WSW Sunday, August 16, 2009

If you are expecting global warming stuff, it’s here:

https://chiefio.wordpress.com/gistemp/

This posting is about the other thing I do, looking at investment markets.

Daily Notes

Tuesday, August 18:

Well, that’s a pleasant surprise. An up market day in what ought to be a brief downdraft. I think there is still a bit of room to the downside going into options expiration, but a panic sell off wave does not seem to be developing.

Also: RTK up 86% today at $2.40 (it was 50 cents a while ago). I own a couple of thousand shares as a “toy” and it almost doubles in one day… maybe I need to play more ;-)

OK, so they make synthetic jet fuel and Diesel from trash (or coal). They’ve recently had a couple of hot news announcements. One, that their synthetic “green” jet fuel is approved for commercial use. The other that they got “ground equipment fuel contracts” for a couple of aiports (LAX being one of them) with first deliveries in 2012 when their demo trash to fuels plant goes live. I suspect a short squeeze underway… This, as they say, may have legs… They are moving from an “always promises, never delivers, R&D vehicle” to a “Production fuels company with earnings”. That, and the “collapse of oil prices” back to $35/bbl didn’t happen. Oil, it seems, has value. Well Duh.

Add in the nutty California laws mandating a reduction in “Carbon Footprint” and that trash derived Diesel counts as zero… The “news flow” for RTK is looking Very Nice. I’m sure there are other fuel providers in this space, but RTK has one of the best stories (ie. trash to fuel sounds more “green” than “corn oil biodiesel” food to fuel… The secondary impact is the notion that if LAX is already using RTK for Diesel, and RTK is FAA Certified Jet-A, then it’s not a long leap to think LAX might buy Jet-A from RTK.

So I’m holding my RTK and on any major pull back will “double up” and see how far I can flog this puppy. We know news flow will be good until 2012 when deliveries actually begin. Until then, it will be “contract signed” and “work progressing”. That’s nice. And they are now making a profit on other sales. Not just a money losing R&D thing any more.

Knock Ons: SYNM, SYMX, SSL all moved up nicely too. The “synthetic oil” space seems to be lighting up again. IMO, MRO, SU and the other Canadian Tar Sands folks are due a revisit for the same reasons.

CLNE – T.Boone Pickens “clean fuels” company in the natural gas for vehicles space looks to have resumed it’s growth driven rise. Down today, but the 6 month slope is upward.

CPST – Capstone Turbine is actually making sales. Still also making losses, but the crossover is potentially in sight now. Ramping up on the stock chart, but a bouncy risky vehicle. So small bites…

Monday, August 17:

Well, looks like the shorts have started driving the market down. Happens right after a run up goes flat. Next will be the professional trading folks holding long positions buying “protection” with puts. (The “market maker” who must sell the puts, does something called a “conversion” that results in a a short sale of the actual stock; so folks buying puts result in more short selling in the market). We also have folks who made money in “call” options selling them ‘to close’ and lock in the profits before options expiration on Friday. That will result in the market maker (who is “long” the stock to cover the call) selling that long position. More selling pressure. Then will come the panic sellers in about 3 to 5 days. At the end, we’ll be back at the Simple Moving Average stack and with RSI a bit below 50. That’s the entry we’re waiting for. Probably about options Expiration on Friday.

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 – Sunday, August 16, 2009

I’ve taken a modestly long break to work on some global warming postings (basically showing that there is no warming at all in summers, that the warming in winters is most likely from where we’ve stuck thermometers, and that CO2 can not selectively warm winters, so it’s not CO2.) With that reaching a stabilizing point, It’s time for me to get back to making some money.

We’ve been in the “summer doldrums” anyway. The time when markets usually drift but are not typically running dramatically. They’ve been drifting up, and that’s been nice (I’m about 75% “in”, mostly in long lived positions with fat dividends, good long term growth prospects, or ‘resource recovery’ plays like oil and copper). But look back and you see a peak in early June that we’ve only barely surpassed, then a dip in early July, and now we’ve run back up in early August. Take a look at how the broad indexes have gone flat and with RSI having recently been up at 80, I’m expecting a bit of a pull back in late August / early September. That would be a good time to put in extra money.

Until then, it’s still either rapid trades of developing events, or longer term value / dividend positions.

Sugar prices have roughly doubled. I’ve got a big gain in CZZ that hit $8 a share last week. (I bought it at $2.68 or so, and more at about $3 IIRC). I’m torn between holding it for the next earnings report that will show a rocket up in earnings (from the sugar price) and my “sell half on a double” rule. Decisions decisions… I’ll probably compromise and sell 1/3 and roll some of the profits into options. Some calls to keep the upside open and some puts behind the long stock position if they run up as earning report time nears (to protect against the “buy the rumor, sell the news” effect). I expect CZZ to be a very good long term position, but it is very volatile, driven by both sugar and oil prices. On the other hand, we KNOW what the next few earnings reports will look like with doubled sugar prices and oil at $70/bbl…

My general impression of the market right now is that it’s wobbling sideways with a bit of a topped out signal. Longer term, it’s headed up, but between now and long term, there will likely be more wobbles and more sideways. Typically, the markets take a “swoon” in the August / September / October range. Then there is the “back to school” run up in retail followed by the “Christmas shopping season”. It’s time to start watching the retail sector more closely. I’ve already got some positions in retail (as a bottom fishing play). So the question is: Is there a “re-entry” point here to add more? And will added retail sales make those tiny Mall REIT positions something worth increasing?

We’re also looking at the mid point of “hurricane season”. This is the time when a hurricane can make oil spike up if it threatens the facilities along the Texas / Louisiana coast and gulf platforms. We’ve got 2 storms running right now, but they are just way too small to matter. This whole hurricane season is a dud. Not much “there there”. Worth watching, but not too closely…

From the “High dividend payout with reasonable security” side we have: PGH that sells oil and CEL that is a cell phone company. Folks will not give up their cell phones. These are both in the 12% + dividend range at the moment. Nice, very nice. With upside potential as oil prices rise and as cell phone revenues increase. It doesn’t get much better than that.

For Bottom Fishing we need to take a look again at our choices. REITS have potential here. Both Mall REITS and others. RPT and PEI have both gone flat (but with 9%+ dividends, I’m holding long term). As the “back to school” and “Christmas” sales come in, these ought to run up. (Visit your malls and see the bag count. If it starts to fall apart, then bail. But my sense of things is that folks are slowing ramping back up their willingness to purchase and the worst is behind us). For REITS, watching their debt load and ability to pay their bond holders and mortgage holders is key. Check the fundamentals and look for decent coverage of debt payments.

OOTUS (Out Of The U.S.) has gone flat the last 3 week (and is more volatile that U.S. Markets), but I think it is still working longer term. The most interesting thing here is EWO (Austria) that’s on a nice run upward. That’s a “tell” to look at all the eastern Europe plays as having potential

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).

It’s also true that during recoveries, things tend toward “jump up and slide”. So you can’t wait for a trend to develop to buy in. You need to either buy into the position while it slides slowly lower “scaling in” or you need to put a “buy if touched” order above the ticker and get bought in on the day of the jump. So, for example, EWZ is sliding sideways. It’s chart on a trend following basis says “be out”. Yet we’ve already had the Great Panic Dump so the folks who can be scared witless have already been scared out. As Brazil reports good news, or has great earning selling things to China, individual stocks will jump up in a matter of a couple of days. The average (EWZ) will move a bit more slowly, but not slowly enough for a 20 or 30 day trend following strategy to work well. So it’s best to either put on rapid trades based on news events (earnings reports date) or buy if touched floating above EWZ waiting for news to drive it into an upward run. I have a modest “core” position in EWZ that does not get sold (long term growth play) and will have a “buy if touched” above it from time to time (as I have cash from other position sales)

Foreign currencies have been a mixed bag the last month or so. Yen (FXY) and gold GLD have gone nowhere, but the resource currencies are in a nice steady rise. Aussy FXA, Real BZF, Loony FXC all rising nicely. The Swedish Krona FXS is also rising. Barely rising are the other European currencies (British pound FXB and Euro FXE). So money is flowing into resource economies and to a lesser extent Europe. Go shopping where the money flows… IAF is holding a 9% dividend even though it’s run up to about $10 from the $7 ish point where I loaded up. It’s looking a bit “toppy” on a trade basis, and it’s thinly traded so scale in if you are trading large positions, but for a long term investment, hard to beat. Fat dividend. Rising currency. Broadly diversified fund in a resource driven market, but with some decent banks and a stellar Mall REIT inside (Westfield). Nice.

For now, take a look at this chart of VIX – the Volatility Index. Volatility goes “way high” in a crash. We are continuing the slow collapse of volatility back to low levels. Selling options will not get you much premium, but buying options will cost less and less for any given amount of protection. The VIX is saying that if the market starts moving, it isn’t moving very fast. Those big dividend stocks are more likely to rise in value as other assets become “dead money” just laying there.

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 watch that RSI for indications that we’ve reached a limit case and might have a rapid jump in a new direction…

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. From this point on (for a while), you must look to the individual things driving the other currencies, not just to worries about the dollar. With the dollar trade gone flat, you can use it as a reasonably stable ruler for a while.

Ideas of the Week

None to speak of yet. Mostly just clipping coupons and collecting dividends… ;-)

So lets go look at the indexes and “stuff” and see what pops up.

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…

One minor note, before we drop to the 10 day, realize that on the 10 year we’ve got a firm “buy” signal. The crash is over, and for long term investors, this is a “bottom” on a decade scale. You can still improve your performance with shorter term trades and calling an entry to the day or month rather than to the year, but if you are from the “bonds 3 years – stocks 7 ” economic cycle trade, it’s time to go shopping for stocks.

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!

Flat with a roughly 1 week long “wobble” you can play on a day trade basis for US markets. News flow driven. EWO and EWW are moving up, though. (Austria is a gateway to “emerging Europe” and Mexico is a US recovery play – a lot of the cement the US uses is made by Cemex CX in Mexico, for example.) So the ‘tell’ here is that the lesser emerging markets, the ones not in the news so much, are a good bottom fishing grounds.

You can also see how the “short fund” that uses options has collapsed in “value” as the VIX has dropped and the value of the option premium has dropped with it. Not a time to be long ETNs (Exchange Traded Notes) that use options instead of holding real stock positions.

Other Asset Classes

The 6 month asset class race:

Asset Class Race

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

In the last posting I said:

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.

Hope you followed that advice. We had nice entries for WOOD and Copper. The world economy will continue to grow, and that takes Copper. As the building industry in the USA recovers, it will take wood and raise wood prices. PCL is a wood and timber REIT with a 5% dividend and a “double” in it’s future as the economy recovers (i.e. a slow double over 5 years … but the nice thing is that if they are not harvesting trees, they are building inventory as they grow. You are literally “buying growth”).

LINE has been ripping as energy prices recover, but still has a high dividend. More to come.

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

It’s “outperforming” the other US markets, but the place to be is clearly the Austria / Australia markets.

Were Bonds a good idea?

OK, lets take a peak at the Bonds Race.

Oddly, yes; but not by enough to matter and mostly corporate bonds (LQD) and the long term government paper (TLT but only if you got a good entry at a bottom point) and only by a tiny little bit. Other than that, the safe bond positions mostly did nothing. Not a time to be in bonds.

What sectors won this month?

Yes, I’m showing you the 1 month list here (since I took a long time off) but the link in the title will still get you the 1 week list.

	   
47.81%  DJ US Full Line Insurance Index	  
35.50%  DJ US Tires Index	  
33.59%  DJ US Recreational Products Index	  
31.36%  DJ US Home Construction Index	  
31.27%  DJ US Gambling Index	  
30.55%  DJ US Forestry & Paper Index	  
30.55%  DJ US Paper Index	  
29.49%  DJ US Automobiles Index	  
29.20%  DJ US Aluminum Index	  
28.96%  DJ US Travel & Tourism Index	 

We can see it was the “consumer recovery” play. This will continue. Nobody thinks the consumer has completely recovered yet.

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 “usual suspects” of India, China, Brazil are looking good. The one surprise is how well Spain is doing. Food for thought and will probably mean a bit of a lift for other “Latin” stocks as they cross invest.

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

The big winners are the same story… Australia, BRIC, etc. The “safety trade” of Euros, Gold, etc. has gone flat. Stocks look to be in a toppy state, but in a generally upward trending (slowly) recovery market and with a hard crash bottom behind us.

Ok, start loading up on positions whenever RSI returns to 50 on the 1 year or 6 month charts or use the 10 day chart to time entries. Watch for a “dip” in late August (probably near options expiration) or late September (also at options expiration – 3rd Friday…) as probably good entry times. Oh, and notice that oil tends to drop middle-late each month. Want to buy oil? That’s your time…

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 transitioned to “stairsteps up”. It’s set up for a long run to the upside. Watch for RSI 50 for entries.

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

Headed down. Watch for an entry near options expiration. For now, the news flow is all about oil lower.

Some Near Oil and Oil Related Comparisions

Before I said:

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

And that was right. But look at CZZ fly! (GRIN!). It’s that SGG sugar thing… Gotta love the “2 fer” stocks driven by two sources of demand for their product. Sugar and fuels.

The REITS race – Real Estate Investment Trusts

The REITS are showing early signs of life. BXP, VTR, PSA, HCP, HGN all rising. I’m in those more “on the bottom” as a higher leveraged bottom fishing marker position.

Last posting I said:

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.

Nice calls, if I do say so myself! Just wish I’d bought some 8-{

But the REITS have a decade long recovery in front of them. Still plenty of time. Just check the “coverage ratio” on their debt and make sure you are well diversified. (i.e. 3 or 4 of them, not just one, OK?)

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 are a good place to play the recovery. ACH Aluminum of China, is a volatile rocket ride (pick your entry!) and AA is the stodgy American way to play it. The others are smaller and more volatile, but for risk takers who watch more closely, give more “juice”.

The Aluminum Race

Conclusions and Likely Actions

I’m about 75% in, heavy in dividends and resource economies. Along with some retail, financials like BRKA, and bottom fishing positions. I’ll be watching for a roll down at options expiration to go “all in”, but with RSI for the major markets at near 80, watch for a 50 (on the daily chart) to get in. We know we are off a hard bottom on the 10 year chart, but we also know that an economic recovery takes years and markets wobble a lot along the way.

Click for Disclaimers, Disclosures, and Where To Get Charts

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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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