The Market Perspective

Recommended Reading

Thursday June 20 2013

We have been writing about the shift to Asia. Jim Rogers sold his townhose in NYC and moved to Singapore, the rest of the world follows. We have previously recommended books by Niall Ferguson. Today's WSJ has a reveiw of The Great Degeneration. Like the British historian Paul Johnson, Ferguson hails from across the pond, Scotland. And so he brings a third party unbiased look that we Americans cannot hope to possess. The op ed page today in the WSJ has a fine review. 

Yesterday morning I attended a Continuing Professional Education seminar at a meeting of Financial Executives Institute. The Chief Risk Officer of Frost Bank made the point that Dodd Frank has only implemented a fraction of the rules mandate in its 2300 page. He made it clear this is just another stumbling block to getting anything done. Meanwhile more companies list on the Hong Kong Exchange. The sale of the NYSE to ICE is just about complete. A friend that just visited the NYSE relates that only  a fraction of the shares of his company were traded on the NYSE that day, the vast majority, off the Exchange. 

Note to Chuck Schumer, when the regulations become too complex, the players vote with their feet. Schumer informed of the sale a while back intoned that they buyer had best not change the name of the NYSE. The name won't change Senator but the status is already history. 

Deflation Dead Ahead?

Thursday June 20 2013

Markets were down around the world after the FED remarks yesterday.Bernanke struggled for clarity.  But the direction of the markets was pretty clear, this was just the news event the media will hang its hat on. Rather than change policy direction with less regulation and taxation, the solution is to fire Bernanke. The list of replacements suggests more of the same. This is typical era of stagnation thinking. It is as though we are re living the Carter years all over again. 

A reader asked for less anecdotal evidence and we showed the clear stair step down pattern of GLD. 

The truth of the matter is all the FED can do is attempt to raise or lower interest rates. But that does not force anyone to invest. And hiring has clearly not picked up amid massive regulation and tax initiatives from the government. Lower unemployment has simply meant more on food stamps and giving up looking for work.  All that happened was a cheap money fueled speculation in stocks and commodities around the world. 

Social mood has turned fearful. Just scan the headlines in the WSJ as we have shown, there is repression from Moscow to Istanbul to Cairo to Washington DC. The Administration turns the IRS attack dogs on their enemies. And no one is punished for it. Okay enough of that. 

it seems clear that our suggestion of May 22 as being a significant top was correct. I note that gold has rebounded a bit from below 1300 last night to above 1300 today. 

Our comment was that the best place to be was sidelined. Gambling on the outcome of stocks or gold at such a juncture is a high risk proposition. It appears the better idea for longer term investors is to prepare for ways to take advantage of coming higher interest rates. 

Our idea of closed end municipal bond funds was interesting. While other asset classes collapsed, those funds experienced little to no volatility on the sell off yesterday.

Stocks remain at a 13 year high with the potential to fall much further. Note our graph in a previous post  showing the NYSE stil way aove the collapsing summation index. The NYSE needs a much larger fall to catch up with the declining summation index. 

Our view has been that a top of some significance was at hand and defensive action was the best idea. had I recommended buying 100 puts on GLD no doubt the readership on this blog would be up. But we made the direction of the markets clear. 

Oil also fell last night but has not decisively turned down yet. The turmoil in the mid East is apparently keeping it high. It is highly correlated with the stock market. 

More to follow. 

 

Stock, Gold Sink, Closed End Munis Stable

Wednesday June 19, 2013

I started writing last night and posted these graphs of CEF. It seems to me that the discount premium on CEF is a much more reliable indicator of gold's direction than the COT. 

The stock and gold markets tumbled on the FED's comment, it really matters not what the FED said, the stock market counter trend rally ended and headed south agaion. 

CEF Central Fund

 

Much has been written about the Commitment of Traders Report COT. You can check them out at this link. 

http://www.cotpricecharts.com/commitmentscurrent/

However all the way down in the metals the gold bugs keep screaming about a new extreme and the market just keeps falling. It seems to me there is perhaps a simpler rubric to follow. CEF Central Fund was created as an alternate store of value for investors. It normally trades at par to a premium. Above one can see that on the big sell off in April it went to a discount, and has stayed there since, the yellow price line is below the green Net Asset Value Line NAV. 

Now this seems so simple anyone should grasp it. There is no way a rally in gold will begin until CEF starts trading at a premium to NAV, ie there are more buyers than sellers. 

CEF 5 Year

Now this is really interesting. CEF has traded at a discount for the first time and the longest period in five years. This did not even occur at teh 2008 bottom!

One Month CEF Price Versus NAV

Here is a one month look. This shows that the discount has widened considerably sicne the high the first week of June. this suggests a true fifth wave is finally underway. 

GLD and SLV both closed at new lows today. 

Crude Oil and the Dollar

I have suggested the Dollar was making a low. Sure enough crude oil looks ot have had a throw over above its recent highs. That may not last, and mark a high in crude as the Dollar takes off. 

This was written Thursday evening. We had the right idea. 

As Sgt Friday Would Say, Just the Facts

Tuesday June 18 2013

We hope to be of value by sticking with what the markets are telling us. Here is an update on the GLD chart. GLD is the ETF for gold. Recall taht GLD has 300 tons of gold of gold as investors bailed out. That is 600,000 pounds of gold.

For perspective since that is the title of the blog. The typical econobox automobile weighs about 3,000 pounds. So this is equivalent of 200 solid gold Chevy Cobalts being melted down. This is an amount not likely to be quickly absorbed by small buyers in India. 

GLD

My comments appear on the chart but so far there is no indication of a trend reversal here. GLD is about one point from taking out is previous panic low. But this time there is no panic, indeed there is consdierable confidence in the gold community that this is THE buying opportunity. 

 This would be typical fifth wave action indicating a move below 1300. Fifth waves lack the intensity of third waves but result in lower prices anyway.

Recall the stock market in 2008. The panic low was made in November. That was the third wave low.  The net number of new lows to new highs occurred in October. A fourth wave followed with a high in December.  But the final price low as in March. That was the fifth wave low.  So far that is the same set up we have here. Here is a look back at that time period.

SPX 2008-2009

If the analogy is correct, the 4th wave peak for GLD was in early May. Compare the two charts, you tell me...

I will be delighted to report when On Balance Volume or other indicators turn positive. Here is the Chakin Money Flow on the same chart.

GLD

The weak bounce in CMF at far right is not enough so far to turn the trend up. 

Al of this could be incorrect but so far Richard Russell's suggestion that gold would have already vaulted over 1450 and take off has yet to happen. So far not a one of the ribbon of MAS has begun to flatten. So far the analogy with stocks in 2008 has held.

And that's a fact. 

 

 

Graphic Analysis Energy Markets

Tuesday June 18 2013

Jim Rogers is always worth a listen.  Remember however that Rogers is a very wealthy but down to earth individual. When he says he bought a little, relative to his net worth that is just what he means. And he did not buy mining stocks the bought the real thing, the metal.  While he mentions there are lots of bears on gold, my take is that there are more bulls than ever. The number of bullish articles on Seeking Alpha or Kitco (not surprising) far outnumber the bears. 

Obama says Bernanke has stayed longer than expected.  As alwasy Barack is in charge but has no responsibility for what happens. 

The FED will make its comment on forthcoming action in its usual obscure fashion tomorrow. Expect gyrations unti Thursday when we can expect, more gyrations. It is the summer, after May go away, the market probably put in a significant top May 22, and the Mid East is living up to its reputation as a dangerous place. Repression in Turkey, 93,000 dead in Syria, refugees in Jordan where US troops are on exercise, Putin determined to keep his Naval Base in Tartus, Syria, a new leader in Iran, Karzai condemns Drones, what could be more pussortive to higher oil prices  than this kind of emotion?

The more interesting market at this point is oil. 

Monday afternon we suggested an oil rally might well be underway, let's take a look. 

WTIC Crude Oil

An extensive inverse head and shoulders pattern suggests the 110 area as a target.

UNG Natural Gas ETF

The same sort of patterns are evident in nat gas ETF UNG. Note MACD at lower right.

PTEN Patterson Energy

Patterson is as pure an oil and gas play in West Texas as they come. Here a nice rally, pullback testing the 200 day MA and it is off again. 

PBT Permian Basin Royalty Trust

I swore off recommending Energy Trusts like PBT but this chart looks favorable for a rally. It is yielding 8% at this level, an idea rather like the closed end munis. Energy Trusts are tricky plays! But when the multiple MAs come together like this a change in trend is to be expected. 

Bonds are quite over sold and cold rally by week end. Can oil and bonds both rally, sure if the All One Market Theory is correct we could see stocks oil and bonds all moving together.  

I have no idea what Bernanke will say Wednesday whatever he says, whether bonds go up or down, his remarks will be cited as the reason. Stay tuned. 

Oil, A Gusher of a Rally at Hand?

Monday June 17 2013

I am multi-tasking giving an exam, watching the markets, calling out times for the class, and now posting.

I noted the break out in oil this weekend but was a bit skeptical in that the dollar ought to be making a low but.... as I wrote a TMP reader.

The real key though is as I have said in oil. Despite what looks like a dollar low, oil broke out as I noted this weekend. Natural gas had a big day to the upside as well. The final highs of 2008 were in crude oil. And what a parabolic run it was.  XES and PTEN in particular had a nice day.

 

Which is to say I think oil is telegraphing its final rally to $100+, how high, I don't know. The FED meeting is tomorrow with announcement Wednesday, don't those guys ever just be quiet?  Markets have been gyrating over whether the FED will ditch quantitative  easing with even Jamie Dimon making  aspeech in China suggesting volatility ahead. I won't bother to speculate on the FED if this then that scenarios there are plenty of people doing that already.

 

Markets can get out of whack in terms of inter-market relationships  at times. The dollar could bottom and oil could rally at the same time. Certainly commodities are out of favor. Put it all together

Potential bottom in nat gas

Big move in PTEN

Oil breaks multi-month consolidation to the upside

US makes half hearted move in Syria, Putin criticizes Rebel supporters over the weekend (bet on Vlad in this one, trust me) point being that mid East fireworks are usually supportive for oil

Note the articles in the WSJ today on repression in Turkey, next door to Syria

US has troop exercises in Jordan at this time

All of these things are supportive for higher oil prices no matter what the inventories are here

I suspect a rally in crude will get things going to the upside for commodities.

I am away from my mnacbook pro so no charts tonight but expect some suggestions to take advantage of this oil rally as it unfolds.

 

Bonds Utilities REITs Munis Find Intermediate Support

Weekend June 15m 2013

‘To do an effective audit, the auditors would have to be in every single place all of the time watching every single bean come in and out of the company, which is clearly impossible.’ Sam Antar

Sam Antar former CFO Crazy Eddie debunks the idea of the audit as a fraud prevention.  Crazy Eddie was portrayed as an electronic retailer in the 1980s but was in fact a huge fraud. it is featured in most accounting ethics texts. 

 Overview

We recently suggested closed end municipal funds wer over sold enought to justify a pretty decent bounce. That got underway across bonds, REITs, Utilities, and Munis as last week came to a close. 

 

 

Utilities, REITs Munis, Bonds

That is a 24.5% correction in the Utility Index since the first of May. Along with related groupps it found support at multiple moving averages this week. Here is a list of the 10 Best Utility ETFs.  I checked and yields are 3-4%.

REITs

While the yield in IYR is 3.5% that is about the same as the thirty year treasury. IYR yields 3.52% at the current price. 

MYD Blackrock Closed End Municipal

MYD however yields 7% which is why I mentione MYD, MUH, and BTA. Both Nuveen and Blackrock offer several funds of this type.  I did check on what the top ten holdings were. To  get this kind of yield the ETFs contain some 27 year bonds from O Hare airport, New York, and CA, all of which I have lambasted on this blog as being zombie bankrupts so buyer beware. I bought a mere 600 shares total. But given the vagaries of any summer trading season and the tops we show later, a muni fund that is bottoming and pays a healthy dividend may well just be the sweet sport for the summer. 

 

US Dollar

The Dollar got ahead of itself, too far above the MA ribbons. I suspect the old resistance area at 80.5 becomes new support. 

UUP and Crude Oil

UUP is the Dollar ETF. It is a slow mover but inversely correlated with crude oil. Oil poked above its downtrend line last wee. That may not last long if the dollar gather strength. 

 Summation Index

The Summation Index is in red blue and the actual NYSE index is in green. It is a wonder the NYSE is still a the elevated level of 9263 given the draw down in the Summation Index. 

SPX

SPX displays five waves complete from the low in November. This makes any entry here a low risk proposition. The recent triple digit up down days speak to this danger. 

Market Tops

We correctly identified the top in gold Sept 18 ( and then lost our focus...) but note that copper oil, and gold all topped in that time frame. It is hard to see but Dow Utilities in light blue topped in early May. The Dow Transports in black  and the SPX in purple topped about May 22. Whether these were the tops remains to be seen. 

 

Tom McClellan notes the COT at 12% net short is an historic low reading. So far the COT reports have not resulted in any meaningful rally for gold or silver or any other commodity. 

GLD

John Murphy recommends the use of 13 and 34 exponential moving averages for a reliable signal. 

On the way up from 2009 to  2011,  the 13 never crossed over the 34 until after the top was registered in 2011. A second crossover occurred early this year. It would take quite a rally for  the 13 to cross over the 34. Big resistnace remains at 150-152.5. I suspect a rally will be short lived. 

The Bottom Line

The best palce to be is sidelined. We suggested modest positions in municipal bond funds which are oversold and paying 6.5-7% hyields. 

Socionomics The international Stage

In the 1970s the US lost Viet Nam. The US now stands to lose any serious acceptance as a player in the mid East. This article is typical.  Last night a retired Major General on Fox noted that the rebels need anti-tank and anti-aircraft missles as well as an enforced US no fly zone. Otherwise the rebels will be  beaten by Assad's Air Force and armored tanks. While this may seem like we are straying from the financial to the political, the projection of power makes a nation state. Britain lost its empire  over the two World Wars. A President of the US simply cannot call for the removal of a Dictator and fail to back it up. The Gulf States are watching and are unlikely to come to depend on anything the US promsies in the future. Meanwhile the President prepares to party in Africa while Putin supports Assad. Clearly Putin expects to win in the Syrian conflict, apparently the US just plans to participate. This message will not be lost on the Gulf States.

______________________

A Review from the Sunday San Antonio Paper

We posted the interactive chart showing numerous market tops from commodities to stocks. Here is an indication of increasing negative mood. There is a relationship.  It's the sixth season for True Blood on HBO. Note how the conflicts are spreading,now a vampire has Sookie as his target. Amid the strife humans are in open conflict like never before. Well, art imitates life as the same things are happening from Moscow to Syria to Egypt to Turkey. Here is the review below, it speaks for itself. We have been preparing you for a hardening of social mood. One can see it in the tear gas wafing  across Taksim Square or the shooting this weekend in Chicago.

True Blood

8 p.m. Sunday, HBO Jakle's Picks (Jeanne Jakle reviews television shows for the Express-News)

Under new show runner Brian Buckner, the vampire series has an amped-up feel with a faster pace and more action. In the sixth season premiere, all is in violent turmoil. Blood-sucking Bill Compton (Stephen Moyer) comes to terms with his wicked new powers, and former love Sookie (Anna Paquin) is now his prey. Meanwhile, the humans are in open conflict with vampires like never before, and Sookie and Jason (Ryan Kwanten) steel themselves for an encounter with their parents' eerie and ancient killer.

 

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.

 

It's All One Market

Thursday June 13  2013

This somewhat lengthy article is well worth a read.  The writer makes the case that indeed it is all one market with stocks, bonds, and gold likely to all go down together as they did Friday. 

I have remarked that there is no fundamental reason for oil prices to be this high. Be sure to read Heard on the Street on page C12 today in the WSJ. The author explains that low interest rates made it possible to buy and store oil while selling future contracts against the position. Now that interest rates are rising this becomes a much less profitable trade. At 394 million barrels oil inventories are the highest since 1980. As the oil carry trade is squeezed, traders will start selling oil inventories. Domestic demand has dropped from 21 m bpd in 2005 to 18.6 M bpd now. There fore arise in rates will likely bring a lot more oil to market. 

The Big Bond Picture

A weekly close under 135 for the 30 Year Treasury will be additional evidence that indeed the low in rates has been seen at 2.45 for the 30 year bond. 

The closed end municipals have fallen in price since we looked at them, I took a very small position. Price has already fallen to the third MA, I expect we will see resolution on this by the end of the month. 

WTIC Resolution Draws Closer

Monday June 10 2013

The triangle forming on crude oil draws ever closer to a resolution.

Three of the moving averages are clustered together and the trend is still up, just as in stocks. This leaves me wondering if we will experience a July 2013 high in crude oil just five years out from the July 2008 high at $145?

GDX Looking a lot like 2008

The red arrows spotlight a month of activity at almost exactly the same price level, on the way down. That is Sept 2008 on hte left and April 2013 on the right. Since April  the market has railed to rebound. I frankly don't see any support until prices break a lot lower. 

Stocks Bounce from Oversold Condition

Weekend June 8, 2013

 It's getting ever harder to do business in the US, argues Niall Ferguson. and more stimulus won't help. Our institutions need fixing. 

Review Weekend WSJ Page C1

I mentioned Niall's book Civilization last fall in my posts. This article is adapted from his forthcoming book, The Great Degeneration: How Institutions Decay and Economies Die, to be published Thursday.  Don't miss the letter from retired professor John McElrath  on page A 14. He correctly makes the point. We hear about 'people willing to sacrifice lucrative private sector careers' by people in public service positions. Like Professor McElrath I am thrilled to be an Associate Professor with an office, computer, network and phone all paid for by the University. It is getting harder and harder to duplicate the lifestyle of public service in the private sector. Last week we noted the lavish economy surroumnding Washington DC, and the reasentment over Apple's success.  Last week we noted that US markets seem to be topping while Asian Markets seem to have finished a  two year decline. The move world wide is to Asia. 

I just finished re reading this edition before posting. I notice the exact title of the Ferguson article is

How America Lost Its Way

Note the use of past tense, rather than

Is America Losing Its Way

Summation Index

The reliable summation index has fallen enough to make the case for some sort of a bottom. We had thoght the May 22 high was it but Friday's action was impressive. The markets may make a run to a higher high later this week. 

Weekly Hgh Low Indicator

The SPX is the solid black line. The Red Blue line is the High Low indicator. Anything is possible so we will watch the daily version closely this next week. But again this makes the case for a potential low.

On Balance Volume

OBV in the lower panel shows no sign of pulling back, the Race is On as George Jones might say.

The FED continues its bond buying spree and that money is going into the stock market. Fund mangers fearing lack of performance on their part are still buying. 

Crude Oil

Crude oil appears poised to make another potential break out move. This re enforces the idea that stocks may do the same. The two markets, oil and stocks are highly correlated.

Bond Prices Retreat on Stock Rally

We drew the vertical lines to make the point that bond prices rise when stocks retreat as on Thursday.

But Friday the opposite happeend with bonds falling as money rushed back into stocks. 

We have suggested this market action has the look of 1987. Then stock priced advanced from March to August while bond prices fell significantly. This is happening again.Finally bond yields were so much more favorable than dividend yields that stock priced crashed that October and bonds rallied. 

REITs

Money has exited REITs for three weeks in a row, note the one day rally Thursday just like TLT.

IN the weekend WSJ on  page B5 note PIMCO's Total Return BOND fund experienced its first monthly outflow in May. I suspect some of that money found its way back into stocks this Friday. 

MUH BTA Closed End Bond Funds

I bought MUH at 15.39 and BTA at 11.64. I have orders for other funds at lower prices. Many of the closed end muni funds are yielding 6.5%. I only bought 200 shares of each, I think we are oversold enough to make this a decenttrade. 

This article also notes the irrational valuation of CEF. I think the munis are a better bet than the REITs however.

The Dollar

Gold bugs keep claiming the US Dollar is falling, it is not. And I am turning more bearish on gold and slver. The Dollar is pulling back but rose Friday while Gold was down $30.

Gold Ratio to Stocks

I have made reference to Steve Kaplan's cheer leading for gold and commodity stocks. I suspect the gold bugs are incorrect that a rally is about to begin. The ratio chart of paper GLD to stocks fell again Friday.

 Silver Gold

 

Gold

Gold has been unable to take out its 34 day Moving Average.

It has never gotten blose to the big breakdown at 1525.

A break of the blue uptrend line from the April low will surely trigger many stop sell orders.

I am suspecting this market is headed for 1250.

The Canadian Dollar rallied in strong fashion the last few days. This did nothing for the gold or silver price.

Silver 

After two months of consoilidation, silver fell again on larger than usual volume Friday. Taking out the May lower will likely take this market sharply lower. 

 The Bottom Line

Stocks remain well bid and could go higher this week. Internal indicators have pulled back enough to allow that to hapen. Bond prices are sill falling shoring renewing our view that eventually bond and stock prices will be irrationally valued. Gold and silver put on a very poor show Friday as the Canadian Dollar rallied. 

Social Mood

In our 1973-74 analog, scandals continue to mount. Now we know Verizon regularly turns over phone records to the NSA. Lower level IRS employees contradict higher ups claiming that indeed they were directed to investigate targeted groups of citizens.

Internationally, Qusair fell to the Asad regime in Syria. It connects Damascus with the Russian Naval Base on the Mediterranean. Putin lets Secretary of State Kerry cool his heels for three hours in the hallway before meeting with him. Putin is winning the day and increasing his inflence in the Mid East.  Ralph Peters saw this coming back in 2010.

Will the Chinese premier feel obligated to pull back on Chinese cyber snooping?  I doubt it, what is the risk?

At any rate all of this parallels the decline in American influence in the mid 1970s. Did you notice the riots in neighboring Turkey this week?  Is anyone noticing the swelling numbers of refugees in Jordan, which used to be a reliable US Ally?  Ignoring the Middle East would be a mistake even if in fact the USA was forging ahead on energy independence, building the Keystone Pipeline, etc, but it is not. Couple Ferguson's comment on the difficulty of doing business here, the increasing scandals, the lower level of influence (read distrust as an unreliable partner) and you  have the formula for uncertain tmes ahead.

thanks for reading The Market Perspective

[email protected]

 

 

 

 

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.