WSW, Thursday, 20 Sept 2012

General Comment

It’s been way too long. Over a quarter. I need to do a lot of catching up. But the drivers of markets have largely been things that are discontinuous, and not suited to a general ‘trend following’ style. Still, had I been following the charts, there was money to be made. Hopefully I’ve said enough times how to read the charts that folks could do that for themselves.

News Flow

The European Central Bank has decided to go for unlimited bond buying
(AKA money printing).

The Fed has decided to go for unlimited bond buying
(AKA money printing).

Now the Bank of Japan has decided to go for unlimited bond buying
(AKA money printing).

Furthermore, China has started easing money too.

This has many messages. First off, it says things are pretty dire in the global economy. If even ONE central bank opens the balance sheet to unlimited bond buying, things are bad (typically inside that country). Now we’ve got the three major financial / economic centers of the world going for full on bubble blowing, and the center of the Emerging Markets world cheering it on.

They are attempting to inflate asset “values”. Deliberately. Trying to cause a stock market bubble for “the wealth effect” (where you feel like you have more to spend because your portfolio goes up nominally) and they are trying to get housing prices to rise (reflate the collapsed housing bubble) also for “the wealth effect”, but to make the crap on their balance sheet non-negative worth as well.

But who will buy the “assets”?

All over the globe, we have “Boomers” starting to retire. They are in the “disposing of assets” era of life. We’ve also got new “lending standards” that mean even great buyers can’t buy the properties. (On Fox Business today one of the presenters, I think it was Megan Kelly, was grousing about how many banks denier her loan application. For a TV Anchor with loads of credit and income… often on minor technical issues about the property or related documents.) If SHE has trouble getting a loan, what hope does a “40 something with poor income and missed credit card payments” have? (That is, most of the folks who WERE buying the houses that are now not selling.)

A recent report on, IIRC, DW news had a city in Valencia with the kids going to school in “tin boxes” (shipping containers with louvered vents in the walls) while nearby the $Billion boondoggle Museums and other “prestige buildings” constructed during the “property boom” were on display. Are THOSE folks going to buy EU bonds? Real estate?

In classical trading terms, this ought to be a ‘Risk On’ world. Buy stocks, investments, lever up on resources and minerals, oils. “Don’t fight The Fed” is the doctrine. But something is wrong. I think that “something” is The Demographic Bomb and Debt.

So what to do?

Well, news flow has Russia buying gold, along with others. IFF, as likely, inflation picks up a lot in about 2 years, some before then, it would be time to hide in real assets. Still, let the charts be your guide to what really is happening and when to time movements.

Greece, Spain, and Italy have not gotten better. Now we’re just adding the German Credit Card to those that will be overdrawn.

The USA is headed into an election with the SPOTUS (Socialist President Of The USA) having even odds of a win, and all of government pulling out the stops to assure their pensions and gravy train continues, even The Fed blowing him a $40 Billion a MONTH wet kiss.

We have a “SHTF” moment politically in about 3 weeks. Then things will inflect. (Perhaps a bit earlier if folks with Fat Wallets get an early idea which way to bet).

Oh, and Political Islam is trying to unify all of the Islamic World into the New Caliphate under the rule of The Muslim Brotherhood. Very much double plus ungood… (Orwells’ 1984 reference…start practicing your Newspeak now…)

So just where in the world is there a peaceful non-socialist economy to lead the revival of economic innovation and growth?

We’ll just have to wait and see who wins. Keynes On Steroids, or A New SameOldSameOld RINO. (Republican In Name Only).

Conclusions and Likely Actions

Likely to continue the “swing trades” on ripples in the charts. Month long type timing. The Gold Rush to assets is on, so accumulating some of them on pullback ought to be useful.

Mostly going to continue the “watchful waiting” through November. Perhaps some selected shorts on positions that look way over bought.

(It used to confuse me with things like “overbought” – thinking for every buyer their was a seller. It makes sense from an ‘inside baseball’ point of view. There are THREE players in the markets. Natural Buyers, Natural Sellers, and Market Makers. Overbought, means that an excess of Natural Buyers showed up, and the Market Maker has sold a load of overpriced securities, likely a lot of it as ‘shorts’ where they don’t have the shares, they are borrowed; so waiting for the best time to drive share prices back down via a “bear raid” and massive shorting.)

Also, looks like “the usual” inflation protection plays. “Money in the ground” in metals miners. Precious metals, even base metals, and real estate.

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 “Infrastructure Charts” for stocks, bonds, commodities, etc are in the Stock Charts category:

https://chiefio.wordpress.com/category/stock-charts/

That is a bit of a play on words as “stock” can mean stock in a company, stock of goods, or as in photography, a set of standard images. To that extent, a chart of ‘the usual bond ETFs’ is something like a stock of goods, and a stock picture… ;-)

The Nature of the Charts Here

The charts in this posting, or the linked infrastructure postings, 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

Or change the particular indicators or tickers of interest. I strongly recommend learning to make your own charts for your particular holdings.

Wall Street Week –
Thursday, 20 September, 2012

Long Term Context

Notice that the broad NYSE ticker is underperforming all the others? That ticker has a broader exposure, including to non-US stocks with ADRs (American Depository Receipts)

What’s flying? NASDAQ. It’s a Tech Bubble. So Apple and Cell phones are carrying the world? Hmmm… Haven’t we been here before?

We have ADX / DMI (bottom band) with a weak ADX number (that means Slow Stochastic ought to be the important indicator at this time scale and trend strength is week. For NYSE, it is, for QQQQ, it is likely much stronger.) The Blue DMI+ is on top, so “time to be in stocks”. MACD is “blue on top” and above zero too. Also saying “be in”. Only Slow Stochastic is a worry as it’s been ‘up high’ for a while. OK, still going to hold a shorter time frame bias, and it looks like tech / momentum is the way to go with individual sector and stock picking. Some worry of a ‘pull back’, but we’ve got The Fed blowing the balloon hard…

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. During a new bull market, it can lag so much that you miss the best bits, so a ‘trend trade’ positive can be done until this one confirms. During a new bear market, it can lag so much that you get hurt if you hold stocks, so a ‘trend trade’ negative can be done until this one confirms. Basically, shift to shorter term (one year / daily tick mark) charts for trades near inflections of the Slow Stochastic here.

(Oddly, the NYSE ticker symbol stopped working, but using this saved link with the SecurityID in it does still work. I’ve added other USA Indexs for comparison)

5 years, NYSE

Remember that you can click on the chart to get a much larger more readable version.

Bonds vs Stocks

In a separate comment a week or three ago I’d said it was time to exit bonds. (Before that I’d said to be 1/2 out). This chart shows bonds taking a pull back from that high point.

This next chart is TLT vs 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, as on this long term chart). TLT is long term US Treasuries, so gives a good view of the major alternative where cash runs during times of doubt. If you plotted a line 1/2 between those two, you would get the performance of a portfolio that was 1/2 in each. A pretty good basic strategy for times that are hard to judge. They form a natural hedge pair during spikes, for example. This is a very long term chart where each tick mark is one week.

I’ve added TIP, the Treasury Inflation Protected securities ETF, so you can see how it is acting as a safe haven.

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

TIP is benefiting from the Inflation Kicker, so likely still a safe place to park money.

As I’ve said for a few postings now:

At this time I’d “Duck and Cover” into TIP. Things are likely to be a bit “wild” for a while. It’s a relatively safe place to hide and if The Fed does more to kick up inflation, it has a protection kicker in it.

For TLT, we’ve got MAC with ‘red on top’, RSI with “lower highs” and oscillating down from a ‘near 80’ event. ADX has inflected down, and we have a new crossover of DMI to ‘red on top’. All saying “be out of bonds”. This is in conflict withe Fed buying, but since they are ‘pushing a rope’, I’d stick with the charts.

General Stock Markets Overview

The broad stock markets charts are here:

https://chiefio.wordpress.com/2011/12/15/global-stocks-survey/

On the one year chart, SPY is about the same as QQQQ. For it, we have RSI approaching 80, so the run is getting a bit old, but likely has some more to go. We need a ‘lower high’ on RSI for the end. It is an early indicator at ‘near 80’. MACD is ‘blue on top’ and well above zero. Perhaps a bit of ‘inflecting to flat’, so maybe a ‘buy the dip’ soon, or just a small slowdown in the rising trend. ADX is 30 (above 25 is ‘use MACD’) so trend is strong, and we’ve got DMI with blue way on top. All saying “be in stocks”. (But watch that RSI).

XRT, real estate, and GLD are above SPY. Others are seeing the “run to assets” too. IYT – transports, are lagging. It’s not shipment of goods that are leading this race… Oil is up, but took a nasty tumble the last couple of days.

To me, this looks more like financial manipulation / trading games; rather than actual increases in production, sales, and shipping. Maybe copper will illuminate that more…

In Europe, EWD and EWG are on a rocket ride. Sweden and Germany. EWU and EZU (UK and EU) are both doing well, if less than the Nordics. EWQ and EWI, France and Italy, not well. Rising, but slowly.

Looks like the bet in EU Land is away from the PIIGS and into the Germanics. France as a Socialist Workers Paradise, not so much… Interesting to note, though, that down in the “Smaller EU” group, IRL Ireland and EWN Netheralnds are also rising nicely.

On the emerging markets graph, there’s some that are ‘late to the party’, so may have more room to run up, and some that are already moving well. Again, RSI is ‘at 80’, so don’t be surprised if the run runs out ‘soon’. A month or two. Australia and Canada look best, in terms of already seen trend. A closer look at ‘the Latins’ is needed. Mexico EWW is about as strong as SPY. Malaysia EWM doing well too. Brazil EWZ and South Africa EZA in the dumper.

The Dollar Lately

Time to measure our Rubber Ruler.

The currency charts are now on the Bonds and Currencies chart here:

https://chiefio.wordpress.com/2011/12/20/bonds-overview-charts/

The Euro is on a big bounce off the bottom. Canadian Dollar and FXB British Pound doing nicely too.

The Swiss Frank FXF looks like it is being managed in a ‘match the Euro’ channel.

Were Bonds a good idea?

The bonds charts are now on the Bonds and Currencies chart here:

https://chiefio.wordpress.com/2011/12/20/bonds-overview-charts/

Bonds, in particular US bonds, are a ‘be out’ signal. What is really impressive is the “Non-$US inflation protected” bonds and bond funds:

World Inflation Protected Securities - 1 year daily

Dump $US and buy inflation protection. OK, that’s pretty clear…

Base Metals vs. Precious Metals

Precious metals:

https://chiefio.wordpress.com/2011/12/13/gld-gold-vs-silver-and-currencies/
Last time I’d said:

However, both the gold and silver charts have RSI at 20. The Simple Moving Averages are still declining, so price is likely to bounce up to that SMA stack from below, then fall away again. This is a ‘reversion to trend’ trade, NOT a new bull market. (yet…) We still have MACD “red on top” and DMI “red on top” and MACD is “below zero”. Bear Market Counter Trend Rally, so any long trade in gold and silver needs to be fast cycle time, exit at the SMA stack or put a tight stop loss behind it then. IFF if crosses the SMA stack, returns from above, and fails to penetrate it, does this turn into a new Bull Market Trend. Until then it is a fast counter trend rally and nothing more. Personally, I don’t like counter trend rally trades. They move way too fast to avoid large ‘slippage’.

Since then we’ve had that rally. Further and harder than I’d expected (then again, all the major central banks decided to bugger the currencies in unison..) The right entry point, per the charts, was early – mid August. Now we’ve still got MACD and DMI with “blue on top” but RSI is at 80. A bit late for an entry, so wait for a ‘dip’ if not already in.

We do, now, have price above the SMA stack. Classically it ought to drop back to the SMA lines for the next ‘entry’ moment. With the election and global currency buggery, who knows if that will happen.

Last time:

Still, precious metals are very volatile, so often those counter trend rallies punch fairly high and simply trading on a fast oscillator can make money. For the strong of constitution gambler… Personally, I’m sitting this one out.

Clearly choosing “sloth” was a mistake…

SLV Silver ETF

With DMI+ crossed under the black ADX line and RSI at 80, it’s too late for an entry and there’s likely a ‘dip’ coming. Price is far above the Simple Moving Average stack, and they must rejoin. MACD has a ‘flattened’ top. Not an exit yet, but trend is weakening. Wait for it…

Base Metals infrastructure chart posting is here:

https://chiefio.wordpress.com/2011/12/14/base-metals-vs-gold-and-silver/

Base Metals have taken a jump off the bottom across the board. DBB is the basket, JJC is copper and the standard. JJN – Nickle, looks to have the most volatile upside still in front of it.

What about Brazil? Also India and China.

Brazil ETF vs Currency Race

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

Looks like Mexico, Canada, and Australia are doing better… Still, it has ‘be-in indicators’ for Brazil. Not liking the politics, though.

Sectors

ETFs with Dividends

Utility ETFs / Funds have rolled over with bonds. Telecoms, especially cell phone companies, are shooting up. If you want ‘dividends with growth’ shop there.

https://chiefio.wordpress.com/2011/12/29/dividend-etfs/

Ag Commodities & Ag Related Companies

On the drought news, grains took a shot up. Now we’ve got the indicators saying to be out of JJG.

https://chiefio.wordpress.com/2011/12/31/agriculture-stocks-and-commodities/

FUD "food" and JJG "gain" vs DBA an agriculture basket benchmark

Ag is mostly flatish. CZZ the sugar / energy / land company in Brazil is rising nicely. RNF and RTK are rising too.

Transports

Mostly flat to down. Exceptions are the Rail Stocks. Especially those shipping coal and grain to China…

CP Canadian Pacific, KSU, etc. Oil up. Coal in the USA being taken out and shot. Buy the rails…

https://chiefio.wordpress.com/2011/12/31/transports/

Oil And Fuels?

The charts are here:

https://chiefio.wordpress.com/2012/01/01/oil-and-energy-stocks-and-etfs/

While oil dropped, then rose, and is now topping over, so mostly a range trade; the oil companies are showing some life. XOM Exxon, and E Eni especially. Worth a deeper look.

REITS

Looks like folks running back to real estate for inflation protected growth. OK, pretty easy decision.

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 

Monthly Running Stocks

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’).

One Month

 10 Best Performing Industries Industry Name 	Percent Change (over time selected)
Dow Jones U.S. Platinum & Precious Metals Index 	27.93%
Dow Jones U.S. Gold Mining Index 	22.59%
Dow Jones U.S. Mining Index 	16.70%
Dow Jones U.S. Nonferrous Metals Index 	15.53%
Dow Jones U.S. Investment Services Index 	10.84%
Dow Jones U.S. Basic Resources Index 	10.31%
Dow Jones U.S. Home Construction Index 	10.20%
Dow Jones U.S. Business Training & Employment Agencies Index 	8.98%
Dow Jones U.S. Real Estate Services Index 	8.95%
Dow Jones U.S. Gambling Index 	8.76%

Precious metals mining. OK, strike in South Africa helps. Looks like “sink money into metal in the ground” is a long term bet.

Some ‘investment services’ probably “Friends Of Big Government Rules”.. and a bit of home building. Oh, and gambling…

OK, so “stuff and inflation trade”…

How about the losers?

10 Worst Performing Industries Industry Name 	Percent Change (over time selected)
Dow Jones U.S. Semiconductors Index 	-4.59%
Dow Jones U.S. Water Index 	-4.37%
Dow Jones U.S. Multiutilities Index 	-4.14%
Dow Jones U.S. Trucking Index 	-3.83%
Dow Jones U.S. Tobacco Index 	-3.81%
Dow Jones U.S. Delivery Services Index 	-3.51%
Dow Jones U.S. Soft Drinks Index 	-2.93%
Dow Jones U.S. Conventional Electricity Index 	-2.68%
Dow Jones U.S. Electricity Index 	-2.68%
Dow Jones U.S. Beverages Index 	-2.56%

Utilities, fuel dependent things, “safe havens” like tobacco and soft drinks. Things with political exposure like “conventional” electricity. Semiconductors is a bit of head scratch…

Weekly Wining and Losing Sectors

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

Spectacular up / down ratio. The Fed sure can give a market a sugar high…

10 Best Performing Industries Industry Name 	Percent Change (over time selected)
Dow Jones U.S. Platinum & Precious Metals Index 	11.19%
Dow Jones U.S. Gold Mining Index 	9.42%
Dow Jones U.S. Real Estate Services Index 	8.75%
Dow Jones U.S. Mining Index 	7.30%
Dow Jones U.S. Home Construction Index 	5.42%
Dow Jones U.S. Real Estate Holding & Development 	5.22%
Dow Jones U.S. Computer Hardware Index 	5.08%
Dow Jones U.S. Gambling Index 	4.19%
Dow Jones U.S. Internet Index 	4.01%
Dow Jones U.S. Nonferrous Metals Index 	3.78%

Looks like the same story. Metals in the ground, precious metals, real estate. Some gambling and some internet.

Dropping?

10 Worst Performing Industries Industry Name 	Percent Change (over time selected)
Dow Jones U.S. Water Index 	-3.39%
Dow Jones U.S. Airlines Index 	-2.75%
Dow Jones U.S. Trucking Index 	-2.53%
Dow Jones U.S. Distillers & Vintners Index 	-1.93%
Dow Jones U.S. Footwear Index 	-1.90%
Dow Jones U.S. Multiutilities Index 	-1.83%
Dow Jones U.S. Transportation Services Index 	-1.79%
Dow Jones U.S. Tires Index 	-1.02%
Dow Jones U.S. Gas Water & Multiutilities Index 	-1.01%
Dow Jones U.S. Forestry & Paper Index 	-0.96%

Mostly the same story. Things dependent on fuel. “Safe” trade stocks like booze and water, utilities. Forestry is odd..

Momentum Trades

First off, the caveat page. Know how to exit before you enter a momentum trade:

https://chiefio.wordpress.com/2011/10/26/when-momentum-fails/

This is NOT buy and hold investing, OK?

The general approach is to find lists of stocks going up, then look at their chart for ‘what is in a good configuration and likely to continue’, then wait for an entry. That last part can be particularly frustrating in stocks with a strong momentum as the ‘dips’ either never come, or come at the eventual blow off top of an exhausted big momentum run. So sometimes I’ll just ‘scale in’ to momentum stocks. Buy some each dip, and exit all of it on a topping indication.

This posting gives an overview of the method of picking:

https://chiefio.wordpress.com/2011/07/20/alpha-bubbles-and-lists/

The original set of stocks inspected this was was last documented in the WSW posting here and folks following those stocks can check the charts there. Many have ‘rolled off’ in the recent downturn.

I’ve gone to periodic “Momentum Monday” postings that will include new selections in each list. The most recent one will be linked here.

As of right now, I’ve not done anything new on this momentum part. It will come later.

https://chiefio.wordpress.com/2012/05/15/momentum-monday/

The Long Term Context

Generally saying “be in” but without much conviction. As though the trade is getting a bit long in the tooth.

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 has “momentum” on 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

VIX the Volatility Index

Volatility has gone “way low”. That’s a very bad thing, and usually precedes market drops.

This is a very worrying thing I need to check volume too, but frankly, it looks to me like time to hide in “money in the ground”, metals, etc. and maybe some inflation protected bonds more than in stocks.

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

Volatility Index and Related

You could make some money on volatility trades, but it’s a dicey fast trade. A 6 month ‘close up’ shows recent trends.

Stock Indicators – what and how

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.

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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