The Market Perspective

When $16.39 Trillion is Not Enough

Weekend Sept 28 2013

 Here is an explanation of the debt ceiling.

Sorry but I have trouble with Greenspan's explanation that it does not matter how much we owe as we can always print more dollars, hello Zimbabwe

Bernie Williams Chief Investment Officer at USAA is doing nothing bout the debt ceiling debate. As he puts it, we just have to let the theater play out. I suspect this is a result of too much fear mongering over the sequester. Obama then hopped on Air Force One spending $100 M to visit Africa. 

 

 QQQ Outpaces Larger Stocks SPY

 The upturn in April is bullish. It is a sign of risk embrace when the smaller stocks outpace the larger. GOOG, PCLN, AMZN continue to power to the upside. 

 NYSE Advance Decline Line

 This long term indicator is either coiling before moving higher or telegraphing a top. I suspect the latter. 

Weekly Advance Decline Line

At stockcharts John Murphy and Art Hill are sure we are in a new bull market. Maybe but the social mood around the world as well as in the US argues against it. And if that is the case the  18 year alternating cycle has been repealed, See our newspaper column posted this week. 

SPX - Five waves near complete?

Our projected top is due in November. If this count is right and Wave One equals Wave Five, three months from August will be November. 

JUNK

Junk bonds are really just high yield stocks. JNK is registering lower highs. 

Bond Yields

After a huge run up the bond yields are consolidating. Again many claim this shows a stronger economy. But the FED does not trust the economy to stand rates over 4% on the long bond. And so no taper, just more stimulus. 

The Dollar

Another campaign throw off phrase was, I want US Exports to Double. This will not be accomplished with fewer regulations or lower taxes or any incentive to hire workers but by simply cheapening the Dollar. Looks like that is underway again. 

Crude Oil

Oil and the Dollar are both down. While the pullback in oil is attributed to lower tensions in the mid east, it seems to me that the 'let Putin, Assad,. and Iran do whatever they want,' is more likely to raise prices. 

Gold and Silver

One can track the musings of the gold bugs at Seeking Alpha or other like sites. Their thinking seems to be that 

-the Evil Empire of Big Banks in league with the FED has hammered the price of gold and silver lower

-this greatly enriched the ositions of those gold and silver bears so they are now in great shape to buy in at lower prices. 

-There is massive physical demand for gold despite the fact that CEF is at a discount and the miners continue falling

-although the only action attributed to the Big Banks is gaming the market lower, for some reason there is a  belief that the precious metals bull market is merelyhibernating, waiting to be re-ignited again. 

-and for some reason although the bears have had it all their way the last couple of years, miraculously once the clouds clear, their bearish stunts will vanish and gold will scamper beyond $2,000 as Central Banks around the world print fiat money

-If the Big Banks got rich shorting the market, why would they stop now?

-I am suspecting there is a message in the collapse of gold and silver but not that the next bull market is right around the corner, no there is something more fundamental going on here. 

 

The Bottom Line

We continue to expect a  high in stock prices this November. 

We also expect lows in gold and silver in the Oct November period.

 

Social Mood

Peggy Noonan's column A Small President on the World Stage confirms my 1973-74 outlook. In 1973-74 Nixon was swept into office with a large majority vote. But he soon got in to trouble. The markets fell with his declining fortunes. The Dow dropped 50% in those two years.

This President is not being taken seriously and no one understands what passes for foreign policy. He says Assad has to go but then lets him off the hook with no penalty for using chemical weapons. He will negotiate with Assad but not with John Boehner. And so we have gridlock in Washington DC. 

So far the markets are up to new highs. As noted in our openning comments, Wall Street seems unconcerned about the fiscal cliff, impasse, sewquester, debt ceiling or whatever phrase is trouted out to describe it this time. I am guessing that impasse forms an early October low leading to a November high. 

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.

 

A New Bull Market?

Weekend Sep-t 29 2013

Note to readers, this is our weekly news paper column which apears in two West Texas Newspapers. 

A New Bull Market in Stocks?

Today there are two and half leaders in the world. One is Recep Tayyip Erdogan, the second is Putin, and the other half is Obama.

Yigit Bulut, Erdogan adviser in Turkey

Some pundits declare we are in a new bull market for stocks.

There is  a serious lack of parallels to the start of the bull market of  1982-2000.

From a technical standpoint, the United States stock market has a clear pattern of alternating eighteen year cycles. Bear market cycles were the norm from 1893 to 1911, 1930-1948, 1966-1984, and currently from year 2000 presumably to 2018. Bull cycles alternated from 1912-1930, 1948-1966, 1982-2000. We allow a two year transition from 1982-1984.

Bear cycles typically exhibit negative emotion in the form of war, domestic violence, and political gridlock.  Typically the stock market ends an 18-year run where it began.  Bull cycles exhibit positive emotion with the lack of war, decreasing crime, political compromise, and a huge run up n stock prices.

The bull market of 1982/4-2000 began with interest rates decreasing from double digit to low single digits. The lack of easy money in bonds and CDs drove money to the stock market. That is certainly not the case now. Interest rates have begun to increase with some preferred and municipal funds already sporting 7% yields. While bulls claim higher rates indicate a stronger economy, it is hard to see how higher and higher rates will not cause investors to be content with safer bond yields than stocks.

The period since 2000 has offered up two bear markets, 2000-2003 and 2007-2009 and two bull markets 2003-2007 and 2009 to now. This is typical of past bear cycles.  With the market at new highs, it would be logical to expect some sort of pullback ahead. Bull markets rarely begin at new highs.

But most of all, bull markets are exhibitions of positive social mood. Inclusionary actions like Clinton’s Oslo peace accord are the norm.

The Iran hostage crisis ended the day Reagan was inaugurated. Last week, while Obama declares Al Qaeda is on the ‘path to defeat,’ but that very group murdered 67 people in a Nairobi shopping mall. Terrorists have now released a video, ‘Minnesota Martyrs’ detailing three Americans giving their lives for Al Qaeda. By the way, Tom Clancy’s novel, The Teeth of the Tiger, features just such an American shopping mall attack with Muslim terrorists gaining US entrance with the help of Mexican drug lords. It could happen here.

And then there is a string of exclusionary events. While Reagan ended the hostage crisis on day one of his Presidency, a year later no one has been brought to justice for the Benghazi  murders.

It has become more and more apparent that the IRS deliberately targeted Tea Party groups at the behest of the President.  The central figure, Lois Lerner, quietly retired from government service last week.

No one has been brought to justice over the Fast and Furious gun running program to Mexico.

It is surely game set match for Obama and Kerry in Syria. Their peace deal to discard chemical weapons now has Assad demanding one billion dollars US to do so. Surprise, surprise…

At the UN this week, Iran President Hassan Rouhani refused an offer of a meeting and photo op with President Obama. This is quite the opposite of the Oslo accord mentioned earlier. Indeed, President Obama declared we (the US) respect the right of the Iranian people to access peaceful nuclear energy. And if it is not peaceful, then what?

Domestically Texas Senator Ted Cruz is performing what will surely be an almost Alamo performance on C Span, displaying his dislike of Obamacare.  This marks the official start of the Obamacare mishaps. One writer posed an analogy that I have only seen that one time. Jonathan Gurwitz in the San Antonio paper compared the Affordable Care Act to Prohibition. He noted that it was obvious Prohibition did not keep eople from drinking. Yet it took years to rescind it. Think about that. 

Of course we could be wrong. But the world looks a lot more like 1976-1978 than 1982. 

 

MYSE Advance Decline Line Flashing Triple Top

Thursday Sept 26 2013

Peter Schiff says not to debt ceiling raise, US is going broke. He has even written a book on this theme. Apparenty Wall St sees some sort of deal. The wSJ suggests this morning that we are closer to running out of cash than Treasury thought. 

Central Fund is still trading at an over 4% discount to NAV, so much for that physical demand story on gold. 

J C Penny dropped 15% yesterday to its lowest price about ten bucks in ten years. With Sears and JCP both on the ropes, it appears lot of shopping malls may be on the verge of losing two imporant anchor tenants. 

Advance Decline NYSE

The A/D line for the NYSE is one of the most reliable indcators of market direction. Once it turned down in fall 2007, note the 13 EMA crossover to the 34, the markets headed down. Let's zoom in on the daily chart for a closer look. 

NYSE A/D Daily

This looks like a distribution pattern in the advance decline at top. . A triple top is in the making after five years of advance. We have been looking for a November top in stocks. This gives considerable credence to that prediction. 

I then aligned the summation index below the advance decline. Notice how it is making lower highs in conjunction with the triple top of the Advance Decline. Taken together this again suggests some kind of forthcoming top. 

Ten Year Note Yield

The ten year note yield is likely just correcting its recent sharp advance. It is hard to see how the uncertainty of the debt ceiling will lower rates. Note the MACD looks to be approaching a bottom. 

US and Aussie Dollars

The confusion over FED intentions drove the US dollar down in green. The Aussie dollar rallied. This may be a short term situation. While the debt ceiling debate might suggest a move away from the Dollar, in fact rising debt levels everywhere cause a demand for more dollars to pay on that debt. I note Ukraine dollar denominated bonds have bumbled

On Tuesday, a 10-year dollar-denominated government bond hit a yield of about 10.5%, according to Tradeweb, up from 9.64% on Monday. That bond yielded around 7.5% when it was issued in April. Yields rise when prices fall. Yields on Ukrainian debt have moved even higher on short-term bonds—a warning signal that investors are deeply concerned.

WSJ Yesterday

That is a 40% increase in yield from April to now. The world debt crisis is heating up again. Most world debt like this example is denominated in dollars. 

Today Dan Henninger suggests Obamacare, with not a single Republican vote, will collaps of its own inefficiency. Below that Karl Rove notes Obama has turned just plain mean. We have predicted increasing negative social mood would mark a coming top in stocks. Such observations confirm that negative mood is growing. 

Qualitative Signs Of a Coming Top

Monday Sept 23 2013

CPA partner income back to $386,000 This article details how cpa firms had their best year since the financial meltdown. But notice a lot of 'growth' is coming from mergers.  Hm is'hunger for rapid growth the same thing as Gordon Gecko greed?

On page B1  of today's WSJ, Horse Prices jump to Pre Recession Levels. One fellow in the horse trading business notes that his business is everyone elses's hobby. In teh Keeneland Aucton a staggering 3,908 yearlings were sold over 12 days. 18 horses fetched more than $1 million. This is of corse in line with recent sales of collectible autos. We reported on the $30 M Mercedes race car.

On page B8 a super bowl seat for the next game may sell for $2600. A 30 seat luxury suite may go for $500,000. We noted the rise in Consumer Discretionary ETF this weekend. Here is considerably more evidence of discretionary items marching to new peak highs. 

This supports our view of a coming top in November for stock prices. 

Significant Market Top in November Lies Ahead

Weekend Sept 21 2013

Mark Hulbert says the easy money may be behind us. Funny I did not realize this was easy.

Michael Gayed on the Fed's dilemma. He suggests FED is running out of options, I agree.

Ultra High dividends from any source are usually a sign of impending trouble. The authors of this article believe these double digit yields are a great opportunity.

As per usual the hapless Republicans are about to snatch defeat from victor with their attempts to stifle Obamacare. The  WSJ Editorial Report today on television reports the Republicans have no reliable end game and may step back from once again shutting down the govt. All of which points to an upcoming low around October 1. 

The Rate of Change indicator overlays the price chart. It is rolling over to a Oct 1-4 low. That would coincide with press specualtion on a government shut down. The 186 point drop Friday kicked off this correction. A final high in November is projected. 

November is five years from the 2008 low and a Fibonacci number so expect tops in stocks and a potential bottom in gold around $1,000.

SPY versus Bullish Percent

Both SPY and the bullish percent indicator are rolling over to an early October low. 

Too Much FED Talk

The REIT chart shows the initial reaction to tapering. By September 1 Utilities, REITs, and municipal bonds had all been hit hard. Larry Summers who was for raising rates hastily withdrew his name. All of this occurred during economic week when the President was declaring his policies a job well done. So no surprise he needed a rabbit out of the hat to perk things up. Then Kohn and Yellen were back in the race, both Bernanke syncophants, read $85 B till you drop.  The big move up on Wednesday then led to a bit of a crash the next two days. By Friday all were wondering just how long the FED can keep the tap open. 90 to  74 is an 18% drop in about three months. 

AEP and a Municipal Bond Fund

We overlaid the MUB municipal fund in black with American Electric Power one of the Dow Utility Stocks. Notice how much these charts look like the REIT chart previously. 

US Dollar

The Dollar took a hit on the talk of higher rates. MAs are rolling over. But I am not giving up on  a longer term higer dollar. This smacks of the FED trying to push the dollar lower.

Fibonacci Relationships

Here are some Fib realtionships. I did not break this down to exact days but the general pattern of 

1 2 3 5 8 13 is evident. This adds to the idea as does the peaking MACD at bottom that we are close to soem sort of top. the A B C formation from the 2008 low is corrective. 

Long Term Crude Oil

Edwin Drake  discovered oil with the first sucessful drilling operation in Titusville, Pa. AS you can see the price of oil shot up and then collapsed as more wells were drilled and oil discovered. What caught my eye though as the action since the first embargo in 1972. I got this  chart from WTRG and so cannot label it But

Wave 1 $15-70 by 1981

Wave 2  $70 - $15 by 1999

Wave 3 $15 - $95 by 2008

Wave 4 $95 - $58 by 2009

Which means Wave 5 is now underway and shold take out the previous high of $ 95 in  2010 dollars. 

COP

Our call on Conoco Phillips as a way to play increased oil prices was correct. 

GSB Globalscape

GSB sold off to 1.35 on a million dollar write off in an investment. The stock then rallied into the release of earnign in August. It has now pulled back in a correction and apepars ready to assault the previous high.

On a day when the Dow was down 186, GSB rallied 4.13%, how many stocks did that?

GSB is a maker of internet secutiry software to allow secure transmission of data on the internet.   I have a position in GSB. Eventually I suspect it will be a buy out candidate as security issues become more important. 

Gold

Central Fund is trading at a whopping -8.3% discount to Net Asset Value. I have stated we would not have a rally in gold  until CEF returned to a premium. 

Once the stock market finally rolls over this is what it will look like. At each low the gold bugs declare THE LOW IS IN, but it isn't. You can subscribe to GLD on Seeking Alpha and read teh anuguish in their headline articles. 

Bottom Line

We expect a stock market sell off into October 1 adn then the high for the year in November. 

The market still reflects epectations of rising rates in municipal bonds, REITs, and Utilities. T Bonds are probabably in a normal pullback correction after their big run. 

Crude oil looks higher. The Dollar got knocked down for the time being. 

Social Mood

The rise in consumer discretionary SLY shown earlier speaks to more economic confidence. But firms are hiring more temps to avoid Obama care. Obama's economic approval is a negative 11.5%.

The arrangement in Syria has gone from Assad must go to Assad demanding $1 billion to remove the weapons he claims he never had. This would be a great plot if Mel Brooks decided to do a diplomatic comedy movie. As it is, Assad and Putin make a laughing stock of the American team. 

With the US pulling back we have murders in a mall in Kenya. The situation in Afghan, Iraq, and Syria is simply WORSENING

Washington DC is dysfunctional and politically grid locked. It is hard to see how all this negative mood is going to support the bull market John Murphy claims we are in. I think rather this is  just a throw over of money looking for a home in a low interest rate environment. This moment looks a lot more like the start of Jimmy Carter than the start of Ronald Reagan. 

We continue to expect a November top in stocks and a low in gold in about that same time fram. 

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.

 

Connecting the Dots

Thursday Sept 19 2013

What happened in the market yesterday makes perfect sense if we just connect the political dots. Here goes.

The stock market has been going up ever since the FED started depositing money in accounts where it would get funneled back to, yes, the stock market. Low bond yields send investors looking for better returns in the stock market. 

A while back Obama tossed out the idea that he would like the US todouble its exports over the next few years, sure who wouldn't, of course there was no plan to increase productivity or innovation, so the only way to do that would be, lower the dollar and cheapen the prices of US goods.

Summers was in favor of letting rates rise, enough of this zero interest rate stuff. But when the Democrats dug in and said no on Summers, that policy was out, and more of the same, Yellen et al, moved to the fore, ie, keep priming the pump with cheap money. 

Obama dedicated this entire week to trying to convince the US that a 2% growth rate is just dandy. What better way to end the week than a new high in the stock market, fueled by the promise of QE 4 then 5 then 6?

And so yesterday REITs and my closed end muni idea finally too off, as did our idea on pipelines EEP, TCP, and OKS. All the government had to do was trash the dollar. 

This screen shot says it all.

Every single closed end municipal fund in this list was up. I suspect they are finally a buy for a nice run up the next two months. As I have noted every pundit who has called for a top in the stock market has been wrong, and they were all proved wrong again yesterday. So perhaps this has much further to run. I have noted John Murphy believes we are in a new bull market. 

here is a typical move

TLT the 20 year government bond fund is at top. Notice the volume surge in late May, I suspect with Summers out of the way this surge will have better legs. BTA had a 7.5% yield on the closing price yesterday. BTA has a the higher low this month than last. 

Exp Moving Averages

A crossover of the 13 to the 34 will be a big postive here. This reminds me of the pullback in municipal prices on Mert Whitney's warning. 

REITs Back from the Dead

REITs, municipal bonds, bonds, oil all pipelines all jumped as did the overall market yesterday. 

US Dollar

The Dollar took a big tumble on the news boosting the other mnarkets. Will this last?  Just scanningMarketwatch and other sites this morning I see Portugal is back in the news, for the wrong reasons. Nothng was really done to solve the European impasse. So for the time being the government yanks the markets higher with stimulus. 

Update  7 12 AMd CST  I just finished reading the WSJ lead editorial, Bernanke Blinks on his wasy out the door. As the WSJ observes, is the economy really so weak that it cannot stand on its own without $ 8 B every month, seemingly from outer space. This is what I meant by, how long can this last? Another fund manager quoted in a front page article, had hoped we wold go to earnings growth to support this specutaion. But, no it's cheap money to the fore. 

Mike O Rourke at Jones Trading says the same thing in these words.

Right now, the FOMC has “a tiger by its tail” - it has lost control of monetary policy.  The Fed can’t stop buying assets because interest rates will rise and choke the recovery.  In short, today’s decision not to taper was driven by unimpressive economic data, the fear of a 3% yield on the 10 year Treasury and gridlock in Washington.  If the economy cannot handle a 3% yield on the 10 year, then the S&P 500 should not be north of 1700.  It is remarkable that the equity market continued to buy into easy money over economic growth.  QE3 has been ongoing for nearly a year and the economy is not strong enough to ease off the accelerator (forget about applying the brake).  Simultaneously, the S&P 500 is up 21% year to date and the average share gain in the index is over 25%.  Maybe today’s action will turn out to be short covering, but if it was not then paying continually higher prices for equities in a potentially weakening economy is a very dangerous proposition.  

Read more: http://www.businessinsider.com/the-entire-state-of-the-us-economy-the-fed-and-the-stock-market-in-one-disturbing-paragraph-2013-9#ixzz2fLD166ZN

Declining Breadth in Stocks

Weekend Sept 15 2013

 Perhaps the most important article to read is the lead editorial in the Weekend WSJ on the coming 

FERC appointment of Ron Binz. When the US should be doing all it can to achieve energy independence, instead the administration will do all it can go kill natural gas as an energy source for the US. 

 

Bullish Percent

In April we thought a significant high had occurred in the stock market. And it did the next month in May, in terms of a new internal high for stocks displaying bullish percentage. This indicator is down but price is up. This is typical of waning momentum in the final stages of a top. Interestingly this past Tuesday John Murphy at stock charts declared we are in a new bull market for stocks and a bear market for gold. I am pretty sure of the latter. The idea that the two bear markets in stocks  since Year 2000 are over flies in the face of the repeated 18 year bear cycles US stock markets have previously experienced since the Dow Jones average was created in  1896. 

NASD  100 outperforms the S & P

The weekly NASD summation index has turned up again, after a frantic up down sequence so far this year. At top the NDX NASD 100 outperforms the SPX in ratio chart form, so it is risk on. 

REITs via SKT Tanger Outlet Mall

SKT is more than just an REIT, it is one of the top five tourist attractions in Texas. Located between Austin and San Antonio, it draws shoppers from Mexico and all over the state. But SKT has numerous locations. The dividend is a mere 2.9% about where the ten year government note trades. It has had the biggest pullback since the 2008 low, just touching out 125 week MA. 

SKT Daily

Recall from the first chart that the market internals peaked in May. And Bernanke suggested tapering off bond purchases. As though a switch were pulled, SKT collapsed eight dollars in four months. Notice the big volume day in a back test of the 50 day MA this month, and On Balance Volume declines. While the weekly chart has the uptrend still intact,the daily looks quite a bit worse. 

Washington Real Estate WRE

WRE is  now sporting a 4.9% dividend at the new lower price has adjusted to the decline in the ten year note price. WRE is shown in green. So the question becomes, is the yield correction adjustment over for the time being or are rates headed higher, meaning REITS and such are probably headed lower. 

Ten Year Note Price Weekly

Here the ten year note price has undergone the largest correction since the crash of 2008. This is the first time it has plunged below its 200 week MA. At top RSI is the most oversold since 2008. By the way, the Summers Yellen debate is really over not much of anything, Either candidate would be a re play of Greenspan and Bernanke. I did see one article suggesting a real change, putting someone like Steve Forbes in as FED Chair, but that won't happen. WIll  the note fall to 118, that may be the case. 

Stock bulls like John Murphy claim higher rates means a stronger economy. Indeed, but higher rates also signal some concern about defaults, and in the municipal sector there is plenty of that on tap. 

Monthly T Note

A higher low than in 2011 is certainly possible and this monthly chart is a slow mover. 118-124 area bears watching. 

Energy

A real storm is brewing in the energy sector. This Administration has abandoned the Syrian Rebels for good after failing to send arms and then allowing a so called chemical weaps on hand off by Assad who has claimed he never had them and then never used them but.....Now Syria's neighbors will be dealing with Vlad (remember my prediction, bet on Vlad?) not the US. While Syria is not a big oil exporter, the reality is a consolidation of power via Iran, Russia's favorite in the region. The Saudis with a military of their own have never shown any interest in using it to project power. 

Now take a look at the lead editorial page A 12 Target Natural Gas in the weekend WSJ. Ron Binz the nominee to run the Federal Energy Regulatory Commission thinks natural gas is a 'dead end.'That comes as large  trucks are making the switch from diesel to natural gas. Let's connect the dots here.

The very worst enemies of the US, think energy supply, have been emboldened in the mid East. The US has finally had a shot at some realistic energy indepdence via fracking,  instead, Keystone XL pipeline is not being built. And an administrator is being installed to make sure Natural Gas has a hard time of it, favoring wind and solar instead. 

Is it any wonder the monthly oil chart is headed up?

SEEC

After three years of correction, Shanghai looks to be back in action. And so demand for copper and steel is up. At top we ahve Freeport McMoran Copper and Gold perking up. 

Gold

Gold looks to be headed to our expected October low. If wave 5 matches wave one, $1,000 looks to be a good target. 

Gold versus the Dollar

The dollar is in red and green, gold is in orange. This shows the inverse relationship. If the Dollar is headed higher, gold is headed lower. Gold bugs thought every rung lower was THE bottom. And they stil believe the eventual start of the bull market in gold will shortly resume. If in fact the Dollar is on a long term trend to the upside, waiting for the gold bull to retun could be a very long wait. 

The Bottom Line

Money flows to stocks as breadth weakens. This may portend a high early this next year ala 1973.  STocks topped in early 1973 before falling 50% by the end of 1974.

Bonds have yet to bottom in price. The decline has  taken JUNK and REITs with it. 

Crude is headed higher ala year 2008. 

The Dollar is also likely headed higher taking gold lower. 

World Social Mood

More than 4,000 people have been killed in Iraq since the start of April, with 804 just in August. Yesterday a suicide bomber killed  20 and injured another 35 during a funeral.

A six day stand off leaves 55 dead in the Philipines; hopes for a quick deal with the Muslim rebels evaporate. 

Whatever nation building was accomplished in Iraq, it is now going the other way in Iraq and Afghnistan. With Putin and Iran now in charge, there is little to dissuade the return of the suicide bomber. It is hard to see a long term bull market starting in stocks around the world with this kind of situation under way. John Murphy has a lot more readers than I do so we shall see. 

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.

 

Stock Markets Advancing into the Fall

Friday Sept 13 2013

Stocks are advancing setting up another high for November, the opposite of the typical weak fall season.

Bond yields continue to climb reflecting economic strength and an eventual reality that pension liabilities in the US are quite unfunded. 

REITs and such are still falling in price. 

China is back raising copper and steel prices. 

The gold bugs remain convinced this is all a manipulated market and the Evil Empire is driving gold prices down but some way some how that will eventually stop, the Evil Empire disappears and gold goes over $2,000. That story is getting pretty tired. 

NDX is well above its longer term moving averages. But MACD turns up at bottom as well as the NASD summation index at top. 

Bond Yields

bond yields have soared some 50% in the last year. Traditionalists argue this means a stronger economy.  There is a demand for money and rates finally rise. On the other hand, there are huge unfunded liabilities in municipal pension plans suggesting serious debt problems ahead. 

China and Freeport McMoran

After all the negative publicity about China, and a drop from 3100 to 1900, China is picking up. At top Freeport McMoran Copper is picking up as well. China has been the driver of commodity prices in the world and so steel and copper are picking up. 

Washington REIT WRE

At this price WRE yields 4.9%. With the 30 year yield at 3.8%, that is probably about the risk premium an solid REIT would carry over the thirty year treasury. 

Gold

The two month rally looks like a fourth wave. We will stick with our call for a low in gold in October. 

 

What is the Next Best Opportunity?

Monday Sept 9 2013

While the gold bugs are busy arguing over whether THE BOTTOM is in, I think a more compelling opportunity lies ahead. Consider this check list.

All industry participants are uniformly, wildly bullish, Check.

A feverish  response to the latest boom has resulted in upstart versions of the traditional shanty towns. Now they are called man camps, often featuring mobile home and RV hookups. This is a result of a shortage of housing in the boom area. Check

Traditional players are betting big on the boom. Industry stalwarts are presently constructing what will be some of their largest facilities on the planet in these areas. Check

The Skyscraper Theory is very much in vogue with new higher than ever structures planned where nothing like this has ever been built before, my conversations with developers are that well Dennis we checked the experts and this time it really is different.  Check

The last instance consists of Calgary Alberta declared a hotter office market than Houston with new structures planned. A 52 story building begins construction in Midland Tx where the tallest in town now stands at 20 stories. 

I am of course referring to the new oil boom form North Dakota to the Permian Basin to the Eagle Ford south of San Antonio.  The fuel for most booms, the Gold Rushes for example, is the idea that a formerly scarce and still scarce resource can be readily mined. Butch and Sundance fled to Bolivia to participate in the Tin Mine Rush. The Comstock Lode silver discovery led to riches for William Randolph Hearst dad. Loans from his Mother financed acquisition of his newspaper in New York. 

But the heart of all these stories is the former lack of supply, Indeed the driving force of the 1970s oil boom was one one but two oil embargoes. The thinking was that OPEC controlled the supply, therefore price would attain a new permanent high. Yet the new permanent high occurred a mere 18 months after the second embargo. 

This time unlike the 1970s, there is no oil shortage. Indeed, there is more oil than ever. The vault over $100, and then $108 has led industry insiders to assume this is a new permanent consequence. But oil has a scant 20 months over the price of $100 in modern recorded history, hardly the making of a new permanent high price. 

Yes, the Arab Spring, Syria, Libya crises have propped up the oil price. But as the industry works around the lack of a Keystone XL pipeline, even more crude is rushed to refineries. And no matter what happens in the mid East, whoever wins needs all the oil income they can get as the mid East produces nothing else of any commercial value. 

All of which is setting up the potential for a new high. 

The price is beginning to assume a sharper and sharper rise, ie a parabolic. This is typical of what happens before a top in a 'hot maret.' And we have the checklist I presented at the start of this post. 

Nex year the widened Panama Canal will be a reality meaning hat even more crude can be shipped, increasing the ready supply everywhere. 

The similarity to the price action of 2007-2008 is rather amazing. In 2007, oil made a new high, then pulled back for several months, and then took off on a tear to new all time highs.  The underlying blue lines then and now suggest a similar pattern now as then. This bears watching. Recall that social mood is always the strongest at the END of a move. Indeed the last $40 of the move in 2007-2008, which would be 40% of the entire move from $12 in 1998, occurred in a mere three to four months. 

With civil wars raging across North Africa to the Mid East, we have a perfect set up for a repeat performance. 

We remain fixated on a potential top in oil prices for February 2014.

NDX Moves Higher as Does Oil

Weekend Sept 8 2013

Oil Prices must go higher.  this article quotes Charlie Munger and Exxon's predictions out to 1940. 

On the other hand, oil prices are likely to drop significantly.  Actually Amy Myers Jaffe hedges her bets by saying a protracted war in the mid East would raise prices for several years. On the other hand if there is no war the prices will fall significantly. 

Both articles attempt to use the vagary of fundamental unknown events to project price. This is  why economists never get it right and invariably assume whatever is happening now, oil prices are rising says Munger, will continue indefinitely. 

The better idea is to simply watch the charts. We are looking for similar patterns that preceded important tops as well as significant weekly reversals.  A rapid parabolic rise in price usually precedes oil topping, and then a dramatic reversal tips the hand as to lower prices ahead. 

Crude Oil

Crude oil vaulted past resistance at 97 and then 108 this week. At bottom the rate of change, the or the change in the slope of the move is advancing. This is what happens in the aster stages of an advance. 

The top in oil in 2008 occurred some eight years from the top in the NASD in early 2000. We are now another 5 years out or 13 fibonacci years from Year 2000. With former doves kerry and Obama in and out of commitments (I did not set a red line, the world did)  to 'do something about Syria, it is not surprising the price is higher. A this point there is little resistance from here to the last high at 145. 

I am still looking for a price high in February, 2014. Five months between now and February along with endless coverage of whatever happens in Syria should be enough to get us back to all time price adjusted highs. At that point transportation costs overwhelm the cost of doing business and price starts to fall. 

Price Adjusted Oil

Notice that in 1979 and 2008, the price went vertical just as it approached the final top. The increasing rate of change now suggests we will see a similar event over the next few months. 

Gold and the Dollar

A reader asks us to comment on the rise in the gold price. We plotted gold in gold against the Dollar in 

red and black, Gold has risen since July on a falling dollar. Note during August that gold flattened out as the dollar bottomed and then started rising. NOtice the MACD is flattening at bottom as it tracks the US  Dollar. 

Gold Longer Term

Gold bounced nicely Friday from 1358.80 to close at 1391. since it did not close below 1364, this suggests a test of the overhead 200 week MA at 14725. Note the downtrend line comes in at that juncture as well. the Dollar closed up for the week and there is tremendous Resistance, ie selling pressure around the 1500 area. Out of an abundance of caution I exited my Small position in DUST Friday afternoon after watching gold stay up all day. 

GDX

There were articles this week about gold miners going out of business. Notice the volume spike a week ago as GDX topped. This is suggesting more downside ahead for the miners and gold. Last week we suggested $1,000. today I see Toby Connor, an admitted gold bull, is coming up with the same target. 

NASD 100

Like oil, (it's all one market) the NASD 100 keeps taking out resistance levels. It closed above teh 3130 level Friday suggesting higher prices ahead. 

NASD Internals

Another reader asks for clarity regarding my every changing position of market internals first calling for lower then higher prices. I am now assuming we have a low in place for the NASD Summation Index. That translates in to the NDX about to breakout of a consolidation pattern. 

QQQ, NASI

While seasonal patterns argue agaisnt being long in Sept and October, the NASD summation index

at boottom has helped predict the moves in QQQ. Will QQQ tack no another seven points, looks like it!

 

Of these four popular tech stocks would you have guessed Price Line would be up 50% since the low last Novermber, me either. One rarely sees a Shatner ad for PCLN anymore. but this is what is powering the NASD 100. 

Interest Rates

With Bernanke on the way out, I doubt a new FED Chair will begin QE number whatever quickly again. Manufacturing stats are improving but the jobs report Friday.  showed more people leaving the work force or giving  up looking.No surprise, a plate of Food Stamps, AFDC, subsidized housing, brings home more than a $12 wage so why work?  Unless the FED embarks on another vigorous buond buying program I suspect interest rates stay up. John Murphy at stockcharts maintains higher rates are part of a stronger economy. Like Bob Prechter I suspect they are an early warning of massive municipal pension problems ahead. 

EEP

I did buy some EEP, one of the largest pipeline companies in the US.With no approval of Keystone in sight, EEP is paying over 7% in dividends. It is back testing the breakout at the $30 level. 

Bottom Line

Look for the NDX to power higher, the SPX held on to gains and shold move up as well, the DOW is not participating as much. Oil looks higher. Gold is probably looking at a test of the 1475-1500 level but remains in an overall downtrend. 

Interestingly the Pope got it right this week calling more military intervention futile. I have written my last two columns wondering at the utter lack of international concern over refugees. That is more likely to cause further breakdown in the area than a few carelessly launched missles. 

My Weekly Newspaper Column

This ran today in the Andrews County News and the Odessa American

A Humanitarian Tragedy

Every Stoic was a Stoic

Where in Christendom is the Christian?

Ralph Waldo Emerson, 1840s

Lat week in this space we urged the President to use his bully pulpit to decry the human misery caused by the Civil War in Syria. To date we have not heard a word on this from either side of the aisle. Oh there are endless stories on how the Senate and House may or may not vote. But does anyone really think that Obama will become McArthur (there is  no substitute for victory) overnight. Even today in Sweden,  Obama is denying he ever drew a red line. No, the world did that he now claims. This hardly speaks to a policy with a clear goal, outcome, or plan of withdrawal.

I suggested that the President demand Russian help to relieve the suffering in the refugee camps. The numbers dwarf the imagination.

• 2,000,000have fled Syria
• 4,250,000 are displaced inside Syria
• Anecdotal example – 130,000 now live in the Zaatari camp in Jordan

Needless to say the lack of sanitation, clean water, and the proximity of so many people in the desert makes disease a constant concern. And once 2,000-3,000 arrive on a daily basis, the camps are likely to exist for a very long time. Yet all we witness in the news are various politicians calculating their own political gain or loss depending on what might or might not be ascribed to even a pinprick military attack. Where is the moral outrage?

As reluctant as the President has been to engage the problem it is near impossible to imagine him staging a long-term strategy. That would entail the use of cruise missiles to destroy the six air bases in Syria. Assuming that give the rebels some relief from air strikes, they will need better armament, which has yet to show up. Then a negotiated settlement whisking Assad out of the country might be possible. A  protracted difficult transition might follow that keeps the bad players, Hezbollah, Muslim Brotherhood, etc, sidelined and convinced resistance is futile and well….. Does anyone think this administration has the courage or stomach to make that case to the public?

This is  a situation more in demand of a  Franklin Graham (BillyGraham’s son) than a bunch of calculating politicians.  Readers can check out his efforts at www.samaritanspurse.org.  At least there is someone in Year  2013 to answer Emerson’s question. 

And the danger that just a few shots fired, see I told you there would be consequences, might lead to a wider conflict is quite possible. Add to this mix the chance that indeed Assad is telling the truth. He never used Chemical Weapons. Rather the rebels used them to force outside intervention. Frankly, that scenario makes a good bit of sense. Unable to get the US to do something for them, the rebels took the President’s dictum to heart and crossed the Red Line.

But, where does that leave us in the oil fields of the US?  The market place is ‘moving on’ from the intransigence of the Administration on Keystone XL Pipeline. Enbridge EEB is expanding pipelines on its existing rights of way. Expansion of the Lakehead System will bring Canadian and North Dakota crude to the Midwest. The Seaway system would then bring it to Gulf Coast Refineries. Rail carries more crude  than ever; 20% more than last year. Valero is expanding rail terminals in California, Louisiana, and Quebec.

Crude oil bounced off its 50 day moving average of $104.71 yesterday and now trades at $108. Our favorite indicator for the Permian Basin Economy the XES Oil Service Index is bouncing nicely today.

Interestingly even the stock market is finding its legs again. We expect the lows were put in this summer which will for once generate higher stock prices in the fall. As for energy, we are focused on an important high in February,  2014.

Dennis Elam Phd CPA blogs on market issues at http://www.themarketperspective.com and teaches at Texas A & M University – San Antonio.

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