  I experienced  the 1980-81 boom in Odessa Midland and then the 1986 b bust Such articles are taken as celebrations but should be a serious warning to pull back on expansion.

US Dollar Weakens  We noted this weekend the US Buck would need to reverse and quickly if commodities were, another example of how markets go to extremes before reversing. 

A Few Thoughts on Bonds bond rices are up and yields are down this morning along with a snapback rally in the metals. 

Arthur Barton writes an interesting letter on page A 14 of today's WSJ. Laid off at work, he reports to a state sponsored resume writing site. He notes that there are  40 tohers like him in the class. The classes are held twice a day, every day. He notes employers are not anxious to get back to him. Here is the warning of what is to come, ever more unemployment. 

Three problems with the economy spell trouble for the stock market.  This observation follows the comments by the unemployed letter writer above. Reality is being overlooked. 

Crude oil up $1.169, 1.3%

March Silver up 71 cents

Gold extends gains to $20.20, $1593 an ounce

These are pre New York openning quotes. The air pocket drop in gold and silver should have taken out all the sellers at least to the $1650 - 1675 area for gold, we shall see.

The question now, are we seeing the start of the final run up in commodity prices as we did in 2008 when oil zoomed form $100 to $145. I hope so, I am certainly positioned for it.

The Dollar versus Commodity Prices

GDXJ a fund of gold miners in black, UUP a fund representing the US Dollar in red black bars. Clearly one is opposite the other. 

Thanks for reading The Market Perspective.

The Combat Mindset

Weekend February 23 2013

 Jeff Cooper's remarks about the combat mindset can be a good metaphor for a successful investing mind set. Read on to grasp the analogy. 

Jeff Cooper wrote for Guns and Ammo and served in the Marines in WW II and Korea. He described what he called the Combat Mindset. I am including it here fearful that you will not read the hyperlink.

• White: Unaware and unprepared. If attacked in Condition White, the only thing that may save you is the inadequacy or ineptitude of your attacker. When confronted by something nasty, your reaction will probably be "Oh my God! This can't be happening to me."

• Yellow: Relaxed alert. No specific threat situation. Your mindset is that "today could be the day I may have to defend myself". You are simply aware that the world is a potentially unfriendly place and that you are prepared to defend yourself, if necessary. You use your eyes and ears, and realize that "I may have to shoot today". You don't have to be armed in this state, but if you are armed you should be in Condition Yellow. You should always be in Yellow whenever you are in unfamiliar surroundings or among people you don't know. You can remain in Yellow for long periods, as long as you are able to "Watch your six." (In aviation 12 o'clock refers to the direction in front of the aircraft's nose. Six o'clock is the blind spot behind the pilot.) In Yellow, you are "taking in" surrounding information in a relaxed but alert manner, like a continuous 360 degree radar sweep. As Cooper put it, "I might have to shoot."

• Orange: Specific alert. Something is not quite right and has your attention. Your radar has picked up a specific alert. You shift your primary focus to determine if there is a threat (but you do not drop your six). Your mindset shifts to "I may have to shoot that person today", focusing on the specific target which has caused the escalation in alert status. In Condition Orange, you set a mental trigger: "If that person does "X", I will need to stop them". Your pistol usually remains holstered in this state. Staying in Orange can be a bit of a mental strain, but you can stay in it for as long as you need to. If the threat proves to be nothing, you shift back to Condition Yellow.

• Red: Condition Red is fight. Your mental trigger (established back in Condition Orange) has been tripped. "If 'X' happens I will shoot that person".

He wrote this for Marines or Police Departments or possibly someone in an athletic competition. it is not a stretch to see it right here on campus. A young woman is talking on her cell phone, strolling across the parking lot, oblivious to her surroundings. How often do we see this? Thisis an invitation to personal danger.

 

Most students are in Condition White. They are oblivious to their surroundings. Oh sure they sign up, pay the tuition, and come to class, but that’s about it. It was clear to me the last two days that many have not read an Intro to Futures and Options. In class you should at least operate in condition yellow. During tests you should be in condition orange . You should be preparing yourself for various certified exams. Passing certified exams (leading to a professional designation) will require a full blown nothing less will do, Condition Red.

Students who do poorly on exams are operating in what the Marines refer to as Condition Black. 

Condition Black: Catastrophic breakdown of mental and physical performance. Usually over 175 heartbeats per minute, increased heart rate becomes counter productive. May have stopped thinking correctly. This can happen when going from Condition White or Yellow immediately to Condition Red.

Several incidents in Texas this past week prompted me to post Mr. Cooper's color code. 

Three Teens Die not Buckling Up.

This is a ondition white event. Recall that Princess Di was riding in the back seat not wearing a seat belt in a speeding auto, just like the first two teens.

A 50 year old elementary music teachers killed by her boy friend.  Surely the boyfriend was giving some clues things were not right, did she notice?

Chris Kyle murdered on is own shooting range.  Chris authored American Sniper, and is credited with over 150 kills while serving in the middle east. But even  trained to this degree, Chris  was taken unaware by  someone he knew, just like the music teacher. 

A shooter in a San Antonio Theater was stopped.  The off duty officer was clearly in condition red. 

We live in dangerous times.  Operating in the  the appropriate color code could save your life or your portfolio. 

 

Things Really Never Improved Much

Weekend February 23 2013

Special note to readers. Go Daddy only sent us an email along with the rest of their daily spam that our domain name rental was about to expire. As I trash what looks like spam,and Go Daddy certainly made no effort to contact me otherwise, the site was down for a couple of days. This past week.Thanks to alert readers who informed us of the problem. We should be good for another year now. 

__________________

Yet unemployment is close to 27% in Spain and Greece. The eurozone economy shrank even faster throughout 2012. The economic fundamentals in France are getting worse.Will German taxpayers be willing or able to bail out the French, don't count on it.

Why the Euro Crisis Isn't Over Page A11 Weekend WSJ

TMP - Nothing ever changed in Europe people just stopped worrying about it. 

It  further sours the sourest White House Capitol Hill relationship of modern political history. That relationship probably can't get worse...

Peggy Noonan Government by Freakout Page A 13 Weekend WSJ

TMP - Once again Peggy misses the import of socionomics. This relationship is happening at DOW 14,000, with employment at least  somewhat better. Let each of those measures get worse and Peggy you ain't seen what sour really looks like. Social mood across the country is still relatively positive, the finger pointing for responsibility for the economy is just getting underway. It is as though Jimmy Carter had won his re-election. 

Two things Metal Bulls Got Wrong About QE This write correctly observs that the US dollar is up, see chart below

We start this weekend with the currencies.

Euro

At top the Canadian Dollar falls. In the center the Euro has fallen back to its uptrend line. It needs to reverse to keep its upward move alive. At bottom the Australian Dollar needs to rally quickly. Otherwise gold will fall again. 

Bonds TLT

This chart of TLT looks more like a correction than a collapse. MACD looks to be bottoming, price ahs made a higher low at its second MA. 

Gold

As I have said many times there are other sites that count elliott waves, I am no expert. Above there are at least two potential counts. One is that the Large Wave Three ended Wednesday. The spike in volume suggests some sort of ending wave. And it moved up the next two days. Another possibility is that five waves have ended if Red 3 was in fact the end of a large Wave 3. But frankly the drop does not look big enough to be a third wave, the overall drop does. 

 Jesses's Cafe Americain sugggests the gold market may have found footing at  1550-1575. Indeed it hit 1550 this past week. But he wants to examine the options expiration on Monday.

 Weekly Gold

The bull case is that 

• weekly gold recorded a slightly higher low
• Sentimentis massivelynegative, the WSJ ran a comment yesterday that owning mining stocks was like tying rocks to your feet
• Gold pulled back from its lowest intra day price by the end of the day Wednesday
• Central Bank money printing will surely eventually send gold higher. 
• The bears ried to break support at 1550 and failed 

 The bear case is that

• the same group of bulls has been bullish all the way down and keeps re inventing their story on every drop
  buying into every drop thinking that is THE bottom is precisely how a bear market begins
• the 200 week MA for gold lies lower at 1400, note the 125 week MA has now been breached
• a brief rally here and then a plunge to 1400 would make for a more convincing five wave decline
• support at 1550 will be tested again, just run the market back up so they can short it again.

Bear Case - Stocks now Outperforming Gold on the Weekly Chart

SPX to Gold - Uh Oh!

When this ratio chart is falling, Gold is outperforming Stocks.  When this chart is rising, stocks are outperforming Gold.

Note that the ratio has now risen above all weekly moving averages. This can only change if spx falls relative to gold. This is the first time this has happened in five years. One reader of TMP warns gold may be in for a far larger tumble than most imagine. This charts backs up that few. 

Daily GDXJ

While the chart is massively over sold GDXJ just went to its lowest price ever which is hardly reassuring. 

Weekly GDXJ

The weekly chart also suggests some sort of low should be at hand. The weekly lags the daily so the turn up which shows in the daily is not as evident in the weekly. 

Thirty Minute GDXJ

The thirty minute chart shows that the massive selling in GDXJ subsided on Wednesday. Somce upward correction is now taking place.  Everyone who shorted GDXJ has to buy their stock back to take a profit. That will perhaps help support a rally. 

So what happened? A massive bear raid on gold was staged by funds and banks. 

Here is one view, there are no markets just interventions by Central Banks

Internal Indicators

150 day  Percent of Stocks

Here we used FIB ratio Moving Averages of 13,21,34 weeks. The MAs are still climbing RSI at top is bending, MACD has not rolled over at bottom. 

Summation Index NYSE

The summation index turned red and started dropping this past week. MACD looks toppy. 

Stocks are making the third big high since Year  2000 and Year 2007-08. We are a FIB 13 years from Year 2000 and a FIB 5 years from 2008. The VIX jumped and fell back this week. but do nnot underestimate the determnation of the FED to keep things afloat. Stock are far too overbought to participate at this point. 

Gold and metals and miners should enjoy a relief rally to the upside. But the graph of SPX to GOLD suggests the tenor of that market has changed.We will watch this sector closely and continue to report. 

Socionomics

We wil have an update in a separate post about personal safety. We have warned of  a forthcoming hardening of attitudes. A careless  attitude can rbecome quite dangerous in this environment. More in our next post. 

RAX

Rackspace has been one of the hottest stocks around, and a real newsmaker here in San Antonio. And then the market became disenchanted. Notice how quickly the mood changed, more of this will follow in the overall market the next two years.

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.

 

 

We're Back Up!

Friday Feb 22 2013

 I'll be back

Terminator, 1984

Well after two phone calls to Go Daddy which is two more than they made to me before the site went down, we are back up.

We will be posting soon, stockcharts is still updating the weeklies which of course are most important.

Thanks to several readers who let me know of the problem, one of the delights of this hobby is meeting people literally all over the world!  I have very much enjoyed corresponding with all of you this past week. 

Speaking of which, on my http://www.professorelam.typepad.com blog, a reader from San Francisco voted professorelam the unbiased financial blog of the year, he said we reminded him of his own college professor, thanks, we proudly display his award  on our sidebar on that blog!

As Paul Harvey used to say stand by for news, our news  follows tomorrow afternoon, no news before its time...

Thanks for reading The Market Perspective,what a week for metals, I am loathe to just throw something up as we have been down for 48 hours. I did admit to being seduced by another source and so missed one of the great shorts on gold. Indeed it was 20 years ago that I bought 100 puts on gold for 60 bucks each, what a trade, 6,000 bucks became 100,000 in three months. 

We promise to listen to what we write  in the future, thanks again, I have class tomorrow morning, which is Saturday in San Antonio, more to follow that class.