WSW, Tuesday, July 7, 2009

Daily Notes

The market This Week

Remember that on any stock or ticker I say I’m looking at, you don’t just go buy it. You wait for a stock entry indication to get the best possible entry into the position.

Wall Street Week – Tuesday, July 7, 2009

I took a break over the holiday. Traffic had been rather light and frankly, I was questioning the value of the work I put into this posting each week if folks don’t bother to read it. We’ll see.

My general impression of the market right now is that it’s topped out. The velocity is gone. That is sometimes followed by a bit of a drop, but we’ve already had a horridly low bottom. It is unlikely that we would return to anywhere near that level and we are most likely going to wobble sideways with a slight drift. We are entering “earnings season” until about the end of August. Expect drops before earnings, then volatility after. There will be lots of chances to make or lose money as companies announce how badly or well they have done…

Up to this point I’ve been “momentum trading” by “trend following”. It is very hard to follow a trend when there isn’t any trend… So it’s time to change style.

I have 2 styles running at the moment in addition to trend following.

1) High dividend payout with reasonable security. This is stocks like PGH that sells oil and CEL that is a cell phone company. Folks will not give up their cell phones.

2) Bottom Fishing. Finding stocks with very high inherent value and then riding out the 6 months it can take for them to stabilize and head higher. Retail has been fairly good to me off the bottom and I intend to hold those positions for a very long term recovery. REITS have potential here as well. A visit to the mall this weekend looked like folks where choosing to treat the mall as a recreational destination. Traffic was high and folks were carrying bags (i.e. buying stuff). So Mall REITS are, IMHO, probably a good place to start building a position.

OOTUS (Out Of The U.S.) took a break (and is more volatile that U.S. Markets), but I think it is still working longer term. I’ve tightened my timing to more of a trade cycle just in case. See the racing stocks tab for currencies and for foreign emerging stock markets for the latest moves. When markets have gone flat after a long run up, you want to move to less volatile (lower “beta”) positions while you wait for a new trend to the upside (and thus avoid some of the high beta to the downside if things fall).

Foreign currencies have been a volatile ride to nowhere for the last 2 weeks. No help there. I would guess it was mostly driven by money flows to buy the U.S. Treasuries auctions and some interventions by central banks.

For now, take a look at this chart of VIX – the Volatility Index. Volatility goes “way high” in a crash. We have returned to near normal volatility but we are presently on a small uptick.

VIX  - Volatility Index (not a ticker, you can't trade it)
VXX - Short term VIX futures ETN (a ticker you can trade)
VXZ - Medium term VIX futures ETN (a ticker you can trade)
FXY  Japanese Yen
SH  "Short" sell of SPY
SPY  S&P 500 benchmark

So this says you can expect fairly slow changes of direction from the market, but with a slight downward bias.

Dollar Trade -Down - getting old

Dollar Trade -Down - getting old

Here we can see the “dollar down” trade is old news. Don’t expect much action in the dollar for a while. Trend strength (ADX line) has dropped below 20 and continues to drop. No trend there… That also implies that the “double dip” of rising stocks and rising currencies in foreign markets will now go flat or potentially move against you. Day trade currencies based on price ranges, but don’t commit to a trend that isn’t happening. (That is, buy when a little low, sell when a little high; don’t buy a little high expecting higher…)

Ideas of the Week

This week is about watching the positions I have on and stepping away from any that fall apart.

Hog Wild in China?

Hog Wild in China?

The Farms – where I bought a small part of HOGS, FEED, CALM and CVGW. The indicators say to be traded out of the Chinese Farms. I’m only in a “small” so I’m holding the position and waiting for a “bottom entry” signal (Williams %R low, RSI spiked down, Slow Stochastic turned up off the bottom) to buy more. This is bottom fishing. Risky. Tricky. Often with drops and wobbles. But it can be a great way to build up long term gains later. The classic “buy low sell high”.

CVGW  Calavo Growers - Calif.  Avocados and veg.
MLP   Maui Land & Pineapple - with a tourism kicker... 

CGLA  Cagle’s Inc - Atlanta Georgia - Chickens and feed
CALM  Cal-Maine Foods - Eggs
SAFM  Sanderson Farms - Mississippi Chickens & Poultry
PGPDQ Pilgrim’s Pride in bancruptcy (trailing Q on ticker)

HOGS  Zhongpin Inc, - Chineese hog farms
FEED  Agfeed Industries - Chineese hog farms & hog feed
SFD   Smithfield - Huge intl. meat & hog producer
HRL   Hormel - Spam spam spam spam ... and a whole lot more

SPY   S & P 500 baseline

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, EWW for Mexico and IIF for India.

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!

We see that the markets have generally rolled over and that the foreign markets have dropped more ( India in particular ). The news flow has all been about the bad unemployment report and how their might not be a recovery (and a subsequent crash this October). I don’t buy it… but it isn’t about me, it’s about “them”. They have billions of dollars and they will move the market, not me, and not you. So what we think does not matter. For now, the news flow, and so the market, are to the dismal and downside. Whenever this slump ends, you will have a buying opportunity. Wait for it. Have some cash set aside for that moment and start your shopping list now.

Other Asset Classes

The 10 day hourly asset class race:

10 Day Hourly Interval Asset Class Race

10 Day Hourly Interval Asset Class Race

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

So here we have RSI on the 20 line for the SPY. DBA and some of the metals are also “way low” and their charts ought to be looked at for an entry. The general trade has been to sell “commodities and materials” due to the “no recovery” story. That push will be overdone and RSI will tell you when it’s gotten there. These things have inherent value and that value will win out (and China is NOT going to stop growing and demanding resources). So make your shopping list. Have some materials on it, and wait for your entry moment. Oils move so fast that it’s hard to trade them unless you watch the financial shows all day every day. My solution is to trade some of them, but have a large core holding in a high (monthly!) dividend paying oil trust. Yeah, the dividend moves with oil prices (so the purchase price wobbles too) but it pays and pays and pays… PHG is paying 14.5% while LINE is paying 13.25% and does not have the Canadian foreign tax. I’m happy with that kind of payment… I add more on oil drops and sell a bit at tops, but mostly just hold a large chunk.

So what happened in the Tech Market relative to world markets?

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

The tech sector is flat. It’s “outperforming” the other markets, but flat is still flat…

Were Bonds a good idea?

OK, lets take a peak at the Bonds Race.

Oddly, yes. But mostly the corporate bonds (LQD) and the long term government paper (TLT) and only by a tiny little bit. But only if you like lots of volatility as the various actions were held. You could park some money in short term paper (less than 2 years), but that’s about it.

What sectors won this week?

2.99%  DJ US Brewers Index	  
2.54%  DJ US Soft Drinks Index	  
2.53%  DJ US Beverages Index	  
2.44%  DJ US Aerospace & Defense Index	  
1.76%  DJ US Food Products Index	  
1.72%  DJ US Distillers & Vintners Index	  
1.62%  DJ US Food & Beverage Index	  
1.52%  DJ US Electricity Index	  
1.50%  DJ US Tobacco Index	  
1.27%  DJ US Reinsurance Index	  

Not much to work with. Mostly the “cocooning” trade. Folks staying home with food, drink, some smokes, and running the lights and video gear. And a bit of government weapons buys (and clicking through that link showned it was mostly odd companies in small niches… again hard to trade). So we’re in “lock down for summer doldrums” mode for new money flowing in.

This is also a time to watch for “sector rotation” . Watch for a roll over, a go flat, or a sector rotation and respond appropriately.

A Broad View

Finally, my “Rorschach Race” (under the “Racing Stocks” tab up top too).

EWJ  Japan fund
SPY  S & P 500
EWZ  Brazil fund
FXI  China fund
SH  Short S & P 500
RWM  Short Russel 2000
EPI  India fund
EWU  United Kingdom fund
EWP  Spain fund
EWG  Germany fund

The shorts made money this week.

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.

Asset Class Races

Asset Class Recent Race

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

Just sitting in Euros, Yen and maybe a couple of other currencies was the best trade. But not by enough to be compelling.

Things have gone flat. Sell in May and go away. This argues for pulling money back from risky positions. I’m putting new money into those positions with large dividends (as discussed above) and more defensive stocks like HE Hawaiian Electric that has a nice modest dividend and cell phone companies.

Anything more risky is being moved into a “trend trade the ripples” behaviour. In particular, notice that Brazil and India have rolled over harder than most. Those which go up the fastest also tend to go down the fastest…

From here on out, for new positions, it will be harder to find rapid rises from June to September and you want some “dividend juice” if you can get it.

Stock Indicators – what and how

If all this talk of indicators is leaving you wondering what the heck I’m talking about, hit the link in the heading of this section and there is a bit of an explanation.

What about Brazil?

Brazil the EWZ ETF vs the BZF currency ETF

Brazil ETF vs Currency Race

Brazil has ADX below 20, so no strength to the trend. It’s “red on top” with DMI- on top so the trend is down, though weak. MACD is pointed down and crossing zero to the negative side. It’s day trade only land. I’m wobbling in and out on slow stochastic, but my bias is now to be out. Still waiting for RSI and a MACD reversal to say “Hop Aboard” again. The currency has been flat with a ripple, so it’s mostly a drop in the actual prices on the Brazilian exchange.

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

Short sellers are continuing to drive the oils lower based on not much. These are coming back into being a good value. On the 10 day chart, RSI is looking like “entry soon”. If the Wednesday morning oil inventory report is anything other than dismal, I expect oils to rise on short covering. We’ll see.

Some Near Oil and Oil Related Comparisions

The oil trade looks to be a busted trade for a while. Time to be in cash waiting for a re-entry.

The REITS race – Real Estate Investment Trusts

PSA and HCP both are interesting here (Junk and Health Care – probably both will be with us for quite a while ;-) HCN has a nice dividend, but they have a preferred stock, HCNPRF, that has a better dividend at 9% and has a slight rise to the chart.

The chart shows REITS bottomed, bounced a bit, and rolled down. I’m continuing to hold a small position in REITS with both mall REITS (RPT, PEI) and timber (PCL) along with some logistics (PLD). The best of the 4 is RPT, the safest is PCL, and the slowest but with the most potential (and risk) is PLD. No big positions yet, just a tiny marker. REITS overall are flat and will likely stay there until their ability to finance their debt is demonstrated.

PEI  Pennsylvania Real Estate - Mall REIT
VTR  Ventas - sr. care, nursing homes, hospitals
PSA  Public Storage - junk storage units
BXP  Boston Properties - office REIT on BosWash corridor  
HCN  Health Care REIT -  extended care, senior care, medical offices
HCP  Health Care Properties - ex. care, senior living, Dr. offices
PCL  Plum Creek Timber - lumber and trees REIT
SPY  S & P 500 broad stock market benchmark
RPT  Ramco Mall REIT
PLD  Prologis - logistics 

And Other Bottom Fishing

At any given time, you want to be rolling some of your big winners into positions that have a lot of head room. If something has doubled, it is not likely to double again at anywhere near the same rate. If something is down 90% (so it would take a 10 times growth to get back to that point) it is much more likely that it can take a “double” back to just 80% down… That’s a “bottom fishing” candidate.

Well, Aluminum stocks were showing life off of a hard bottom. Alcoa reports earnings tomorrow, so expect a roll down leading up to their report and a fast move after it. Which way will depend on their earnings. Bloomberg has reported a stock pop for AA due to comments made by an officer of the company at a lunch meeting in Russia. We’ll see.

The Aluminum Race

Conclusions and Likely Actions

I’m thinning out all my positions, but especially the OOTUS positions in India, Brazil, metals, miners, and ‘stuff stocks’. I am adding more dividend payers in some other sectors in Cell Phones, Recreation and Utilities. I’m mostly invested, but nervously watching a “double top” failure to advance to the topside in a potential reversal / go flat market. Time to be cautious and raise cash. I’m still watchingNIB Cocoa, JO Coffee and MOO along with some ships to ship it in as potential trades. Oil will likely be volatile (when isn’t it) and giving some trade opportunities.

Click for 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...
This entry was posted in Wall Street Week... and tagged , . Bookmark the permalink.

8 Responses to WSW, Tuesday, July 7, 2009

  1. pyromancer76 says:

    Selfishness: I think you should you continue your Daily Notes on the Market Week for at least a year. How else will know if you can get a following? This is complex, difficult stuff for ordinary mortals.

    Guilt: How can you possibly think of stopping when “I” am just beginning to understand global stocks and money markets. You have a very accessible way of teaching complex, difficult stuff.

    Admiration: I think you have stated that these posts take you something like four or five hours a week. Wow! I wish I could communicate clearly anything somewhat complex and difficult with this amount of effort.

    As you can see, Mr. Smith, I do hope you continue. And thanks for each week.

    P.S. I really like your comments on agriculture and Earth’s materials given the coming cooler spell.

  2. pyromancer76 says:

    Thanks for the July 7 post. Now I am waiting patiently for more — on any subject.

  3. E.M.Smith says:

    Sorry about the delay. I’ve been in a “coding frenzy”…

    I’ve put an “update” under the GIStemp tab at the top. Basically, I’ve gotten all of it to compile now (so the syntax is right, even if the logic an operation are unproven…)

    I’ve also changed it to be a much cleaner “structure” with things much more neatly arranged and better protected from accident; and with a cleaner presentation comes an easier time understanding what’s going on.

    I PROMIS to have a financial update real soon. For now, the “thumbnail” is that traders were worried the economy was going to just roll over and die, so the market traded down for a week or so, then the earnings started coming in way better than expected, so things have started back up. I’m about 75% “in” and about 25% “cash”. It’s a trendless “traders market” driven by earnings reports, so most of my positions are high dividend things with long term growth (as detailed in earlier postings.)

  4. Tony Hansen says:

    I was wondering if there were any side benefits for you in posting this stuff up? Does committing the thought process to paper help in refining the thinking in any way?
    P.S. Thanks for the postings

  5. stock Mantis says:

    Please do continue to post your market summaries. Just started reading now and find it to be a great help.

  6. E.M.Smith says:

    @tony: Yeah, it’s a benefit. The discipline of it causes a bit more focus and the attention keeps more details in your mind.

    @stock Mantis: I’m nearing a temporary “burn out point” on my GIStemp coding frenzy. As that happens, I’ll be putting up more of the WSW finance postings. It’s just very very hard to do them both at the same time. They both take intense focus and large quantities of data flow (one being the GIStep code, the other being hours of finance news and stock charts).

    I’d actually expected to have a new WSW posting up each of the last 2 Fridays, but GIStemp kept sucking down more time. This last Friday I discovered what may be a “lethal blow” to AWG in the GIStemp code itself (see the Gistemp – a cleaner approach thread / discussion) and I just could not step away from checking that answer and publishing it … so I slide the WSW.

    At any rate, the markets have been sort of “sideways up” and being driven by daily news more than anything else. We’re flip flopping back and forth between “China will take off, recovery!” stocks rise, and today “China will stop stimulus and the take off won’t happen” sell offs. Day trader time. Earnings reports drive a stock up, or down, but 10%+, then the next day it retraces. I’m basically in the high dividend positions from my posting a couple of months ago about doubling your money in 5 or 6 years and some things I expect to “take off” whenever the recovery really does get started.

    But until that consensus forms that “this time we’re recovering, for sure”; we’re having paranoia / mania oscillations based on news flow. To handle that you ether go to being a rapid day trader (reacting to the news minute by minute) or you go to a long term value investor (Ben Graham, Warren Buffet, et. al. style). “Trend Trading” which is what I like to do a lot, just does not work in a trend-less sideways market driven by daily news. So you change to the style the market needs today… and for me that’s been more of the “long term value” with big dividends and a bit of day trades.

    At any rate, my phone is ringing to I need to sign off for a while. I also need to shut down my GIStemp box, having reached a good stopping point on that project for the day. And, with any luck, I’ll get another WSW posting out Real Soon Now 8-)

  7. Frank Mosher says:

    Wow!!. This was a tremendous amount of work. I think in many ways we are in reality trading the dollar. For this reason i like DBA, and DBE. The swine flu scare has depressed pork prices, so am lightly accumulating livestock ( COW). I have always been impressed with your input at WUWT. fm

  8. E.M.Smith says:

    @Frank & Friends:

    Well, I’m going to be focusing in on “the money stuff” more Real Soon Now.

    It’s a different world, being driven by a pattern seeking brain. You just know there is a pattern there, shouting at you, and you can’t walk away. That is where I was with GIStemp. Compelled. Well, as of today, that compulsion is faded. I’ve reached a completion point.

    The pattern is now clear for all to see. It’s the addition of thermometers in warm places. Now that I’ve “scratched that itch” I can let go of it (or it can let go of me ;-)

    I’ll still be working on the GIStemp / GHCN stuff and filling out the detail on it; but the compulsion, the absolute NEED to keep chopping at it day and night to the exclusion of all else, that is gone.

    It’s a very strange thing, and something that can’t be explained to folks who don’t have it. It comes with the “Borderline Aspergers – High Function” world. You don’t own your own mind. It sees something that “isn’t quite right” and takes you on a journey until it understands, in exquisite detail, just exactly what that pattern means. And you can’t stop it. (The flip side is that once you do know the answer to the pattern, it becomes hard to keep doing the “Scut work” to prove it to those who do not see the pattern.)

    So now that “issue” is dealt with. Back to the constantly changing world pattern of money…

    Yes, we are in large part just trading on the dollar. DBA and DBE are both interesting choices. “For a good time” chart the FXY (yen) vs the SPY (and VIX) and watch how the market moves opposite the yen in many cases. Plot oil vs the dollar and you also get an “opposite set” (though a bit harder to see due to oil being very volatile). The simple fact is that the dollar is a “rubber ruler” and getting past that fact takes a chunk of work.

    At times I’ve thought of asking my broker to put my account in Swiss Francs or Swedish Kroner just to get the dollar bounces out of the picture!

    BTW, HRL, Hormel, took a jump this week. They posted better than expected earnings. The food processors and meat packers are probably a “decent pick” as a sector. Though I need to do my homework on them first, prior to a recommendation.

    So, thanks to all and: Thank you for your patience during the “summer doldrums” in the market as I took a compulsion driven sabbatical into the pattern of the temperature series of GHCN.

    As of now “I’m Baaack!”

Comments are closed.