The Market Perspective

An Investing Shift

Monday May 19, 2014

This ratio chart shows that Emerging Markets are now outperforming US Small Caps. 

The CRB to RUT ratio chart looks much the same. So all this FED money sloshing around is now causing commodities and emerging markets to gain in favor. 

RUT

The Bear is a cagey fellow. I suspect that RUT will rally here, staying above the 1100 support level, all the better to convince bulls this is a 'buying opportunity.'  Let's look for a re test of the upper band first. 

After losing 60% of its value this past year, RAX is now in play as of Friday, hence the big jump. The quickest way to get into cloud computing would be to simply buy this depressed company that still has its customer base. Let the bidding begin. This is a big issue here in San Antonio where RAX employs 5700 people. They have created a Silicon Valley type environment in a former shopping mall. Would an outside buyer leave well enough alone, we shall see. 

EWI on Social Mood

Social Mood Turning on Technology By Steve Hochberg and Pete Kendall

A mania is a messy kind of love affair. When the passion goes out of it, areas that were most revered become the most reviled.  Given the fever for technology stocks up to the March 6 NASDAQ high, it is worth paying attention to a sudden emergence of "anti-tech sentiment" in various technology hotspots such as Silicon Valley, Seattle and San Francisco.  Google is one "high-profile symbol/scapegoat, what with its buses and glass," states TechCrunch, a technology news website. Protestors blocked the company's employee shuttle buses, while Google "glass wearers have been ridiculed and banned and attacked."  According to a San Francisco television station, demonstrators in Oakland "climbed onto a Yahoo bus and vomited on its windshield."  An April 27 headline says, "The Latest Anti-Tech Protest Targets Uber." A Seattle weekly attributed the attack to a group that calls itself "The Counterforce," which is dedicated to "the destruction of Uber." (San Francisco-based Uber is an app that connects customers with professional drivers and ride-sharing services. Uber's opponents say it undercuts Taxi and professional driver companies by circumventing local and state certifications.)  USA Today detects a change from the early days of the bull market. "In the past, tech lords benefitted from the presumption that they were the good guys," says USA Today. It cites a "famous 1984 Apple ad" in which "technology -- and by extension the world of technology companies -- was presented as the enemy of control. That presumption is fading." "Silicon Valley has a trust problem and it's growing." Negative mood is spawning "suspicion," "confusion" and rising fear of "technology as an instrument of control," and these beliefs are changing behavior.  According to an April Harris poll, "people are actually reducing Internet usage."  Was it really only months ago that increases in Tweets, Facebook friendships and Candy Crushes were being extrapolated out into exponential profits?  An emerging negative mood is making technology appear dangerous. As Socionomist Alan Hall notes, the deeper the bear market goes, the more the appearance will become reality.

Weekly Newspaper Column

It’s a Gas!

Natural gas prices jumped more than 2% on data that showed producers added less gas than expected to stockpiles. ..Gas for June delivery jumped 2.3% on the N Y Mercantile Exchange.

Wall Street Journal Friday May 16, 2014 Light Stockpiles Pump Gas Futures

 The logical conclusion is that more supply raised prices by the percentage increase in gas. That is the literal definition of a bull market when greater supply raises prices.

We are in a minor energy supply transition. By minor I mean that we are transitioning from one carbon source to another, from oil based fuels to gaseous based fuels. Let’s put that in perspective by reviewing the major transitions in energy history.

The first occurred in ancient Rome. The transition was from human or slave power, to wind power. Recall the scene of Ben-Hur as a galley slave?  The second transition spawned the legend of Robin Hood stealing not only the King’s deer, but his wood from Sherwood Forrest. Widely available soft coal known as peat displaced wood. The third transition was from whale oil for lighting to petroleum from 1848-1858. The world has run on petroleum based distillates namely gasoline and diesel since the arrival of the  internal combustion engine. Coal has been significant for powering first locomotives and then electric plants until the recent War on Coal.

Now we have a transition from petroleum distillates to a first cousin of fossil fuel, forms of natural gas. Natural Gas burns cleaner and is now in abundant supply thanks for fracturing. Several significant events are occurring perhaps off the radar screen that is hastening the move to natural gas.

John Deere and Caterpillar are offering what were formerly diesel engines now powered by compressed natural gas known as CNG. This past week industry group America’s Natural Gas Alliance announced a new CNG refueling station on the East Side of San Antonio. This completes the triangle of DFW, Houston, and San Antonio with CNG now available at truck stops on the interstate. Natural gas emits about half the amount of nitrogen oxide, as a diesel engine

For the first time the Texas Commission on Environmental Quality is offering a $2,500 incentive for drivers purchasing smaller alternative-fuel vehicles. Railroad Commissioner David Porter (originally a CPA from Midland by the way!) notes ‘Texas continues to lead the nation in job creation in the oil and gas sector.’

So we have more engines created or converted to CNG and now we see the beginning of a realistic CNG re-fueling network connecting Texas’ largest Metropolitan areas. Next on our list is a break through in storage of CNG for smaller vehicle. Enter Rush Enterprises and 3M.

From their press release - 3M and Rush Enterprises today announce an agreement to pursue the design, manufacture and installation of a portfolio of compressed natural gas (CNG) tanks and fuel systems for use in Class 6-8 vehicles in North America. The Agreement allows for 3M to supply tanks with proprietary technology, and for Rush Enterprises to provide enhanced fuel systems, distribution and service support. The tanks are 30% lighter and store 10% more CNG.

One of the hindrances in fitting smaller vehicles like light pickups and cars with CNG systems have been the size and weight of a tank that can safely transport the compressed gas. This is perhaps the start of a breakthrough in that area.

And don’t forget that natural gas accounted for 25% of power generation in the US from November 2012 to March2013 according to the Center for Climate and Energy Solutions C2ES.

Amy Myers Jaffe, Executive Director of Energy and Sustainability at UC Davis expects the administration to lift the ban on oil exports as a way to shield itself from criticism as it delays making a decision on the Keystone Pipeline. Recall that the Panama Canal expansion has been delayed but is still due to come available perhaps in 2015. All this means an easier way to ship petroleum or refined petroleum from the Texas Gulf Coast Refineries.

So, we are coming full circle in the transition. CNG re-fueling stations will hasten the switch to CNG engines. Improved storage will mean offering smaller vehicles running on CNG.

The price of BRENT and West Texas Intermediate has been converging. Each has seen lower chart price highs. This re-enforces my belief that crude oil prices are likely to fall further.

The Gathering Storm

Weekend May 18, 2014

The Big Picture

We have been expecting a transitional top similar to 1973-74. That was  a similar period of stagnation as 1966-1984 began and ended with the Dow at or below 1,000, never managing to break out for 18 years. This time some indexes have done that. But the situation from a social mood standpoint is very similar. A sitting President was re elected. His programs are now having difficulty with his own party, Keystone Pipeline, and the foreign policy front is a disaster, then Viet Nam now Ukraine, Middle East, South China Sea, even his wife is tweeting distress calls.  That makes this a similar situation to Bush in 2006 in his second term when he lost Congress.Obama now may lose the Senate having lost the House in 2010. 

Then in January 1973 markets had returned to their high sjust was they have now. We are forty years out from then which is two generations, long enough that not many of the current hedge fund managers remember what happened. An old adage has it that for a real bear to happen, enough time must pass that few are around to tell the story. Already memories of 2008 are history as Geithner assures everyone in the WSJ that things are well on their way. Yet nothing was really done about  the collapse of the Club Med countries. The number on food stamps continues to swell as student debt soars over a trillion dollars. 

Detroit has recovered. In 2008 the highly touted one billion dollar Toyota Tundra plant here in San Antonio shut down three months after it opened. Absolutely no one would have believed that prior to it happening. Now read Terry Box column on where pickups are today. After saving GM from bankruptcy, the Government slapped a $35 M fine on GM for the ignition switch recall, already critics saying it was not enough. So we have come full circle, from  a low of 11 million vehicles sold back near 16 million, and at high prices. Already though we are seeing lots of zero down, zero percent finance deals. 

The transition lower is being led by the NASD 100, the top tech stocks. That would correspond to the Nifty Fifty of 1973. Then too small stocks were hit hard. 

NDX

This is textbook example of breakdown. We have a head and shoulders pattern, a clear neckline, and change in CCI, and the MAs are beginning to break over. Amazingly THE HIGH occurred right to the five year anniversary of the low, March 9, 2009. 

CCI at the bottom shows the big change in the character of the NDX, from bull to bear. The ribbon of Moving Averages, MAs, is bending over. Major tech stocks have been hit.

Social mood towards high tech companies in Silicon Valley has turned quite negative. Our friends at Elliott Wave have an article on the same topic, see later post. 

This is precisely what we have bee nwriting about. When the mood changes, the markets change. 

Russell 2000 Small Caps

The small cap index has already broken all the daily MAs. This is leading the way for the rest of the markets. 

Dow Industrials

The DJIA finally eek ed out a 100 point gain from the December high, and that during the good part of the seasonal cycle from November to May. After May go away may be quite prophetic this year. 

BID Sotheby's

Sotheby's is a near perfect social mood monitor for the markets. Here it registered a sell signal in almost perfect synch with a January top from forty to forty one years ago. I attribute the additional year of FED purchasing at $ 80 B a month for extending the date by one year. Bid has now broken all the daily MAs. 

BID Weekly 

Recall that socionomics holds that maximum mood is registered at the END of a move. With BID that is evident in this weekly three year chart. This past year saw a huge move up and an auction mania. 

IN true socionomic fashion, an Andy Warhol 'painting' really a photo, sold for $105 M in November 2013. That was only two months shy of the last spike up in BID. This is a fitting socionomic moment for this five year bull market. Indeed here is a comment from the article that reminds me of that 1929 quote that stocks had reached a new high permanent plateau. 

“The demand for seminal works by historical important artists is truly unquestionable, and we will keep witnessing new records being broken,” said Michael Frahm, a contemporary art adviser and partner at the London-based Frahm Ltd. “This is the ultimate trophy hunting.”

Christie’s said Tuesday’s sale brought in more than $691.5 million, the highest total for any single auction in history.

As stocks are an auction market as well, this is about as ironic a comment as one could find but typical of top of the market thinking. 

Bonds Nudge Small Stocks Aside

 This ratio chart of bonds to the NDX shows that bonds are beginning to out perform tech stocks. This is also typical of a market becoming more defensive. Note the big change in the CCI at far right as the ratio reversed course. 

Utilities

Even Utilities backed off their recent run. REITs remain strong

EEP

This Master Limited Partnership has caught fire. It offers a nice 7% dividend as well. 

Euro Tops Out

 I don't recall anything really being done about the Club Med countries failing to adhere to the Euro Agreements regarding budgets, etc. Yes some sort of 'austerity' was claimed but looks to me like everyone just stopped worrying about it. Now the inability to 

deal with the Ukraine while Germany and France continue to do business with Russia in arms. Indeed a transport ship is precisely what Russia needs to project power to Crimea and the Ukraine. Be sure to read this one!

improve unemployment which is double digit in Spain and Italy

defend itself

French Stock Market

While most world exchanges have hit new highs, France registers lower highs with Hollande losing recent seats. With Germany and France comprising about half of the European GDP this is significant. 

The Bottom Line

Market are likely at the opposite end of where they were in March 2008. This is happening in the small stocks like the RUT but not in the large caps yet. Bonds via TLT have boomed 13 points since December showing a market becoming defensive. The MLPs and REITs have  also done well

Social mood is decidedly negative regading the high tech sector. This will likely lead the rest of the markets to the downside. 

 

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.

 

 

Bonds Know Best

Thursday May 15, 2014

A Bear Market is Coming

TLT vfersus SPX

RSI for TLT has risen above 50%. We have observed that both markets cannot be right here. Even as the FED buys fewer bonds, bonds are rising in price along with stocks. My guess is that bonds will ber proven correct. Small caps are already falling, as the article suggests, the larger caps will likely follow to the downside. 

2008 - 2011 - 2014

Weekend May 11, 2014

 Thursday we noted the occurrence of a three year cycle with tops in May of 2008, 2011, and perhaps once again at this time. 

Ratio Chart, the NASD versus the Dow Industrial

When the ratio chart above drops, the NASD is under performing the large caps in the Dow. For the last year, May 2013 - May 2014, the NASD out performed the Dow, that is the message of the advancing ratio. 

SPX

The S & P never quite or has not quite made that 2000 level. Both it and the Dow at  16,600 have hit a seasonal resistance. The MAs are still clearly in up trends. 

Al this suggests that topping takes place in stages. The higher risk on NASD is turning down as money moves defensively to the larger caps. 

TESLA

TSLA returns to its 200  day MA. Elon Musk is touted as the latest wonder boy. He shoots rockets to the space station, builds $100 K electric cars, and now is shopping for the a spot to locate the largest lithium battery plant on the Mother Earth. His plant would dwarf anything else currently in existence. 

So is Musk  the automotive Bill Gates or the ghost of John DeLorean?  Beats me. San Antonio is one of the spots he is considering. As a Green Advocate, the local government owned CPS offers a solar farm to generate electricity for his proposed plant. The media darling Mayor Castro wants the plant. But this is quite a different proposition than the Toyota Pickup Plant. That was a proven technology. And it closed with in three months of opening in 2008. Today it is humming along producing the giant Tundra pickup, helped with  the addition of the Tacoma brought from the closed Fremont plant in the wake of the  GM bankruptcy. 

 Currencies

The big story of the week is the giant outside reversal day for the Euro. At the same time the U
S Dollar shown in green shto up. Does anyone remember the Euro Crisis, the Club Med countries that could not stay within their prescribed budgets to keep in the Euro Zone?  Did anything ever change in that scenario?

A strong dollar is likely to dminish the strength of stocks in the US. With Europe unable or unwilling to do anything about the Russian adventure in the Ukraine, the world stopped betting on the Euro currency. 

Read about uncertainty in the Ukraine

The Euro Zone, Germany and France

France in purple now notably trails the much stronger German model  in black and red. Germany hits new highs. France is mired in 2008 levels. With Germany and France amounting to half of the European economy this is important. 

Bonds

Despite FED tapering bonds have enjoyed a 50% recovery. The correction stopped right at the 200 week MA. 

Goldman is betting on a 3.25% long bond yield by year end. The move in bonds is defensive, but will rates finally go higher. 

Rush - 35% of Peterbuilt Sales in the US

 

Rush Enterprises is a major provider of truck services and sales in the US. 3 M and Rush announced a potential game changer. 3M is developing a resin  tank that is 30% lighter than existing tanks and holds 10% more fuel. Ryder and Quantum are also working on CNG storage systems. 

I am thinking this is explaining the drop in oil prices while natural gas remains fairly strong. Large trucks are switching fuel systems. With more efficient autos driven fewer miles, the demand for gasoline refined from oil will  and is decreasing. 

The Bottom Line

Stocks are registering a seasonal warning here. Bonds remain strong. The Dollar recovers against the Euro. The move to natural gas as the new fuel continues.

Social Mood

Ayaan Hirsi Aliwon't be receiving  an honorary degree from Brandeis. Condi Ric won't be speaking at Rutgers Commencement. Nancy Pelosi will be speaking at Berkeley.

The lines are drawn and the left is winning on campus. Ali's rejection is interesting coming as it does simultaneous with the kidnapping of girls in Nigeria.

All of this is an example of what we have written about for sometime. Negative social mood will finally overwhelm the markets. This is happening in the Ukraine but amazingly the left, all agog with a war on women by Republicans, leaves Ali twisting without an audience.

With the election six months out, expect more divisive action, the Republicans kick off Benghazi hearings in the near future.

In our New Civil War, Toyota moves from California to Texas. Actually this makes a good deal of sense as manufacturing moves to Mexico. And Texas is in the Central Time Zone with the DFW airport affording world wide transportation access. But the drain from California continues. 

 

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.

 

NASD Continues to Weaken

Friday May 9, 2014

Here is a look at the various ETFs, biotech's, and semis that are weakening.

After I posted yesterday's look at the weakening NDX, stockcharts suggested the small caps were in oversold territory. That post went on to admit that yesterday's small cap rally faded. 

NDX Bullish Percent

Indeed this indicator is over sold. Let's watch for signs of a rebound, the 65-70 area is likely to be resistance. 

A May NASD Anniversary Top !

Posted Thursday May 8, 2014

We are three years out from NASD tops in 2008 and  2011. Recall that we have been looking for a top in this tiome period. The large cap stocks are much stronger and show no signs of topping yet. 

2008 NDX

Then the markets topped rather than bottomed in the Fall of 2007. An apparent Wave One bottomed in April  2008 and then rose, keeping positive hopes alive. It took until September for things to really fall apart. 

2011

The pattern in 2011 as completely different. Then a low was made in the Fall of 2010 and  high in May 2011. The June dip was a warning and in August things fell completely apart.

2014 So Far

So far this year looks more like 2011. a low occurred this past fall and a high was registered in March. 

MACD has already rolled over in the lower panel. 

Facebook, Price Line, Amazon, Cisco

 

 

CSCO topped earlier this year, I left out Google as it has split and does not show much history though it is down hard. We cannot know when a reall breakdown will take place but money is leaving the NASD arena in favor of teh large cap stocks. 

NYSE A/D Weekly Still Strong as a Bull

Weekend May 3, 2014

NYSE A/D Line

You can read all you want about the jobs report, Janet Yellen's latest pontification, what the Reds and B Blues and Move On,Org and Drugdge are saying, you can read Minyanville and Motley Fool

but until this line turns down we are still in a bull market.

We are in the 1973 + 40 = 2013-2014 40 yera cycle and that suggests we ought to see some sort of top during this seasonal May Month.

EEP

Wow Yes I own EEP but obviously not enough. OKS and TCP have had great runs and look ready for a pull back.

TLT

We had the right idea on bonds a few weeks back, a buill run for sure.  Why are yields falling and bond prices rising in a bull stock market?  Recall that this market fell on the left side when the FED announced less bond buying. What does the bond market know?  Could this be affirmation of an expected May top in stocks?

London  FTSE

London looks more like our market than most, France look awful as does Italy. Did you notice the artcile on Italy in the WSJ this week-it took 40 years to get a grocery store building permit?

The NASD is not nearly as overdone as it was in 2000 bbut it is rather high above the
MAs.

 Bottom Line

We are still focused on some sort of topping action in the stock market in May. 

Social Mood

IMDb states that born in 1967 Julia Roberts never knew she would grow up to be, are you ready, the most popular actress in America.

Neither did I. But hte slick WSJ Monthly Magazine literally swoons over her. Really?

Quick name me your favorite Julia Roberts blockbuster, or ensemble film or Woody Allen flick or well somehting since Pretty Woman and Steel Magnolias (actually I only remembered Daryl Hannah and Olympia Dukakis from that one...)

Now honestly have you beeen burning through your investment earnings buying tickets to see J Roberts flicks?  Her latest will be an HBO show about AIDS. Okay. I do see a string of films on imdb.com but honestly I have clearly let her career slip past me. 

I mean, who knew?

 

I will be out of town the next few days visiting one of my oldest friends. A Viet Nam vet, two tours as a Green Beret, mustering out as a Captain with no college to his credit, he is now suffering the long term effects of Agent Orange. He has lost one leg below the knee and is going blind. He has not however lost his sense of humor or good spirit. I hope to enjoy both the next few days in his fine company. 

If you know someone in this condition or would like to make someone's day afflicted with such, seek them out. Both of you will be better for the experience. 

More later. 

 

 

 

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.

 

Economy Stalls, Market Correction on Horizon

Thursday May 1 2014

Economy Stalls First Quarter

Markets might be in for a 20% correction.  This comes from a source other than John Murphy. But he has suggested a top in May followed by a pretty good correction, noting we have not had one since 2011. This makes the point that teh 50 day MA is far enough ahead of the 150 day that it would take a 20% correction just to get to that level. I mentioned last weekend the distance to the 200 week MA would really set markets back but the market would still theoretically be in an uptrend.