WSW – Friday, April 24, 2009

This Week

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 has blue and red weaving (which can mean a stable steady up trend or a roll down Real Soon Now; so we’ll need other indicators to guide us.) ADX / DMI has blue on top and rising, red below and falling and ADX (the black line) has gone flat at a weak 16 or so. That means we’ll need to look at Slow Stochastic, which says we’re late in the rally and due for a correction “soon”, but on a 10 year weekly chart “soon” can be a month away. OK, while we’re here, Williams %R is saying hang in there, while momentum and ROC both say it’s still a rally, but a weak one.

The same basic conclusion holds for the chart of QQQQ and EWZ, but with the interesting point that they are near to touching the 200 day (40 week) simple moving average.

There are a lot of folks who use the 200 day SMA crossover to indicate the end of a bear market. IFF we cross the 200 day average, expect a surge in buying with prices rising accordingly.

My take on this is that the 10 year weekly chart is saying to use a faster chart, like the 1 year daily, but expect a bit more up run for a little while. We could fall away in a ‘retest’ of the prior lows, but just a little nudge higher and at least the Nasdaq (QQQQ) and Brazil (EWZ) ought to start running up even faster. OK, double or nothing on a faster chart.

So what’s the 1 year daily got to say?

It shows, for DIA (the DOW 30 “industrials”) a bounce off a bottom in a falling SMA stack to a flat sideways “dead money” with a possible ‘bottom weave’ of the averages starting. Slow stochastic says the dead cat bounce is over with weakening strength and ROC agrees, though W%R says to stay in.

Contrast that with QQQQ where the bottom weave is over and the QQQQ have started the ‘lift off’ phase of a bull run. The standard chart shows a DMI / ADX saying bull run, MACD saying a stable run upside, and RSI saying no worries yet (not at 80 ish).

OK, lets take a peak at the Bonds Race. Here we have the long term bonds, TLT, rolling down whlie the short bonds, TBT, is taking off. It could easily be folks taking money out of bonds to buy stocks, or folks abandoning the dollar long duration bonds for gold and other currencies. But this sure looks like time to get out of long government bonds to me. TIP (inflation protected) took a little dip, then recovered, so I’d guess that it’s more a dollar dump inflation worry. LQD, corporates, held up too which implies dropping fear that corporations will default.

Putting the pieces together

So what do we know? DIA, burdened with GM and a bankruptcy any day now, and with C City Group with a majority government socialized ownership (and news flow saying that they are probably the only major bank to fail the ‘stress test’) is still having problems. QQQQ with no banks, car makers, or other government afflicted industries is in a bull run. SPY is in between. So we know it’s a sector driven market. You can’t own the whole market, but you can find winning sectors and THEY will be ownable. And you can likely find ownable companies in a pariah sector (like F Ford) that are at least tradable and probably ownable. I’d further leap to the conclusion that this means the major bear phase is over, but there will still be broad market swings down as bad news hits the bad companies. So pick the best and be cautious in damaged sectors. Look outside the USA for some currency protection, and look for inflation protection plays (like TIP, GLD – gold, GDX – gold miners, etc.)

What does the 10 day hourly chart say is happening now?

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.

10 Day Hourly Interval Broad Market

10 Day Hourly Interval Broad Market

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!

This was a crazy choppy sidways traders market. A bunch of sound and fury signifying nothing. So we have to selectively pick individual stocks and sectors to win. Welcome to a battleground market… The most interesting thing here is that Mexico and RUT are both outperforming. Brazil was somewhat flat in comparison. Long run, Brazil tends to grow more, but right now, something is up in Mexico!

What About Oils?

10 Day Hourly Interval 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

Europeans oils rocketed up, while US oils were flat (except COP that has a large European exposure) and PBR the Brazilian oil that often is pushed around by buyers and sellers of the EWZ (where it is a large part).

OK, the ‘oil play’ is on, but folks are avoiding the Democrat Put on the US oils. Buying non-US oils looks reasonably good (especially COP and European) while PBR will have a longer term win and shorter term tradable volatility.

So what happened in the Market?

Recent months - A Tale of Two Markets

Recent months - A Tale of Two Markets

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?

80.84%  Automobiles Index
52.45%  Tires
38.97%  Nonferrous Metals
44.06%  Autoparts
41.00%  Clothing and Accessories
37.41%  Travel & Tourism
35.96%  Recreational Services
35.68%  Investment Services
33.45%  Apparel Retailers
30.66%  Mortgage Finance

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 three weeks with tires up.

Recreational services includes casinos, were there was action this week.

OK, I’d go shopping in cars (Foreign or Ford), tires (reluctantly), retail with special focus on apparel and what women buy, some more metals, and selected investment services (which includes the credit card companies where American Express AXP has taken off big time up 20% on Friday!

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, that’s getting old.

Asset Class Races

Asset Class Recent Race

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 EWZ Brazil, are pausing a bit.

FXY, FXE, GLD and SLV – These all show dollar dropping. The inflation trade is back on.

USO – U.S. Oil. shows oil still low, but up this week.

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. This implies that the consumer cyclicals are going to move (which we already saw, they are).

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 for the SPY. QQQQ and EWZ have already done this. Consumer oriented tech (APPL, RIMM, etc.) are moving.

Stock Indicators – what and how

What about Brazil?

Brazil the EWZ ETF vs the BZF currency ETF

Brazil ETF vs Currency Race

Looks like we took a pause on a week+ basis, but inside a monster trend. I’m sticking with Brazil a bit longer.

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. RPT, PCL are rocking. PLD moved a large percentage, but it’s way down on a bottom. It is a bit of a gamble, but I’m sticking with it. I’ll likely add one of the other REITS from the top 1/3 of the chart.

Conclusions and Likely Actions

Hang on and select sectors.

A nice flat week after a long run up. Finished off with an end of week run higher.

The prior trends are mostly holding, though copper has paused for a bit, and credit cards took off on a short squeeze. Ford is up nicely as folk realize that not all U.S. car makers are going bankrupt, and the “consumer isn’t dead trade” is doing very well. Today I added some restaurants (BNHNA and YUM) to the retail holdings and I’m generally very happy with the week. I’m going to do a more detailed look at Mexico and restaurants to see what might be better choices.

Oh, and dollar weakness is pushing up foreign stocks, oil, and gold. I’ve got a gold miners position on now too (GDX).

I’ll be moving some of my money into Mexico and more of the consumer cyclical / recovery stocks (like restaurants and hotels) and REITS.

Disclaimers, Disclosures, and Where To Get Charts


About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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