If you are expecting global warming stuff, it’s here:
Canonical in reverse date order:
Intro page with favorites:
Input Data Issues:
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! If you would like to see the historical chart, you may enter custom date ranges on the charting tool at http://www.bigcharts.com
UPDATE: February 4, 2010. We had our short rally Monday / Tuesday. Then… Well, that was quite a drop. The Greek Government might default and a newspaper article was discussing an added $40 Billon Euro debt that is hidden ‘off the books’. Spain is being rumored to be up to it’s eyeballs in Greek credit default swaps (an unbacked ‘asset’ that has no real collateral behind it, at the core of the financial melt down of the last couple of years). So it’s ‘melt down’ all over again.
That “sit in cash” decision of late last year is looking better and better… Dollar rising against Euro and other currencies too.
But a nice “crash day” means it is time to start watching for an ‘entry’: RSI down at 20, price far from the SMA stack. MACD about to cross over. Slow Stochastic will cross over first as a ‘set the trigger’ signal.
But with that 10 year chart looking “toppy” you want to be very careful about holding a long position in a falling market. We’re still in the short choppy trades zone. So it’s sit in cash, and only make fast short trades. Falling markets are very fast and very choppy.
Watch things that have been heavily shorted to tell you when the shorts are covering. If coppers, like FCX, or major financials, like GS or BAC, show a jump, that’s a clue… But wait for it… wait for it…
Wall Street Week – Friday, January 28, 2010
Well. So much going on and nothing happening!
Greece is threatening a default on their Government Bonds, but the French are saying “No Problem” about Greek bonds… Short rates have jumped up for Gilts (as, for some reason, Greece and the UK are seen as involved with each other. Probably because of the large English financial markets.)
The TOTUS gave a nice little Fate of the Union Speech. That didn’t set any new directions for the USA, but left the markets tanking for a couple of days. Obama continues his push to nationalize the healthcare industry, break our energy infrastructure, damage the banks, and generally destroy wealth. There was a clear direction set to raise revenues and lock in his recent budget hikes for preferred agencies via a ‘1/2 Budget Freeze’. Oh, and spend a few dozen more $Billions on the Chinese Credit Card. Not good.
So Congress raised the debt limit by another $1.9 Trillion. That ought to hold them for a few months….
Ok, what does all this mean… It means, for now, holding selected cash is a reasonable thing, and longer term, holding cash is really dumb. It means holding bonds is a very bad idea (US or European) as the Sovereign Debt issues get worked out. (Nervousness makes rates rise, driving bond prices down…)
And it means we are still in a “race to the bottom” on what currency will be worth holding.
Oh, and China raised bank rates (causing nervousness in their markets) and worries about inflation in China. The Chinese currency is “sort of pegged” to the US $, and the US Government seems intent on ruinous currency policies so that China will get such bad inflation they will have to break the peg. Just because that will bust the buck first, hey, no worries… Unless you think you might want a dollar that was worth something…
So sometime China may let the Yuan move up just a smidgeon more against the US Dollar. The last time the bank tightened like this it was followed by a peg adjustment. But you will have no idea “when” and only a poor idea of “how much” if at all. Not very useful.
The reasonable thing would be to invest in other countries; except if China is tightening, Europe is threatening Financial Crisis Part Deux, and the USA is being incredibly stupid, the odds are not very good for everyone else to have a good day either…
So my best idea so far is a slow entry into inflation protection plays along with basic resources that pay high dividends. I’m sniffing around PBR Petrobras, PCU and FCX in copper, and maybe some Real Estate via REITS. But the 10 year chart is “not good” and the 1 year chart is looking like a “correction” setup… So mostly it’s just time for ‘nervous cash’.
SIgh. “Battleground markets” are such a pain. One chart time frame going one way, another as a counter current. (10 year calling a top, 1 year was headed up in December, now rolled over.) It will take a while for the new direction to stabilize and trend following to work. For now it’s a treacherous mix of conflicting currents where you can’t ‘trend trade’. Short term and day trades based on fast predictive indicators (like RSI and Slow Stochastic) rather than longer term trend following. And “When in doubt, be out! -E.M.Smith” (or the more pointed and polite form: “Think in Cash. -E.M.Smith” Basically, if you need to think about things, or don’t know exactly what’s up, bug out to cash. (Though which cash is still an interesting question…)
We also have the World Economic Summit in Davos going on. Lots of opportunities for a “Ministry of Stupidity Speaks” moment. Sigh. Maybe I’ll just buy a bunch of TEVA pharmaceutical and sell generic aspirin… it looks like a lot will be needed…
OK, enough of my pondering, what do the charts and trends have to say? Roughly the thing I said we were having and would continue to have last posting (about a month ago). The SPY is about exactly where it was 3 months ago. You could trade one week runs in the ripples, but that’s about it. We’re roughly where we were a month ago:
Well, we’ve been in a roughly sideways choppy market since about the time, last month, that I said we would be in a roughly sideways choppy market. What? You expected something more interesting? Sometimes ‘the hard bit’ in trading is the boredom. “Nothing happened” can happen for a fairly long time. OK, yes, some toppy markets have had a bit of a tumble (like gold). Yes, the dollar has had a bit of a rally. But I did say to ‘hold dollars’ and after you have ‘gone to cash’ it is just, well, boring. OK, you could have bought the ‘dollar up’ UUP ticker or the “short gold” ticker. But those are slightly exotic instruments for the average Joe or Jane sixpack. If you want to trade them, you probably don’t need me telling you about them.
Well, that about sums it all up… Still. You could have made a bit of money in the “We’re not dead yet” trades. Gambling, car parts, home construction, airlines. All things that are terrible industries right now, but not as dead as they had been expecting. Hardly a ‘safe investment’. If you’d known that Toyota was going to stop selling cars, you could have made 9% in US auto makers. Of which Ford is the only one worth owning. ( I have a small position in the Ford Preferred.) But most of these moved all of 3 to 5 percent ranges on the month. Time an entry or exit wrong on one day and you make nothing…
10 Best Performing Industries Industry Name Percent Change (over time selected) DJ US Automobiles Index 9.99% DJ US Consumer Electronics Index 6.02% DJ US Gambling Index 5.70% DJ US Airlines Index 5.43% DJ US Automobiles & Parts Index 5.42% DJ US Recreational Services Index 4.42% DJ US Home Construction Index 3.88% DJ US Diversified Industrials Index 3.30% DJ US Pipelines Index 3.18% DJ US Biotechnology Index 3.07%
So small electronic toys, Ford actually making a profit for the first time in a few years, and some “not dead yet” plays. Murfpt.
And if you hit the WRONG sectors?
10 Worst Performing Industries Industry Name Percent Change (over time selected) DJ US Platinum & Precious Metals In... -22.10% DJ US Aluminum Index -17.25% DJ US Forestry & Paper Index -12.84% DJ US Paper Index -12.84% DJ US Nonferrous Metals Index -12.24% DJ US Travel & Tourism Index -12.16% DJ U.S. Industrial Metals & Mining... -12.05% DJ US Internet Index -11.11% DJ U.S. Iron & Steel Index -9.97% DJ US Fixed Line Telecommunications... -9.66%
You got killed. Metals, mining, travel, internet. Heck, even telcos.
And I can repeat the same thing now I’ve been saying for two months:
So I’m mostly on the sidelines right now. Same as a month ago. You can do some small day trades. You can hold some large dividend payers (I still have my CEL that is paying well along with TGP that is a high dividend LNG tanker company, for example) along with the very long term investments (like Birkshire Hathaway BRKA / BRKB ). But there isn’t much ‘action’ in holding them. And I’m still holding my “oil trusts” as a high dividend hedge on my personal fuel consumption (like PWE) . Again, not a lot of “action” in saying “hold the core holdings”…
Though we did have the surprise of BRKA / BRKB being added to the S&P 500 giving it a nice bump up of about 5% on one day and another 5% a few days later.
The Long Term Context
A month or so ago I explained this particular chart. Since it takes such a long time for a 10 year weekly chart to show changes, I’m going to do another ‘change up’ different indicators from last time just to keep it interesting. You can hit the “WSW” category on the right edge and look back at the last posting to see the other indicators.
I’m still going to do both the NYSE and SPY for variety as well. I’m also changing to a 5 year chart so the crossovers will be a bit easier to see.
OK, we see Slow Stochastic with the “mouth” pointed down and blue on top, saying ‘be out” and we see MACD with an early shallow crossover to the downside. Another weak ‘be out” along with DMI showing a low trend (DMI under 25) and with red / blue approximating and showing ‘not much’ happening. The prices have dropped to the first Simple Moving Average Line and threaten to drop on through. A weak ‘be in or be ready to be in”, but with the flat trend and the other indicators being on “be out” the bigger risk is a drop, so I’d not act on this “buy on touching the SMA lines” The SPY chart is almost exactly the same, so well look at other indicators on it.
When we look at the SPY, I’ve added the Williams%R indicator. It’s a lot like the MAC, but you get a big line movement instead of a little cross over. So you can see that the blue line plunged during the drop. In a rising market, those plunges are a “time to buy” and this market is still technically a rising market. We will likely have a short “relief rally” in the next week or two. Then it will resolve, up or down, for a longer term trend. I’m expecting it to resolve downward, but we’ve got a couple of weeks of news to get through first. Earnings reports have been good, but stocks have not moved much. So we’re “news driven” not “earnings driven” and the news has not been good (but could change). So I’m presuming well be headed down until some really good news changes the market sentiment.
RSI says that we’ve been rolling between about 50 an 70 for a few months. On this ‘return to 50’ it would be a buy signal (but we have those negative…) so again it argues for a brief ‘relief rally’ then a flat or drop.
Finally, that ROC Rate Of Change has faded down to just a smidg below zero. Not good. No momentum and what there is has a negative sign.
Last posting I’d said:
I’d expect a tiny “Christmas Rally” into Dec 25, but some kind of drop after that until a new trend sets up in January.
While that is roughly what we got, I was a bit too pessimistic about how fast it would start the drop. OK, a bit early on “be out” is a good thing. “Late in, early out. -E.M.Smith” So we might have a relief rally, wait for it to start to get in, then be ready to be out fast if / when it fades. And, “When in doubt, be out.” Use a 1 year daily chart to be better timed on the trade, but remember that there now is no trend on the 10 year or 5 year weekly chart.
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
Well, that’s pretty ugly. About the only thing that ‘won’ against the $Dollar was the Yen. OK, cash is king, but maybe not the US Dollar as cash… Well need to check out the Currencies Race for currencies and double check who is winning the most. BZF headed down shows a lot of money leaving Brazil. Probably from stock sales. Glad we stepped out of Brazil back when they had their “Ministry of Stupidity Speaks” moment a couple of months back? I am ;-)
SPY is clearly saying “be out” with MAC headed down, red on top, and crossed over zero into negative land. DMI has ‘red on top’, another ‘be out’. RSI has crossed through 50, but not reached 20 yet. Still ‘be out’. So that ‘relief rally’ is not happening now (and maybe not for a while longer…). Maybe Monday or Tuesday…
What about Brazil? A Closer Look.
We stepped out of Brazil when they had a “Ministry of Stupidity Speaks” moment a couple of months back. We ought to keep an eye on them, though. But for now it is still a “watch but don’t touch” market.
With RSI nearing 20 and an inflection in the red line on the DMI chart, we could expect a ‘reversion to the mean’ with Brazil moving back up to the Simple Moving Average stack from the bottom. But when it touches that SMA stack, sell. Trading ‘up’ in a ‘down’ market is a hard fast trade…
EWZ - Brazil BZF - Brazilian Real currency FXI - China EWA - Australia EPI - India - WIsdom Tree fund EWC - Canada EWW - Mexico GUR - Middle East Fund
OK, so “the middle east” is holding up. I can work with that. (Though watch for a ‘slow entry into the fall’. Some times the strongest ones just take longer to join the flood… so it’s especially bad to, oh, “ride Brazil down” then swap to The Middle East just in time to ride it down too… You do want double dips to the upside, hopping on laggards after a run. But you want to be very cautious about that in down markets.
In a special posting October 20th, I had said to bail from Brazil as their President had started talking about special taxes on foreign stock trades. Now you can see why I said that.
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?
These are not in yet
Basic straight runs: Price > 25 > 50 > 75 ===============================
And running Tickers of all kinds:
Basic straight runs:
OOTUS – Out Of The U.S.
The currencies are all generally dropping against the US Dollar with the traditional exceptions of the Yen and the Swiss Franc. FXY and FXF. Even gold has been dropping. I don’t expect that to hold. A ‘trade in’ to gold may be ‘soon’… The ‘rocket ride’ up is over for a while, but some ‘flat wobble’ trades ought to be available.
This chart compares FXI – China 25 big stocks, EWZ – Brazil, EWO – Austria, EPI – Wisdom Tree India fund, and the Indonesia fund.
Everything but Indonesia dropping. So how did I call this one last time?
The “Emerging Market” trades have gone flat or are dropping. Time to be in cash or elsewhere in “watchful waiting”.
Nice. Very nice. ;-) There was a small trade in that ‘bump’ up in IDX, but unless you were trading it actively and watching it each day you would have missed that trade. Easier to just be on the sidelines. I’d trade in on a fast basis during these choppy markets, but not on a ‘buy and hold’ basis.
VIX the Volatility Index
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 IYT - Transports, a leading sector XHB - Homebuilders, a leading sector and "canary" XRT - Retail
OK, we had a spike up. That would be a buy signal on a ‘few days or week’ trade basis. It’s also a time to sell options ( you pay for volatility in options, so you want to buy them when vol is low and sell them when the price and vol are high…)
Things are flat or less across the board. Even the “leading indicator” transports.
I’ve to turned this chart around from the older version. This is now a ‘US Dollar UP” trade chart of UUP instead of UDN.
Clearly saying “the bottom is in, own Dollars”. Not an intuitive or fundamentals based trade, but the chart says be in dollars, so that’s where I am. As they say about Quantum Mechanics: If you don’t like what it says: “Shut up and calculate”…
Notice we have crossed the SMA stack to the top side. DMI is rising strongly headed for 25 with ADX+ (blue) on top. For now, it’s US Dollar time. Remember that this kind of rollover to the topside will return to the SMA stack and that the SMA stack must ‘invert’ or roll over to confirm the run ‘has legs’. While it’s done that inversion, it’s still in the ‘flat weave’ and will need a few more weeks to show a full trend. MACD is also “blue on top” and is above zero. Again, a bullish call on the US Dollar.
Ideas of the Week
Hold dollars, look for individual situations that have had a nice price drop and look ready for a rebound. Watch the news and see if there is any news flow driven events to mess things up (like, oh, Greece defaulting or Cap and Trade passing).
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.
Pretty darned grim. Shorting was about all you could do to make some money. Or buy put options (though the dropping vix would have eaten a lot of the profit). Selling calls against the stocks you hold would have been a good strategy. Probably a bit late for that now.
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
Pretty grim here, too. FXY Yen is about it.
So what happened in the Tech Market relative to world markets?
Tech is not a refuge. Cash. Cash is good…
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 but with TBT (the “long term bonds” short sell ETN – that is, the thing that “shorts bonds”) as the main ticker symbol:
Clearly, bonds were not a good place to be, especially long term bonds. The “short sell bonds” trade, while not exciting, had a tradable bump, but now has gone flat. But watch for a new entry call on a new trade.
This is the best and worst from last Friday. It looks like the “economic recovery play” is continuing to run. Basic minerals and oils / energy. I need to do more analysis of this, but so far that’s what it looks like in a ‘first blush”.
10 Best Performing Industries Industry Name Percent Change (over time selected) DJ US Recreational Products Index 2.85% DJ US Nondurable Household Products... 2.44% DJ US Aerospace & Defense Index 2.44% DJ US Electricity Index 1.52% DJ US Publishing Index 1.51% DJ U.S. Household Goods & Home Cons... 1.40% DJ US Recreational Services Index 0.82% DJ US Biotechnology Index 0.80% DJ US Automobiles Index 0.50% DJ US Specialty Finance Index 0.49% 10 Worst Performing Industries Industry Name Percent Change (over time selected) DJ U.S. Iron & Steel Index -10.62% DJ U.S. Industrial Metals & Mining... -9.99% DJ US Nonferrous Metals Index -9.55% DJ US Aluminum Index -9.32% DJ US Telecommunications Equipment... -8.21% DJ US Platinum & Precious Metals In... -8.07% DJ US Internet Index -7.60% DJ US Commercial Vehicles & Trucks... -7.52% DJ US Consumer Finance Index -7.28% DJ US Forestry & Paper Index -6.62%
Not much to work with, and the ‘recovery stocks’ that were up a month ago where down the hardest this week. Toothpast and defense companies were up. “Electricity” is a flight to safety dividend play. “Recreational” was largely driven by a big spike in a flakey penny stock and “National Golf”. Not exactly stellar stuff to work with.
OK,so “grim is grim”. We stay in ‘duck and cover’ mode until there is a clear change.
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 like rocks. PBR has a ‘entry near’ with RSI approaching 20. But it’s in a bear market context (under SMA stack, MACD below zero, etc.)
Sugar moving up, if in fits and starts, is the interesting thing here. COW looks like it is making a nice bottom, and with JJG “grains” down, COW feed is cheaper.
Transports in general are a good early indicator. Boats, rail, maybe even some trucking. FDX looks ‘toppy’ and UPS too maybe, though the UPS chart is nice, if not spectacular.
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
The mall REITS did best. Clearly the move to selected real estate beat the pants of stocks this last month.
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 doing ‘watchful waiting’. Eying PBR… and sugar.
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.