If you are expecting global warming stuff, it’s here:
This posting is about the other thing I do, looking at investment markets. Prior postings in this series are available here.
The charts in this posting are live charts, 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!
Wall Street Week – Friday, December 5, 2009
As I said last posting:
We have two different time lines conflicting now. We had a rising 10 year weekly chart, so if we were out of time sync on the one year daily, we could just wait and know the longer trend was pushing upward. But the 10 year weekly chart is now “looking toppy”. The 1 year chart is also now in a “toppy / flat” context. If you end up “on the wrong side” in a falling daily position, you may find it just rolls into a falling weekly position, for months… Risk of holding a “long” position are rising. Manage the risk.
Oh, and start taking your positions and plotting them all on one chart (as we do here and under the “races” tab. Pick the worst ones and sell them. They will go down the most in a reversal. Pick the ones with large secure dividends and those doing “stairsteps up” (up, flat, up, flat…) as your “hold through the reversal” positions.
That opinion still holds. A “weekly chart reversal” can take a few weeks to develop. Wait for it…
The Long Term Context
Last posting I said:
A few weeks ago I explained this particular chart. This week we look at it again. Volume continues light. The red weekly volume bars are leaving gaps to that sideways red average volumn line. When volume weakens, a trend is running out of gas.
Now look at that volume. (Click on the chart to open it in another window for a bigger sized version). Volume is “in a funk” to put it politely. Some of that may be a side effect of the Thanksgiving Holiday, (holidays are often a bit light) but that “eye” is a big “issue”. Coupled with a ‘going flat trend” it says “Step aside. Just Step Aside.”
At best we can hope for a ‘rolling sideways market” like in 2004-2005. It is time to look at short term trading and dividends, short positions in selected areas, and sector trades. The ‘broad market’ is not going to be our friend for a while, so we need to be more selective about who gets invited to the party…
Also last posting I said:
This is a very long term chart, so I interpret this as saying we’re going to be thining out and looking for a return to the SMA stack by a slow drift sideways / down. If you are a long term invester, you want fat dividend stocks. If you are a trader, you want to move out of the “hot hands stocks” we’ve been holding and start watching for “separation and sector rotation”. It is also a time to shift “style” from a “big bounce – best to stay in if you make a timing error” into a “Rolling Market – time it right or just step aside”.
This also still holds. The things that have “run up the most” are the things that are at greatest risk of falling. Watch for “sector rotation” to spank the old winners and anoint new ones. For the next few weeks to months the focus needs to be on “new plays” not just riding what brought us to this top. (Though some of the “old plays” may yet be worth riding, but suspect and inspect first…)
Last posting I said:
Notice MACD. The two lines have converged. If they cross to the downside, the market is headed down in a “correction”. They may simply stay merged sidways: A steady growth market. But that is a very unlikely case. Look again back at the 2003 to 2007 interval. The typical case is a crossover to the downside and a minor market correction back to the SMA stack. The minor case is like that of late 2003 where we had ‘steady growth’ for 5 months or so. The “best bet” is to presume a cross over is coming “soon” and prepare for it. But remember that on a weekly chart, “soon” can be weeks away. Just don’t get suckered into daily movements changing your emotional state. Look here to regain focus on the trend. And the trend is flattening. (Though flattening from a rocket ride up…)
This still holds. Like I said above, a “weekly” chart can take several weeks to manifest a change. So: Wait for it… wait for it… wait…
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.
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 only thing going up is “WOOD”. PCL Plum Creek Timber is a “timber and lumber” REIT and is going to show better earnings going forward from those rising wood prices. The PCL chart looks very nice too. If you don’t already have some PCL, it would be a nice long term holding.
The “news flow” was all about The Fed raising interest rates in the next few months. We had a modestly good “job growth” number (in that we lost 11,000 jobs but folks were expecting 111,000 loss… good is a relative thing.) This caused the dollar to rise. You can see that as the drop of the Euro and Yen. Gold tumbled too along with silver. The Brazilian Real wobbled sideways, but with a droop at the end.
Now look at that darned near flat “SHY”. Short term bonds / Treasury bills. Notice that “kink” downward? That is where speculation about a Federal Reserve Rate Hike began.
When The Fed raises the prime interest rate BONDS DROP
If you have bonds, especially longer maturity bonds, this is the time to get out of them. (Actually, the time was a while ago, which is why I’ve not been keen on bonds since The Fed stopped dropping rates, but if you are still in, this is the Last Call for a graceful exit…)
When The Fed raises the prime interest rate The Dollar Rises
Folks presume that this means The Fed is willing to defend the dollar. While longer term, I think that the dollar will still be eroded by massive government spending and unfunded entitlement programs and mandates: In the short run it is “market point of view” that matters, not 10 year processes.
It is time to step aside from “dollar down” bets (and that includes raising the risk estimates for foriegn stocks not measured in dollars). The “double dip” of currency and stocks both helping us, now can turn into a double shot against you. As the dollar strengthens, folks fail to make gains in a foreign market, so they sell out, and that puts more downward pressure on the stock. The revenue on the sales gets repatriated to dollars, putting more upward pressure on the dollar and more downward pressure on the “other currency”. There may still be foreign markets that win; but the risk profile has to be estimated as higher. It’s time to hang out the “Here There Be Dragons” sign…
For example, last posting I said:
Look at the “two tops” in EWA. “Failure to Advance”. I stepped out of my Australia holdings a while ago. That trade is over for a while. Similarly, the BZF (that is a green line on my image) has ‘two flat tops’. The Brazil currency trade is over (and that implies weakness in the Brazilian stocks will be less well defended by currency moves.)
And in the last 2 weeks they have made no money. Don’t be the last one out the door…
The SPY is dead flat. The “talking heads” news flow is all about the 3 to 5 day up runs, but the thing that matters is those 1 and 2 day drops and the fact that the tops do not advance. Lay a ruler on the last 3 weeks. You are getting nothing and having all the risk. Not Good. Cash is good. You still get no gain, but without the risk.
The DMI (black line on the bottom) is at about 15 and dropping. There is no trend. Both the blue and red are falling. Again, no trend. Time to step away from “Trend Trading” on the MACD and use the Slow Stochastic for choppy rolling trades or use “stop loss” and “buy if touched” to catch inflections. Or, for non-traders, move to cash and be very selective in your stocks and sectors.
Last posting I said:
We do see Gold and Silver rising (though with very strong monthly cycles.) These are often driven by major government buys and sells. Hard to predict and politically managed. Be careful and be smart. ONLY buy on a dip and realize that it can “open down hard” so you can’t use stop losses to protect your position. You have to sell ahead of the moment (the Gold Fix is done in London, by the time the US market opens, you have already been “whacked” if the IMF decided to dump a few tons of gold…) So use “early out” ok?
And we saw exactly that. A weak “entry” at the end of November, then a short run up, and a plunge on The Fed speculation. Hope you were “out early”. Gold and Silver will not be your friend until the dollar strength and The Fed behaviour is better defined. There is very high risk to the downside right now in Gold.
What about Brazil? A Closer Look.
In the prior posting I had said:
In a special posting I had said to bail from Brazil as their President had started talking about special taxes on foreign stock trades. Here we see the “failure to advance” to the topside has joined the party. We are still a ways above the SMA stack, but the trend has gone flat. This peak of RSI is well below the one a while ago at 80. MACD has gone down, then failed to pull back up into another up run. It’s in a ‘weak flat sideways’ and we see DMI below 20. Trendless. It is time to leave the beaches of Brazil behind.
and in this chart now we see a “higher high”; but not by much. Now look at that Friday Drop. The DMI has gone below 20 into “trade rolling sideways” land. There will be gut wrenching rolls here, and with MACD going in a sideways weave, there may even be a mild upward tilt over longer time periods. But I’m interested in more of a “sleep well” position than a “high risk of plunge – little upside” position. My conclusion from last posting still holds. We are “out of Brazil” and do NOT reenter until it is back at an SMA stack and with a positive trend to ride (and not with a potentially strengthening dollar to fight):
We will keep an eye on them (it is a growing vibrant market), but for now, Brazil is not your friend. They were good to us for a nice long time. They will likely be good again. But they can be violently bad in a down market. And with The Ministry of Stupidity speaking, well, I have no need to take on that risk for a flat (or negative!) return…
Though I would add: Or even for a mildly positive one.
I have a new tool that searches chart patterns and finds those that I describe to it as “interesting”. For this section, “interesting” is those that have price over 25 day Simple Moving Average over 50 SMA over 75 SMA. Basically, those that are in a steady up run.
This is most likely to continue, but will at some point each ticker will hit a “dip” and fall off this search, only to return at the next rise. So a high number is good, until it fails, and a low number can mean time for a second bite at the apple. Being ON the list can be as important as rank on the list. Races tell you how to rank them. Realize that these have not been filtered in any way for the quality of the fund, nor for the volume traded, nor for what they hold. Each ticker must be looked at for those qualities before buying anything. This is just a way to find “things of interest” to explore. So what is on the top of the list?
A nice basket of “sleep well” stocks based on the notion that we will continue to eat, drink, smoke, need cough drops, and generally get on with life. Not a spectacular concept, but rising from lower left to upper right. Can’t really argue with that.
Last posting I promised a list, then did not fill it in. There was not much of interest from “The ETF tool” and then Climategate broke and I was focused elsewhere for a while. I don’t think we missed anything. Here is the present list:
Basic straight runs: Price > 25 > 50 > 75 =============================== etf.pf has 829 valid symbols (2 older than one business day) KXI 78 HHH 63 PGM 45 RJZ 44 DBB 43 BDD 42 BSV 29 MBB 29 DGL 27 DGP 27 DPN 27 GLD 27 IAU 27 UBG 27 UGL 27 DBP 25 PTM 25 GDX 24 JJP 24 BRF 23 ECH 23 EEB 23 EWZ 23 HAO 23 ILF 23 KOL 23 MCRO 23 MKH 23 PMA 23 PPH 23 PSAU 23 PWB 23 RTH 23 RYH 23 XLP 23
And as a partial “make up” for not delivering the list last time, here is an experimental run against a universe of both ETFs and individual stock tickers. You will need to do some of your own homework here, but it’s a nice “pick list” for a starting point. For example, the top listing is IMW an “energy bear” fund. Not for everyone. CAK is a Merrill Lynch fund with no volume on Friday. Yet NVS is Novartis, a great drug company and in a 45 degree rise lower left to upper right. So that’s why it is experimental. You MUST do homework on each ticker on this list:
Basic straight runs: Price > 25 > 50 > 75 =============================== pf has 4735 valid symbols (167 older than one business day) IMW 125 CAK 104 CVT 103 NVS 102 MAO 95 BJW 90 ORH 79 KXI 78 SHR 77 SEP 73 EPB 67 PPI 67 GOOG 66 DEP 65 OKS 65 SFO 65 SKP 65 SKC 64 XKN 64 XVF 64 DKL 63 HHH 63 HHI 63 KVU 63 BWP 62 KSK 62 CBE 61 TZK 61 PDJ 60 PJE 60 SEPR 58
Some of these I know, like HHH that is “Internet Holders”, an ETF, and GOOG is Google. Others are a complete black box. Use care.
OOTUS – Out Of The U.S.
The currencies tab shows a gold spike turning into a plunge and the Yen getting whacked by speculation that the “carry trade” will need to unwind some long yen / short dollar positions.
Be out of the Japanese Yen as that unwind happens. Be out of gold until it is back at a ‘reentry’.
Many other currencies are either flat or with modest downturns against the dollar. Nothing like a whiff of “The Fed might raise rates” to boost the dollar. I’ll be holding dollars for a while (have been for about a month). The one very interesting on is the Mexican Peso. Rising against the tide. Probably folks betting on a US recovery driving demand for things like Mexican Cement. Take a look at CX Cemex and EWW… EWW is in a nice run, but not at an entry yet. I’ll be taking a peek at the holdings inside EWW over the next week.
Last posting I’d said:
The only things of interest are Gold, up very fast and hard… too strong to buy into now, wait for a drop first; and the Yen FXY (a “carry trade” currency, so it will rise as stocks fall and fall as stocks rise.) If you have cash to park somewhere, park it in Yen or Dollars. Then buy gold on a major ‘dip’ (that looks like they are coming near month ends.
There was a minor dip in gold near month end, then a gentle rise, and a plunge. An OK trade if you were defensive about the peak (i.e. stop losses and early out behaviours). The Yen advice had been very good for the last year or so, but I missed the call on The Fed during the last week. The distraction of Climategate. OK, it was a good call for the FIRST week of the last posting… but that is why you use stop loss orders and why you (and me too…) are supposed to inspect your positions and charts at least once a week… At any rate, enough self flagilation: Be out of Yen now.
This chart compares FXI – China 25 big stocks, EWZ – Brazil, EWO – Austria, EPI – Wisdom Tree India fund, and the Indonesia fund.
The “Emerging Market” trade has gone flat. There might be some return to growth later, but for now it’s all risk and volatility without the “stair steps up to the right”. We need to watch, wait, and see; but the risk / reward is not so good. I’d lean toward India from this chart, but it’s just not an attractive mix.
VIX the Volatility Index
Low, very low. It is saying “time to be sold”. VIX tends to go flat at longer term tops. I’m not liking what I’m seeing.
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
Look at the ADX- (that red line on the bottom DMI bar). Red has crossed over blue. The DMI line is still weak (below 20 to 25) so the trend is not a strong one (yet) but the statement is clear:
The “dollar down” trade is over
At least for a while.
Ideas of the Week
Cash is good. I like cash. You need to ‘reload the cash gun’ if you will have any money to ‘buy the dips’ of gold and stocks.
What does the 10 day hourly chart say is happening now?
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.
Last posting I’d said:
In two weeks we’ve gone nowhere. We are presently dropping, but RSI is saying a ‘rebound soon’ is possible. It is time to be day trading or be out.
And this 2 week period we’ve also gone roughly nowhere. You did get a couple of nicee “day trade” opportunities, but that’s a hard way to make a buck and takes minute by minute engagement with the market. MACD is cycling around zero (so no trend, but cyclical trades) and even DMI on the hourly chart is “gone flat” at below 20. Flat sideways roller on the short term charts. “Toppy” on the 10 year weekly. All the probability is for a drop longer term and a rolling sideways short term. “Disbursement”. Sell the tops, do not buy the dips…
Though again we see an interesting rise in Mexico…
Other Asset Classes
The 6 month 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
Not seeing much to like here. Wood. Copper that looks “toppy” and with a downturn at the end and news flow about “the end of the commodities trade”. Oil slowly sliding downward. Emerging markets looking OK, but with that long flat top “failure to advance” to overcome.
But last posting I’d noted:
A Gold / Copper oscillation has real potential here. But copper also looks to be following Gold with just a bit of lag. Maybe trade copper the day after Gold moves? Hmm… worth investigation.
And that implies copper has more downside risk than upside, given that gold has rolled over into a drop. I don’t like the risk profile here.
So what happened in the Tech Market relative to world markets?
Tech too has gone flat. So flat, in fact, that even the Slow Stochastic “fast trade” indicator has gone muddy. Step aside, just step aside…
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
Were Bonds a good idea?
OK, lets take a peak at the Bonds Race.
The “TIP” inflation protected bonds has had a MACD crossover to the downside. Time to sell TIPs. After touching “near 80” on the RSI and with a MACD crossover, the risk is all for a downside move. The “red line” ADX- on the DMI bar has crossed over to the topside too. We’ve had a nice long run up in TIP, but it is time to say adeu…
On the other hand…
Take a look at the TBT “Short sell of Long Bonds” line. After a long drop, it’s waking up! A “sell short” of bonds has great promise, especially with The Fed likely to start raising rates in some future months. It’s time to swap sides and begin ‘shorting bonds’.
We’ve got RSI with a ‘higher low”. MACD oscillating about zero but with a crossover to the upside in a general uptrend. SMA stack converged into a weave and TBT Price punching through to the upside. DMI has been dead flat for a few months and now ADX+ is pushing above. Yeah, the trend isn’t established yet, it’s still a bit of an early entry. But this is what you look for to know “what’s next”. I’ll probably start with a tiny in TBT and add to the position as the trend developes. This trade will run for as long as The Fed is tightening rates (though being based on options, it will have ‘ripples’ in it around expiration) so we can play this trade for the next year or two (depending on Bernanke and The Fed actually raising rates…)
10 Best Performing Industries Industry Name Percent Change (over time selected) 19.99% DJ US Airlines Index 13.39% DJ US Business Training & Employmen... 8.07% DJ US Platinum & Precious Metals In... 7.94% DJ US Semiconductors Index 7.38% DJ US Specialty Finance Index 7.29% DJ US Hotels Index 6.78% DJ US Travel & Tourism Index 5.90% DJ US Tires Index 5.72% DJ US Recreational Products Index 5.38% DJ US Trucking Index
NEVER own an airline. You can trade them (and this shows an ‘oil dropping consumer not dead’ trade and nothing more).
This chart shows a “We’re not dead yet” theme. Businss is going to hire temps. Industrial catalysts needed. Export lead semiconductors. Paycheck cashing. Folks might even take vacations again. And they will replace their balding tires. OK, you can click through the title and then click through the individual sectors to see the companies inside. It think the “cruise lines and hotels” play has legs. Tires we talked of before. OK, but I just don’t get excited about black rubber doughnuts. The interesting new one is the temp agencies. Worth exploring. They ought to have a couple of year business recovery in front of them.
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 HAS NOW MERGED WITH SU SUNCOR 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
Dropping with the price of oil. Nothing of intrest here to me. Volatile 5% moves happening overnight. You have to guess in advance to make the trade. OK, I could probably do it, but … it’s buy at this price sell at that and against the day or two trend. Hard to keep that style in your head and do “trend follow” elsewhere. It’s “day trader” land.
I’m sticking with the prior description:
A nice long run, come to an end. We have “failure to advance” all over the place. The most recent tops are below the prior tops in most cases. Only EWZ has a slightly higher top and I expect that to be treated as a ‘failure to advance’ as it is basically flat.
At least until something “shows me some love”… When the Mexican Peso FXM is the strongest trend in the herd, the herd “has issues”…
By The Sea…
Time to pick a new sector as a favorite… With oil flat / down a bit, transports often gain. The news flow about the Baltic Dry Index has been good an some “pundits” are recommending ships like DRYS and DSX. Worth an investigation.
Slow Stochastic is acting as a nice trade indicator while the chart in general shows a nice recovery from the bottom and a continued trend to the topside. We are “at resistance” back at that June top, but with the “higher lows” of a “wedging in” pattern that usually resolves to the upside. Buy on the dips and expect a breakout if it punches through that June resistance price. Decent trade vehicle. Long term upside potential. Though a bit deeper look into broad shipping is warranted.
This still holds too. I’m not real enthusiastic about the ships just yet, but someone is buying those dips and they get bid up earlier each time…
Even the rails are doing nicely (though BNI Burlington Northern had a spike to flat on the BRKA Birkshire Hathaway buyout.) NSC and CSX look like they still have upside. UNP is already a bit high and going flat. GWR is a nice regional that has an intersting spike at the end. Looks like it dips near the end of month, start of the next. Nice tradeable ripples in a general up trend.
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
PLD continues a very nice run. The others are starting to wake up as well. It looks like time to move a bit more money into REITS.
Before I’d said:
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?)
I’d start to raise that “tiny” to a larger fraction “on the dips”. PLD is back at the SMA stack. Check the news flow on it first, though.
I’d now add some of the others. RPT, a retail mall REIT, and HCP, a health care proprety REIT are both looking nice here. News flow for JOE and been good (a Florida property company) and I’d look at CTO as well (also in Florida).
Conclusions and Likely Actions
Holding cash and big dividend paying positions in well capilalized companies (like LNG tankers and oil trusts). Picking up a little realestate cheap. Watching for the “sector rotation” and stepped out of “Emerging Markets”. Watching the emerging markets to see if this is a long term out or just a pause. Starting to pick up some transports and doing more day trade / swing trades of a few days duration.
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.
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.