The Market Perspective

A Fork in the Road

Friday May 30 2014

The markets  are proving they do what they want to do regardless of the news. While Congress and the PResident are more unpopular than ever, the market is quite popular. The next few days will tell us if indeed the markets are going higher still.

Dow

Break out or Fake Out, the Dow has been consolidating this year and poked to a new high. Will the market move higher or succumb to the seasonal weakness of the summer by testing that 200 day MA again?

Russell 2000

This is the only index really to have broken down. Now what? IT really has nto broken yet, just consolidating. 

SOX Semiconductors

Semi conductors are literally at the heart of tech, and this market is

consolidating

making a double top

getting ready to break out

We will know soon.

NASD Summation Index

As always we return to the internal indicators. It looks like the internals have been correcting. If this continues to turn up, up, up the NASD will go. 

QQQ and Summation Index

 

Confirmation?

NYSE and Summation Index

I don't really see any big clues that the market was about to correct from January to february. Could that happen again, or is it equally likely the market goes higher?

Weekly NYSE

Observations

This has been an incredibly strong bull market

It is 2250 points above its 200 week MA.  That is 26% above the 200 week MA. 

It would take a tremendous change to derail this upward momentum. 

Memorial Day Weekend - Taking Stock

Memorial Day Weekend May 25, 2014

The Russell 1000 Index is a stock market index that represents the highest-ranking 1,000 stocks in the Russell 3000 Index, which represents about 90% of the total market capitalization of that index. The Russell 1000 Index has a weighted average market capitalization of $81 billion; the median market capitalization is approximately $4.6 billion. The smallest company in the index has a market capitalization of $1.8 billion.

Which means the Russell 2000 which we showed turning down last week, represents but 10% of the total capitalization. 

Russell 1000

The major stocks continue to sail on without so much as a blip in the MAs.

Could the NASD be Ready for a Blast Off?

QQQ

After testing the  34 week MA, QQQ looks ready for another assault onthe previous highs. 

 

 

Q

The Summation Index in red black bars has declined to a point that usually brings a rally. Consider November  2012. The Summation Index was slightly lower than now but reversed as a rally ensued. 

XHB Home builders

Here is a nice turn in a market. After correcting, it is headed up. 

Here is a list of LIquid PIpeline Companies via Master Limited Partnerships

I own EEP and it has simply rocketed up from the sub 30 level. 

SXE

And so I cast around for another issue that  might have pulled back. That candidate would be SXE.  The problem is that their financials look just awful, lots of debt and very little cash with a whopping 9% dividend to support. I just looked at several other small cap Energy Plays. They all seem to have

Great prospects - SXE for example has a big bet on Corpus Christi which has billions of port projects underway, remember the Panama Canal should eventually be wider increasing Gulf of Mexico Port Activity

Third World Debt Ratios - over 50 to one

LIttle cash

Either big dividend requirements beyond their net income or no dividends

In short, heloo Energy Routlette. Now that I think about it, that also describes most of trhe high tech start ups, one just has to guess which is the next instagram. 

THere fore I will stay away from any small cap recommendations in this area

US Dollar

 

We do not have a cross over of the MAs yet, this needs a few more weks but looks encouraging.  

Crude Oil

In the final phase of a bull market, commodities have a good run. This was the case as oil peaked last in 2008 in July that summer. It may be that we are seeing a similar move again eight years later. 

Crude OIl versus Russell 1000

One can make the case that crude has at least pulled even with stocks. This ratio is starting to advance on the daily chart. Coupled with the oil chart above this is bullish for the energy sector. 

Halliburton

In my weekly newspaper column I concluded by saying yes everything oily is up, but one has to be concerned that issues like HAL are so high above their MAs. Halliburton is a major player in fracking. Recall that HAL located a major headquarters to Dubai, making them very much an international player. 

The Bottom Line

Stocks look poised to move higher and energy higer still. The Dollar looks to be bottoming, and the Euro topping

Social Mood

Tycoons spurn Silicon Valley for Texas Oil  THis is typical of a mania really gaining steam as more and more gamblers pile in at higher and higher wave counts. Note the comments about $49 steaks and sipping bourbon.  I had lunch a few weeks back  at the Country Club in Pleasanton Tx just south of San Antonio. This town of 10,000 is booming. The bar had five flat screen tvs following various sports events.  Hello oil boom.

This further reminds me of the words inthe Johnny Cash song

I bet there's rich folks eating in a fancy dining car
They're probably drinkin' coffee and smoking big cigars.
Well I know I had it coming, I know I can't be free
But those people keep a movin'
And that's what tortures me...

Europe tires of austerity.  Right wing, read we don't like the EU, parties won across Europe in elections this weekend. We mentioned several times in our posts that nothing really changed in Europe, we just stopped worrying about it. 

Unemployment remains staggeringly high in European countries.  The extensive safety nets of these countries means that people are not inclined to move as in the US.

The countdown to complete collapse in Venezuela continues.

Another anecdotal example of the California Exodus. Whatever one says about his boats no one has sold more 26' sailboats than Roger MacGregor. He remained in Newport Beach to manufacture his boats which I found puzzling. But now that his kids are running the show, well

The Sharps have moved from California to Florida to escape California’s rather unfriendly high taxes and regulations, and to be nearer to their major United States and overseas markets and to a much larger supplier base.  They have set up an active and enthusiastic dealer network.

The point here is that in the US business people vote with their feet. And so Texas gains in Congress while NY and CA lose representatives. In Europe people simply stay put which guarantees that fixed policies only make things worse. The above comment also reflects the globalization of markets. 

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.

 

 

Sky Cycle Process Eliminates Carbon Dioxide

Newspaper column for Monday May 26, 2014

 

Texas Technology Deals Carbon Emissions a Setback

Crude oil prices moved up nicely this week. This seems to happen on a regular basis as the ‘summer driving season’ approaches. Let’s take a look.

West Texas Intermediate trading on the New York Mercantile Exchange rose to $104.07.  That is a new high for 2014 but below the previous highs of the last three years. Those were in the $110-$115 range. Brent Crude, the North Sea version, followed suit closing at $110.55 on the International Commodity Exchange ICE. The government has reported the biggest drop in weekly inventories this year, spurring the prices higher.

The markets have created spiders or exchange-traded funds ETF for near everything these days. Essentially these are composite collections of representative firms in a given industry.  The XLE for the energy sector has as the usual suspects in its lineup including Exxon, Chevron, Schlumberger, and Conoco Phillips as the top four.   The good news is that it just hit a new high of $94.43, way up from the 2009 low of $35. It last tested its 200 week moving average in the fall of 2011 around $58. It has not tested that 200 month moving average since.

But the Permian Basin has always been more about oilfield service, even given the huge drilling/fracturing boom. The XES  ETF includes Weatherford, Key Energy, Diamond Offshore, and Carbon Ceramics; Halliburton comes in as the tenth largest holdings. The XES is bumping up against the old 2011 highs around $45, trading at $45.92. But it gets even better.

One way to judge an out performer is to compare it to a broad index of stocks such as the S & P.  A ratio of the XES to the S & P index reveals a reversal in February of this year. The ratio has advanced in the XES favor and is now attempting to move higher through various moving averages. In short, the XES has been outperforming the S & P on a daily basis since mid-February.

The EPA is tightening restrictions on power plants. This continues to result in the closing of coal-fired plants.  The Energy Department admits this will raise electric costs an average of 4 percent this year. By 2020, prices are expected to rise another 13 Percent, not counting future regulatory costs( my emphasis).   Interestingly there is a new technology on the horizon to help fight just such potential pollution.

A $126 M plant  will open in San Antonio October 21 this year. The plant removes carbon dioxide from industrial waste and turns it into sale able products.  While this sounds like a Field of Dreams, heavy hitters Zachry (construction) and Conoco Phillips are board members. According to the corporate website the process works as follows.

The SkyMine® technology can be operated at a profit, due to the sale of byproducts. The solid carbonates and bicarbonates are saleable for use in bio-algae applications. SkyMine® also produces green chemicals, such as hydrochloric acid, bleach, chlorine, and hydrogen, which are also profitable and can replace less environmentally-friendly products in market.

The fact that the SkyMine® process removes virtually all SOX, NO2, and mercury and other heavy metals that would otherwise be emitted by the plant means it can replace existing scrubber technologies and eliminate hundreds of millions of dollars in capital expense and tens of millions of dollars in ongoing expenses.

 

 The Sky Cycle process captures carbon dioxide at costs estimated between $16 and $25 a ton. This is much lower than current alternate methods running $150 to $450 a ton.   Learn more about this process at www.skyonic.com.

USA Energy Independence continues to strengthen. US Crude Imports hit a 17 year low last week. Crude output rose to 8.43 million barrels per day. Ironically this is the highest number since the last occurrence in October, 1986. The irony relates to that being the time of the 1986 crash in oil prices to $12.

For the time being, things are decidedly looking up. The energy and service sector are outperforming the overall stock market. XLE energy ETF is up 7% to the SPX rise this year of a mere 2%. And technology to reign in those pesky carbon emissions is coming on line, right here in Texas where it is needed.

And so the boom continues, though I do worry that so many energy stocks are so far above their 200 week moving averages.

Something about the Euro

Friday May 23, 2014

Recall I asked just days ago, did anyone ever do anything to improve or change the Club Med Euro Crisis situation?

Tucked away on page4 C8 of today's WSJ is a piece, Firm Wary on Portugal. Blackrock sold its Portugal Government bonds this month after buying them earlier this year. The manager is concerned about the health of the Euro Zone.

Euro

Check out Trader Dan Norcini May 22 2014

Portugal

This index has rebounded back to the resistance zone. And now it is turning down. 

Discretionary Gains on Staples

Consumer discretionary is aligned with risk on thinking. Discretionary, XLY is now overtaking Staples, XLP. This suggests, surprise a bullish move for big stocks. This is in line with the break out on oil we discuss in our weekly newspaper column due out this Sunday. 

Memorial Day is likely to be celebrated over the next two Mondays. Markets are typically up before a three day weekend, and that is the case today. 

 

The Ten Month Moving Average

Thursday May 22 2014

Ths chart adds a ten month monving average. Like our weekly advnce decline line it is a near infallible indicator. Like anymoving average it lags but oncein place it tracks the move for years. Richard Russell liked to use the Dow 65 Composite, all the Industrial, Transport, and Utilities in one index. 

It is still headed up. 

Russell 

WE have a few days to go to the end of the month. But at 1120 for the 10 mma, the price is around 113. If we get a lower close that will be the first real indicator of a top in one index. 

Weekly RUT

It has been over two years since we had a test of the 200 week MA. Loks like that may be in the offing. If so this is the ide John Murphy has proposed, that November will bring a good buy in the market. IF the markets fall that far we would certainly be due for a bounce by then. 

Did the Home Mortgage Problem Ever Get Fixed?

Wed May 21 20141

Can the Top Ten Percent Prop up the Whole Economy?

Smith wonders if there is enough money at the top to grow the economy, uh, no there is not. All of that is evident in the stats in my last two or three posts as well as below about mortgages. 

Millions still stuck with homes worth less than mortgages.

The article reports that 9.7 million have underwater mortgages. In other words, the problem never really got fixed, it just got papered over. 

In this space I also asked, did the Club Med Euro problem ever get fixed?  The answer to that one is also no. So the improvement has been FED purchasing along with other Central Banks of bonds. That money found its way into the stock market. 

As we mentioned in the previous post, there are apparently millions of unsold autos around the world. 

The evidence of another top in the stock market continues to mount. 

Unsold Cars amid Other Dots to Connect

Wednesday May 21, 2014

Please take a look at these photos of unsold cars around the world.

 

Have any readers seen similar stories to this?  IF so let me know

[email protected]

The housing bust of 2008 was the result of unsold houses piling up. That then leaked into a lack of demand for cars. Now we have

too many cars

too much student debt

too many people simply not working

Deflation is not over yet if that is the case.

Lackluster earnings won't support stock prices.

Credit Suisse admits to aiding US citizens in evading taxes.

Worker Productivity Turns Negative.

WSJ Today

Page C1

WMT reports fifth consecutive quarter of declining sales. TGT down 5% in sales from a year earlier. 

CAT dropped 3.6% yesterday, global sales down. 

Connect the dots here and we have an over taxed plurality desperatly trying to hold on to their money,  a less productive work force producing fewer profits.

How long can stock prices stay this high? 

Market Backtesting Breakdown

Tuesday May 20 2014

NDX

I see various sites are talking about the strong bio techs and such, but the NDX is failing to break above its break down line. 

SPX

The SPX is failing at its upper line as well. 

SPXU

Here is the mirror image providing continued buying support for this contra play. 

Stocks are breaking down while most sites are still prattling on about tech stocks being hot. 

Things to Do While the Market Churns

Tuesday May  20, 2014

I received a fine message from a reader today. He asked if I had toured San Simeon, the Hearst Castle.

Indeed I have. My room mate and I, mere lads in our 20s, were so taken with it we went back a second time. IN 1973 it offered three distinct tours it was and is so large. 

A great summer read of the larger than life Hearst is The Chief. This is  a very well researched bio of his life by an academic historian. Did you know for example that in his race with Teddy Roosevelt for the Presidential Nomination, he actually offered to outfit his yacht to US Navy standards for gunboats, assuming of course that he received an Officer commission to be the 
Captain?  The US Navy demurred. Recall that TR got an officer commission from oe of the Western Territories and assembled his own troops gathering here in San Antonio's Menger Hotel. Great stuff...from another era. 

Summer Reading

In addition to The Chief we suggest The Pitchman.   This is Gladwell's story of Ron Popeil, the larger than life TV pitchman. 

Gladwell has also serialized his columns in Outliers  and The Tipping Point.  His story of Paul Revere versus Willaim Dawes who made a similar ride that night illustrates what it takes to bring  about a Tipping Point. 

HIghly recommended for your high school seniors headed to college required history courses would be

Paul Johnsons' History of the American People.  If your off spring can complete this  at least a B awaits for the required American History from 1492- 1865 and  1865 to now classes. 

American Caesar: Douglas MacArthur is more than a bio, as the saying goes, there is no history, only biography and that is true of both these volumes. This lays the ground work for the move East that we are now transitioning from Western Dominance. 

IF you are not happy with this age be glad you missed A World Lit Only by Fire by Manchester. This is the story of the mIddle Ages to the Renaissance, tough times indeed, not for the meek. 

The best mind in the USA may be  Tom Sowell. GEt to know him; his page is here.  Again your offspring will be far better prepared for college with any of T. Sowell's books in tow though that might not sit well with his liberal professors. 

Chasing Yield, Reading between the Lines of the WSJ

Tuesday May 20, 2014

Here is a dose of reality on what the economic numbers really mean.  As he says, stock prices suggest we are on the cusp of a breakout, but bond prices suggest something is wrong. The FED bond buying put stocks this high rather than fundamentals. 

Page One Today

Triple C bond yields fell to the lowest on record, 8.187% on the BA Merrill Index. 

Page A 13

Alan Blinder notest the FED really has no idea how to extricate iteself from buying bonds. 

Page A2

The gap between CCC bonds  and governments is 6.97%, the lowest since Nov 2007. The all time low was 4.14% hit earlier this year. 

And of course November 2007 witnessed the top in the stock markets before eveything began to tank. 

Franklin AGE High Yield Fund

'

How risky is this, well about twice as risky as it was in NOv 2007, ie, the price has about doubled. Unless of course one thinks the rise from 1.20 is 'normal.'

This is the Morningstar evaLuation of AGE, I would disagree with the interest rate sensitiviy but admittedly a high yield fund is a stock in drag, it rises with the stock market. But of course AGE has risen way more as retirees risk their life savings in as shown, the very lowest credit quality bonds. 

Utilities and REITs continue to outperform as well as Master Limited Partnerships. 

We will be watching the NASD this week for whether as John Murphy suggests it is firming or in fact just teasing investors at its support level.