WSW – Saturday, May 14, 2011

General Comment

It’s been a while since I’ve done a WSW posting. Partly due to the family member with a kidney stone being a distraction, partly due to other news driven events (Osama and Obama) and partly just because things were mostly just going nowhere and no real change of trends was evident.

I’d also wanted to try doing financial stuff as “specific topics” rather than the “one big smorgasbord” and see how that worked. (I think more folks read them, but there were also more folks who complained about the method and conclusions – and that leads me to think they were folks who had not been following these larger postings so didn’t have the “context” of historical chart and process explanations). I’d be interested in knowing if folks like those postings more, or these large combined ones better, or a mix of both.

At any rate, it’s likely time for another. “Sell in May and go away” is a well worn Market Aphorisim, and, well, this is May… So time to “rebalance and reevaluate”

Summary Points

The commodity trade looks to be coming off, fairly hard, with metals and oil both falling. Silver and oil both after margin requirements were raised. Folks new to those markets were surprised. Those who’ve been around a while remember the hundred and one other times they’ve done it too…

The Silver Bubble has popped (and I think I was on top of it pretty accurately, despite the nay-sayers) and we had Japan put a spike in Nuclear power.

It also looks like in the last week the US Dollar has started a touch of a rise (or perhaps just a Dead Cat Bounce?) as rumors wandered around that Greece might abandon the Euro and as speculators dumped their commodities trades (and when you sell, you end up in a currency).

So, does ANYTHING look good right now? Well, REITS have done well lately. What about the future? Well…

Pointer To Other Topics

If you are expecting global warming stuff, it’s under the “AGW” categories in the right hand margin. Things specific to the NCDC data and GIStemp are under categories with those in their names.

This posting is about the other thing I do, looking at investment markets. Prior postings in this series are available here: https://chiefio.wordpress.com/category/wall-street-week/

Posts with some relevance to trades, but not in the format of a full WSW analysis, are available under this category:
https://chiefio.wordpress.com/category/economics-trading-and-money/

The Nature of the Charts 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 is more important to be in touch with what the market is doing NOW than to preserve the historical chart, this is, IMHO, a reasonable 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 www.bigcharts.com

Wall Street Week – Saturday 14 May, 2011

The Dollar Lately

Time to measure our Rubber Ruler.

One Year Daily of UUP Dollar UP, with TBT and selected currencies

One Year Daily of UUP Dollar UP, with TBT and selected currencies

The real winner here has been the Swiss Franc. (With the Yen having nuclear issues, the US Dollar being buggered by every congress critter and half the executive staff, and with the Euro “in doubt” over Greece, well, it’s the clear “go to” currency).

But that “kink” in the “Dollar Down” ticker is pretty strong. We’ve got MACD with a clear “be out of the short of the dollar” indication and with RSI coming off “near 20” rather hard. Add to that DMI with “blue on top” and it’s pretty clear that for at least a little while holding US Dollars is an OK thing to do. It’s not yet in a ‘bull run’ of positive uplift, but at a minimum the short side needs to take a break. You can see that as the May 1 “kink” downward in ALL the alternative currencies.

This chart has the “UDN” dollar DOWN bet fund as the main ticker. In this chart you can see who all these tickers are in the losing side at the moment.

6 Month Currencies and TBT the US Treasury "Bond Short" fund

6 Month Currencies and TBT the US Treasury "Bond Short" fund

RSI near 80, MACD with “red on top” and “mouth down” headed through zero. DMI “red on top”, The Dollar Down trade is over for now. Probably on hold until congress decides to raise the debt limit (when, depending on size, the trade may well return).

What happens if we zoom in on the last 2 weeks? Anything we can see happening “now”?

And here is the 10 day Euro chart, with BZF the Brazilian Real added.

Yup, Dollar Rising. Everything else falling. Classical action when oil and commodities trades “come off”.

Currencies - 10 Day Hourly Interval chart vs US Dollar

Currencies - 10 Day Hourly Interval chart vs US Dollar

Base Metals

First, just an “honorable mention” for the warning about the Silver Bubble. I’m going to commit the tiny little sin of having a bit of pride on calling that one ;-) Hopefully SLV will now stop messing up my charts with its crazy out of alignment gyrations ;-)

Last time I’d said:

Folks will be dumping and shorting industrial metals on the Japan industrial impact. Time to make a shopping list. Tin had good action before, so ought to have it again. Copper too. SLV has “MacD red on top with crossover downside” and is pulled away from the upper Bollinger band. RSI has touched “near 80” too. Be out.

We’re still waiting for a reason to be back in. So far it’s just uninspiring.

Metals 6 month chart

Metals 6 month chart

Here you can see the dramatic plunge in SLV (the blue line). Roughly cut in half. Looks like it’s had a tiny “dead cat bounce” at the end. Wait for it to cross the Simple Moving Average stack and return to it (but not go through) from the top side before expecting a new run up… Until then, it’s day trade or at most swing trade on a 10 day hourly or fast chart only. It’s not yet “resolved” to the upside and can just be pausing in the plunge. (Though highest odds are for a long flat wobble).

Gold vs Gold Miners vs Silver vs "Gold and Sliver Index"

Gold vs Gold Miners vs Silver vs "Gold and Sliver Index"

Looks like the whole complex has taken a turn for th worse. The Miners have been hit too:

PAAS is Pan American Silver, a silver miner

PAAS is Pan American Silver, a silver miner

Ag Commodities

This trade, too, has ended and rolled down. Markets always run to excess, then “correct” back to something more sane. (That how you make money trading. Seeing the overshoot and riding it, but never too long…)

Ag Commodities 6 month chart

Ag Commodities 6 month chart

The question, of course, is with commodity prices coming off, think the retailers will roll back the price rises? Nah, me neither…

Monthly Running Stocks

So what “won” and “lost” over the last months? (though remember, they may not be the winners next month… it’s just to provide ‘context’).

One Month

10 Best Performing Industries	
DJ US Tires Index	20.99%
DJ US Tobacco Index	15.60%
DJ US Biotechnology Index	15.21%
DJ US Travel & Tourism Index	13.75%
DJ US Health Care Providers Index	12.95%
DJ US Pharmaceuticals & Biotechnology Index	12.82%
DJ US Furnishings Index	12.48%
DJ US Pharmaceuticals Index	12.05%
DJ US Health Care Index	11.98%
DJ US Food Retailers & Wholesalers Index	11.87%

Tires, tobacco, Health Care, Drugs, Food? This is a list of “defensive and consumer goods”. As the commodity trade comes off, the retail guys who have / can jack up the price win on the lower input costs.

How about the losers?

10 Worst Performing Industries
DJ US Platinum & Precious Metals Index	-14.68%
DJ US Internet Index	-11.56%
DJ US Recreational Services Index	-11.19%
DJ US Banks Index	-10.97%
DJ US Nonferrous Metals Index	-10.75%
DJ US Investment Services Index	-10.39%
DJ US Hotel & Lodging REITs Index	-10.38%
DJ US Full Line Insurance Index	-9.99%
DJ US Automobiles Index	-8.94%
DJ US Business Training & Employment Agencies Index	-8.14%

Large capital goods like cars, precious metals, optional things like Recreational Services and Investment Services. Hotels and Lodging. Looks like “hard times on the business budget” and cutting corporate travel along with fewer bookings for big summer vacations (what a surprise. Broke, flooded, frozen, and with gas over $4 a gallon and with the “TSI Feelup Grope” on any airline flight? Yeah, that “Staycation and a Movie” is sounding good right now… And the commodities trade came off so the Nonferrous Metals took a dive too.

OK, the up/down ratio is about 2% in your favor. Not horrible, but a wrong guess on sector and you get nothing.

Weekly Running Stocks

The best and worst of the week? Do they tell a different story on the short term trade?

10 Best Performing Industries	
DJ US Food Retailers & Wholesalers Index	6.26%
DJ US Consumer Electronics Index	5.60%
DJ US Food & Drug Retailers Index	4.44%
DJ US Forestry & Paper Index	4.37%
DJ US Paper Index	4.37%
DJ US Furnishings Index	4.05%
DJ US Containers & Packaging Index	4.05%
DJ US Heavy Construction Index	4.00%
DJ US Drug Retailers Index	3.72%
DJ US Apparel Retailers Index	3.55%

“The Consumer Isn’t Dead Yet” trade. Add in a bit of “heavy construction” (mostly companies I’ve never heard off, probably getting overseas contracts with a cheap US Dollar cost base and Euro payments).

Minus them, I’d expect the same kind of “lower input commodity costs” play to hold up a bit longer. We’ll see.

10 Worst Performing Industries
DJ US Home Construction Index	-3.77%
DJ US Gold Mining Index	-2.74%
DJ US Mining Index	-2.05%
DJ US Nonferrous Metals Index	-2.00%
DJ US Coal Index	-1.92%
DJ US Real Estate Services Index	-1.63%
DJ US Banks Index	-1.27%
DJ US Travel & Tourism Index	-1.20%
DJ US Real Estate Investment & Services Index	-1.03%
DJ US Integrated Oil & Gas Index	-0.95%

Mining, commodity related (like oil and metals), homes continue to be a non-starter, and banks that own the mortgages on the homes. Yeah, a commodity sell off and a ‘stimulus? what stimulus?’ issue for housing.

What Is Our Asset Class Context?

Let’s look at the S&P 500 largest stocks in America compared with some other kinds of assets; a 20 year+ maturity bond fund, oil, gold, Yen. I’ve temporarily taken SLV off of this chart so the other tickers are more clearly visible.

Asset Class Races

Asset Class Recent Race

SPY       The S&P 500 ETF
GLD       Gold ETF
USO       Oil ETF
FXY       Japanese Yen currency fund
TLT       20 Year U.S. Treasury Bond fund
FXE       Euro currency ETF
SLV       Silver fund
BZF       Brazilian currency ETF
EWA       Australia ETF
WOOD      A wood and paper products fund

TLT is showing signs of life again as folks bet that the USA will not implode, congress may put away the Chinese Credit Card, and maybe that Silver investment wasn’t such a great “store of value” after all… So US Bonds need a bit of a closer look. (But we knew that last time when we said TBT was done as a trade, they are inverses of each other)

You can really see how oil tends to collapse in price when it goes on this chart.

10 Day Hourly Fast Trader Chart

A day traders dream, everyone else gets a nightmare. Bouncing up and down and largely going nowhere. Slightly positive for leveraged shorts (note that QQQQ dropped on the week by 1% while QID the “utra short” rose about 3% – but had bounces of that much each day. Range trading it on a day trade basis would work, but most anything else you end up needing to pick your entry and exit on a day trade basis anyway to make any money.

Trader Chart - Longs and Shorts of Index Funds  10 day hourly interval

Trader Chart - Longs and Shorts of Index Funds 10 day hourly interval

What about Brazil? Also India and China.

Brazil the EWZ ETF vs the BZF currency ETF

Brazil ETF vs Currency Race

EWZ  - Brazil
BZF  - Brazilian Real currency
FXI  - China
EWA  - Australia
EPI  - India - WIsdom Tree fund
EWC  - Canada
EWW  - Mexico
GUR  - Middle East Fund

Last time I’d said:

Everything looks pretty sick to me. India might be making a bottom. Watch EPI / IIF / IFN as they have a ‘failure to advance to the downside’. Maybe setting up for a reentry.

And things DID have a minor pop, followed by a bigger drop, and it’s still looking sick to me and like the drop is not done.

I’d also said:

EWC has made a nice dip, it has not yet had a ‘failure to advance’ so the rules say to ‘buy the dip’. I’d only buy a tiny, though. With everything going wobbly, I can’t see it climbing a whole lot. Oil is already over $100, so the trade is nearer to the end than the beginning.

So true! I really do need to start shorting more. I seem to have a decent “eye” for those opportunities.

Closeup on Gold

Gold 1 year daily chart

Gold 1 year daily chart

Last time I’d said:

Having trouble with that $1400 line. MACD red on top, DMI too and ADX weak, so the trend is over.

Just not seeing a reason to be holding gold right now.

That was early by about $100 an ounce. Gold ran on up to over $1500 after that, but has since had a bit of a rollover. With RSI at an ’80 touch”, MACD “red on top” and “mouth down”, and with DMI “confused” while ADX at 20 and falling calling for a weak trend, I’m still not seeing a reason to hold gold right now. Dollar strengthening, commodities traders backing off, margin requirements being raised… Just not a good time, IMHO.

Technically the chart is not at a “trend is over” indication. For that, price must cut below the SMA lines and return from below them with a failure to cross through again. We have a “parabolic rise” as you get into a “blow off top” but have not yet had a ‘failure to advance’. So the “rules” say to “buy the dip”. For me, I’m just not interested in gold at those prices and with commodities taking a tumble.

VIX the Volatility Index

Volatility Index and Related

Volatility Index and Related

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

A close up on the last 6 months:

Volatility Index and Related

Volatility Index and Related

A more mixed reading. Some spikes of volatility driven by news, but generally low volatility. Often that comes before a sag…

Ideas of the Week

Sit in cash, TIPs. Maybe a bond trade to the long side. Maybe… Watch for a shorting opportunity in stocks (if we see a high volume big price down day like we saw in SLV when the short hit it…)

Oil And Fuels?

We know oil rolled off, did that take everything else with it?

USO Oil, KOL coal, UNG Nat Gas, UGA Gasoline with a Golden ruler

USO Oil, KOL coal, UNG Nat Gas, UGA Gasoline with a Golden ruler

Pretty much. Natural Gas is showing some minor signs of life. Gasoline is trying desperately not to follow oil down. How about on the 10 day?

USO Oil vs KOL Coal, UNG Natural Gas, and UGA Gasoline

USO Oil vs KOL Coal, UNG Natural Gas, and UGA Gasoline

GLD (Gold, the gold line) held up better than energy commodities, and they all look like they are starting to flatten. Still early in the rollover, though.

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

Tech vs Other Markets

Tech vs Other 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

Better than many, but the MDY Mid Caps and RUT Russel-2000 did even better. But all of them have gone flat for now as everyone waits for what Congress does with the debt. With ADX at near 15 and dropping, it’s pretty trendless.

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:

Bonds - TBT to Short Them

Bonds - TBT to Short Them

Bonds made a bit. But the big story here is how WIP has rolled over (as they are NOT in US Dollars and the $ has had some strength).

What About Oils?

Some Selected Global Oils:

The Oil Majors Race

The Oil Majors Race

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

Last time I’d said:

Personally, I’d wait to see if oil heads back down to $80 as folks just say “to hell with it” and stop driving places with $4 gas.

And I’m sticking with that. It was “Perp Walk To The Capitol” day again as the Oil Executives were vilified by Congress Critters looking for a photo op. So somewhere between $80 and $90 oil I’d watch the chart really closely for an entry… (If it won’t go below $90, it means these guys will be selling cheaply).

Some Near Oil and Oil Related Comparisions

What about oil service companies?

Oil Services and Oil Related

Oil Services and Oil Related

Last time I’d said:

“I’d make that time to leave the drillers and support companies, along with the related stuff.”

Looks like that, too, was a good call. The are “wobbling sideways” but with a decided downtrend to some…

Ag and Ag support / Input companies

Ag Trade 6 Month Daily Interval Mixed Players

Ag Trade 6 Month Daily Interval Mixed Players

From last time:

It’s looking a lot more like “be out” than anything else…

Yeah, I’m “good with that”… ;-)

SEE the SEA!

NAT is giving a fairly classic “ok to buy now” indication. RSI is up from “near 20” with the latest dip higher than the one before. MACD is “blue on top” and with “opening upward” and even “crossing zero to positive”. DMI is “blue on top”. I note that VLCCF is similar and with an 8.7% dividend now. (Though for it, DMI is more “flat with a low ADX” but I’m OK with a ‘flat stock’ that’s paying me 8.7% …)

Shipping Comparison

Shipping Comparison

Here is the RCL / CCL cruise lines chart. You can see how these have much more range (or “beta”) that the S&P 500 SPY fund.

Royal Caribbean Cruise Lines, Carnival C.L., and SPY S&P 500

Royal Caribbean Cruise Lines, Carnival C.L., and SPY S&P 500

Both the RCL and CCL charts look like “buy” signals. Not yet a full “cross the SMA stack and return from the other side”, but with the other indicators at least saying the shorts are getting out and the price is near a bottom. They often rise on the “summer vacation cruise” business and can position ships to take advantage of currency differences.

The REITS race – Real Estate Investment Trusts

REITS have been doing nicely. They have nice dividends and with some inflation protection. I’d nibble my way in, but not in big bites. Look at FFO Funds From Operations and make sure they can cover the dividends…

REITS Race

REITS Race

PEI  Pennsylvania Real Estate - Mall REIT (REMOVED to make better graph)
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 

Conclusions and Likely Actions

Last time I’d said:

Swiss Francs. Watch the news. Some TIP & WIP. Not much… maybe some day trades on the short side in ETF Index funds.

All of which was good (modulo the need to jump out of WIP when the dollar turned). At this point, it looks like some shipping and a bit of bonds. “Sell stocks in May and go away”, but on an ocean cruise this time ;-)

Just not seeing a whole lot of things I like here in the broad market…

The Long Term Context

This is a very long duration chart (5 years) of NYSE and one of the S&P 500 (SPY). They will not change much from week to week (just one tick mark) so guides longer term attitude. I’ve moved it to the bottom as you really don’t need to look at it often.

5 Years, NYSE

5 years, NYSE

MACD has a shallow dip, but with “Red on top”. DMI / ADX have gone flat. Slow stochastic saying ‘be out’, and with the “little stars” look to the price bars that you tend to get near tops. Not a lot of reason to be in, and significant reason to sell. Not a buy point for sure.

Spiders (S&P 500) looks very similar. Again, the indicators are “be out”. RSI has “near 80” and then “not as close”. Very “not good.”

SPY 5 year weekly tick, RSI, Williams %R, ROC

SPY 5 year weekly tick, RSI, Williams %R, ROC

The SPY is continuing a very slow drift upward, but I just don’t see the return as worth the risk. It’s far from the SMA stack, it’s weak, and at some point all the hedge funds who were Long Commodities are going to look to be Short Something Else. They can’t be “long commodities short dollar” so they will likely be “long dollar short stocks” or “long bonds short stocks”. If they do that, stocks will tumble.

Yes, right now W%R and DMI both say “hang in there” but look how Rate Of Change has just died to near nothing. You are taking all the risk for none of the gains. Better to step out and buy back in if it starts a new run up. At a minimum, put some ‘protective puts’ behind your ‘long stock’ positions for a month or so.

Automated Stock Screens

OK, nobody ever said anything one way or the other about the software based stock ticker selection, so I deleting it. Now I’m figuring I can use it as part of an “investors corner” so I’m off to tune it up and bring it back up to speed…

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 paragraph and there is a bit of an explanation.

Click for Disclaimers, Disclosures, and Where To Get Charts

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.

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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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4 Responses to WSW – Saturday, May 14, 2011

  1. R. Shearer says:

    Timing is everything and you were quite accurate on SLV. I got out too early but made up a little more on ZSL.

    I like UUP and TLT for countertrend plays. TLT pays a monthly dividend. I agree with you re: sell in May at least this year. I’m looking for more weakness in the general markets and for interest rates to drift a little lower, probably into June. I think the dollar could rally longer. We’ll see.

    My timing has been pretty good lately, although CREE killed me. It blew right through my stop. I should really quit trying to “catch falling knives.”

    My 8 yo son goes to Gamestop and we timed GME purchase pretty well, although missed a point on the sale. I’d like to see it pull back to 23 or so for a reentry. I’m long ADM, MRO, TLT, UUP, ORCL and junior gold miners that I’ve alresdy taken principle off the table.

    Fundamentally, to me, gold, coal, nuclear, platinum and telecommunications look good long term – just waiting for a better reentry.

  2. E.M.Smith says:

    @R. Shearer:

    One of my mantras is “in late, out early”… Better out early than out too late ;-)

    I’m pretty sure TLT and UUP are good bets for now, just unclear on ‘how long’… swing trade? Or a new trend?

    Short Euro long Yuan or short Euro long Dollar ought to both work for a while.

    The major advantage of the “Chart system” I’ve put together is that it enforces a kind of timing discipline. If all the indicators have lined up on “be out” and you are still thinking “I’ll hold just a little longer” it’s very hard to ignore all the red flashing lights…

    So on this chart of CREE:

    http://bigcharts.marketwatch.com/charts/big.chart?nosettings=1&symb=cree&uf=8&type=4&size=3&sid=9939&style=320&freq=1&time=8&rand=1979378792&compidx=aaaaa%3a0&comp=spy&ma=4&maval=24&lf=2&lf2=4&lf3=1024&height=820&width=720&mocktick=1

    Even if all you did was say “I must sell when below the blue moving average line”, or “I must sell holdings that are underperforming the S&P 500 line” you would have been saved.

    One of my rules is “must beat the S&P 500 index” (or you are taking excess risk as the index has no individual or sector risks…) or you sell.

    Even just “be out when DMI is ‘red on top’ or “MACD is ‘red on top'” would avoid a lot of the pain.

    You don’t really need to mix them all together into a complex system. Just a couple of small rules gets 80% of the advantage…

    Interesting that your “waiting for an entry” shopping list is rather like mine… Nuclear and coal and platinum for sure.

    @R. de Haan:

    While I can’t agree with the “strength” of emotion (dire warning style) in the linked piece, it’s not far off from my “worry points”. I’m just waiting for the chart to confirm “yup, it’s happening” before squawking about it. Part of the chart discipline works the other way too. Keeps me from bailing too early as a run continues… So for now I can only say “looking a bit rolled flat”… But what does not go up, goes down… So we watch for that first big down spike day on volume to say “The shorts are into it” and we watch for the MACD crossover to “red on top”…

  3. R. de Haan says:

    @ E. M,

    As I said, for what ever it’s worth.
    Anyhow, I agree with your view.

Comments are closed.