WSW – Friday, May 1, 2009

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 multi-year – weekly chart for the SPY. QQQQ and EWZ have already done this. Consumer oriented tech (APPL, RIMM, and business tech ORCL etc. too!) are moving. In fact, QQQQ is on the cusp of a technical bull market call. MACD on the multi-year weekly chart is at zero, blue on top, pointed upward; with price crossing the 200 day (40 weeks of 5 day market weeks) Simple Moving Average and even DMI with blue on top! EWZ is right behind it…

With parts of the stock market now technically in a bull phase, it is ever harder for a pull back to ‘new lows’ to happen. The broad market might take a small dip, but is most likely to have a slight wobbly sideways into the 200 day SMA. If the broad market starts to run to the upside, hang on to your hat! Watch for more sectors to come up off a bottom and establish a new bull run, though it will take a while to get to “sector rotation”.

The 10 day hourly chart shows all the movement in the U.S. market this week happened on Tuesday and a bit of Wednesday morning. Hard to do trend trading when the trend lasts all of one day… and entry and exit must be timed to the fractional hour. Either you fast trade this U.S. market (15 minute or less charts preferably with live data) or you take a longer term cycle view. (On the very long cycle, we’ve bottomed, but on a daily interval chart we’re in a nice rising trend that’s a bit overdone and a bit old, implying a reversal to the downside at some time, but not going as low as the last big dip.)

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!

What I said last week still holds:

“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… “

With one spectacular exception. The “H1N1 Swine flu” outbreak in Mexico took the wind out of its sails. Mexico had been a big winner and has now been knocked down hard. Brazil held up nicely, and the QQQQ / RUT broader markets continue to outperform the DIA and SPY big capitalization markets.

Given the global spread of the flu (it is presently doubling in cases and countries roughly every day or two) Mexico will cease to be “special” in that regard in a few days to a week. Watch Mexico for an entry as the short sellers decide to exit that trade. I’ll likely shift some of my (prior) FXI and present EWZ money into EWW as soon as the MACD and DMI show an upturn with some legs to it.

The 10 day hourly asset class race:

10 Day Hourly Interval Asset Class Race

10 Day Hourly Interval Asset Class Race

Shows copper, wood, oil, agricultural goods, basically the recovery resource play back on with the shorts being down and emerging markets continuing to be the place to be.

SPY  S & P 500 US stocks
GLD  Gold
EEM  Emerging Markets
FXY  Japanese Yen
JJC  Copper
SHY  Short term bonds 1-3 year
USO  U.S. Oil
DBA  Agricultural basket
SLV  Silver
WOOD  Wood / Timber

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

Oils continued their run higher, with the Candian’s (especially the oil sands stocks like SU ) pulling ahead. No Obama / Democrat risk to the Canadians and the oil sands have more movement with oil price movements. PBR took a bit of a break, but after the run it’s had, some “catch up” from the other oils is reasonable. I’m holding my PBR and Canadian oils. Adding some IMO, SU, or even SSL might be reasonable, though I worry about the political risk in South Africa these days (with a socialist leaning process going on.)

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

On the 1 year daily chart, the QQQQ 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 (with the 75 day at near zero slope and the 50 day having crossed it to the upside). 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 rising at about 22 or so. We still have a ‘Tale of Two Markets’ with the small caps and emerging markets in the lead and the large cap US in the rear (not so surprising given all the goverment manipulation in the big cap banks, car makers, and energy sector – you don’t need to take on that Minstry of Stupidity risk, pick a different sector or a different country…) So this QQQQ chart looks nicer than the SPY chart.

OK, lets take a peak at the Bonds Race. Here we have the long term bonds, TLT, rolling down whlie the shorting 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, too.

So, IMHO, it’s time to get out of bonds and start moving into commodity plays, recovery stocks, selected real estate, and non-U.S. oils, financials, and large cap stocks. But what’s been winning in the actual market?

What sectors won this week?

119.56%  Automobiles Index
84.50%  Tires
65.96%  Autos and Autoparts
59.01%  Nonferrous Metals
50.70%  Travel & Tourism
45.13%  Business Training and Employment
42.88%  Clothing and Accessories
42.43%  Recreational Services
40.80%  Apparel Retailers
40.48%  Gambling

Where our Ford and Ford preferred plays (F FPRA FPRS ) were up between 100% and 200% on the week. Not Bad, if I do say so myself! I’m holding F for a longer term. It probably won’t have this kind of ‘Rocket Ride’ going forward (it’s not too often that both your major competitors are scheduled for bankruptcy…). But it is nice to be holding the stock of the last sound US car marker… FIATY and FIAZY also up nicely on the U.S. market entry.

For some reason I can’t get excited about tires. But clearly I should. Up again. What is that, four weeks now? 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 taking my own advice more … GT and CTB winning at about 80% each.

Nonferrous metals was dominated by the Uranium trade and a miner of mixed goods, TCK Teck Cominco up 200%. See also UEC, USAU, URRE, UEX (gee… is there a pattern here? CCJ ought to be looked at too). LQMT Liquid Metal Technologies was up 254% but I don’t know a thing about them.) Looks to me like the energy bet is falling on Nuclear. Look to GE for “pin action”… and maybe FWLT Foster Wheeler who’s chart looks like up off a bottom a bit with a P/E ratio of less than 6. (Nice!)

Travel And Tourism had a jump in the rental car market (ride in a plane with the herd coughing flu or private car… decisions decisions…) with both DTG Dollar Thrifty and CAR Avis up 200%+ while a lot of the rest was discount booking services like TZOO Travel Zoo 120%, EXPE Expedia 65% , PCLN Priceline 43%. Hmmm… I don’t know enough about them, but their charts look fairly nice…

Business Training and Employment had CITP Comsys IT 173%, SFN Spherion 155%, JOB, KFRC, MWW, MAN, RHI in the 45-100% range. Looks like a bet on IT consulting and business recovery to me.

Clothing and Accessories we’ve been in for a while. IDGI Inca Designs was up 2,150% on the week! No clue what they do, but that kind of spike is not repeatable. They are also a sub-penny stock, so not really investable. JNY Jones Apparel Group 156% and LIZ Liz Clairborne 118% look more stable to me, but if you have a clue about fashion, now is the time to pick the hot thing that’s going to take off. LYJN is a penny stock Lyric Jeans 200%. Could be the next big thing, could be trash. I just don’t know so my lack of fashion sense cripples me here. Find a woman with taste for guidance and this could be a gold mine. The Apparel Retailers also were up with the trend broadening away from young women to include others, with SMRT Stein Mart up 300% and CMRG Casual Male Retail Group up 242%. Even ZLC Zale Corporation up 206%. The retail recovery trade is definitely on.

Recreational Services had RCL Royal Caribbean Cruises 115% and CCL Carnival 43% with a 6% dividend BTW!. I own both. Lovin it… CKEC Carmike Cinemas was up 113% and IMAX was up 43% so folks must be going to movies again… CLUB 86% and RICK Rick’s Cabaret 68% implies folks are going out after the movie… Maybe the consumer is not going to hunker down at home with bread and water, ya think?

Gambling was a short cover off the casinos. with ISLE 271% and BYD Boyd Gaming 92% as examples. At the same time, TRMPQ Trump Entertainment -17% shows it wasn’t all up (the 5th letter being Q usually means “in bankruptcy”… ). Even MGM MGM Mirage was down -1.75%. I don’t often gamble in the casinos, nor in their stocks… It’s a fickle market.

My advice last 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!)”

Looks pretty good. The only clinker being the credit card companies that had already taken their jump and more or less sat flat for the week (with only V Visa and MA Mastercard really putting in any upside).

Next week? Well, there wasn’t much change in the “most up” list, and I think it’s largely going to be the same next week. Consumer isn’t dead, recovery is on. What are you going to buy in the next 6 months to a year? Buy those companies. Tires bald? New Honda HMC or Toyota? TM. Or maybe even a Ford truck… Right after that weekend in Vegas ;-)

I’m going to watch Mexico for a re-entry and Brazil mostly. Keeping my positions in metal, miners, et. al. and looking at some of the recovery trades from sectors I’d not looked at (like employment agencies and Travel and Tourism).

Putting the pieces together

Still don’t see much difference from last week:

“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.) “

With the only exception being that with the Bond Trade over, TIP is probably not the best place to be. Oh, and the news flow now has a couple of other banks rumored to be stressed too.

Finally, my ” Rorschach Race” (under the “Racing Stocks” tab up top) looks like the shorts have been losing money while India and Brazil are rising nicely. China too, though with more volatility.

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

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, but is defining a fairly healthy market recovery.

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

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 ( I traded out of part of my position and now regret it.)

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, PEI, and 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.

The prior trends are mostly holding, though copper after having paused for a bit, restarted. 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. 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 selective now. In resource countries like Australia, Brazil and Canada it is pushing up foreign stocks, while economic recovery is pushing up oil, though gold is more ‘flat rolling’ while the Japanese Yen is fallingl Mexico FXM had the peso falling on the flu scare. Overall, the dollar looks trendless.

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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