The caution that lead last weeks posting is still valid today, so I’m going to repeat it:
First a reminder: Check the markets under the Racing Stocks tab at the top! The 10 year SPY chart reminds us we are still in a technical bear market. We moved through the 100 day moving average line, approaching from the bottom. Bear market rules say that is the highest risk time (notice that prices fall away to the downside from those moving averages when in a bear market with stock price below 100 below 200 below 300 day Simple Moving Averages – the SMA Stack.) Until we have had that SMA stack rollover to the other side, we are technically still in a bear market and under bear market rules (i.e. trade a rally, don’t trust it; when in doubt, be out. Think In Cash.)
My evaluation of that 10 year chart leads me to think we’ve had the bottom of this bear market (RSI hit 20 / low, volume spiked high, second dip down in prices had a higher RSI, MACD crossed to the high side, DMI / ADX inflected, etc.) but it’s not yet proven (blue DMI+ cross above red DMI- with MACD above zero and prices above the SMA stack; preferably with a ‘retest’ where prices return to the SMA stack from the top side, touch it, and move away upward…)
By definition, that final bull market all clear will not happen until well after a rally off the bottom. So we trade into the rally, then watch for an exit if we need one. For the next few weeks, we can expect a continued battleground between exhuberance (given how much we’ve already rallied) and fear (as short sellers try to drive the market back to the prior low levels). IF you are willing to watch your stocks and trade out on a nosedive in the market, go ahead and hold onto those stocks for a while. If you will not (i.e. you just want to buy something and forget about it for a year) you are taking a lot of risk for now. I’d suggest buying large dividend stocks, REITS, oil & pipleline trusts, BRKA, basically cash cows and managed investments.
On the 1 year daily chart, the SPY has crossed the SMA stack to the topside and even the 25 day Simple Moving Average has crossed both the 50 and 75 day SMAs (which have both gone to zero slope). MACD is above zero and still ‘blue on top’ while ADX / DMI has blue on top and rising, red below and falling and ADX (the black line) inflected upward indicating growing strength to the move. This all argues for a continued sustained rally. The only big negative I see is that the IRA funding is over and both market makers and short sellers will be expecting a pullback for at least a couple of days (and they have the financial clout to move markets).
This week started with the price falling on Tuesday and Wednesday morning, then running to the upside through Thursday and Friday. On the 10 day chart it looks like stair steps rising to the right. That’s what you want to see.
The charts on this posting are very large. On a Mac with Safari, “CTRL” and a mouse click lets you open them in another window for better viewing. Other browsers, YMMV…
Here’s a 10 day houly chart of the Dow 30 Industrials (DIA), the S&P 500 (SPY), the Nasdaq tech companies (QQQQ), the Russel 2000 (RUT), and both a Brazil fund (EWZ) and an Australia fund (EWA). It also has a ‘short fund’ (SH) on the chart so you can see what being short this market is doing right now. We also have EWO, an emerging Europe Austria fund and EWW for Mexico.
This is a live chart, so my comments will describe how it is now, but in a week it will be showing new data and a new week. Since I think it’s more important to be in touch with what the market is doing NOW than to preserve the historical chart, this is, IMHO, a reasonble choice. Just don’t be surprised if the chart I describe is not the one you see a few weeks from now!
EWZ went flat for the week, while EWW, Mexico, actually outperformed! That needs a bit more investigation.
What About Oils?
XOM Exxon Mobil - Largest, U.S. / Global COP Conoco Philips - U.S. with Russian exposure CVX Chevron Texaco - U.S. PBR Petrobras - Brazil PCZ Petro Canada BP British Petroleum STO Norway E Eni Italy TOT Total - France RDSA Royal Dutch Shell IMO Imperial Oil - Canada Oil and Oil Sands SU Suncor - Canadian Oil Sands SSL Sasol - South African Synthetic Oil Company
They had a flat to down week, especially the U.S. oils, probably based on the announcement that the EPA has decided CO2 is to be regulated (so folks dependent on carbon consumption can look forward to more costs).
So what happened in the Market?
After a long run to the upside, the market came through options expiration Friday with some volatility and short covering, but still in a bull run (though weakening and getting a bit old.)
QQQQ Nasdaq 100 mostly Tech companies DIA Dow Jones 30 Industrials SPY S & P 500 largest companies in the U.S.A. MDY Midcap (Middle sized in terms of market capitalization) RUT Russel 2000 - a collection of 2000 companies from small to large. EWZ Brazil fund EWA Australia fund EWO Austria fund EWW Mexico fund
At this point, I am ‘market neutral’ on the SPY and DIA. (That implies a rolling bottom trade range eventually resolving to the upside; which further implies short covering and bottom fishing action by others, which further implies that there is trade action available in some of the more beaten down sectors like housing and finance: trade the “dead cat bounce” in those sectors but don’t trust them, yet.)
There was soft volume on the rise of SPY. ROC (Rate Of Change) has gone flat and momentum says stay in.
What sectors won this week? They are likely OK to start bottom fishing. Take a look at Autos, Tires, even life insurance. Never invest in an airline… Here they are:
16.50% Full Line Insurance 13.92% Tires 9.64% Paper 9.64% Forestry & Paper 9.01% Platinum & Precious Metals 7.91% Specialty Finance 7.59% Home Construction 6.38% Hotels 6.32% Recreational Services 5.98% Travel & Tourism
For some reason I can’t get excited about tires. Maybe because there are so few players to choose between. But it makes for an easy decision. GT Goodyear or pick one of the other 2 big names: CTB Cooper or BRDCY Bridgestone. Maybe I ought to be… this is two weeks with tires up.
Finally, my ” Rorschach Race” (under the “Racing Stocks” tab up top) looks like the shorts have been losing money.
EWJ Japan fund SHY Short term bond fund SPY S & P 500 EWZ Brazil fund FXI China fund SH Short S & P 500 RWM Short Russel 2000 EPI India fund EWQ France fund EWP Spain fund EWG Germany fund
FXI – China is a leading candidate, per the chart, with EWZ, Brazil right behind. Though it also shows that sitting in cash or near cash was probably the least traumatic and most comfortable strategy, the emerging markets are now beating that strategy with Japan (EWJ) and an India fund (EPI) also now winning.
What Is Our Context
Let’s look at the S&P 500 largest stocks in America compared with some other kinds of assets; a couple of month maturity bond fund, oil, gold, Yen. We are in a bear stock market, having a bull run.
What is this chart? It shows a comparison of a few different assets over a period of several months.
SPY The S&P 500 ETF GLD Gold ETF USO Oil ETF FXY Japanese Yen currency fund SHY 1 to 3 year U.S. Treasury Bond fund FXE Euro currency ETF SLV Silver fund BZF Brazilian currency ETF EWA Austria ETF WOOD A wood and paper products fund
So what do we see:
SHY – Shorter bonds / bills are very stable. In bear (falling) stock markets, you want to be in bonds; but in bull (rising) stock markets, you don’t want to sit in bonds and miss the market rise.
EWA – Australia and as we saw in an earlier chart: EWZ Brazil, are off to the races. Even EWC, Canada has joined the run.
FXY, FXE, GLD and SLV – These all show dollar stability for now. The best movements will be in things not part of the ‘inflation dollar falling’ trade for a while. This argues for stocks as a better asset than gold or Yen. Interestingly, BZF is rising against the dollar. Money is flowing into Brazil.
USO – U.S. Oil. What does this ETF tell us? Oil bounced off the bottom and may have entered a ‘trade range’ for a bit. It has gone flat.
This continues the theme of a commodity lead recovery. Even WOOD is moving higher. PCL is a REIT in the timber business that we will start to watch and which I’ve purchased.
The market This Week
We moved through the moving averages on the daily chart, but still have a ways to go to reach the 200 day moving average on the 10 year – weekly chart. Last week I said: “Until the bear market is confirmed over, you must assume that you will fall away to the downside from that touch of the moving averages on the daily chart, but if we hold the break through them, the next stop will be the moving averages on the 10 year chart”. That is what we ought to expect (with some backing and filling). A move to the 200 day line on the 10 year chart.
What about Brazil?
In this run Brazil broke out to the upside with greater strength for the last few weeks. Brazil has been showing more strength than SPY in this bottoming process. I’m going to put up a chart of EWZ and you can compare the indicators. My take on it is that Brazil is a winner here. But is the run getting old?
A word on REITS – Real Estate Investment Trusts
Taking a look at “The REIT Race” is interesting. It looks to me like a buying opportunity. Some of these REITS had a spectacular week.
Conclusions and Likely Actions
The metals and miners took a pause this week, along with some of the emerging markets and oils. A lot of the action was in consumer cyclicals and economic recovery plays along with short covering in financials and real estate.
I will likely cut my copper position back to about 1/2 and think about repositioning some of my ‘winners’. I’ll post an update here, probably Saturday, after I’ve done a more detailed review.
It will also be important to watch for a ‘dip’ next week. A good time to buy more (but if you are completely out of this market, you want to start ‘scalling in’ with buying some positions, even if only 1/4 of your ultimate goal.