WSW – Saturday, 16 July 2011

General Comment

The Bernank spoke, and gold rocketed up. It looks like “Bugger the Dollar” will continue for some time.

Congress continues to argue over who ought to fleece whom rather than realize that the game is in the end stages and it is just not possible to continue the fiction that the Federal Government will hand out 211 $Trillion of “goodies” in entitlements in the coming years, all unfunded, on the backs of the GenX, GenY / Millennials and eventually GenZ.

The reason is simple, we’re moving from 10 workers per retired person when Social Security was founded to nearly 1 : 1 ratio as we move forward. Just not going to happen. It takes roughly 2 : 1 just to provide care to the elderly, add in running a society too and you need 4 : 1 to about 6 : 1 in my opinion to be viable. “Demographics is Destiny” and our demographics are already set. All the children of those generations have already been born. The numbers are set. At the same time, longer lifespans and greater medical ability have lead to an explosion of medical care demand. There simply is no physical way to make this work without rationing access, one way or another.

So congress is arguing over how many deck chairs and of what comfort level to put on the deck of the USS Economic Titanic… Denial is an amazingly flexible tool…

Democrats and other Progressives want to tax more and spend more, raising tax rates on the rich. Never mind that the Laffer Curve and economic history show they can not raise any more money that way (only drive more economic activity out of the country or out of business). Republicans want to freeze spending at a sustainable level, and with more tax cuts to stimulate businesses. Admirable, in that it is the correct way to stimulate economic activity and reduce the negative impacts of government… yet… It ignores completely the simple fact that then the US Federal Government (and many State governments too) would need to stop doing about 40% of what it does now AND would still need to find a way to dodge a lot of their present retirement / Medicare / Social Security / Medicaid / etc false promises. Just not going to happen. Certainly impossible to do if the debt wall is hit, hard, in August.

BTW, that’s the real lesson the Congress Critters are learning right now, painful as it is to watch: There is no way to balance the books in August without a debt ceiling hike, yet it is lethal to Republicans with their “base”; and even with the hike, there is no way to continue to pay all the ‘entitlements’ going forward – no matter how high you make tax rates; yet that is lethal to Democrats with their “base”. We are watching two groups argue over what channel to set on the radio as the bus they are driving heads off the cliff…

So what is most likely to happen?

The stock and bond markets are fickle things. The people from whom they are made are equally divided into “pro debt” and “anti”. As each sees their “side” winning or losing they buy or sell. Silly, really. They, too, are not addressing the reality, only the win criteria as they root for their favorite station on the radio (cheering from the back of the bus…)

So the Rating Agencies have said that the US Congress needs to get another larger credit card as it’s run all the $14 $Trillion it already has to being so full it can’t ever pay it off. Strange, that. The same folks who typically spank a private borrower for over spending and then demand that added credit be cut off, saying exactly the opposite for The Federal Government… But, in their view, if the US Govt gets more debt then the credit rating is good, but if we live inside our ability to pay, that’s bad. Go figure. One “bright spot” is that S&P have at last said “May even downgrade US Paper on too much spending even IF the debt limit is raised.” – if you can call that hope.

The Market Mavens on various talking head shows are on both sides, too. So the markets are likely to be based on “fattest wallets win”. A balance tug of war between these two sides, swinging back and forth with the news flow. On CNBC a minor verbal war broke out between Rick Santelli and Steve Liesman over the debt limit issue. Rick is an ‘in the pits’ bond trader. He knows debt markets. Steve is a great economist, but has an economists bias. This is the same argument being writ large in the ‘practice vs theory’ debate of our political parties.

(There is a great video in that link, btw).

It would be great to hunker down in cash, were it not for the fact that the value of our currency is exactly what is “in play”. It would be great to be in non-$US cash, were it not for the fact that the exchange rate is in play. Basically, it’s going to be a volatile mess. Best idea I’ve got on it is to be diversified and hedged to remove the risks. Some gold, some other metals, some Swiss Francs, some Yen, some $US Dollars, some WIP and TIP bonds, some stocks, etc. Yet I doubt I’ll do it as the work is just more than I care to do at the moment. Perhaps better to just “seek Alpha” and find things rising fast enough on growth that the rest of it just washes out of the equation…

At any rate, 2 or 3 weeks from now, we have our SHTF moment. I suggest practicing “duck and cover” along with “decontamination drills”.

In other news…

The economy continues tepid (gee… everything up in the air and continued threats of tax hikes to pay for the impossibly large debt; why would anyone be afraid to invest and hire now…) with a very high unemployment rate and growth just a tiny above zero.

Profits are good, though, as companies squeeze their staff post layoffs and as the weak $US Dollar makes foreign sales look better via more dollars, but at no real increase in value. Play those accounting games…

The Euro Zone continues to lurch toward implosion. Germany will eventually discover that the “other people’s money to spend” is theirs, and it’s being spent as rapidly as it is handed over to the PIIGS. Greece is saying “Send More Money”. If the northern states do not, then Greece defaults and implodes, leaves the Euro, and the Euro Zone starts to unravel. (As Portugal, Italy, etc. follow suit). If money IS sent to Greece, then the others line up for THEIR share of the largess. Repeat until Germany is bled dry; then the Euro Zone collapses.

The only way out of THAT dilemma is for the PIIGS to cut back on spending and entitlements. Like that is going to happen…

No, the political will for it just does not exist. Inflating away the obligations is the only way to sweep the lie under the rug. Then it is the fault of “inflation” and not the politicians. They pay the full pension amount, it just buys a lot less. Same effect as cutting the entitlements, but less blame.

IMHO, this drama will run a couple of more years as things get increasingly unstable. Then the Euro Zone starts to unravel, or Germany accepts an inflating currency. One wonders at this point how many current German voters really have a cultural memory of the hyperinflation anymore…

In Australia, Ms Gillard is having a “read my lips, no new taxes” moment with the “carbon tax”. Have to admire her for staying nailed to that cross she has chosen. Too bad she couldn’t have decided to ‘stick with conviction’ to her original promise of ‘no tax’ rather than the reneging position of “tax, for sure!”. The people of Australia now have a choice, and many of them are not particularly happy with “Labor”. I think things are likely to blow up politically in the next year or two. Until then, Australian markets will be volatile as the tax situation is in play.

Other markets, such as Brazil, China, India; all have the issue of some doubts about their ability to avoid Sovereign Risk or market scandal in one way or another. Brazil is playing with penalizing foreign investment via differential taxes (again) and as a result is now underperforming. China is growing like a weed, if only you can believe their “accounting”… and has made some “trust issues” via fleecing a couple of hedge funds of a few $Billion. If folks of that caliber are getting burned with the diligence they do; what hope does the Average Joe or Jane have?

All in all, just a giant mess.

Welcome to summer in a year before an election cycle, in a decade of doldrums, in a generation of over promise, under deliver.

Maybe we’ll be “lucky” and Katla will blow it’s top starting a New Little Ice Age and setting a clear enough direction that even our Congress Critters can see it…

Summary Points

Watch the US Congress. (At least the show will be fun to watch, even if the ticket price is beyond astounding.)

Watch The Greek Tragedy reprise.

Conclusions and Likely Actions

On the sidelines and looking for “duck and cover” or selected protective positions.

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:

https://chiefio.wordpress.com/2011/06/12/lti-long-term-investing/

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 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 label 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 – Saturday, 16 July, 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 prior evaluation is still valid:

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.

The big thing of note is that rocket up in GLD. “The Fear Trade”. Rush to gold and bonds (so TBT, the bond short, dropped).

Here’s the same chart with the main ticker being “UDN” the “Dollar Down” ticker and TLT instead of TBT.

6 Month Currencies and TLT the US Treasury "20 Year Bond " fund

6 Month Currencies and TLT the US Treasury "20 year Bond" fund

Gold and Swiss Francs. Most other stuff roughly flat, with some roll. FXE the Euro ‘surfing down’ with ‘lower highs and lower lows’ since May.

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

You can really see the ‘Bernanke Put’ hitting gold and FXF. Even the Japanese Yen FXY doing well.

Currencies - 10 Day Hourly Interval chart vs US Dollar

Currencies - 10 Day Hourly Interval chart vs US Dollar

Base Metals

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”. It looks like it has finished ‘ringing down’ to a flat dead money price. We now have a new ‘breakout’ above the Dead Cat Bounce level. Silver ought to be in a new run for a while (at least as long as The Bernank keeps talking ;-)

Last time I’d said:

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.

That was too tepid. I’d not realized the impact Bernanke would have. We’ve got JJP showing a good rise ( a ‘precious metals’ basket) along with JJT Tin, JJN Nickel and even JJC Copper. OK: Metals 1, currency 0. Got it…

Metals 6 month chart

Metals 6 month chart

DBB  - Base Metals ETF
GLD  - Gold (physical metal) ETF
JJU  - Aluminum ETN
JJN  - Nickel ETN
JJC  - Copper ETN
JJP  - Precious Metals ETN
ld   - Lead ETN
JJT  - Tin ETN
SLV  - Silver (physical metal) ETF
PALL - Palladium (physical metal) ETF
Gold vs Gold Miners vs "Gold and Sliver Index"

Gold vs Gold Miners vs "Gold and Sliver Index"

Gold has started a new run higher, with ADX rising toward 20 or so. MACD above zero and ‘blue on top’. We had a spike up in the miners on The Bernank speech. Last time I’d said:

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.

If only I’d taken my own advice, but I was traveling, so not trading. GDX, the miners, just rocketed up.

Ag Commodities

Sugar continues strong, the coffee rise has turned down, and most things look ‘not so interesting’. Mostly, though, not much of interest. As these are mostly Exchange Traded Notes (so hold things like options and futures contracts) they tend to a slow decay of value over time. Mostly just usable for short fast trades. JJG, grains, took a nice bounce, but only back to that downtrending trend line…

Ag Commodities 6 month chart

Ag Commodities 6 month chart

The close up view of sugar and Brazil has not changed. CZZ is looking “bottomed”. Sugar prices are rising nicely, but so is the Real, so profit at CZZ is likely flat in Real terms.

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.

CZZ Cosan - Brazilian Sugar vs BZF Real,  EWZ Brazil and SPY S&P 500,

CZZ Cosan - Brazilian Sugar vs BZF Real, EWZ Brazil and SPY S&P 500,

Just looking like a ‘dead money’ trade in CZZ. Better to just hold the currency.

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’).

One Month

10 Best Performing Industries
Industry Name	Percent Change (over time selected)
Dow Jones U.S. Gambling Index	12.99%
Dow Jones U.S. Tires Index	11.61%
Dow Jones U.S. Clothing & Accessories Index	11.33%
Dow Jones U.S. Footwear Index	10.66%
Dow Jones U.S. Platinum & Precious Metals Index	10.11%
Dow Jones U.S. Gold Mining Index	9.81%
Dow Jones U.S. Nonferrous Metals Index	8.33%
Dow Jones U.S. Apparel Retailers Index	8.14%
Dow Jones U.S. Consumer Finance Index	7.92%
Dow Jones U.S. Transportation Services Index	7.72%

Same as last time, but with metals added instead of industrial suppliers:

Well, a “consumer not dead yet” clothing and shoes, restaurants, bars, retail, etc. with just a touch of “Industrial Suppliers”

That “Transportation Services” might be worth looking into…

How about the losers?

10 Worst Performing Industries
Industry Name	Percent Change (over time selected)
Dow Jones U.S. Specialty Finance Index	-6.90%
Dow Jones U.S. Airlines Index	-5.63%
Dow Jones U.S. Real Estate Services Index	-4.67%
Dow Jones U.S. Investment Services Index	-3.83%
Dow Jones U.S. Business Training & Employment Agencies Index	-3.59%
Dow Jones U.S. Heavy Construction Index	-3.50%
Dow Jones U.S. Mortgage REIT Index	-3.14%
Dow Jones U.S. Tobacco Index	-3.08%
Dow Jones U.S. Real Estate Holding & Development	-2.93%
Dow Jones U.S. Construction & Materials Index	-2.87%

Nice “up/down” ratio with up percentages well ahead of down percentages. Continued ‘be out of finance as the Government Hates It’ Sovereign Risk trade. Real Estate and Construction continuing weak. And Airlines… NEVER invest in an airline…

Any change vs. “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. Gold Mining Index	2.79%
Dow Jones U.S. Platinum & Precious Metals Index	1.37%
Dow Jones U.S. Nondurable Household Products Index	-0.42%
Dow Jones U.S. Pharmaceuticals Index	-0.49%
Dow Jones U.S. Clothing & Accessories Index	-0.60%
Dow Jones U.S. Gambling Index	-0.72%
Dow Jones U.S. Restaurants & Bars Index	-0.80%
Dow Jones U.S. Pharmaceuticals & Biotechnology Index	-0.99%
Dow Jones U.S. Food Retailers & Wholesalers Index	-1.03%
Dow Jones U.S. Brewers Index	-1.07%

Well, first off, notice that the only “up” sectors this week even in the “top ten up” are Gold Mining and Platinum & Precious Metals. When being down 1% puts you in the “top 10”, it was a bad market week.

How bad?

10 Worst Performing Industries
Industry Name	Percent Change (over time selected)
Dow Jones U.S. Real Estate Services Index	-11.51%
Dow Jones U.S. Business Training & Employment Agencies Index	-10.27%
Dow Jones U.S. Real Estate Holding & Development	-7.55%
Dow Jones U.S. Recreational Products Index	-7.42%
Dow Jones U.S. Recreational Services Index	-7.31%
Dow Jones U.S. Electrical Components & Equipment Index	-7.18%
Dow Jones U.S. Semiconductors Index	-7.11%
Dow Jones U.S. Airlines Index	-7.10%
Dow Jones U.S. Specialty Finance Index	-7.00%
Dow Jones U.S. Hotels Index	-6.60%

Very bad. Real Estate and Business / Employment dropping big time. Recreation down too. And, of course, those Airlines again. Not expecting a lot of vacation money to be spent on hotels, airlines, and ‘recreation’. Nor on expanded electronics and electrical goods.

Last time we had:

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?

It looks to me like the Hedge Funds dumped their “vacation play” and went to gold. The Bernank causing a bit of a panic, IMHO.

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

IMHO, the “short cover” I’d speculated on last time is now over in WOOD, Oil, and EWA. They had their DCB and are now in the ‘ring down’ phase. Oil tends to move fast, so don’t expect it to ‘lay there’ for long. WOOD will take a housing demand restart to get rising. Australia? EWA is showing a direct drop after April. My guess is that the news on Ms. Gillard has put the market down, but her probable demise in the next election is now stabilizing the drop.

Shorting The Broad Market

TWM Ultrashort Russel vs RUT Russel 2000 and S&P 500

TWM Ultrashort Russel vs RUT Russel 2000 and S&P 500

Not seeing a reason to short, but as ‘tactical protection’ of long positions it has it’s uses. If that MACD crosses above zero and / or gets a strong ‘blue on top’ a short term tactical short could be useful. For now, I’m more inclined toward “long side” swing trades than “short side”.

10 Day Hourly Fast Trader Chart

Violently going nowhere. Up for a week. Down for a week. Almost all the lines ending close to the zero line. Maybe sitting out wasn’t such a bad idea…

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.

A ‘data artifact’ has one price quote distorting the chart. Almost certainly a bit of bad data. At any rate, reading around it…

Brazil the EWZ ETF vs the BZF currency ETF

Brazil ETF vs Currency Race

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

Both the Australian and Brazilian currencies rising, along with Gold. Wonder what China is buying?…

Closeup on Gold

Gold 1 year daily chart

Gold 1 year daily chart

Continued on it’s run from lower left to upper right.

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

Last time I’d said:

Vix is very low. Worry when that happens. It happens at “local tops”.

And I think the drop of the stock market in the last week validates that statement.

A close up on the last 6 months:

Volatility Index and Related

Volatility Index and Related

Last time I’d said:

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…

Now you know why I watch the VIX…

The present spike up argues for a better next week. Tuesday?

Ideas of the Week

Not many, really. The rush to commodities ought to slow. The week long stock plunge ought to muddle to a halt. Maybe some foreign currencies? US Integrated Oils and midwestern refiners ought to be good for a while.

Or maybe I’ll just hang out by the pool instead ;-)

Oil And Fuels?

Oil is down some. UGA – Gasoline – is up. That suggests the Oil Refiners are raking in buckets of money. Later I’ll need to make a ‘refiners comparison’ page. TSO, VLO, SU, MRO, etc.

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

The UGA ‘roller’ looks like it is following pattern too.

The 10 day chart is just a mess. Fast jumps and wiggles each way with not much to show for it. Mostly “gold and gasoline” with the UGA roller starting to roll up a few days back.

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

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

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

For all the news about GOOG Google earnings being great and AAPL Apple selling gear like hot cakes, at the end of the ‘topping roll’ period on this chart, we’re at near zero gain for the 6 months. To me, it all just looks like the slop and jump you get in a topping market. MACD is above zero and headed sideways. Slow Stochastic is setting up for a ‘buy in’ crossover. DMI is muddled with ADX at a low 21 or so (so Slow Stochastic and faster trades are in order) and with the red and blue DMI lines nearly equal and low.

Sideways roller swing trades, not investments, is what that says. None of the other markets particularly stands out either.

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 have mostly vibrated sideways the last few weeks. TIP being best, as folks are concerned about The Fed buggering the dollar. WIP showing how Euro concerns have weakened them.

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

At last, a theme… COP has announced it is splitting refining off from exploration and production, so at some point that ticker will turn into two new ones. But it’s pretty clear that they, along with CVX and IMO have started a bit of a rise.

Last time I’d said:

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, not just a ‘shorted to uninteresting to short”…

And that is exactly what we had at the end of June / start of July. Note that PBR Petrobras, one of the premier oil companies of the world with $Billions of new reserves discoveries is dribbling along the bottom. Why? That Brazilian Sovereign Risk Premium being applied. Return OF my money vs return ON my money. That’s a large part of why I look so closely at any move of a government toward more Socialism and yank investments at first light. You don’t want to be the last one out that particular door, and it always moves the same way. Note, too, that BP has continued to be lackluster. When someone does not run their business well (and blowing a few $Billion on blown out wells from sloppy and too cheap actions IS poorly running…) there is little motivation to buy them.

The European oils don’t look that good either. Eni and Total drifting down. So it looks like US oriented is the way to go. Brent costing a lot more than West Texas, the midwest refiners have the lowest feed stock costs and benefit from the high gas prices. As long as Obama is tied up in the Budget Crisis and not noticing someone making money he can steal… That Sovereign Risk thing again…

Some Near Oil and Oil Related Comparisions

What about oil service companies? Or that Sugar and CZZ?

Oil Services and Oil Related

Oil Services and Oil Related

Same as last time:

“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.

SGG Sugar vs EWZ Brazilian stock market, SPY and BZF the Real currency

SGG Sugar vs EWZ Brazilian stock market, SPY and BZF the Real currency

With RSI bouncing along at 80, then the start of a drop, I’d expect “down soon”. Probably will depend on a new crop year in whatever place has “had issues” that let the price rise like this. We’re at the same price as the prior high, so watch for “failure to advance” at this price point. Anyone who uses sugar is going to have a bit of profit squeeze.

Ag and Ag support / Input companies

Ag Trade 6 Month Daily Interval Mixed Players

Ag Trade 6 Month Daily Interval Mixed Players

For the third posting in a row, TNH is the clear winner. China HOGS the looser. (Folks don’t like the risk of questionable honesty and accounting standards that the recent China issues have raised…) MON and MOS took a small bounce recently, as did POT. Perhaps a bit of trade there. A “Dig Here” for later in the week, I think.

TNH - Terra Nitrogen

TNH - Terra Nitrogen

TNH continues to look good with continued positive indications on the chart / indicators. RSI in a 50 / 75 sort of roll. MACD with mostly “blue on top” and well above the zero line. DMI “blue on top” and steady sideways.

SEE the SEA!

Shipping Comparison

Shipping Comparison

Well that’s pretty horrible. HRZ has just fallen off a cliff. The other shippers pretty much dropping too, but at a slower rate. Had a nice counter trend rally in CCL / RCL, but that trade is over and we’re back to trend (down). Maybe some day it will be an interesting sector again.

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

Last time I’d said:

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….

And now you can see why “courage” is not an asset in trading…

Now watch that price closely. IFF it fails to reach further than that last dip down, we have “failure to advance” to the downside and a probable bottom. CCL is already looking a bit like that. If MACD goes to “blue on top” and “over zero” after a failure to advance to the downside, we’ve got a good ride ahead for a few months at least. It will likely take until mid August to fully form the bottom.

The REITS race – Real Estate Investment Trusts

As noted last time:

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…

This is a nice example of how a “Race” works. Pick a lot of the bigger and better names in a sector, put them on a Race Chart. Then check it every so often. One will start to breakaway upside. That’s your primary ride. Then, as it tops out (often many months later) and folks start dumping money into the weaker (but cheaper) stocks, you will see other tickers “make a bottom” and start to catch up. That’s when you change horses. “Lower left rising to upper right” and “who’s on top”; then “who’s catching up”. Yes, it’s really that simple.

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 

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

As this is a very slow chart, the observations from last time still hold:

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…)

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

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

I’m adding another chart of SPY, as the S&P 500 is the basic investment vehicle for most folks (unless you really want to pick sectors or individual stocks, you ought to start with a “SPY / Bond” oscillator on this long term chart.

SPY vs TLT (20 year Treasury Bonds) with RSI, MACD and DMI

SPY vs TLT (20 year Treasury Bonds) with RSI, MACD and DMI

Here is another interesting chart where you can see how volatility spikes at market bottoms and drops lower during times of topping actions. It also as “momentum” no it which can act as a reminder of how much force a trend has, and which way. Slow Stochastic is better for a faster trade behaviour when ADX (of the DMI / ADX indicator above) is below 20 or so.

If this all looks like “too much”, just remember that you don’t need to look at more than the one basic chart. The rest of these indicators give more depth of insight into “why”, but not better answers as to when to be in stocks vs bonds.

SPY vs TLT with Slow Stochastic, Volatility (fast) and Momentum

SPY vs TLT with Slow Stochastic, Volatility (fast) and Momentum

Stock Indicators – what and how


So when the long duration charts say "maybe making a top, but perhaps a 'buy the dip' moment", I look at the faster charts and faster indicators and move to a faster time scale with faster trades.  But I'm a trader.  For long term investors, you just ride the ride until the chart says "top is definitely in" and "buy the dip" until proven otherwise by a confirmed roll over (price below SMA stack).  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"... So you must WATCH the chart each week, even if not acting to be out of the market yet.

I've been 'stepped out' for some vacation time.  Now I'm 'reengaging'.  Probably start with short swing trades and work into longer positions.

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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25 Responses to WSW – Saturday, 16 July 2011

  1. UninterestingConnections says:

    Consumers seem to have lost confidence … I expect continued deleveraging.

  2. Pascvaks says:

    “Congress continues to argue over who ought to fleece whom rather than realize that the game is in the end stages and it is just not possible to continue the fiction that the Federal Government will hand out 211 $Trillion of “goodies” in entitlements in the coming years, all unfunded, on the backs of the GenX, GenY / Millennials and eventually GenZ.”

    “These be the days that try men’s souls”

    This is when things get truly, very dangerous in a multitude of dimensions. When countries reach this point their inept, pathetic, glorious leaders look for diversions to distract their clamoring masses from the truth. They look about for any good excuse to pick a fight, or invent one if they can’t. Such times be the best for WAR. And war, as dangerous as it is, is a truly wonderful way to get the unemployed and business back to work, and shift the blame. Feel the breeze? Smell the air? There be WAR in the wind when gutless cowards rule and fail in peace.

    People are very predictable, but they do take a bit of study.

  3. John F. Hultquist says:

    E. M. says: It ignores completely the simple fact that then the US Federal Government (and many State governments too) would need to stop doing about 40% of what it does now AND would still need to find a way to dodge a lot of their present retirement / Medicare / Social Security / Medicaid / etc false promises.

    There is a chart of interest in this document:
    http://www.ofm.wa.gov/pop/stfc/stfc2009/stfc2009.pdf

    Washington State:
    Forecast of the State Population (2009) to the year 2030

    See Fig. 6, page 8.
    Figure 6. Annual Change in Population (Ages 65 and Over)

  4. E.M.Smith says:

    @John F. Hultquist:

    That chart does a dandy job of illustrating graphically the “demographic bomb” I’ve talked about. In every state, and in the nation as a whole, that “bulge” was in it’s most productive years and now enters it’s most consumptive years. The work product we made is already spent and gone. From where does the new work product come to support all those in retirement? …

    Note I’m not talking taxes. Actual work and production. You must have that first in order to redirect some of it via taxation…

    There is a very similar problem in Europe and in Japan. Oh, and thanks to the “one child” policy, China has a vertical onset in one year… and a worse demographic profile of 2 old folks per young person working (more or less).

    @Pascvaks:

    So you are saying by shares of Boeing, Lockheed, Olin, …

    But I’m sure this time will be different… /sarcoff>

    @UninterestingConnections:

    Not just the consumer. Businesses are doing the duck and cover drill too.

  5. H.R. says:

    I see this as a strong “buy” opportunity for Purina, Alpo, Iams – any of the dog and cat food manufacturers. We’ll have a bunch of boomers getting no SS and their savings will have been inflated away, so investment in the purveyors of the “food staples for retired boomers” seems like a good long term holding.

    (To /sarc or not to /sarc? That is the question.)

  6. H.R. says:

    Oh, forgot to mention… outstanding post, E.M. That’s much the way I’ve been seeing things, but I hadn’t tidied it all up in my mind such as you’ve expressed it here. Thank you.

  7. bruce says:

    China will have a tough time of it. One child, and most of them male. Until they retire there is going to be some development in “dolls”. Maybe that is the next investment bulge.

    But fewer females means a catastrophic fall in population. I never would have thought of artificially created babies being needed in China. or a more likely place for it to happen.
    Assuming the the basket headed for Hades hasn’t been destroyed in the meantime, what happens to a culture with government generated babies, (or best case) business generated babies? Corporate brand babies with predetermined consumer tilts?

    Begs the question where society is headed.

  8. Pascvaks says:

    @bruce
    “Begs the question where society is headed.”

    It has been cracking for years. The splits have been slowly getting bigger and bigger. The patches that were made to many of the earlier separations were not all that good or lasting, most were cosmetic. If good, basic, fundamental changes and reinforcements are not undertaken, more fractures will develope and the structure will collapse. Pretty much what happened to Truman’s White House. Human societies and empires are a lot like stock markets, they all have setbacks, many crash and rise again, and many never ever recover because the people lost their will to try years ago.

    ‘Life is an Opera.’
    (Been wanting to use that one today;-)
    http://bishophill.squarespace.com/blog/2011/7/16/a-mezzo-soprano-on-climate-science.html

  9. KevinM says:

    Pascvaks,

    War is good when there are too many YOUNG mouths to feed.

    Notice the root cause E.M. specifies. Too many OLD mouths to feed.

    Unless you expect them to draft 66-year olds, war will only exacerbate the problem.

    Right now, the most direct way of dealing with the US demographic problem is amnesty for those 8 million illegal young male Mexicans, and a good education for their anchor babies. There was a half serious look at annexing Mexico here a while back. Might help.

  10. R. Shearer says:

    You mentioned COP and spinning off its R&M business. It turns out that MRO (MPC) already did this. I think you are right about it being a “theme” which will likely play out in this and other sectors, as it has been good for shareholders.

    Check out CRR if you want to see a beautiful chart of a company in the fracking space.

  11. Pascvaks says:

    @KevinM

    Wars are waged for many reasons, the rarest of these make any sense at all. There is nothing a politician can’t do and won’t for the buzz of power and maintaining their own status quo. Logic may say “Don’t” but there’s usually, normally, almost always no long term logic to what a politician will do; normally it’s all about the moment, to wit we have the gigantic mess we’re in and “the Federal Government will hand out 211 $Trillion of “goodies” in entitlements in the coming years, all unfunded, on the backs of the GenX, GenY / Millennials and eventually GenZ”. Never underestimate the stupidity of those in power, it can be very fatal.

    PS: Bad times here don’t mean everyone else is hurting. EVERYONE hates Number 1, EVERYONE. Some opportunities are just TOO BIG to ignore. But I really do hope you’re right.

  12. H.R. says:

    @Pascvaks

    “[…] Logic may say “Don’t” but there’s usually, normally, almost always no long term logic to what a politician will do; […”

    Yup. The way I learned it is that the first job of a politician is to get elected and the second job is to stay elected. The logic behind all politicians’ words and deeds can be explained by that job description.

  13. UninterestingConnections says:

    KevinM said:

    Right now, the most direct way of dealing with the US demographic problem is amnesty for those 8 million illegal young male Mexicans, and a good education for their anchor babies. There was a half serious look at annexing Mexico here a while back. Might help.

    How will that deal with the US demographic problem. That demographic has an IQ profile that spells death for any technologically advanced nation and a good education is not going to turn them into the sort of rocket scientists needed. It is foolishness to think so.

  14. R. de Haan says:

    Here is some more on long term social end economic development from Spengler. I regard this as an excellent analysis and a must read.
    http://www.atimes.com/atimes/Global_Economy/MG15Dj01.html

  15. Pascvaks says:

    @R. de Haan

    Spengler is an optimist. The Professional Politicians we have in place now, and they’ve been there for 75 years, and the Ultra-Socialist Professors in place across American Academia, guarantee that we too will fail persuing the Golden Fleece of Utopian Socialism. Watch the Killer Guard Dog look in the eyes of Reed and Pillosi, watch the kowtowing of House Speaker John Boehner and Senate Minority Leader Mitch McConnell. The first two are in a life or death fight to the finish. The last two are playing pin the tail on the donky at a birthday party for 6 year olds.

  16. Richard Ilfeld says:

    @ Pascvaks / @ deHaan

    Spengler is a smart man.

    I think we all have to rember that experts can be wrong. Like all of us, they stare into the future with their eyes firmly on the past. Whenever encountering
    this hubris, including in myself, I remeber that at the turn of the millenia in 1900,
    a hige social problem, and practical one, was, if our enconomy continued to grow, what would we do with all the horseshit. That we face the same problem today is a linguistic coincidence.

    What if:

    Old folks, some of whom have been known to work smarter as they age, get bored clipping coupons, and establish an economy of, by, and for the 65-80 year old age group. Their taxes are a wash on social security. Or they are contentions anought do do it off the books, but it still takes a lot of pressure off.

    Obama Care is the last straw: some of the clinics of the world, Like Mayo, or Cleveland opt out completely and find “the better way” Care as good for half the price for all but the most extreme cases. May have to be offshore – but check out the volume of medical vacations from England to India.

    Obama care is the last straw, and sold brave legislator with a tongue of gold convinces poeple that health insurance should be “Insurance” you pay the oil changes, routine maintenance, and fender benders below your deductable and get three estimates for worse stuff. Comanies, regardless of motive, say hurrah, and fully fund this kind of insurance.

    Some of those same old farts mentioned above get the notions that contemporary education sucks, and start a couple of charter schools based on what they remember — probably not exacly McGuffys reader and the sister with the steel ruler, but content and discipline. Surprise: they work as well as hoome schooling and antoher cottage industry takes off.

    And so on. Folks willing to work, and participate, find thier standard of living doesn’t fall at all.

    Since progressivism is a relgion more that a governance plan, progressives don’t know what to do. It’s harder to do the gulags and jackboots thing in America that it has been in most prior socialist paradises.

    Insane taxation will likely make tax avoidance even more of an at form, and its well documented historically that tax revenues in the US aren’t especially rate sensitive.

    I would find it deliciously ironic if future liberals who had spent a lifetime demagoguing the issue of protecting the elderly had to go after the oldsters, still recieving socialy securty, as Tax Cheats.

    Every year or so here in Florida some zealous sherrif busts a nickel ante poker game of seniors for gambling. When the sut settles, they ALWAYS whish they hadn’t.

    One of the huge problems in Greece is that the system became so corrupt, thea anyone who can lives partly outside it. The sufferers are the folks who are of by and for the state. Perhaps that’s as is should be.

    There is a senior community near here. Golf carts have the right of way over cars. A majority of residents have them. No license, and there are shops where you can get them customized extensively (and souped up!) They built a Wal Mart about 3/4 of a mile from the town limits. Folks started to take their carts. The sherrif busted a couple. There is now a cart specific lane, and cart specific parking. It is still against the law to take a colf cart on the public road to Wal Mart. It’s not unusual to see 50 lined up in the lot.

    In summary, the future may not be like the past, and old farts can be entrapeneurs too. And they have the added virtue of being able to intimidate politicians and being a favorite mythical client vicitim of the left.

  17. Pascvaks says:

    @Richard Ilfeld

    The first law of Political Physics is “Anything’s Possible”. I like the way you think. Yer one a’them Opptemists, ain’t ya?;-)

  18. Richard Ilfeld says:

    Actually, I’m an optimist, when I take time to turn on the spell checker. ;<) . But yes, if we can avoid coercive force and a North Korean like environment, those of us willing to make our way through life in the cracks in the system will do all right.

    An american tourist in the 30's somehow found his way to a village in the hinterlands far from the Potemkin tour. He found a prosperous and happy folk. The Leader said to him "Yes, we are good Marxists, but the mountains are high and Moscow is far away."

    I've had my airplane temporarily grounded for a missing label on a brake pump. One year at Oskosh, I roomed with a bush pilot from Alaska. After a minor hard landing, he repaired an elevator control cable with a piece of barbed wire. When he got back to civilization the inspector nodded and said – "very clever".

    To the degree the young folks want to practice their religion of politically correct liberalism unsullied by common sense — have at it. I am looking forward to living with folks of my generation and attitude who realize that the mountains are high and Washington is very far away, and that you can hide a lot in flyover country if it's only examined from 30,000 feet.

  19. E.M.Smith says:

    @RIchard Ilfeld:

    My Dad once told me that you could fix darned near anything on a Ford Model T with a pair of pliers and a “Bobwire” fence ;-) So I always carried pliers in my car…

    One day, I’m 20 miles from nowhere in my ’63 Ford Falcon and the water hose breaks. Nice split about 4 inches long. No WAY I can fix that with barbed wire, I think… but it’s late, and I’m hungry, and nobody drives that road late, and cell phones are a decade or two in the future… So I find a bit of solid wire ‘excess’ after a join on a ‘sheep tight fence’ (i.e. no barbs) and clip it. Add one old TEE shirt for ‘gasket’ and wind on the wire… Not a perfect seal, but with the pressure cap off, I can make it about 5 miles on a ‘fill’. One scrounged coke can and a bit of litter paper cup and a short stroll to the nearest irrigation canal, and I’m on my way. Every canal or puddle or hose or gas station I see, it’s a stop (even if not 5 miles, but over 1 or 2).

    I’m home in time for dinner. Car is fine…

    Dad said something like “very nice” and just smiled… gave me a lift to the parts store and bought a new hose, too… a bit of a ‘bonding moment’…

    FWIW my ‘dream state’ is to have about 5 acres of ‘crap land’ with water on it, and an old shack. Nothing ANYONE would ever expect to be worth taxing… but more than enough to live on if you do it right. Even buckets of sand with water and fertilizer grows things… Money (not “currency”…) all out of sight and beyond reach of “inspectors general”… and with Washington far away … ;-)

    Figure I have about 3 or 4 more years to “get ‘er done”.

    Oh, and I expect to have fences with a little excess wire left at the joins…

  20. Pascvaks says:

    “To the degree the young folks want to practice their religion of politically correct liberalism unsullied by common sense — have at it.”
    It’s amazing how conservative a liberal becomes and how mature young people get when the bills come due and everyone’s flat broke. If this little fiscal problem doesn’t blow up in all our faces I’ll be very surprised. When/if it does, there’s going to be more brand new thick headed young conservatives than you can shake a stick at from 30,000 feet. That is, there will be when they learn that politicians lie, and marching and demonstrating and holding hands and burning worthless hundred dollar bills in protest marches doesn’t put food on the table. Sometimes an education at the School of Hard Knocks can cost a hell of a lot. When they do change their religion, I have a feeling there’s going to be some nice homes accidently go up in flames and some Older Citizens in this country who are also going to be hurting for want of a little something from their once sweet Ol’Uncle Sugar. Oh well, most of us are over weight and need to cut some calories anyway.

  21. Interesting Connections says:

    Over the weekend I picked up some carpentry skills. Nothing serious, just learning how to use a hand-saw to cut wood to repair stuff.

    If TSHTF, at least I will be able to do something useful, because knowing how to write Linux device drivers and code in assembler on PIC micros is not going to be much use.

    Next up, making rifling on barrels. (Although, perhaps making hoops for barrels would be a better skill :-) Gotta keep making beer and wine.

  22. Interesting Connections says:

    VoxDay opines that the coming contraction will be an order of magnitude worse than the 1929-1940 depression:

    http://voxday.blogspot.com/2011/07/sovereign-debt-expanding.html

    That is a scary thought.

  23. Interesting Connections says:

    Echoing comments on another thread, the 1929-1940 depression led to war on a large scale.

    If I am unlucky, things will go real bad while I am still alive. If I am not so lucky, they will go real bad during the lifetimes of my children.

  24. E.M.Smith says:

    @Interesting Connections:

    I doubt if we could actually do “worse than 1929-40”. The economy was basically at a standstill. Unemployment was approaching universal. There were few / no methods for non-labor income to keep things ticking over. There were two major socialist empires trying to kill each other and dominate the world (Axis vs USSR) and both the technological and agricultural productivity were mighty limited and inflexible.

    Now, in comparison, we have “Socialism Lite” in Europe and Latin America, with a generally peaceful bent. Russia is a “Market Socialism Wanabe” while China is transitioning to capitalism at a rapid rate. The USA is sipping the socialism tainted wine, but started spitting out some of it as it smells of almonds… We have more technology to deal with ‘issues’ than I care to think about and the USA can take down just about anybody on the planet if we need to (and most all collections of them…) Oh, and farmers now can make crops grow in the middle of the desert in sand or in greenhouses in Alaska…

    So I’m not nearly as worried. Yeah, we will likely have a different currency in Europe in 10 years and maybe in the USA too… but so what? It’s just “almost money” anyway… ;-)

    Per skills: I’d get good at gardening and plumbing… Oh, and maybe some “how to hook up a generator and make a fireplace draw”…

    @Pascvaks:

    In talking with some local very young gays, I was pleasantly surprised by their very conservative position on the economy and their distaste of what Obama was doing to the economy / money / debt was quite strong…

    There is a ‘conservative core’ forming in some of the most surprising places ;-)

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