Weekend March 30 2013
Socionomics - Our lead this weekend rather than end of the post
The market's record-breaking spree has raised a new fear in many American households—dread that they are missing out on big gains.
When stock prices collapsed in 2008, the bear market wiped out half of the savings of Lucie White and her husband, both doctors in Houston. Feeling "sucker punched," she says, they swore off stocks and put their
remaining money in a bank.This week, as the Dow Jones Industrial Average and Standard & Poor's 500-stock index pushed to record highs, Ms. White and her husband hired a financial adviser and took the plunge back into the market. What really tipped our hand was to see our cash not doing anything while the S&P was going up," says Ms. White, a 39-year-old dermatologist in Houston. "We just didn't want to be left on the sidelines.
Mom and Pop Run with the Bulls, WSJ, Weekend Page B1
What a socionomic moment! One wonders just where the doctors think the market is headed with 89% of stocks in bullish position, the very opposite of when they exited in 2008. Readers, this is the classic herding of investors at precisely the wrong time, when market internals look just as they did at the peak of March 2000 and Fall 2007. Oh well, clearly this couple does not read The Market Perspective. Should I call their office and offer them a link to TMP?
A letter to the editor sums up where we think the stock market is about to be headed.
Similarly all the bond buying under "QEternity" has enriched stock market high-speed traders (not investors) since Ben Bernanke's Fed balance-sheet deficit is approximately equal to the monetary value of the Dow's gains. But one more example of what's coming lies in the administration's favoring legislation to allow the lower-on-average, chain-weighted CPI to replace the CPI in the calculation of entitlement benefits. My work shows inflation, as hinted by the most recent CPI reading, is running at a real rate of more than 5% as we near the blow-off stage of too much easy money for the wrong reasons.
Thomas L. Ashton
As a matter of fact the price of oil has jumped 7.7 percent in the last month as we will show in the charts. The race to an inflation spike is well underway,not nonticed by most.
Required Reading
Looking several months ahead, What Could Go Wrong?, here is our short list of must reads in the Weekend WSJ
Page A11 Why China is reading your E Mail
Page A 11 The Debt Bomb that Taxpayers Won't See Coming - this article on municipal debt that Mert Whitney did see coming, I widened her definition to the more likely outcome of multiple defaults to stakeholders, debtors, and municipal employees.
Page A 12 Liberal Medicare Advantage Revolt - the Uproar over Medicare Obamacare is just beginning
And finally on A11, an interesting retort to what passes for exceptional ism by a rejected high school student Suzy Lee Weiss to All the Colleges that Rejected Me
Okay our view is that the stock market is closing in on a final top, we will check on whether wave five has equalled one yet, this is likely leading to a rally in the sectors that have not participated thus far, commodities, and that will lead to a final 2008 like high preceding a two year bear market much like 1973-74, okay, got all that? let us begin.
Crude Oil on the Rise
Note the embedded comments, a rise of 16% in three months, now in an apparent Wave Three oil is up 7.7% in one month! This is the result of printing $85 B a month from thin air and injecting it into a moribund economy, prices will be rising. We never claim to be Elliott Wave Experts but
If Wave One = 14 points then
Wave Three might = 14 x 1.618 == 23 or 90 + 23 = 113
since Wave Two was hard down Wave Four is likely sideways, but another 14 points might carry oil to over 130 By that point regular pump gasoline will be well over $4 and creating ominous headlines. I had not been thinking of such high prices but the 16% and then 7% moves in such a short period of time are giving me reason to think of higher numbers. So what did I do, I purchased 9 July at the money calls on USO for about $100 each, they are up nicely already.
2008 Analog Comparison for Oil and Stocks
The parallels are remarkable. Crude oil in the main panel took off exactly five years ago in March 2008, just as it is doing right now! Stock put in their usual seasonal peak after tax time April 15, topping out in May. That seems a very reasonable analogy to where we are now, particularly if stocks make the round number of SPX 1600 by say April 15. I speculated this past week on that very time frame. but the3 50% rise in oil prices in a mere three months collapsed the economy's ability ot pay for energy. Then as debt came due, funds cashed in all speculative bets sending commodity prices plummeting world wide, stocks too.
SPX
Wave five equals Wave one at 1585, but heck with all the giddiness I fell like 1600 is an easy number. That again could easily take us to April 15 and beyond the same as in 2008 and very often a seasonal pattern. Seasonally stocks usually top after tax day.
MYSE Summation Index
We have an old saying in Texas, You can't fool a Mesquite! While other plants may blossom early only to be caught by a late freeze, a mesquite tree is a much more reliable indicator. Once the Mesquite blooms one can reliably bet that in fact winter has ended and spring has begun. Actually in San Antonio I think spring and summer just recede, not much winter to account for. But, my analogy is that the Summation Index is much like the Mesquite Tree, it is rarely fooled. While the bullish percent indicators are stuck at 89-90%, the NYSE AD Volume has soared to new heights but the Summation index shows a divergence. The Index in the main panel and RSI at top is gently turning down, the MACD at bottom is flat, this is perhaps an early warning sign of the top I have been expecting by May in stocks.
TLt The move out of bonds
Make no mistake, the trend in bond prices is to the downside. MMoney is moving out of bonds and into stocks.
Copper
There is yet another negative article on copper on page B 12 of the weekend journal as there have been many on Market watch and such. The upshot of all of them is that demand for copper has collapsed. Now that copper has fallen just under its 200 week MA, this would be about where one would expect a rally to begin. In fact since its low in October 2011, copper is now making its third higher low. Steve Kaplan at www.truecontrarian.com notes the Commitment of Traders report shows huge expansion by commercial for copper as of the end of this week.
How Negative is Sentiment Towards Commodities- the Worst Since, You guessed it, 2007!
the ratio chart of the CRB to Stocks, SPX, is even lower than the low of 2007! RSI has finally reached similar oversold readings as then. So we have negative articles and the kind of gloomy sentiment and oversold readings that typically accompany a multi-year bottom just before a rally begins. Note this measure has fallen below all four moving averages now as then.
FXC
My average price in FXC a Canadian Dollar ETF is 97.20. I suggested this was a conservative play on the dfurrency of a commodity producing country. I expected a 4-5% gain in about three or four months which is a nice annual return.
Emerging Economies - Indonesia
Indonesia is the world's fourth largest country Its 17, 504 islands are a treasure trove of rubber, oil,and other natural resources. It made its fourth lower high in the past few years and is nw moving well above both MAs. A bit late to buy but indicative of what is about to happen world wide.
Silver and Silver Miners
The blue box contains the rally from late last summer. Look at just how fast it happened. Thsi was not the train leaving the station this was an F 18 being thrown off the deck witha steam catapult. the 33% nine point rally happened in 45 days. Now that the correction has drug on for months, most have lost interest or given up which is what corrective waves do to our psyche. Let the price of silver jump from $28 to $35 and the value of silver miner reserves will soar, as will their stock prices.
Late to the Party Laggards
Markets top at different times. Here KOL at top is encountering accumulation at 22.50
REMX is the real laggard, no one is interested in rare earth metals, why not, China was buying all they could buy in Africa not long ago
COPX Copper Miners are out of favor amid all the negative publicity
Bottom Line
We should be near a bottom for commodities versus stocks, see CRB versus SPX chart. It is quite possible we have one more pullback to discourage anyone from buying here. But the stage seems to be set, refer back to 2008 analog of oil and stocks, for a repeat of just that event. Our scenario
Stocks rally to a new high over the next month or so
Commodities experience a come out of nowhere stunning rally
This is a complete surprise to Wall Street, and to our two doctors in Houston, now back in the market at all time highs.
It will be necessary to monitor our indicators for signs of July 2008 top, but after all, that is why you read TMP.
What I am Reading
The Fractalist is reviewed by no less than Nassim Taleeb at Amazon. It is the autobiography of Benoit
Madelbot, who is responsible for discerning the fractal arrangement of nature, in everything from nature to finance. I stumbled on a copy at our local public library, and will give it a go. I admit that I gave up on Stephen Hawking's A Briefer History of Time. I am just not fascinated by physics or the universe, fractals and their relation to our investing minds may be a different story.
Frankly I don't find Woolthat fascinating, still trudging through the Silo stories. It may well be that the determination of politicians like Barack Obama and Mike Bloomberg to control every facet of our lives has spurred interest in Wool which is clearly a story of an attempt to control society.
I received a wonderful e mail from a reader who mentioned that she had recommended some of my suggestions to her college aged son. in hopes that I will spur more interest in such reads, I mention these in this update.
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. |