I’m planning to add a ‘Mo Mo!’ Momentum section, we’ll see if time presents later in the week to add it.
The “news flow” this week was largely about the refinery trade (with Irene threatening oil refineries on the East Coast) and the Jackson Hole economic party (summit?)… Oh, and The Bernank said nothing new there, despite a week of speculation.
Libya entered the oil trade news as a potential return of supply and a ‘near finish’ to the revolution. We’ll see how many more months and $Millions it takes for this ‘time limited scope limited kinetic action’… that ‘will be done in days’…
Margin requirements were raised, twice, on Gold. Gold dutifully dropped over $100 in one day. We are now in the competitive sport phase where the True Believers In The Story want to keep bidding it up, and the main market makers know a speculative bubble when they see one and want to pop it before it becomes a catastrophic level of collapse on popping. “Not Fair!” the true believers will shout about the raise of margin requirements. (But truthfully, that’s just a matter of the brokers being sure there is enough real collateral behind the speculation. If they don’t have enough collateral for the loan, and the underlaying has a price collapse, they lose, not the speculator.)
Is that “the end” for Gold? Most likely not. Very long term it is driven by the mad dash to print paper money. But short term, it can certainly take a nasty fall. We’ll have to see which force is the strongest. We’ve had a speculative parabolic rise, but not to outrageous levels (just extreme ones). We’ve had a margin raise, and a small drop. Now we need a ‘failure to advance’ to end the run higher. If that happens, it’s time to look at just being out and occasional small duration shorts of gold. If the ‘attempt to rally’ makes it past the prior high, well, then the “story guys” win this round and it’s likely a $1000 more before they get broken with a $400 down day. On one day last week (Thursday? I think…) the GLD fund sold 25 TONS of gold in one go on redemptions. If folks start selling GLD, that rush of selling can have a catastrophic impact on prices. We’ll look at volume below and see if it gives clue.
The Swiss have whacked their currency, trying to beat it down. Some weeks back I’d warned to be wary of that. It happens. We’re now in a global race to bugger the currencies. The Swiss Franc will move more or less with gold, modulo central bank interventions.
The Euro Zone continues in denial. They are sure they can find a way to continue to fund the free and easy Socialist Lifestyles of the Greeks on the backs of the Germans. I give it 5 years max until there are fewer countries in the Euro Zone. The whole doubt about the soundness of European banks just kills investment and growth in the Euro Zone.
The USA continues to have a “Regulatory Beatings will continue until morale improves” attitude toward businesses… then they wonder why businesses are sitting on cash and not putting it at risk. Unemployment continues dismal, and the only answer is more of the same. The election of 2012 can’t get here soon enough… Until then we can only hope that the Congress is kept in a ‘time limited scope limited non-kinetic action’ as they backbite and accomplish nothing.
Overall, I expect markets to swoon, but the charts will inform our actions.
Conclusions and Likely Actions
Nothing much. The “counter trend rally” trade never had enough energy behind it to put the trade on. Things rose for a few days, but not enough for the indicators to say ‘pull the trigger’ and then dropped back down to the same low point. The bias now is to be short stocks (though I’m mostly just sitting in cash as I’m not very practiced at shorting and the timing is much faster). Now, too, folks can see why I’m willing to sit in cash so often. We’re down about 20% or so from the top and there was nothing lost by my sitting largely in cash for months. Manage the risk… and when the markets roll toward flat, the risk is all to the downside. (Look at the long term chart and you can see it happen).
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 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 – Monday, 29 August, 2011
Long Term Context
I’m promoting this chart to the top for a while, as it is now in control. Look closely at what it’s saying.
This is a very long duration chart (5 years) of NYSE. It will not change much from week to week (just one tick mark) so guides longer term attitude.
MACD is below zero and with ‘red on top’. Bias is to be short stocks, not long. DMI is ‘red on top’ and has not yet had the red cross below the black line. We’re in a long duration strong dropping phase. This is a ‘slow to react’ chart, so to some extent it’s just telling us what we already know, that the market has dropped a lot. It will not change the verdict very fast on a new positive market move. (But that’s a good thing. Be “Late in, early out. -E.M.Smith”. You want the sweet spot of the middle of a rise, not the bitter whipsaw of buying a small rise before a big plunge.).
Look back. This is more like Jan-Feb of 2008 than anything else. We could have a repeat of the 2009 plunge (that August 2009 similar shape to the curve), but arguing against that is the fact that we’re still early in the roll down. The SMA lines are not yet resolved to the downside. We ought to have a return to the SMA lines rally (like in 2008). Arguing against that is the way that everyone is on a short fuse after 2009 and the rate of mutual fund redemptions is quite high right now. That the Slow Stochastic is at a bottom an setting up for a crossover upside implies just such a ‘rally to the SMA stack’ and a decent trade opportunity, but the risk of a Euro Zone stupidity in the banking system causing another plunge is still hanging out there, so no heroics. We’re in a bear market and the best place to be then is bonds or cash.
As long as the MACD on this chart is “red on top” with strong separation (i.e. not just weaving sideways with a tiny bit of red on top; but pointed down) you want a negative bias on stocks. The “Below Zero” value just makes it that much stronger. Eventually a ‘blue on top’ crossover will happen, most likely at a well below zero value. That’s the OK to buy signal. See April of 2008 and December of 2008 as example rallies. The final “all clear” didn’t come until May-June of 2009 when DMI finally got to “blue on top” and MACD went above zero. Until then it’s only counter trend rallies to the SMA lines, then step out and wait. IFF it holds over the SMA stack on a return from above, THEN and only then, can we change the bias to ‘long stocks’.
The Dollar Lately
Time to measure our Rubber Ruler.
Here’s the same chart with the main ticker being “UDN” the “Dollar Down” ticker and TLT instead of TBT. Note also that the XAU ‘gold and silver stock index’ is swapped for GLD gold metal.
You can clearly see the Swiss Franc plunge on the central bank intervention. The USD is basically flat (and has been for about 4 months). You can also see that TLT has been the winner, generally. The classic oscillation is from bonds to stocks. As it’s time to be negative bias on stocks, folks move money into bonds. That’s just the way it is… Personally, I don’t see the merit in ‘near nothing’ US bonds at this point, unless you get inflation protected ones. I’d rather make fast trades in other areas. But for ‘duck and cover’, it’s where money flows.
And here is the 10 day Euro chart, with BZF the Brazilian Real added.
Last time I’d said:
The clear winner was Swiss Francs. Up about 5% in 10 days. That will eventually ’cause issues’ for the Swiss Economy, so their central bank will want to intervene. The question is: Can they get the help of the US and Euro Central banks and the BOJ? As the BOJ is busy trying to sell Yen, it will likely not be selling Francs, and both the USA and Euro are trying to print and spend to stimulate, so will be unlikely to ‘buy dollars and sell Francs’ or ‘buy euro and sell Francs’. I doubt that the Swiss Central Bank can pull it off on their own. So watch for ‘daily dips’ as they try, and then buy them… but if the ‘news flow’ turns to ‘concerted central bank efforts’, then bail out of the Franc.
That was a bit too unappreciative of the size of the Swiss action. There wasn’t any chance to ‘buy a dip’, just a big belly flop down. So, right call on what would be done, wrong call on how to work it.
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 were the place to be, and longer term more than shorter.
Still waiting for a change of that trend and just not getting it as fear drives folks to bonds more than inflation drives them out.
Base Metals vs. Precious Metals
MACD is calling an entry for base metals. I’d like to see some confirmation (and that this isn’t just a rebound off a bottom to a flat sideways) from price crossing the SMA stack, but it’s time to start watching base metals more closely. Lead, Nickel, and Tin tend to move the most. Copper is a good general economic indicator. The divergence of precious metals and base metals says it’s not a general inflation effect, it’s a ‘fear vs economic activity’ effect. On positive news, and less fear, those metals will swap relative strengths. So it’s likely time to be moving some precious metals into base metals. A little at a time, and increasing as the trend develops.
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
A closer look at gold:
MACD ‘red on top’. RSI ‘near 80’. Only DMI is still ‘blue on top’ (so argues for a continued positive run after a correction down). For now, it’s lots of risk, not much reward. Wait for a new entry. It’s time to be out of gold until it resolves the question of “correction or crash”?
Here’s a little look with a couple of other indicators. Volume+, Volatility Fast, and Momentum. I’ve also put PSAR (the little red dots) on the upper graph. This is a 6 month daily chart so you can see the daily volume bars better.
Notice that the “up volume” in black bars is less than the “down volume” in red bars for that last few days? That’s not a very positive indicator…
Also note that the back bars mid August in the height of the parabolic rise are rather modest too. That’s common in a ‘blow off top’. The market maker runs the price up as demand fades and he sells out his inventory. Then shorts it into the top. Covers the shorts on the plunge (thus the up days after the plunge) and then things typically go a bit flat. Right now Gold is so emotionally charged that I doubt it can hold a flat line…
PSAR is the little red dots. You are supposed to change your position when you cross the dots. So price plunged through the dots below it (meaning sell) and you do not buy back in until it crosses the red dots again (that have now moved to above the price bars). It, too, is saying “stay out for now”.
Momentum is not yet ‘below zero’ but has fallen to ‘near zero’. You are taking a lot of risk for not much upside momentum (and the potential of downside momentum ‘soon’…).
Look at the end of July. Unlike stocks (where volatility is low at tops, and you sell on low volatility, buy on volatility spikes), for gold volatility spikes at tops, goes flat at bottoms. So at the end of June, start of July, volatility was dead low, price was at a compressed SMA stack (touching the 72 day line). That’s the time to buy your first position, then add to it on the cross of PSAR a bit later for the long run. NOT at a long distance from the SMA stack, with a volatility spike, and PSAR saying “no way”… Notice that the ‘first buy’ point comes as momentum ‘inflects’. That is, the negative bars start fading toward zero. The second buy is about at the ‘momentum goes positive’ crossing. Short red bars, and taller black bars on volume.
All in all, time to be out of gold. But it on a new ‘entry call’, not now. (Or day trade it on a 10 day 15 minute chart, preferably from a European exchange as they set the daily price first.)
Interesting that we’ve got a new entry call for commodities… MACD “blue on top” and above zero. Sugar, food (FUD) and fuel (FUE) leading the run. OK, we know where the ‘action’ is…
With RSI ‘near 20’, it’s time to start looking at CZZ and Brazil as ‘bottom fishing’ with a potential entry point. Still not liking the politics in Brazil, and their market will generally do worse than ours in a downturn (better in an upturn). But one can still watch for the turn to come, if it comes. And you start watching when it looks the worst.
When things are looking bad for the USA, stay completely out of Emerging Markets…
Monthly Running Stock Sectors
So what “won” and “lost” over the last month? (though remember, they may not be the winners next month… it’s just to provide ‘context’).
10 Best Performing Industries Industry Name Percent Change (over time selected) Dow Jones U.S. Gold Mining Index 8.91% Dow Jones U.S. Water Index 1.68% Dow Jones U.S. Nondurable Household Products Index -0.18% Dow Jones U.S. Restaurants & Bars Index -0.55% Dow Jones U.S. Soft Drinks Index -0.83% Dow Jones U.S. Beverages Index -1.21% Dow Jones U.S. Tobacco Index -1.37% Dow Jones U.S. Multiutilities Index -1.45% Dow Jones U.S. Mortgage REIT Index -1.51% Dow Jones U.S. Personal Products Index -1.99%
Last time I’d said:
Well, your first clue is that only ONE sector had gain, and that’s only a 1.3% gain. Looks like that “sit out” and “duck and cover” was not a bad strategy…
This time we have two. Gold miners and water. Pretty narrow slot to hit. “Duck and cover” still looking mighty good… The rest of the ‘only lost some’ list are pretty much the usual ‘everybody still buys drinks and smokes’ kind of stocks. Frankly, I’d rather sit in cash than play that ‘losing less’ game.
How about the losers?
10 Worst Performing Industries Industry Name Percent Change (over time selected) Dow Jones U.S. Real Estate Services Index -34.47% Dow Jones U.S. Tires Index -31.89% Dow Jones U.S. Hotel & Lodging REIT Index -30.13% Dow Jones U.S. Real Estate Holding & Development -25.37% Dow Jones U.S. Coal Index -23.66% Dow Jones U.S. Business Training & Employment Agencies Index -23.49% Dow Jones U.S. Full Line Insurance Index -20.60% Dow Jones U.S. Media Agencies Index -20.26% Dow Jones U.S. Aluminum Index -20.02% Dow Jones U.S. Oil Equipment & Services Index -20.02%
What I said last time looks good still:
Can you say “Brutal”? I knew you could…
Real Estate Services lost you over 1/3 of your money. Tires almost as bad. Anything that’s a long term ‘durable’ or related to economic growth looks like it got a bit of a whack. But you ‘only’ lost 1/5 of your money if you were in Oil Services… (Thank you Obama for that drilling ban…)
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?
Looks like some sectors had a pretty nice week (though overall it was not good). So if you could thread that needle just right, you did OK. Timed just right, and in just the right sectors. Hard to do…
10 Best Performing Industries Industry Name Percent Change (over time selected) Dow Jones U.S. Clothing & Accessories Index 15.32% Dow Jones U.S. Consumer Electronics Index 14.81% Dow Jones U.S. Footwear Index 10.31% Dow Jones U.S. Travel & Tourism Index 10.02% Dow Jones U.S. Heavy Construction Index 9.37% Dow Jones U.S. Industrial Machinery Index 9.29% Dow Jones U.S. Waste & Disposal Services Index 8.86% Dow Jones U.S. Coal Index 8.83% Dow Jones U.S. Industrial Engineering Index 8.66% Dow Jones U.S. Specialty Finance Index 8.64%
Looks to me like “back to school” was the theme. Add in a bit of construction and some coal / garbage services. Odd mix to have to pick. (IMHO, perhaps just a bit of a Dead Cat Bounce as shorts covered ahead of The Bernank talking. We’ll see next week if they resume the fall).
10 Worst Performing Industries Industry Name Percent Change (over time selected) Dow Jones U.S. Mortgage REIT Index -1.05% Dow Jones U.S. Brewers Index -0.47% Dow Jones U.S. Hotel & Lodging REIT Index 0.42% Dow Jones U.S. Tobacco Index 1.17% Dow Jones U.S. Full Line Insurance Index 1.18% Dow Jones U.S. Reinsurance Index 1.36% Dow Jones U.S. Industrial & Office REIT Index 1.38% Dow Jones U.S. Airlines Index 1.77% Dow Jones U.S. Property & Casualty Insurance Index 1.82% Dow Jones U.S. Food Retailers & Wholesalers Index 1.87%
Not too bad, really. Most of the “worst” were still up a bit. Mortgages, beer, and hotels on the low side. (End of summer end of vacations?) All those insurance companies will likely take a hit on the hurricane news from this weekend, though, so I’d not look to them right now…
Shorting The Broad Market
Looks like a nice run up, then a ‘go flat’.
Not seeing much reason to be either long or short. I’d wait for volatility to drop again before buying a new short position.
10 Day Hourly Fast Trader Chart
Bunch of wobble going nowhere the last few days. Shorts won big for 4 days, then gave it all back last week. Net nothing. Day trader territory.
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…
EWZ - Brazil GLD - Gold fund BZF - Brazilian Real currency IDX - Indonesia FXI - China EWA - Australia EPI - India - WIsdom Tree fund EWC - Canada EWW - Mexico GUR - Middle East Fund
Nothing much ‘speaks to me’ yet. Looks like it’s bottoming. If it shows signs of life, could be a nice trade. Even Indonesia, that had been doing nicely, has had a rollover. I’d step out of IDX if you are still in it, and wait for a nice re-entry point. (I.e. let it decide if the run is over, or if it wants to go again…)
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
Looking like a bouncy volatile market headed down / towards a bottom.
Looking like Yen are nice and stable in comparison to just about everything else… Maybe they are past their Quake / Tsunami / Nuke related issues.
Ideas of the Week
Last time I’d said:
Preserve assets in cash and hedged positions. Wait for the Dancing Elephants and Donkeys in DC to finally get done breaking things… Maybe buy some oil if we get ‘stair steps up’ on the RSI, and have a MACD go ‘blue on top’.
Still waiting for that oil bottom… Still waiting for the dancing Donkeys and Elephants to take a break from breaking things. And we’re waiting and we’re waiting…
So for now, the best I’ve got is some of that “food and fuel” commodities trend up along with a bit of the “new bottom” in base metals. Not very exciting. Bend in some ‘hide in Yen and TIP/ WIP’ and that’s about if for now. To go beyond that would take picking individual stocks, and I’ve not got the time for that at the moment. Maybe later this week when I expect to have more time. (I’m going to get about 1 hour / day out of the commute Real Soon Now).
Oil And Fuels?
All getting crushed in the dismal news. With RSI ‘near 20’ we ought to have a ‘buy soon’. For now, though, it’s a ‘bear market’ in oil.
The 10 day chart just looks like ‘going flat’.
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
Held up better, but still whacked. HPQ (HP) didn’t help.
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
Tanking with everything else and with the oil price.
What about oil service companies? Or that Sugar and CZZ?
Sugar looks like it’s making a ‘double top’. Probably time to exit the sugar trade and look more to metals.
Ag and Ag support / Input companies
TNH took a dip, but not much, and is holding up. Everything else is dropping.
Gotta love the way TNH is holding high above the rest… Nice periodic dips to buy, too ;-)
With those large daily price swings, doing a ‘friend of the market maker’ trade on this would likely work. Put some “crazy low” bids below it (about at the bottom of a price bar range) and then sell when it goes near the top.
SEE the SEA!
And as you can see, just like a ‘rising tide lifts all boats’ and falling side sinks them all…
And cruise lines are just sunk too. Waiting for the end of hurricane season and for folks to have money from jobs to spend once again on vacations…
Last time I’d said:
Here we again see that they all fall together when they fall. So, on a return to the SMA stack from below, sell out or hedge with a bit of a short ticker like TWM if you want to keep collecting the dividends. With MACD “red on top” and “below zero” and DMI “red on top” it’s an official ‘be out’ indication, though…
And you can see that we did have a return to the SMA stack from below, and then a continued weak trend downward. That’s how it works…
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 charts will not change very fast, so my comments won’t either… Mostly it’s just saying “be out”. RSI is slowly headed down to 20. W%R is below midline. The biggest value is that you get to see how a mix of bonds and stocks would dampen a lot of the oscillation of each one, and how very precise swapping between them can have big gains.
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.
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.
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.
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.