Oil, after a short drop on the Strategic Petroleum Reserve release is back up at “near $100”. So much for buying votes with a dribble of reserves. “Drill, baby, drill” would work better at getting oil prices down.
Chavez has cancer, but thinks he’s fine. He’s going to find out he isn’t, and that the opposition is going to push harder now. Disruption in yet another oil supplier is not going to be a good thing. (But oil is likely to spike up when something goes bump in the night – holding a ‘basic’ position in oil would be a reasonable thing to do. LTI folks could get some Oil Trusts for dividend yield and protection against price surprises.
The dozen or so wars in the world drag on. The Arab spring is headed to the Arab Summer to be followed by The Arab Winter… Syria is playing hardball (having seen that the world is not happy with the USA in Libya, that NATO runs out of “beans and bullets” after a weekend warriors party, and that if you quit, you lose, if you don’t quit, the other side dies… so far.
The US Congress is still trying to decide what to put on the Chinese Credit Card and the Chinese are out shopping for minerals and food, not US Treasury wiping paper…
All in all, typical summer doldrums.
We had a very nice, roughly 6%, run up “counter trend rally” to the SMA stack. Now we’re in a “battle ground market” again. At the SMA stack from the bottom. Shorts ready to drive it down. Longs ready to start a new rally. Who has the fattest wallet? We’ll see in good time.
My strategy then is typically to “step out” and wait for a winner, then jump on the winning side. Usually at this stage, we go into some “dipping down” ripple for about 9 months, then the Bull Run returns. At this time, though, with QE-2 ended, we have a push of bond rates higher (so bond values drop) and that means cash leaving bonds. Typically a lot goes into stocks then. So it’s quite possible for a “melt up” as that bond money drifts over. I suspect folks are more worried about August 2 and the Congress,so will be more “cagy” than usual about where they play.
On that note, Base Metals have started a bit of a move again; don’t be surprised if we have a return to “Commodities as Diversification” (meaning it’s not stocks or bonds and doesn’t depend on the $US Dollar so maybe it’s a safe place to play while Congress Critters on both sides try to give each other “Wedgies”…)
Generally, not the kind of market I like.
Add in that Greece is leading the charge to “Bugger the Euro” and Spain and Italy see Greece got 12 Billion Euro, so why not them too…, with Germany announcing they will raise their borrowing by 10% more (putting the Greek debt on their credit card as they still have some room left…) and in the process showing out Socialism spends “Other Peoples Money” one way or another until it is all consumed. Makes the Euro look a might unstable longer term.
The Portugal was downgraded to “Junk” for their bonds didn’t help…
The world is a mess right now, and the two biggest money centers are just being stupid and racing to see who can borrow and spend the most fastest. In the long run, China wins, but right now China has a ‘trust problem’ as some folks have started questioning their honesty in accounting. Maybe buying into “Stagnant and radioactive Japan” would work… Yeah, things are THAT messed up in the world.
Watch Earnings reports.
Watch Greek Bail Out euphoria to fade into “Oh Crap, Again?” reality.
Watch for the US Congress to find the worst possible mixture of Democrat and Republican positions, then make it worse with a bad implementation. Watch California, now that it has passed a budget, discover that “Tax Beatings will increase until morale improves” is not conducive to more businesses moving to California. I’m actively working on leaving and taking my money with me…
Conclusions and Likely Actions
On the sidelines and looking for “Variety Plays” back in commodities and Ag.
Pointer To Other Topics
Some general comments on how long term investing differs from trading and my thoughts on things to do for the long term investor, start with this page:
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:
The Nature of the Charts Here
The charts in this posting are usually 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. If I capture a “static image” I usually lable it as such. You can tell by looking at the date bars on the bottom of a graph. I typically use the live charts 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 – Wednesday, 6 July, 2011
The Dollar Lately
Time to measure our Rubber Ruler.
Dollar in a classical “Dead Money” bottoming pattern. Just dribbling along after a drop. Slightly “higher lows” but highs not rising. OK, we can use it for a stable guide line for a few months, but no trades really. Gold & Silver MINERS are going up (XAU) but GLD – gold itself, not so much. TBT, the “Bond short” had a jump, and is not returning to the lows. Eventually this will run up ‘for a while’ but not until the Congress Critters decide how much they will bugger the currency… so how much The Fed has to react… so how much that moves bonds…
Here’s the same chart with the main ticker being “UDN” the “Dollar Down” ticker and TLT instead of TBT.
Basically, things have stabilized. For now.
And here is the 10 day Euro chart, with BZF the Brazilian Real added.
Mostly just swing trade “ripple”, but GLD Gold looks like it might be getting some action.
On the longer term charts, we still have a “hump” from the Silver Bubble. It will take a while for that to work off the left edge… You can see the “dead cat bounce” after the plunge, and how now it’s back to a more normal “reversion to the mean”. At present, it looks like it is ‘ringing down’ to a flat dead money price.
In general, the metals are looking a bit “bottomed”. Might be a good time to go shopping for miners for longer term economic recovery. The option based ETNs (Exchange Traded Notes) will tend to flatten and drop as volatility fades, but still, JJT Tin looks like it has tradable “ripple” to it and might be starting a small recovery longer term.
Gold continues to be flat, with ADX down at 15 or so a no trend. MACD below zero. We had a spike up in the miners on the stock market rally, and the high real gold price will give them great earnings reports. At this point I’d be in the miners rather than the metal itself.
Sugar continues strong, and coffee has a little rise. Mostly, though, not much of interest. WOOD looks like an attempt at a bottom / bounce, but with new home demand still off, not much hope of extended gains.
The Real continues a slow “melt up” against the dollar, but it is not reflected in the Brazilian stock market EWZ. Ever since their return to the Socialist Agenda, their market has been under the SPY. CZZ is fighting that trend on the sugar strength, but not very strongly. Once folks are worried about return of their assets, they don’t care so much about return “on” their investments.
Still, CZZ has crossed the SMA stack from below, returned from above to “kiss” it, and is now technically “bottomed” and poised for longer term rising. RSI is ‘higher lows’ off a low value. MACD is ‘above zero’.
It ought to be ‘steady rise’ for a while. But with ADX presently near 10, the strength of that rise is pretty weak.
Monthly Running Stock Sectors
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’).
I’m going to make just a tiny “horn toot” here… Last time I’d pointed to REITS as a likely good anti-dollar trade… Watch for REIT in this list ;-)
10 Best Performing Industries Industry Name Percent Change (over time selected) Dow Jones U.S. Footwear Index 14.56% Dow Jones U.S. Clothing & Accessories Index 11.44% Dow Jones U.S. Industrial Suppliers Index 11.23% Dow Jones U.S. Auto Parts Index 11.06% Dow Jones U.S. Restaurants & Bars Index 8.43% Dow Jones U.S. Consumer Finance Index 8.29% Dow Jones U.S. Specialty Retailers Index 8.28% Dow Jones U.S. Durable Household Products Index 7.85% Dow Jones U.S. Personal Goods Index 7.68% Dow Jones U.S. Recreational Products Index 7.24%
Well, a “consumer not dead yet” clothing and shoes, restaurants, bars, retail, etc. with just a touch of “Industrial Suppliers”
How about the losers?
10 Worst Performing Industries Industry Name Percent Change (over time selected) Dow Jones U.S. Mortgage Finance Index -4.73% Dow Jones U.S. Tobacco Index -2.57% Dow Jones U.S. Real Estate Holding & Development Index -2.48% Dow Jones U.S. Airlines Index -1.98% Dow Jones U.S. Heavy Construction Index -1.78% Dow Jones U.S. Property & Casualty Insurance Index -1.69% Dow Jones U.S. Nondurable Household Products Index -1.56% Dow Jones U.S. Forestry & Paper Index -1.42% Dow Jones U.S. Paper Index -1.40% Dow Jones U.S. Real Estate Holding & Development -1.15%
The “defensive” area of Tobacco, and Mortgages… Realestate Holding. Airlines (NEVER own an airline as an investment….) Durable goods, heavy industry, papers.
What to make of this mess?
OK, the Up/Down ratio isn’t too bad, but it says we’re going out of long term business to buy cheap stuff retail made in China. Oh, and our financial house is a mess. While that’s accurate, the idea of betting on “How can I be broke with no job when my credit card still buys drinks at the bar” does not appeal to me…
Any change “lately”?
Weekly Running Stock Sectors
The best and worst of the week? Do they tell a different story on the short term trade? What moved up the most in this recent rally, and what was left behind?
10 Best Performing Industries Industry Name Percent Change (over time selected) Dow Jones U.S. Specialized Consumer Services Index 8.00% Dow Jones U.S. Consumer Finance Index 7.98% Dow Jones U.S. Travel & Tourism Index 6.91% Dow Jones U.S. Internet Index 6.79% Dow Jones U.S. Clothing & Accessories Index 6.17% Dow Jones U.S. Nonferrous Metals Index 5.66% Dow Jones U.S. Electrical Components & Equipment Index 5.60% Dow Jones U.S. Hotel & Lodging REIT Index 5.49% Dow Jones U.S. Oil Equipment & Services Index 5.39% Dow Jones U.S. Platinum & Precious Metals Index 5.38%
Nice numbers. Heavy on Consumer stuff. Tech / Internet. Metals got a lift (that commodities as an alternative trade). Oil rose, so Oil Services followed. and some Electrical equipment… A bit of a ‘recovery maybe’ with some “inherent value” and the “Consumer on vacation”… Pretty pedantic, really.
10 Worst Performing Industries Industry Name Percent Change (over time selected) Dow Jones U.S. Airlines Index -2.16% Dow Jones U.S. Home Construction Index -0.72% Dow Jones U.S. Biotechnology Index 0.32% Dow Jones U.S. Home Improvement Retailers Index 0.97% Dow Jones U.S. Reinsurance Index 1.08% Dow Jones U.S. Medical Equipment Index 1.25% Dow Jones U.S. Conventional Electricity Index 1.31% Dow Jones U.S. Electricity Index 1.32% Dow Jones U.S. Pharmaceuticals & Biotechnology Index 1.40% Dow Jones U.S. Brewers Index 1.46%
Airlines, home building and major renovation, “reinsurance” on global disaster levels, … but notice that as a “worst”, only the first two actually dropped. The others just rose slowly. Low volatility electric utilities and drugs. Beer. OK, so the “consumer going to buy anyway” defensive lagged and the “consumer on vacation” won…
Someone is not being very creative at the large hedge funds if that’s the best game they’ve got. Vacation stocks in summer?
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.
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
Last time I’d said:
So all I will add here is that wood, oil, and EWA the Australia fund (a commodities rich country fund) are all dropping fast. Someone is betting China will not be buying as much “stuff”…
We can clearly see on this chart a “short cover” as those plunges reverse into a rapid rise. That is often followed by a ‘relaxation’ back to the moving average lines, then either a ‘re-short’ and new plunge, or a recovery into a new, longer term, run up. The MACD and DMI are both “blue on top” and RSI is rising away from a ‘near 30’, but that 30-70 oscillation happens in a sideways rolling ticker… and MACD is only ‘at zero’. ADX at 22 is saying ‘trend of mild strength’ and blue on top is saying ‘mostly positive’.
It would be worth watching EWA and WOOD / USO for continued “commodity trade” runs higher; but to me it’s mostly just looking like a large hedge fund getting out of shorts, not putting on a long buy trade. I’m for caution here.
Shorting The Broad Market
OK, RSI got up near 75 and it looks like the “shorts” covered, causing a rally. Presently indicators say “don’t short” as both MACD and DMI are “red on top”, but with RSI near 25, and this looking like a flat rolling market in a “toppy” way, I’m not seeing a big trend here to work, more like “reversal soon?” I’m not feeling a lot of conviction to market directions, just “whales” moving prices around during thin summer trading.
10 Day Hourly Fast Trader Chart
We had our nice run up, then about Tuesday got that MACD crossover to “red on top” as RSI was at 80. That says “day trade or swing trade exit”. DMI stays blue on top, so there may be a slight upward drift still, but the major reward is bagged and the risk is higher for downside. Reasonable to “step out” for a few days and see if this run “has legs” or just goes flat. In a bull market it is stairsteps: Up / flat / Up / flat / up. While in a bear market it is: Down / flat / down / flat. We’ve gone flat… Not dropping, just not continued advance. If, after a couple of more days, the flat is followed by up, that argues for a longer term bull market rise. For now it’s “reduce risk, step out”.
What about Brazil? Also India and China.
To me it looks like lackluster drifting down with some “ripple” from whales trading. Need validation that the rise at the end ‘has legs’ before I’d hop on for longer term.
EWZ - Brazil BZF - Brazilian Real currency FXI - China EWA - Australia EPI - India - WIsdom Tree fund EWC - Canada EWW - Mexico GUR - Middle East Fund
That the Real is rising says someone is buying things in Brazil and needs to convert currencies. I’d guess it is oil exports and sugar, mostly.
Closeup on Gold
A tiny ‘return to the SMA stack’ from below. Mostly flat sideways for now. Probably pending budget crisis resolution in the Euro Zone, the US Congress, and some individual states.
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
Vix is very low. Worry when that happens. It happens at “local tops”.
A close up on the last 6 months:
Notice that end of April start of May VIX drop? Look back up at SPY. It was just then that it had a nice run up, then rolled over and dropped. I’m not liking that low VIX…
Ideas of the Week
Last time I’d said:
Watching for a “shorts reversal” in US stocks and commodities. At some point all the folks shorting the US stock market and the commodities will have to “come off” and that will cause a bounce.
My “counter trend rally” trade did nicely ;-) now I’ve flushed to cash.
Just don’t have much inspiration and want to watch a Shuttle Launch, not the market, on Friday.
Mostly just a couple of rolling commodity swing trades look interesting.
Oil And Fuels?
Oil halted the drop and is rolled back up toward the SMA stack from below. Still not bullish long term (needs a crossover first), and with government action driving the swings, hard to trade them. MACD is “blue on top” but way below zero. That is “rolling trades in a falling trend” and hard to make money no it. Natural Gas is “dead money flat” on the bottom, but with some ripple. Longer term, it argues for this being a nice cheap time to load up on pipeline and gas production companies for long term investors. Or just wait for a trend to develop…
Nice swings, but in a low trend environment and with government interventions. Not speaking to me…
So what happened in the Tech Market relative to world 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
So far this rally has not gotten as high as the last peak and is about as high as the one before last. That’s called a “head and shoulders” top. If stocks rise in the next couple of days (breaking that pattern by not making the right shoulder) we ought to go much higher. If it “makes the shoulder by dropping from here down to the SMA stack, that’s very negative (or so a lot of people think, so they sell, that makes it negative ;-)
I find it interesting that the RUT and midcap MDY are beating tech.
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:
Last time I’d said:
Whenever The Fed starts to raise rates and/ or not buy every US Treasury that’s on offer, swap to the bond short TBT, but until then, it’s a “risk off” world, and that is TIP / TLT / SHY. And maybe some LQD, the corporate Bond Fund.
At the end of QE-2, The Fed stopped buying, bonds dropped, and the TBT short spiked up. It’s now drifting back to the SMA stack from the top. That argues for “short bias” in bonds from here on forward. That long rise in TLT is over, and it’s more down than up. IFF The Fed sneaks in some more buying, that will change, but for now the bias is “out of bonds” in to something else.
Some Selected Global 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 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
Long down trend with a ‘short cover blip’ at the end. Down is likely over for now, but that doesn’t mean up is a sure thing. Watch for a nice MACD continued upward and prices staying above the SMA stack. That confirms a new up trend, no just a ‘shorted to uninteresting to short”…
What about oil service companies? Or that Sugar and CZZ?
“Flat Roller”. Swing trade, don’t invest… Looks like Slow Stochastic doing a good job of calling the in / out on 20 / 80 followed by a crossover.
Here it looks like SGG is getting close to prior tops. RSI on 80 is a worry too. Still, if sugar is short of supply, it can hold this price for a while. I’d not put on a new trade at this hight, though.
Ag and Ag support / Input companies
Last time I’d said:
TNH is having an interesting move. It is a nitrogen company with a 14% dividend. […]
Chart is saying that it’s doing OK, even if volatile:
And it has continued to be the “winner” on this chart.
and it continues to look good with continued positive indications on the chart / indictors.
SEE the SEA!
Not a whole lot of interest here, yet. VLCCF and NMM look like they have bottomed and started a small rise. NMM has a 9% dividend as does VLCCF. RCL and CCL have more total rise off the bottom.
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.
The trade up to the SMA stack from below worked well, time to step out and wait for “fall away down” in continued downtrend, or “break through and return from the topside” with buy back on that topside return to the SMA stack. Indicators ARE positive, so the courageous could just hold a long to see if the bottom forms. ME? I’m never courageous on stock trades….
REITS (selected) are rolling. BXP an office REIT is doing nicely. Some of the others have a “dip” a week or two back, but rising nicely out of it. Liking that BXP…
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
As you can see, generally rising nicely. Realestate does that in times of inflation.
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.
Notice that Slow Stochastic is saying “be in”? ADX saying that trend is very low, so use Slow Stochastic. So it called our (just happened) rally and has not yet said ‘be out’.. but look at the shape of the top of that price data. Long rises that “go flat” with “failure to advance” tend to be followed by a big dip… Yet we ARE on the SMA stack in a long term rising market.
So this is a ‘hard spot’… not a clear trend. Possibility of a ‘buy the dip’ moment only partly done; but with a ‘head and shoulders’ being printed (but also not done). I’ve managed risk by stepping out; but if it heads up, that confirms to get back in. Frankly, I suspect folks are sitting tight waiting for either the Euro Zone or the USA to stop having Sovereign Risk Issues…
SPY isn’t much better. W%R saying “be in”. RSI saying “just had a ‘buy the dip’ moment”. Rate Of Change saying “gone flat”… RSI also saying “lower highs – be afraid…)
So when that kind of thing happens, I look at the faster charts and faster indicators and move to a faster time scale with faster trades... In general, I'd put very long term bias as "be in". Trend is up, dip happened. Be in. But you just can't ignore that the price plot looks very "rolled flat" at least... and we're all waiting for DC and Germany to "make their moves"... Me? I'm going on vacation from the markets for a week and let them clearly speak to me before I leave bets on... When it looks like a battle ground market, just step out of the line of fire.
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.
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.