Bill Cara’s Week in Review #32, 2012
[4:00 pm ET Sunday] It’s middle of the summer and most days in New York and Toronto the weather is stifling. No matter what time of year, it’s hot money that rules the markets. As capital flooded in on Friday, higher prices made the week because otherwise this one was a loser.
On Friday, the Euro zoomed +1.7% and the US Dollar plunged -1.2%. Meanwhile the US Bonds sank -1.3% while the sovereign bonds of Europe, particularly those of Spain and Italy, soared. That took the pressure off the banks that hold most of the government debt in Europe. The share prices of the biggest, Deutsche Bank and UBS, rocketed +10.1% and +5.0% respectively that day.
What happened Friday, some people say, was the unexpectedly good US jobs report, but the truth is the entre financial system of the world was shifting because traders are gaining confidence that the government leaders and central bankers of Europe are serious about preserving the Euro as the world’s second reserve currency.
All eyes are focused on whether some of the biggest economic powers of the world, Spain and Italy, will eventually pay their debts as they come due; not whether America, a country of 315 million people, adds another 50,000 or 100,000 jobs this month or next. The latter is a statistical creation in any event, while the credit system of the entire world, and the fate of the banks that drive it, hangs in the balance if the countries of southern Europe go bankrupt.
So this Friday was a good one in that confidence returned – at least for a day – and by the close of markets the S&P 500 had soared by +1.91%, lifting that key equity market index +1.71% on the week.
It’s shocking to me that the market capitalization can rise and fall by so big a percentage each Friday, but that’s what has been happening. It was +1.91% this week, -1.01% a week ago and +1.65% the week before, and -0.94%, +2.49%, +0.72%, +1.03%, +0.81% and -2.46% respectively the Fridays before that. These are big numbers as the S&P 500 represents about 75% of the capitalization of the entire US equity market.
That happens when traders are nervous and government debt is so big a factor in capital markets. And, as traders observe government leaders and central bankers intervene to such an extent to keep their ponzi schemes going, their nervousness intensifies.
These are challenging markets, for sure.
For the summary of what happened in the US with the economic reports this week, here are the headlines from the Econoday analysts:
• The Fed holds steady
• Employment gains momentum—somewhat
• Personal income up while spending stagnates in June
• Motor vehicle sales slip but healthy in July
• Consumer confidence improves a little in July but still glum
• Markit and ISM manufacturing indexes give mixed readings
• Dallas Fed manufacturing mixed in July
• Construction outlays maintain recent uptrend
• Case-Shiller Home Price Index continues improvement
• ISM non-manufacturing index gains in July
From the four previous weeks, the headlines were as follows:
• Second quarter GDP soft but tops [extremely low] expectations
• New home sales oscillate—this time down
• Pending home sales dip in June—supply and weather possible factors
• FHFA house prices continue recent uptrend
• Durables orders in June lifted by aircraft but not much else
• Markit flash PMI stays in positive territory
• Richmond and Kansas City Fed reports—mixed signals on manufacturing
• Consumer sentiment showing no improvement
• Retail sales continue downturn
• Housing starts show improvement
• Existing home sales slip back
• Industrial production makes a comeback in June
• Empire State and Philly Fed show slowing momentum
• Consumer prices slow at headline level but not core
• Leading indicators turn negative
• Beige Book shows subdued recovery but still slightly positive
• Bernanke testimony sticks to script
• Trade gap shrinks in May on lower oil prices
• Consumer sentiment slips on expectations
• Consumer credit jumps sharply in May
• Producer prices unexpectedly edge up but still soft
• Import prices drop on petroleum but softness is widespread
• FOMC minutes disappoint
• Employment growth anemic in June but some positives
• Motor vehicle sales regain some strength
• June ISM manufacturing turns negative but Markit PMI remains positive
• June ISM non-manufacturing slows but still growing decently
• Construction outlays jump in June
The bottom line, says Econoday: “Monthly data have been volatile—especially for manufacturing. While manufacturing has slowed (or contracted, depending on the data source), housing has improved and the labor market may have strengthened. But a key issue for the consumer is confidence about the economy and doubts remain. Meanwhile, the Fed either sees sufficient economic growth to leave policy unchanged or simply believes the costs of additional ease outweigh the benefits. With the presidential election looming and the Fed wanting no appearance of partisan leaning, the Fed will likely find a way to stay on the sidelines until at least December if economic news allows.”
As for our studies this week, we’ll first look at the detailed economic data for the week that passed and the one ahead. Then we’ll get into the market prices, and the trends and cycles of Currencies, Bonds, Equities, Commodities and Precious Metals.
Global Economics Review
Equities rebounded on Friday after Thursday’s losses and turned the week into a positive one for most of the indexes followed here… The reasons for Friday’s rebound were the better than anticipated U.S. employment report and second thoughts about ECB President Mario Draghi’s comments at his post meeting press conference Thursday.
Econoday’s Global Perspective is written by chief economist Anne Picker.
The jobs report for July turned out to be somewhat better than forecast and notably stronger than recent months. It is not robust but the recovery continues and maybe is just a little stronger than believed… Looking Ahead: Week of August 6 through 10: A light week of economic news is highlighted by consumer credit and international trade. Confidence numbers are not great but credit data are hard numbers and could point to moderate consumer strength. Meanwhile, trade data are a big question mark due to weakness in Europe and slowing growth in Asia. But lower oil prices are likely to come into play.
Mark Rogers is the author of The Complete Idiot’s Guide to Economic Indicators, Penguin Books, 2009. I recommend it.
The reason I devote much time in the WIR to the reporting and analysis of economic data is for us to gain an understanding of important reasons behind the ebb and flow of capital market prices and the sector rotation within markets. After you follow these reports from month to month you will get a sense of the interrelationships between the business or economic cycle and the market cycle.
After release of the latest data on 07/30/2012, 10:30:00 AM ET, Econoday reported, Texas manufacturing numbers are mixed for July. The overall general business activity index dropped to minus 13.2 from plus 5.8 in June. Analysts had projected a reading of 2.5. However, the production index remained moderately healthy at plus 12.0 relative to 15.5 the month before. New orders eased to 1.4 from 7.9 in June, suggesting slowing momentum but this indicator is volatile. The employment index was relatively strong at 11.8 versus 13.7 in June. Plant managers apparently are somewhat optimistic, boosting the workforce.
After release of the latest data on 07/31/2012, 8:30:00 AM ET, Econoday reported, The consumer sector was mixed in June as income jumped but spending stalled. Personal income in June gained 0.5%, following an advance of 0.3% the prior month. Analysts forecast a 0.4% boost personal income. The wages & salaries component also showed strength, rising 0.5% after a 0.1% rise in May… Consumer spending was flat in June, following a 0.1% dip in May. Expectations were for a 0.1% rise in June. By components, durables declined 0.1% after a 0.4% decrease in May. Nondurables, hit by lower gasoline prices, fell 0.6% in June, following a 0.9% decrease the prior month. Services spending rose 0.2%, matching the May pace… On the inflation front, lower energy weighed on headline inflation with a modest 0.1% rise in June, following a 0.2% decrease in May. The market median forecast was for a 0.1% increase. The core rate firmed a bit as expected, rising 0.2% after a 0.1% gain in May. The median market forecast was for a 0.2% increase… Year-on-year, headline prices were up 1.5%, equaling May’s rate. The core was up 1.8% versus 1.8% in May… The consumer sector in June was mixed with income up and spending stalling. The consumer sector is not contributing to the recovery as it had. With the rise in income, it currently may be an issue of confidence although it is clear that job growth is not encouraging.
After release of the latest data on 07/31/2012, 8:30:00 AM ET, Econoday reported, Employment costs ticked higher in the second quarter but remain subdued. The sequential quarter-to-quarter rate rose 0.5% which is on the high side but the year-on-year rate is only plus 1.7% which is down 2 tenths from the first quarter rate and is the lowest rate since the first quarter of 2010. Benefits, up a sequential 0.6%, are behind what pressure there is in the second-quarter data though here too the year-on-year rate is subdued at plus 2.1%. The wages & salaries component is up a moderate 0.4% with the year-on-year rate at plus 1.7%. The cost pressure for labor is not much of a policy issue right now given the high rate of unemployment and the subdued level of demand.
After release of the latest data on 07/31/2012, 9:00:00 AM ET, Econoday reported, Home prices firmed very strongly in May according to S&P Case-Shiller which shows an adjusted 0.9% gain. This is the third strong gain in a row following 0.7 and 0.8% readings in April and March. Yet prices are coming off the bottom reflected in the year-on-year rate which is still in the negative column at minus 0.7%. Yet the direction is going the right way with 18 of 20 cities showing monthly growth led by Chicago and Atlanta which are two cities where home prices had been especially weak… Unadjusted data are watched in this report and tell the same story of improvement. Lost equity in home prices has been a major hardship of the last five years. Improvement, if extended, should help consumer confidence and consumer spending. Watch for the Fed’s assessment of the housing market in tomorrow’s FOMC statement.
After release of the latest data on 07/31/2012, 9:45:00 AM ET, Econoday reported, Business is slow but it’s still growing in the Chicago area based on MNI’s Chicago report where the headline composite is at 53.7, up 8 tenths from June to indicate a slightly faster rate of monthly growth. The new orders index rose 1 full point to 52.9 while backlogs, at 52.8, show a monthly gain following two months of contraction. Orders coming in and orders in the pipeline secure what should be respectable overall growth in the months ahead… Other readings include slowing growth in production, which at 54.5 is still pretty solid. Inventories continue to accumulate which points to business confidence in the outlook as does continued growth, though slowing growth, in employment. This report right now isn’t helping the Dow which is moving to opening lows, but it does offer positive signals and suggests that summer slowing in the overall economy may be limited.
After the release of the latest data on 07/31/2012, 10:00:00 AM ET, Econoday reported, Bouncing a bit at lows is a fitting description for consumer confidence which rose a little more than 3 points but at a 65.9 level remains very subdued. June is revised 7 tenths higher to 62.7. Job readings are central in this report and show no significant change with more than 40% still describing jobs as hard to get. A bit more do see more jobs openings over the next six months but still pessimists are in the lead on this reading. Likewise for future income where more see a decrease than an increase… Other readings include a drop in home buying plans which is offset by a rise in vehicle buying plans. Inflation expectations edged slightly higher but are well down from March and April when gas prices were near $4. The Dow isn’t showing much reaction to this report whose job readings do not point to any sensational breakout in job growth or meaningful drop in the unemployment rate.
After the release of the latest data on 07/31/2012, 9:00:00 AM ET, Econoday reported, Manufacturing softened slightly in July but still shows growth compared to June, according to the final results of Markit Economics survey where the data are slightly lower than last week’s flash estimate. The manufacturing PMI for July is 51.4, down 4 tenths from the flash estimate and down 1.1 points from June. Growth in new orders is minimal at best, at 51.0 vs 51.9 for the July flash reading and 53.7 for June. This is one of the lowest new order rates of the recovery and points to thinning business in the pipeline. Exports orders contracted for a second month, at 48.6 reflecting weakness in both European and Asian demand. With orders thin, manufacturers continue to work down their backlogs which, at 48.7 and like new export orders, show a second straight month of contraction… Relying on their backlogs, manufacturers continue to keep output up and they continue to add to their workforces, though both at marginal and slowing rates. Price pressures are mute, showing contraction for, once again, a second straight month. Inventories are stable while delivery times are shortening slightly in another indication of weakness… This report, given last week’s flash reading, isn’t a surprise and isn’t likely to have much impact on the markets especially given the pending release of the ISM survey later this morning at 10:00 a.m. ET. The ISM shocked the markets last month with a sub-50 headline reading that showed significant contraction in new orders.
After release of the latest data on 08/01/2012, 10:00:00 AM ET, Econoday reported, The US manufacturing sector is dropping, especially unfortunately orders. The ISM’s composite headline index remains under 50, at 49.8 in July vs 49.7 in June. But the details show greater trouble with new orders at 48.0, up slightly from June’s 47.8 but still showing monthly contraction. Export orders are an increasing and central negative, at 46.5 for a 1 point drop from June and reflecting weakness in both Europe and Asia. Manufacturers, lacking new orders, are working down their backlogs which are very low at 43.0 for a 1.5 point monthly decline… Production is still growing as is employment but this won’t go on for long if new orders don’t start coming in. Inventories are thinning but only slightly while delivery times are shortening. Input prices, in a another reflection of weak demand, are contracting… This report shows more weakness than the Markit Economics report earlier this morning and is likely to be a negative for the market today, at least ahead of the mid-afternoon FOMC statement. Following this report, the Dow is moving off opening highs.
After release of the latest data on 08/01/2012, 2:15:00 PM ET, Econoday reported, The Fed left policy rates unchanged today and also left guidance unchanged. Basically, there were no policy changes. Little changed except a downgrade to the economy. The fed funds target rate remains at a range of 0 to 0.25% and the Fed stated that rates are expected to remain exceptionally low through 2014. And Operation Twist continues through the end of this year… Not surprisingly, the Fed acknowledged that the economy is not doing great-but did not use any language suggesting that the economy is dramatically weakening… “Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year. Growth in employment has been slow in recent months, and the unemployment rate remains elevated.” …And the Fed indicated that inflation is easing. Importantly, there was no mention of deflation-which would suggest future policy action… “Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.” …Surprisingly, the only major risk mentioned to the economy was implicitly Europe and slower growth in Asia… “Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.” …There was no mention of the fiscal cliff problem but we may see more on that in the FOMC minutes… The vote for the statement was 11-1 with Jeffrey Lacker dissenting, who preferred to leave out the time period reference for guidance… Overall, the Fed is on hold. The Fed has set in motion Operation Twist to extend beyond the presidential election. Without further substantial weakening in the economy, the Fed likely will stay on hold until at least December.
After release of the latest data on 08/02/2012, 8:30:00 AM ET, Econoday reported, Initial jobless claims rose 8,000 in the July 28 week in what is the smallest change after three weeks of severe volatility tied to adjustment for summer auto retooling. The latest level of 365,000 is right in line with the 4-week average of 365,500 which offers an interesting gauge for the full-month July to June comparison, and this comparison, which is down more than 20,000 from the late June average, points to improvement in the labor market… Continuing claims in data for the July 21 week fell 19,000 to 3.272 million with the 4-week average down 11,000 to 3.299 million for the lowest reading since early June. Still, the unemployment rate for insured workers remains stuck at 2.6%, which is where it’s been since mid-March.
After the release of the latest report on 08/02/2012, 10:00:00 AM ET, Econoday reported, Order declines for petroleum & coal sent non-durable goods down 2.0% in June and pulled down overall factory goods orders to a very disappointing 0.5 decline. Orders for petroleum & coal fell 2.9% for their largest drop in nearly 3-1/2 years. Moderating prices are a factor in the drop as is lower demand for basic materials and for inputs at utilities where output has been on the decline… The news on the durable side is no better than mixed despite a 1.3% gain for the category (revised 3 tenths lower from last week’s advanced reading). The gain is lopsided, centered in aircraft where any one month’s orders can swing violently. Outside of aircraft, most of the components have negative signs in front of them… The weakness is making for an unwanted build in inventories where the inventory-to-shipment ratio jumped 2 tenths to 1.29. Shipments fell 1.1% and the spottiness in orders doesn’t point to strength ahead. One positive is a moderate build in unfilled orders, which will give manufacturers something to work down as they wait for new orders to pick back up… The last two ISM reports on manufacturing, the most recent released yesterday, are decidedly negative and point to another disappointing factory orders report this time next month. This report very rarely moves the markets because of the advanced report on durable orders, which usually tells the whole story, but not this time. The Dow is moving off lows but further improvement may be limited following today’s news.
After the release of the latest report on 08/03/2012, 8:30:00 AM ET, Econoday reported, It was not dramatic but the payroll jobs gain actually improved in July. However, the unemployment rate headed the wrong way. The unemployment rate rose to 8.3% from 8.2% in June. But the more reliable establishment survey was more positive… Payroll jobs in July increased 163,000, following gains of 64,000 in June (originally 80,000) and 87,000 in May (previous estimate of 77,000). The net revisions for May and June were down 6,000. The market consensus was for 100,000… Private payrolls rose 172,000 in July after advancing 73,000 the month before. Analysts forecast a 110,000 boost… Both good-producing and service-providing sectors improved moderately. Notably, goods-producing jobs suggest that manufacturing is doing better than monthly surveys suggest. Total goods-producing jobs rose 24,000 in July after a 13,000 gain the prior month. Manufacturing rose 25,000 after a 10,000 boost in June. Construction edged down 1,000 after a 4,000 gain in June. Mining was flat in July… Private service-providing jobs advanced 148,000 in July after a 60,000 increase the prior month. Latest strength was in professional and business services which increased by 49,000. The temp help subcomponent rose 14,000 in July… The public sector contracted again but at a more modest pace than months ago. Government jobs fell 9,000 in July, the same as in June… Average hourly earnings have been volatile. The wage rate slowed to 0.1% in July from 0.3% the prior month. Expectations were for a 0.2% gain. The average workweek held steady at 34.5 hours, matching expectations… Overall, the employment report was a little better than expected. Businesses are hiring but at a modest pace. The recovery is still on but at a modest pace. The latest data probably are good enough to keep the Fed on hold though another jobs report will be posted before the next FOMC meeting.
After the release of the latest report on 08/03/2012, 10:00:00 AM ET, Econoday reported, The great bulk of the nation’s economy is moving steadily forward, based on ISM’s non-manufacturing sample where the composite index rose 5 tenths to 52.6. This level isn’t that strong but details in the report are encouraging led by new orders which rose 1 full point to 54.3. This is right in line with the 4-month average of 54.2. Business activity, which is an indication on output of goods and services in the sample, really took off, up 5.5 points from a depressed June level to 57.2 in July for the best rate of monthly growth since March… A negative in the report is a 3 point fall in the employment index to 49.3, a sub-50 level, which is the first of the year and which indicates that the ISM’s sample, on net, cut back on their workforce in July. But the rise in new orders hints at a snap back for this reading in the months ahead… Other details include a bounce back in new export orders but a fall in total backlogs. But these factors are of less importance in the non-manufacturing sector compared to the manufacturing side. Input prices firmed slightly in the month following two months of slight contraction. The Dow is moving to opening highs following this report.
Before release of the latest data on 08/08/2012, 8:30:00 AM ET, Econoday reported, Nonfarm business productivity declined an annualized 0.9% in the first quarter, compared to the initial estimate of a 0.5% dip and compared to a 1.2% rise in the prior quarter. Unit labor costs were revised down to an annualized 1.3% increase versus the first estimate of 2.0%, and following a 1.5% decrease in the fourth quarter. Productivity was nudged lower primarily on slower output growth. Output in the first quarter was revised down to a 2.4% rise versus the initial estimate of 2.7% and the fourth quarter gain of 3.7%. Unit labor costs were revised down on compensation which grew only 0.4% instead of the first estimate of 1.5% annualized. More recently, productivity may not be as healthy and unit labor costs may be up as second quarter GDP posted at an annualized 1.5%, down from the first quarter rate of 2.0%. Output numbers for productivity closely track GDP.
Before release of the latest data on 08/09/2012, 8:30:00 AM ET, Econoday reported, The U.S. international trade gap in May narrowed, thanks largely to lower oil prices. The trade deficit narrowed to $48.7 billion from $50.6 billion in April. Exports rose 0.2%, following a 0.9% decline in April. Imports fell 0.7% after a 1.6% drop the prior month. The narrowing in the trade gap was led by the petroleum goods gap which shrank sharply to $24.9 billion from $28.1 billion in April. In contrast, the non-petroleum goods deficit expanded a little to $37.9 billion in May from $36.7 billion the month before. The services surplus improved to $14.8 billion from $14.6 billion.
Before release of the latest data on 08/09/2012, 8:30:00 AM ET, Econoday reported, Initial jobless claims rose 8,000 in the July 28 week in what was the smallest change after three weeks of severe volatility tied to adjustment for summer auto retooling. The latest level of 365,000 was right in line with the 4-week average of 365,500 which offers an interesting gauge for the full-month July to June comparison, and this comparison, which was down more than 20,000 from the late June average, points to improvement in the labor market. Continuing claims in data for the July 21 week fell 19,000 to 3.272 million with the 4-week average down 11,000 to 3.299 million for the lowest reading since early June.
Before the release of the latest report on 08/09/2012, 10:00:00 AM ET, Econoday reported, Wholesale inventories rose 0.3% in May, a moderate gain but one that compared negatively with a 0.8% decline in wholesale sales which was the first decline since May last year. The mix made for the first rise this year in the wholesale stock-to-sales ratio, up to 1.18 versus April’s 1.17. But the decline in sales was centered in non-durable goods including petroleum, where prices have been moderating very quickly, and also drugs where a heavy brand-to-generic shift is trimming dollar totals.
Before the release of the latest report on 08/10/2012, 8:30:00 AM ET, Econoday reported, Import prices fell a steep 2.7% in June following a downwardly revised 1.2% plunge in May and a 0.1% decline in April. The decline in June was the steepest of the recovery. The export side, where the headline in minus 1.7%, was very similar with a 4.0% monthly plunge in agricultural exports a heavy negative.
Before the release of the latest report on 08/10/2012, 2:00:00 PM ET, Econoday reported, The U.S. Treasury monthly budget report showed a June deficit at $59.7 billion. Receipts were up while growth in spending was down, making for a 6.8% decline in the nation’s deficit 9 months into government’s fiscal year. When excluding special factors, such as calendar timings for government payments, the deficit was down 12.7%. Looking ahead, the month of July historically shows a deficit for the month. Over the past 10 years, the average deficit for the month of July has been $72.2 billion and $103.6 billion over the past 5 years. The July 2011 deficit came in at $129.4 billion.
Technical Indicators & Patterns of International Markets
The technical indicators and patterns, as summarized by StockCharts and used by technical analysts, is less bullish this week than the W/W results or the strong Friday might indicate.
Data to be found at http://stockcharts.com/def/servlet/SC.scan
Also, as trend is as important as numbers or percentages, compare the current data above with the data from one week ago:
The data continued to turn less bearish, more bullish, this week.
We have to drill down into the data to see if the technical indicators are working in a way that reflect what I see as a bullish case slowly unfolding.
Here too is the Daily, Weekly, Monthly RSI-7 and EMA-8 data at Friday’s close for the Cara 100 [note that recent Cara 100 changes have been incorporated, but the monthly and possibly the weekly data may take a while to become accurate for JOY as the ticker switched from JOYG]:
The Cara 100 Scoreboard at the end of this week [WIR 32] shows:
5 with Daily RSI-7 below 30 [0 below 20] [0 below 15] [0 below 10]
7 with Weekly RSI-7 below 30
8 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from one week ago [WIR 31] shows:
2 with Daily RSI-7 below 30 [0 below 20] [0 below 15] [0 below 10]
4 with Weekly RSI-7 below 30
9 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from two weeks ago[WIR 30]:
3 with Daily RSI-7 below 30 [1 below 20] [1 below 15] [0 below 10]
7 with Weekly RSI-7 below 30
9 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from three week ago[WIR 29]:
3 with Daily RSI-7 below 30 [0 below 20] [0 below 15] [0 below 10]
11 with Weekly RSI-7 below 30
12 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from four weeks ago[WIR 28]:
1 with Daily RSI-7 below 30 [1 below 20] [0 below 15] [0 below 10]
5 with Weekly RSI-7 below 30
12 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from five weeks ago[WIR 27]:
2 with Daily RSI-7 below 30 [1 below 20] [1 below 15] [0 below 10]
8 with Weekly RSI-7 below 30
13 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from six weeks ago[WIR 26]:
7 with Daily RSI-7 below 30 [2 below 20] [0 below 15] [0 below 10]
13 with Weekly RSI-7 below 30
19 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from seven weeks ago[WIR 25]:
1 with Daily RSI-7 below 30 [0 below 20] [0 below 15] [0 below 10]
8 with Weekly RSI-7 below 30
13 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from eight weeks ago[WIR 24]:
2 with Daily RSI-7 below 30 [0 below 20] [0 below 15] [0 below 10]
13 with Weekly RSI-7 below 30
17 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from nine weeks ago[WIR 23]:
56 with Daily RSI-7 below 30 [11 below 20] [5 below 15] [2 below 10]
56 with Weekly RSI-7 below 30
31 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from ten weeks ago[WIR 22]:
21 with Daily RSI-7 below 30 [5 below 20] [1 below 15] [1 below 10]
31 with Weekly RSI-7 below 30
20 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from eleven weeks ago[WIR 21]:
77 with Daily RSI-7 below 30 [56 below 20] [35 below 15] [11 below 10]
58 with Weekly RSI-7 below 30
31 with Monthly below 30
This system is very good at indicating the prospects of a cycle top or bottom, but it is important to realize that indicators are just that. They are not absolutes. Traders who rely entirely on mechanical systems will quickly realize that common sense is another necessary ingredient. It’s why I say that to trade successfully you need to know a little about a lot of things, always keeping an open mind.
By the time the new website is finished (before the end of August), this table will be synchronized with the up-to-date Cara 100. Also I hope to make the system a bit more sophisticated and with performance tracking.
Bear in mind that technical RSI-based Alert signals (i.e., potential Buy signals) are not given until a trend reversal occurs. The term ‘Accumulation’ applies to those stocks that are on a watchlist for purchase candidates. At that point, I begin to focus on the various aspects of technical, quantitative, fundamental and economic conditions for that company and stock (note that a company is not a stock), building sufficient weight of evidence as to cause me to buy the stock.
This is a process that I discuss in my book “Lessons from the Trader Wizard”, asking the reader to try to get a grasp (i.e., a little knowledge) of a wide number of investment topics that will, with experience, help you develop the judgment you need to make your own long-term or short-term oriented trading decisions.
Over my trading career, I have found most people do the opposite. They focus on one or two concepts (like PE or mutual funds or Elliott Wave or even RSI, etc), while harboring the belief that such an approach makes trading easy. Trading is not easy. The market is an ugly game of deception that plays people. In recent years, because of digitalization and globalization factors, the deceit is even greater and trading made that much harder.
The only way to build your confidence is to be a student of the market, i.e., understanding the big picture, a process which I try to help with my book Lessons From the Trader Wizard.
I believe that from late in the 2Q2012, and going forward, the market is undergoing a cycle bottom process. To be fair, this is not the conventional wisdom. The bottoming process may continue and the technical indicators, the ones I use or other ones, are not always going to pin-point exact bottoms (or tops). However, the trading process is a lot like real estate, which most people understand: if you rent and then buy during a Buyers’ Market (when prices are down) and sell (and then rent) in a Sellers’ Market (when prices are very high), you will do a more effective job of (i) building assets quickly, and (ii) protecting those assets as good as you can during the tough times. Trading securities is a lot easier than trading houses!
Many people disagree with my thinking, which is fine because differences of opinion are what makes markets. However a criticism of the Lessons From the trader Wizard book, I think, misses the entire point of the book.
”If you have traded for some time don’t use money and time on this book. This book is for the beginner who wants to have some understanding of the markets. It is very superficial in its description.”
In fact, about 25% of the people who read the book and follow the blog have much trading experience – probably much more on average than my critic — and these people write me often to thank me for doing what I do. One such individual who said he had 30 years experience working at three of the world’s major Wall St firms told me he has learned more in a couple years following me than he did in his entire career. That may be true, but the point I think he was making is that true perspective in trading comes from “knowing a little about a lot of things” and my book took several hundred pages to cover material I think is important. A professional editor who reviewed the original manuscript of the Lessons 2012 e-book opined that I had “produced four books here” and that I should cut the content down. I tried, but the 2012 version is still very long as e-books go.
Yes, in time I will write more advanced books, some with Geoff Goetz and Deron Wagner.
International Equity Markets Review
The strongest markets in the world were Italy (MIB up +3.9% W/W and up +8.0% in two weeks), UK (FTSE) and France (CAC), both up +2.9% this week and Germany (DAX) up +2.6%.
Mexico (Bolsa) and Canada (TSX Composite) were the weakest, down -1.2% and -0.9% respectively.
The Canadian equity market is down -2.4% Y/Y.
Here is this week’s international equity re-cap from Econoday:
Over the past couple weeks, as we focused on the financial problems in Europe, I pointed you to the big banks there. Traders pumped up the share prices of two of the biggest, Deutsche Bank and UBS, by +10.1% and +5.0% respectively on Friday. It was that kind of a week. The India bank HDFC (HDB) was up +4.2% W/W.
Btw here is the India Report from Deepak Lalwani, which can be retrieved in full by writing firstname.lastname@example.org
• As expected key policy interest rate left unchanged at 8%. The Governor of the Central Bank, Dr Subbarao, correctly stuck to his views not to lower interest rates despite the slowing economy as the bigger risk is stubbornly high inflation (7.25% in June, with core inflation on a “disturbing” rising trend). Dr Subbarao says there is scope for cuts later in the year;
• RBI raises its inflation forecast to March 2013 from 6.5% to 7%. We feel this may be optimistic as the possible drought this year could pose additional headaches with food prices rising even more;
• RBI cuts its economic growth outlook to 6.5% from 7.3% made in April. We cut our forecast to 6.2% from 6.7% made on January 1. We estimate a drought could easily shave off 0.5% from growth;
• Drought fears have prompted the Government to subsidise farmers till the end of the monsoon season. The Government’s fiscal deficit target of 5.1% of GDP looks too rosy. Our estimate is about 6% of GDP;
• Cutting fuel subsidies will be very tough if the Government is not to be seen as being very uncaring to the plight of the poor, especially at a time of potential drought and with inflation having averaged over 7% for nearly 2 years;
• Mr Chidambaram’s appointment as Finance Minister cheers investors. In his last 4 year tenure from 2004 India enjoyed average economic growth of 9% pa;
• Failure of power grids which cut electricity for 2 days to about 680 million people in a dozen states blamed on some northern states. Due to poor rains farmers have been forced to use more electricity to irrigate farms. Starkly exposes the woeful neglect of basic infrastructure over decades by policy makers;
• Global TV and press coverage of the power grid failure makes many foreign investors comment that politics and policy paralysis in India is undoing the positive image assiduously built over last 8 years of India as an aspiring economic power;
• Despite all the woes, Foreign Institutional Investors return to buy Indian equities in July. Based on hopes of reforms being kick-started in the next couple of months. Indian shares are best performers among BRIC countries in 2012.
FD: Starting early September, Deron Wagner and I will produce a new blog on the India domestic market for investors in India and ex-pats who support that market. We hope to do the same later in the year for China and Brazil.
Below are 16 country index chart links from StockCharts.com (with their formal approval btw). Global equity markets do not trade in a vacuum. It is important to be watching these markets move through a trend juncture together, pushed and pulled by global currency and commodity strength or weakness as well as local and regional economic forces.
Here is the latest session data for the bourses of Europe.
Here is the latest session data for the German DAX 30.
Here is the latest session data for the French CAC 40.
Here is the latest chart for the Japanese Nikkei 225 index.
Here is the latest chart for the Singapore index .
Here is the latest chart for the Shanghai Composite index .
Here is the latest chart for the Hong Kong Hang Seng index .
Here is the latest chart for the India BSE 30 index .
Here is the latest chart for the Australian All Ordinaries index .
Review of the ETFs for the International equity market
As you know, the country Exchange Traded Funds (ETF) are not the same as the domestic exchange indexes, but are (i) denominated in US Dollars, (ii) traded in NY, mostly by Americans, (iii) traded for several hours each day after Asia-Pacific and European markets have been closed, and (iv) a reflection of the most up-to-date news stories and investment analysis.
Also, depending on extreme currency fluctuations, the USD denominated ETFs may widely differ in performance from the results of the domestic exchanges.
When the world is worried and goes risk-off, it’s the international equities that get hammered the most, and that feeds the US Dollar market, which further lifts the Dollar and worsens the crisis. If that Dollar buying gets out of hand, the markets take on the appearance of a death plunge.
For a second straight week, the action Monday through Thursday to what happened on Friday was as different as night and day… Down all week followed by an explosive up day on Friday. However, while the gains on Friday were impressive across the board, by the close on Friday there were only six winners W/W of the major eleven ETFs I follow. A week ago, all eleven were winners.
The best performers W/W were India (IFN +2.60% W/W), and the UK (EWU +1.75%). The biggest loser was Canada (EWC -0.87%).
All of the eleven had gains on Friday and four of them had gains on Friday of +3.1% or more.
It usually seems to come down to what’s going to happen the following Monday. It could go either way. Traders are that undecided.
Table 14: International equities via an ETF perspective (in $USD)
Japanese equity market ETF: EWJ
Here is the Japanese (EWJ) equity market ETF Monthly, Weekly and Daily data charts:
U.K. equity market ETF
Here is the United Kingdom (EWU) equity market ETF Monthly, Weekly and Daily data charts:
EWU Daily data:
Canada’s equity market
Here is the Canadian (EWC) equity market ETF Monthly, Weekly and Daily data charts:
Taiwan’s equity market
Here is the Republic of China/Taiwan (EWT) equity market ETF Monthly, Weekly and Daily data charts:
Indonesia equity market ETF
Here is the Indonesia Fund (IF) equity market ETF Monthly, Weekly and Daily data charts:
IF Summary from Yahoo Finance:
IF Summary from Google Finance:
IF chart from StockCharts.com:
Here are the links to interactive charts from Investertech.com for the key country ETFs, which you can add technical indicators for as well.
US Equity Markets Review
For a second straight week, the action Monday through Thursday to what happened on Friday was as different as night and day. Down all week followed by an explosive up day on Friday. However, whereas a week ago the Friday action carried the week to a solid gain, this week the Friday gains – just as impressive as the week before – barely nudged the indexes into positive territory at the close. In fact even Friday’s gain of +2.59% in the Russell 2000 (small caps) resulted in lowering the W/W loss to -0.94%.
Econoday summed up the US equity market this week as follows:
Surprisingly, Cisco (CSC) gained +4.21% W/W, including the gain of +3.88% on Friday. That was the best performer in the Dow 30.
Here is the list of the ten highest-weighted non-financial stocks in the NASDAQ Composite. I recommend you put them in a watchlist (e.g., Google Finance Portfolio) and watch them like a hawk:
AAPL MSFT GOOG QCOM RIMM CSCO INTC ORCL GILD EBAY
Add two of AMZN, DELL, JAVA or YHOO to get a Cara Dozen.
Or while you are at Investertech.com, input up to 30 tickers in the window above “Summaries” – say AAPL MSFT GOOG QCOM RIMM CSCO INTC ORCL GILD EBAY AMZN DELL JAVA YHOO plus up to 16 more – and click on Tech Chart, Basic View, Daily Watch, Performance or Fundamentals and you’ll get a lot of information to compare one against the others.
Here is the Monthly data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Weekly data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Daily data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Value Line Dow 30 Stocks Review
This week in the quarter-yearly WIR 6-19-32-45 series; Value Line reported on one DJIA component, Wal-Mart (WMT), which is a Cara 100 company and which we hold in both the large cap portfolios. In fact at the Cara Community 2011 Conference at Whistler, which ended Oct 2, I selected WMT as the premier stock in the Consumer Staples sector for Total Return over the following 12-24 months. Ten months later, the capital appreciation has been +43.51%, from $51.96 to $74.56, and the dividends have been $0.365 (Dec 7), $0.398 (Mar 8), $0.398 (May 9), and another payment of $0.398 due next week (Aug 8 or 9). That’s a further $1.56 on a cost base (you wish) of $51.96, which works out to a dividend yield TTM of 3.00%. Add the dividends of $1.56 to the current price ($74.55) and you get a Total Return of +46.5% over exactly ten months. Not bad. I wish I could say the same for all my picks!
Wal-Mart [GICS 30, Dow 30, Cara 100]
(WMT: Google Finance file)
(WMT: Yahoo Finance file)
(WMT: StockChart chart)
(WMT: Investertech chart)
(WMT: ADVFN Financial Data)
(WMT: Value Line Report Aug 3: next one is due Nov 2)
Here are my notes from previous WIRs re Walmart:
In this space, I review my previous WIR notes before making up-to-date comments.[For WIR#32-2010 Aug 8] Here is my current thinking re WMT ($51.79 Aug 6, down from $52.40 May 14), based on the technical charts as well as the information provided at Value Line.
My thinking on Wal-Mart (WMT) is different from probably anything you are likely to hear on Wall Street. That’s because Wal-Mart is based in Bentonville Arkansas, 100 miles from nowhere, and not NYC, Connecticut, Chicago, Silicon Valley, LA, Dallas, Atlanta, and so forth, and mostly because it’s controlled by the Walton family and not Humungous Bank & Broker (HB&B). So, this isn’t General Electric, Boeing, Home Depot, Coca-Cola, IBM, or JP Morgan. No, Wal-Mart is an outsider, not a place where hoity-toity bankers would care to shop, but more for the hoi polloi.
You will likely not hear from HB&B that WMT just six weeks ago gave us a long-term Buy signal, under $49, which was the first since Jan 2009, Sept 2007, and Sept 2005. Not that many of you will care, mind you, since the average price of the shares this year is pretty close to its level 6, 7, 8, 9, 10… years ago.
But you should care because, as I see it, those shares are soon going to soar from the very low 50’s to the very high 60’s. Here are some reasons:
The Stochastics and the RSI-7 for the Monthly data series have turned positive only for the third time since 2Q2005 and the 4th time in over 10 years. Something positive is happening inside this company.
Value Line is showing annual growth rates for sales, cash flow, earnings, dividends and book value of +10% to +11% through 2013-2015. The company growth is keeping pace with that of the past five years and there are no roadblocks in sight. How many other large or mega cap companies can you honestly say the same about?
Most people are not aware and cannot fathom the immensity of this company. The number of stores has more than doubled in 10 years, from 4200 to over 9000, with almost one trillion square feet of store space and 2.1 million employees. In 10 years, earnings and cash flow per share have tripled, and dividends have even doubled that incredible pace.
Dividends might be lower now, but that’s mostly because most companies have cut their dividends for optics reasons due to the tough economic times, and not because of corporate fundamentals, which are growing stronger each year. So, when dividends get ramped up, and I believe they will, traders will pile on. The dividend payout is down at just 29% of net profit, which is extremely low for a Dow 30 company.
But the bottom line here is that Wal-Mart is no longer America’s largest retailer; it’s clearly the favorite retailer of the whole world, and much of the world is getting richer, faster, than the USA. Non-US growth for Wal-Mart is now about four to five times greater than US growth, proving that the company delivers what people everywhere want, value pricing, a great many products and choices among them. Well, like I say, maybe that’s not for the hoity-toity.
That reminds me of a conversation I had maybe 20-25 years ago when trying to convince a computer geek to build a database for capital markets. He answered with a question: “Do you know how many people in the world are interested in stocks and bonds versus plants and flowers? About 5%.” He turned down my proposal.
Even today I have to admit that I never once visited a Wal-Mart store until 2004, the year I started to blog, and that’s because there wasn’t much choice in the countryside near where my parents lived, and their health issues kept me returning there often, needing to buy this or that. That old-timer at the front door who took me around to the different departments let me know right then and there that Wal-Mart was in business to serve me right. I’ve been a fan ever since. Contrast that with my experiences at Home Depot, where at this point I absolutely refuse to go near the place.
I suppose we all have our stories, but, believe me, I think WMT is worth the wait. If you see the stock pull back into the 40’s again, load up the truck. Buy the stock and write puts.
[For WIR#45-2010 Nov 7] WMT ($55.20 Nov 5, up +6.6% from $51.79 Aug 6, and from $52.40 May 14) comments today are based on the technical charts as well as the information provided at Value Line.
Following my encouraging write-up of Wal-Mart in the early August WIR, the stock dipped twice in late August to $50.06 and $50.14 lows in late August before soaring to a high of $55.36 this week, closing Friday at $55.20. Had you bought stock and wrote puts, as I recommended after the price pull-back, you’d be a happy Wal-Mart investor today.
Going forward, WMT needs some time to consolidate its recent gains. My simple little system gave a Daily price data based SELL Alert this Friday as the RSI-7 dropped from the Accumulation Zone (above 70) to 69.94. Maybe you don’t want to quibble for a fraction like that but the fast Stochastic I use on the Daily (5,2,3) has dropped from to 81.00, well below the slow Stochastic at 88.21, indicating to me that the share price could pull back maybe -1% early in the week. Then again, the more important Weekly RSI-7 shows full steam ahead, with RSI-7 at 71.13 and rising and the fast Stochastic at 73.49 above the slow Stochastic at 63.31.so I’d hold on for now.
These technical indicators are useful in helping you understand and apply the art of trading, but remember they are not absolutes, just mathematical indications of the nature of the trading in the minutes up to the close on Friday. So, when I refer to my crystal ball, this is the stuff I am referring to, and you can see its just part of the picture you need to see. Another part of the technical picture I look at is the MACD, which is simply a smoothed gap between the shorter 12-week and longer 26-week Moving average of the price. Unlike Stochastics, which is a cyclical indicator, the MACD is a trend indicator, with a slightly different methodology. The MACD presently and since August shows the trend is up. Its your job to stay on the right side of the trend, meaning if MACD is up, we probably want to be long. Only when the MACD flattens, do we ignore it and stick to the cyclical indicators like Stochastics.
That’s technical, which is important to timing entry and exit trades. Whether you want to even invest or not is mostly dependent on improving fundamentals of this company. We study those fundamentals versus other companies or if you have gazillions to invest versus sector or peer group companies. We also want to know what the sell-side analysts think because we know they influence their firms’ clients and the media. But, mostly, we need to just study the data for revenues (top line), earnings (bottom line), cash flow (the company’s most valuable asset), dividends (next to share price growth, the investor’s next best friend), and book value (the figure that omits the goodwill and other fluff).
The Value Line report is a succinct summary of the data plus a few opinions and the rating of the analyst. The Technical Rating at the top left of the page shows a ‘2’ (better than average), moved from a ‘3’ (average) on Oct 29. That’s a six-month outlook. The Timeliness Rating has been a ‘3’ since July 2009, referring to a one-year outlook.
To judge the value of the Value Line analyst, then, go to Table 16 (The price performance of all the Dow 30 stocks over the past year). In the case of WMT, the 12-month price change has been 7.64%. You’ll see there were 21 Dow 30 stocks that did better and only 8 that did worse, and from Table 1, you’ll see that the S&P 500 future grew +14.86% in the past 12-months. So WMT did not perform up to average, i.e., a ‘3’. The result was a ‘4’.
Now in early August I got keen on WMT [perhaps calling it a ‘2’ if I were to do ratings, which I don’t] and on Oct 29 Value Line upped their short-term rating [also] to a ‘2’. So, we are now in the same bullish camp on this stock.
Looking at the important fundamental metrics, you’ll see that 2009 was a comfortable increase over 2008, and you’ll see the 2010 performance will be better than 2009 and the 2011 better than 2010. So, while as a shopper you might disagree, as a trader I believe it’s “Better At Wal-Mart”.
Oh, there is some discussion by the Value Line analyst that covers the placement of deep discount items in certain places within a store and management’s decision to compete with dollar stores with smaller stores, and all that, but the big picture here is one of continuous growth over many decades. Going forward, I cannot imagine how Africa and China would not prove very good markets for expansion too. So, the Wal-Mart picture will continue to get better even though at times there are and will be recessionary periods that lower expectations, and which cause the share price to stumble, enabling resourceful traders to buy more at discount prices during those times.
The WMT chart over eleven years exhibits a wonderful long-base price pattern tied to continuously improving fundamentals over that period. PE multiples have dropped from the high 30’s to the low teens. Compared to the flame-outs in the Internet space going back 11 years, however, I hardly think that cut in multiple is justified.
WMT is a brute, a monster company that keeps on moving forward. They are not headquartered in New York or Chicago or Boston, LA, Atlanta or Dallas, but in small town Arkansas, so right off they are not that popular on Wall Street. I’m sure that if the head office was in Shanghai, however, you’d see that 13 PE double. It’s always the way, eh?
Whenever the big guys in hedge funds and mutual funds decide to climb back on board as they were in the 80’s and 90’s, based on quality growth metrics, I think the stock price will show its real value. Until then, I will be a trader in and out.
Right now is the time for the long-term, conservatively minded trader to be in. Not as good as when I last wrote about WMT in August, but not bad.
[For WIR#6-2011 Feb 6] WMT ($56.03 Feb 4, up +1.5% from $55.20 Nov 5, which was up +6.6% from $51.79 Aug 6, and from $52.40 May 14) comments today are based on the technical charts as well as the information provided at Value Line.
The RSI/Stochastic charts don’t show me much. However, the Point & Figure chart shows a recent price break-out with a $67 objective.
WMT was the worst performer of all Dow 30 stocks this week. In the past 52 weeks, there have been only 6 of the 30 that performed worst.
So, why do I like the stock?
Probably for many of the same reasons Value Line likes it: there are Y/Y increases in revenue, cash flow, earnings, dividends and book value/share EVERY YEAR including through recessionary years.
In fact, since I started blogging and telling readers about my appreciation of this company, there has been almost a doubling of revenues, cash flow and earnings per share, about 15% fewer shares outstanding, and almost a tripling of dividends per share. This is one of the biggest companies in the world, clearly the 800-pound gorilla in global retailing, and yet the law of big numbers doesn’t seem to apply. The company maintains its path from big to bigger.
On Jan 7, Value Line raised the Timeliness Rating (12-month outlook for relative price growth) from a ‘2’ (Good) to a ‘1’ (Top 10%). In this Feb 4 report, VL raised the Technical Rating (6-month outlook) from a ‘3’ (Average) to a ‘2’.
The VL report this week gets into some weird discussion of “management’s admittedly ill-conceived strategy shift away from everyday low prices” but that sounds half-baked to me. This company is like a machine, just grinding out improved results month in and month out, so I’ll leave it at that.
Dividends for the next four quarters is likely to be about $1.33, which puts the yield at close to 2.4%, which is not quite good enough for me to slot it into one of my large cap Value picks. And with a Cara 500 ranking last week of 345, I wouldn’t be buying the stock here either.
It was the summer of 2010 [WIR 19, Aug 6, 2009 $51.79] when I last opined that the time to buy WMT was looking good as we had just had at that point a long-term Buy Signal. In fact, although you may have already re-read my notes above, here it is again:
You will likely not hear from HB&B that WMT just six weeks ago gave us a long-term Buy signal, under $49, which was the first since Jan 2009, Sept 2007, and Sept 2005. Not that many of you will care, mind you, since the average price of the shares this year is pretty close to its level 6, 7, 8, 9, 10… years ago… But you should care because, as I see it, those shares are soon going to soar from the very low 50’s to the very high 60’s.
The stock price is up +8.2% since I wrote that opinion, and a lot more since we received the Buy signal at under $49.
Investing in WMT requires patience. Knowing that the price of the stock has remained in a flattish trading pattern for the past 10 or 11 years, you must be patient. But, every year, it seems, there is one opportunity to make a timely purchase, which if you add some offsetting put writes and long call purchases, adds some possible sizzle to the upside. Or, if you are super conservative, just buying the stock at very low cycle points and writing the puts for premium income to lower your cost base, is also likely a good strategy.
There is not much more for me to add, so I’ll move on.
[For WIR#19-2011 May 8] WMT ($55.02 May 6, down -% from the close of $56.03 Feb 4, which was up +1.5% from $55.20 Nov 5).
The stock has gone nowhere for six months.
So much for the Point & Figure chart “break-out” in Q1.
The longer-term chart shows that risk is elevated. The 30-min data chart shows that since Tuesday afternoon, a topping process has started. There may be a couple days early in the week where WMT is given a boost, but the cyclic motion, I believe, is telling me the price will fall back a bit after that, and probably be a market performer for the next quarter.
Based on a very low PE ratio (12.3%) and earnings that are likely to hit $4.45 for 2011 and $4.90 for 2012, I doubt the price would fall much if at all below 50, which is the strike where, on high intra-day weakness I would selling puts. Longer-term – say two years out – I think the price will be in the mid-60’s – say $5.00+ earnings and 13 PE.
Value Lie’s Kevin Downing likes the stock, probably more than me at this point, pointing out the “favorable risk-and-reward scenario” and “China focal point”.
The company is doing well though. Hard to argue with the +10% earnings growth this year, which is likely to repeat in 2012. Return on Equity is staying above 20%, which is solid. Noteworthy also is the quickly rising dividend, from $1.21 in 2010 to $1.46 this year, but even if the yield were to lift to say +3.0% from today’s +2.7%, there are better income stocks around.
So, I’ll leave it that I like WMT for the 12-24 months outlook but not so much for the 0-12 months timeframe, mostly because I think the broad market is likely to undergo some pressures as the US Dollar starts to lift as traders see that the Fed will stop Quantitative Easing.
[For WIR#32-2011 Aug 7] WMT ($50.85 Aug 5, down -% from $55.02 May 6.
Until two or three weeks ago, the stock had gone nowhere for nine months, at around the price of $55.20 at the close Nov 5). But this week, Mr Market gave Walmart a haircut of -3.5%, down to $50.85.
That 2011 dividend of $1.44 produces a +2.83% dividend yield. For 2012 we’re looking at a dividend of $1.75, which would be a yield of +3.44%, which may be the highest in Walmart’s history. Not intended as a play on words, but this seems to be safer than income from Uncle Sam.
Today’s comments, as usual, are based on the technical charts as well as the information provided at Value Line.
Clearly I like the Walmart stock at these levels. You don’t buy WMT to flip it, but as part of a core portfolio, because over the years the company has strong and improving fundamentals.
This Friday, Value Line lowered the 6-month Technical (“short-term”) outlook from an outperforming ‘2’ to a market average ‘3’. I think they panicked. Maybe, on the other hand, VL decided to weight all the Dow 30 as a ‘3’? Maybe they decided to over-weight the cyclicals? No; I think they just panicked.
There are many times to seize the opportunity in the cyclicals, but seldom do you see these situations arise in the staples, and when you do, you have to go for it, i.e., if you want a fairly well-balanced portfolio.
Interesting is that 54% of Walmart’s US revenue comes from groceries, where huge volume enables the company to reduce the prices below any competitor. Also noted; the public doesn’t want to food shop in mega-stores, so Walmart is proceeding to build 300 small-format stores in the next five years.
I note that a lot of cash flow is going to buy back shares. Within a couple years, there will likely be just 2.90 billion shares outstanding from today’s 3.47 billion, and well down from the 4.45 billion outstanding ten years ago. While the share price may not have done much over this time, the per share revenues, cash flow, earnings, and book value has almost tripled. The dividends have gone from $0.27 to $1.44/share for 2011 and are expected to be $1.75 for 2012. The latter would, as already pointed out, yield a high return of 3.44% on today’s cost base. Return on shareholder equity (23.0%) and Gross Margin (25.0%) is the highest ever and will likely hold or possibly increase a tad. Global revenues are expected to continue growing at a rate of +9.0% or more per year.
At this week’s close of $50.85, it makes sense to me to buy with a view to a long-term hold.
[For WIR#45-2011 Nov 6] WMT ($57.50 Nov 4, up +13.1% from $50.85 Aug 5).
On the basis of price movement after I last wrote on Walmart, you have to agree that my recommendation was spot on.
The issue for me here is that WMT has a current price (CP) of $57.50 and an 8-week EMA of just $55.23, plus an RSI-7W that is presently an elevated 74.36 and the 7W Stochastic above 91. This represents high risk, which is not a good time to buy. You want to buy during periods when market conditions are just the opposite – as they were on Oct 3 when I recommended WMT at Whistler as the CP was $51.96.
A purchase then, just shy of four weeks ago, would have resulted in a price gain of +10.7%. In a “safe” 10-year US Treasury bond, you would be waiting almost 5 years for that % gain.
But you also see my point that prices ebb (to a point of low risk) and flow (to a point of high risk).
The Daily and 30-Minute data charts show me that short-term oriented traders have only a day or two of rising prices remaining before a pull-back and test of $56.25. If that level doesn’t hold, I’d look to the $54.15 level that was reached twice in July. Resistance then would be a possible support level here.
The Value Line write-up by analyst Kevin Downing shows me just how important Walmart must be as a case study in business school. Whether it be used for teaching a first year or fourth year university class or any level CFA program, the data on this single sheet from Value Line could be used to teach a complete semester program.
Getting into the detail, on Oct 21, VL increased its 6-month price outlook (“Technical Rating”) from a Market-Perform “3’ to a Market-Outperform ‘2’. In March, VL lowered its long-term (1+ Year) outlook (“Timeliness Rating”) from a ‘1’ Superior rating (actually their top 6% of all stocks they rate) to a ‘2’.
To show how good the VL rating system has performed, go to the Dow 30 12-Month price performance table #16 and you’ll see that only McDonalds (MCD) and IBM (IBM) were clear out-performers of the 30 Dow average component stocks.
Earnings per share are forecast to lift from $4.07 in 2010 to maybe $4.55 for 2011 and $5.00 for 2012. Dividends are projected to grow from $1.21/share in 2010 to $1.46 for 2011 and $1.75 for 2012. With stable earnings and a low 30% pay-out ratio, you can basically bank on these dividend increases.
Putting aside the company’s solid metrics in operations (8.0% Operating Margin on +9.0% revenue growth) and financial (23.0% Return on Equity), and the future (12-24 month) Total Return prospects for the stock, I happen to agree with the report conclusion of the VL analyst: “Recent share-price appreciation and the risk involved with low-income consumer spending prospects may dissuade some investors from jumping in at this price point.”
But, when you observe the technical indicators showing an opposite market condition, I would not hesitate to be a buyer again.
[For WIR#6-2012 Feb 6] WMT ($62.03 Feb 3, up +8.03% from $57.50 Nov 4, which had been up +13.1% from $50.85 Aug 5).
On the basis of price movement after I last wrote on Walmart, and from my Whistler Conference 12-24 month Balanced portfolio selection for Sector 30 (done at $53.70, you have to agree that my recommendations were spot on.
The charts indicate that WMT might have reached a cycle peak at the open at the open on Wednesday this week. However, we continue to hold the stock in both large cap portfolios.
With this year’s dividends likely to come in at $1.72, the forward yield is about 2.77%, which is very good. These dividends are all but assured and have risen from $0.95 (2008), $1.09 (2009), $1.21 (2010) and $1.46 (2011).
If you want to continue holding the stock, you might consider writing a March 62.50 call ($0.87-$0.89) and take in the premium income. I don’t think I’d go out to June with the 62.50s, but maybe the 65s because that would be about $1.70 for the option plus another $3 to have the stock called away, which in that case would be a return over about four months (or possibly less) of +7.58%. Annualized, that would be a fairly good return. But more than likely the stock is likely to consolidate its recent gains here, somewhere in the mid to high 50s.
Value Line have a ‘2’ (out-perform the S&P) rating for the next year or more. I’m not so sure unless both go down, which I don’t think will be the case a year from now.
The company is operationally and financially sound, but I note that the growth metrics are likely to be a tad lower for the next five years compared to the past five and ten years. Customer disposable income is obviously an issue.
But in addition to the operational and financial strength, the operating margins and Return on Equity metrics I want to see sustained for a Cara 100 company will almost certainly be for WMT.
So, really, my only concern is that the share price has gotten ahead of itself for now. Otherwise I haven’t changed my opinion, which is positive.
[For WIR#19-2012 May 6] WMT ($58.86 May 4, down -% from $62.03 Feb 3, which had been up +8.03% from $57.50 Nov 4, which had been up +13.1% from $50.85 Aug 5).
On the basis of price movement after I last wrote up Walmart in WIR #6, three months ago, done at $62.03, you have to agree that my conclusion: “my only concern is that the share price has gotten ahead of itself for now” was spot on.
In the WIR#6-2011, I reported as follows:
WMT was the worst performer of all Dow 30 stocks this week. In the past 52 weeks, there have been only 6 of the 30 that performed worst… So, why do I like the stock?… Probably for many of the same reasons Value Line likes it: there are Y/Y increases in revenue, cash flow, earnings, dividends and book value/share EVERY YEAR including through recessionary years… In fact, since I started blogging and telling readers about my appreciation of this company, there has been almost a doubling of revenues, cash flow and earnings per share, about 15% fewer shares outstanding, and almost a tripling of dividends per share. This is one of the biggest companies in the world, clearly the 800-pound gorilla in global retailing, and yet the law of big numbers doesn’t seem to apply. The company maintains its path from big to bigger.
I’ll be writing about this again today. Here is a company that continues to strengthen, but has a share price that on occasion presents an unusual buying opportunity. The best you can do as a trader who wants to hold WMT as a core position is to put it into your income group and write puts every time the share price falls a lot, and write calls every time the share price seems well over-bought, as has happened recently.
Regrettably, Walmart is an easy target – no pun intended. Many media writers feel it’s fair game to smear. Think seriously about this report (“Wal-Mart Must Pay $4.8 Million For Screwing Workers Out Of Overtime Wages”) published by Yahoo on Wednesday. Is it fair reportage or has the writer been paid to trash the company?
The facts are that about 4,500 employees out of about 2.1 million were underpaid less than $1,000 each, and the company was ordered to repay the missing wages plus pay a fine of $463,815. The total amount involved was $4.8 million, which is one-thousandth of one percent of company revenues in 2012, which will be about $480 billion. The issue came up after the company believed these particular workers were exempt from overtime pay requirements, and the Labor Department ruled otherwise.
But, we get the message: Walmart screws people. [Not!]
What about how the people who took the time to read that Yahoo b.s. were screwed, or the investors/traders who made a different decision on account of it?
In the other negative story about Walmart that broke recently in the New York Times, the company is facing bribery allegations regarding their 69% owned Mexican subsidiary, Walmex. Apparently about $24 million in facilitation payments were made. Already the class action tort lawyers are lined up.
This article sums up the implications, noting that “Walmart could fight back with legal technicalities”.
Actually, I think that is what the law is, a matter of technicalities that most of us do not comprehend, often requiring arguments to be made in a court of law to help the court make a decision.
However, I do appreciate the inferred negativity. Wordsmiths are paid big money to plant the seeds.
As investors/traders, we need to stick to the facts that we can understand and appreciate and take action upon based on our analysis. That’s what we do. But we also must understand that sentiment plays a role in driving prices up and down, and that, as I often say, the market is a game that plays people.
So let’s try to appreciate what’s underway here.
It is likely that total costs related to the matter, if proven, will not exceed $1 billion. That would not be material for a company that does about $480 billion in sales and will generate about $20 billion in operating cash flow. Hence, the worst fines would not have monetary significance. So what the company is facing here will likely relate to increased oversight, which in turn, could hamper their ability to grow. But, how bad would that be? If lesser square footage growth reduced the pressure on capex, their returns would increase, which for the international division would be important in the eyes of most analysts that follow the company. In turn, share buy-backs and dividends might increase, which would in effect be a silver lining.
The Value Line study this week contains one error I spotted: the 3-6 month (“Technical”) rating was said to be raised on April 20, but in fact was lowered from a ‘2’ (market out-performer) to a ‘3’ (market performer).
Sigh; I have to fix their work.
The VL analyst does opine: “Wal-Mart’s lower income customer base remains plagued by high unemployment and steep gas prices. Thus, we think they will continue to find WMT’s value proposition compelling. Wal-Mart plans to lower prices by $2 billion over the next two years to boost traffic.”
I am happy with the operating and net margins, the earnings growth, the Return on Equity, the share buy-backs, the dividend at about +2.8%, the increase in the dividend this year and for 2012, and the overall financial condition.
What I don’t like is that certain market players are demonizing Walmart this week, a time when certain market players want the market to crash. The cynic in me says that those certain market players are one and the same.
So, in terms of facts there is nothing really new here that would cause me to sell a core investment position. However, being traders, we did sell a couple weeks ago, the reason being that we no longer overwrite puts and calls, preferring now to either increase or decrease our weighting. If, as and when the stock drops into our Accumulation Zone, we will return it to the watchlist, and maybe even buy it.
The latest “news” stories in Yahoo Finance re the Mexican “scandal” came with something I found interesting: “16 Facts about Walmart that will blow your mind”.
It’s always good to navel gaze when you have nothing else to do. lol
[For WIR#32-2012 Aug 5] WMT ($74.55 Aug 3, up +26.7% from $58.86 on May 4.
Today’s comments, as usual, are based on the technical charts as well as the information provided at Value Line.
Monthly data series chart with WMT in solid blue, the 8-month EMA in thin dashed blue and the S&P 500 in solid orange:
Weekly data series chart with WMT in solid blue, the 8-month EMA in thin dashed blue and the S&P 500 in solid orange:
I started the last WIR review of Walmart (WMT) 13 weeks ago with these words of encouragement: “Is there a silver lining in all the recent storm clouds over Walmart? I’ll address this issue today.” I then opined that Walmart was being harassed in the media in an attempt to discourage investors, and that the investors should continue to hold WMT because overall the company was in good shape.
Now that the share price is booming – up +26.7% in the past 13 weeks — where are the nay-sayers? I’ll give it to you straight: they are nowhere to be found because syndicates of short-sellers and value buyers are not paying them for their published “research”.
There are times when I think the market is extremely corrupt. This is an example.
As somebody who believes in fundamental need for market integrity, the whole ‘spin to win’ game sickens me. But it goes on, and in fact is a primary industry on Wall Street because it leads most traders to trade more than they need to, (i) giving commission income to the brokers, which I don’t see as a big problem, and (ii) causing more mistakes by more traders, which was the primary objective of the spin masters, which is a huge problem.
If I were working at the SEC, I would be demanding a statement from those so-called journalists who I noted were bad-mouthing Walmart in the extreme 13 weeks ago. I’d demand to know if they had been paid any consideration from Wall Street to get those articles published in the mainstream and blogging media.
Now that WMT has had a Bull run of extreme proportions, we have to look for mirror image “journalism”. In other words, as certain players on Wall Street will now want to “off” their stocks, who are their take-out media personalities, the ones who, for example, will now be hyping the benefits of buying WMT at a cycle top.
Mark my words, this is happening. If there is one never-ending cycle that feeds the greed culture of Wall Street, it’s ‘spin to win’.
Here is the hourly data series chart with WMT in solid blue, the 8-month EMA in thin dashed blue and the S&P 500 in solid orange:
Now; back to the analysis. Note that the July 30 high ($75.24) has not been exceeded in the past five days. The chart is still Bullish, but unless there is more buying coming in next week, the RSI, Stochastics and TRIX indicators will turn bearish. Then the stock will start to test short-term support levels of ~$73.00, and if that level breaks, the next support would be in the $70.50-$71.50 range. We won’t have to wait long to see an outcome.
Btw, some people are asking what is TRIX. It’s a momentum indicator based on a triple Exponential Moving Average (EMA) that I find more helpful than MACD because it filters out very short-term price anomalies, hence giving a better indication of projected trend.
If you are interested, these articles will help:
Fundamentally, Walmart is in good shape.
Revenues continue to accelerate – for the past five quarters – based on a marketing message that stopped focusing on individual items and instead to savings achieved in the total bill at the check-out counter.
The other driver seems to be the smaller capex requirement as global competition from Carrefour, Metro, Tesco, Ahold, Casino, Sainsbury, Delhaize, and Auchan appears to be declining.
All in all, I see no problems in the fundamental data.
My only concern is that the stock price may have come too far in such a short period of time.
The Dow 30 Company links in chronological order of the upcoming reports.
Disney [GICS 25, Dow 30, Cara 100]
(DIS: Google Finance file)
(DIS: Yahoo Finance file)
(DIS: StockChart chart)
(DIS: Billcara2 chart)
(DIS: ADVFN Financial Data)
(DIS: Value Line Report May 11: next one is due Aug 10)
American Express [GICS 40, Dow 30]
(AXP: Google Finance file)
(AXP: Yahoo Finance file)
(AXP: StockChart chart)
(AXP: Billcara2 chart)
(AXP: ADVFN Financial Data)
(AXP: Value Line Report Feb 17: next one is due Aug 17)
Bank of America [GICS 40, Dow 30]
(BAC: Google Finance file)
(BAC: Yahoo Finance file)
(BAC: StockChart chart)
(BAC: Billcara2 chart)
(BAC: ADVFN Financial Data)
(BAC: Value Line Report Feb 17: next one is due Aug 17)
JP Morgan [GICS 40, Dow 30]
(JPM: Google Finance file)
(JPM: Yahoo Finance file)
(JPM: StockChart chart)
(JPM: Billcara2 chart)
(JPM: ADVFN Financial Data)
(JPM: Value Line Report Feb 17: next one is due Aug 17)
Microsoft [GICS 45, Dow 30]
(MSFT: Google Finance file)
(MSFT: Yahoo Finance file)
(MSFT: StockChart chart)
(MSFT: Billcara2 chart)
(MSFT: ADVFN Financial Data)
(MSFT: Value Line Report Feb 17: next one is due Aug 17)
Johnson & Johnson [GICS 35, Dow 30, Cara 100]
(JNJ: Google Finance file)
(JNJ: Yahoo Finance file)
(JNJ: StockChart chart)
(JNJ: Investertech chart)
(JNJ: ADVFN Financial Data)
(JNJ: Value Line Report May 25: next one is due Aug. 24)
Caterpillar [GICS 20, Dow 30]
(CAT: Google Finance file)
(CAT: Yahoo Finance file)
(CAT: StockChart chart)
(CAT: Investertech chart)
(CAT: ADVFN Financial Data)
(CAT: Value Line Report May 25: next one is due Aug. 24)
McDonalds [GICS 30, Dow 30, Cara 100]
(MCD: Google Finance file)
(MCD: Yahoo Finance file)
(MCD: StockChart chart)
(MCD: Investertech chart)
(MCD: ADVFN Financial Data)
(MCD: Value Line Report Jun 1: next one is due Aug 31)
Chevron Corp [GICS 10, Dow 30]
(CVX: Google Finance file)
(CVX: Yahoo Finance file)
(CVX: StockChart chart)
(CVX: Investertech chart)
(CVX: ADVFN Financial Data)
(CVX: Value Line Report Jun. 8: next one is due Sep. 7)
ExxonMobil [GICS 10, Dow 30, Cara 100]
(XOM: Google Finance file)
(XOM: Yahoo Finance file)
(XOM: StockChart chart)
(XOM: Investertech chart)
(XOM: ADVFN Financial Data)
(XOM: Value Line Report Jun. 8: next one is due Sep. 7)
Boeing Co [GICS 20, Dow 30. Cara 100]
(BA: Google Finance file)
(BA: Yahoo Finance file)
(BA: StockChart chart)
(BA: Investertech chart)
(BA: ADVFN Financial Data)
(BA: Value Line Report Jun. 15: next one is due Sep. 14)
Travelers Co [GICS 40, Dow 30]
(TRV: Google Finance file)
(TRV: Yahoo Finance file)
(TRV: StockChart chart)
(TRV: Investertech chart)
(TRV: ADVFN Financial Data)
(TRV: Value Line Report Jun. 15: next one is due Sep. 14)
Verizon [GICS 50, Dow 30]
(VZ: Google Finance file)
(VZ: Yahoo Finance file)
(VZ: StockChart chart)
(VZ: Investertech chart)
(VZ: ADVFN Financial Data)
(VZ: Value Line Report Jun. 22: next one is due Sep. 21)
Cisco Systems [GICS 45, Dow 30, Cara 100]
(CSCO: Google Finance file)
(CSCO: Yahoo Finance file)
(CSCO: StockChart chart)
(CSCO: Investertech chart)
(CSCO: ADVFN Financial Data)
(CSCO: Value Line Report Jun. 22: next one is due Sep. 21)
Procter & Gamble Co. [GICS 30, Dow 30, Cara 100]
(PG: Google Finance file)
(PG: Yahoo Finance file)
(PG: StockChart chart)
(PG: Investertech chart)
(PG: ADVFN Financial Data)
(PG: Value Line Report Jun. 29: next one is due Sep. 28)
Home Depot [GICS 25, Dow 30]
(HD: Google Finance file)
(HD: Yahoo Finance file)
(HD: StockChart chart)
(HD: Investertech chart)
(HD: ADVFN Financial Data)
(HD: Value Line Report Jun. 29: next one is due Sep. 28)
Hewlett-Packard [GICS 45, Dow 30]
(HPQ: Google Finance file)
(HPQ: Yahoo Finance file)
(HPQ: StockChart chart)
(HPQ: Investertech chart)
(HPQ: ADVFN Financial Data)
(HPQ: Value Line Report Jul. 6: next one is due Oct. 5)
IBM [GICS 45, Dow 30, Cara 100]
(IBM: Google Finance file)
(IBM: Yahoo Finance file)
(IBM: StockChart chart)
(IBM: Investertech chart)
(IBM: ADVFN Financial Data)
(IBM: Value Line Report Jul. 6: next one is due Oct. 5)
Intel [GICS 45, Dow 30, Cara 100]
(INTC: Google Finance file)
(INTC: Yahoo Finance file)
(INTC: StockChart chart)
(INTC: Investertech chart)
(INTC: ADVFN Financial Data)
(INTC: Value Line Report Jul. 6: next one is due Oct. 5)
Alcoa [GICS 15, Dow 30]
(AA: Google Finance file)
(AA: Yahoo Finance file)
(AA: StockChart chart)
(AA: Investertech chart)
(AA: ADVFN Financial Data)
(AA: Value Line Report Jul. 13: next one is due Oct. 12)
Dupont [GICS 15, Dow 30]
(DD: Google Finance file)
(DD: Yahoo Finance file)
(DD: StockChart chart)
(DD: Investertech chart)
(DD: ADVFN Financial Data)
(DD: Value Line Report Jul. 13: next one is due Oct. 12)
Merck [GICS 35, Dow 30, Cara 100]
(MRK: Google Finance file)
(MRK: Yahoo Finance file)
(MRK: StockChart chart)
(MRK: Investertech chart)
(MRK: ADVFN Financial Data)
(MRK: Value Line Report Jul. 13: next one is due Oct. 12)
Pfizer [GICS 35, Dow 30, Cara 100]
(PFE: Google Finance file)
(PFE: Yahoo Finance file)
(PFE: StockChart chart)
(PFE: Investertech chart)
(PFE: ADVFN Financial Data)
(PFE: Value Line Report Jul. 13: next one is due Oct. 12)
3M Company [GICS 20, Dow 30, Cara US 100 June 25-06]
(MMM: Google Finance file)
(MMM: Yahoo Finance file)
(MMM: StockChart chart)
(MMM: Investertech chart)
(MMM: ADVFN Financial Data)
(MMM: Value Line Report Jul. 20: next one is due Oct. 19)
General Electric [GICS 20, Dow 30, ex-Cara 100]
(GE: Google Finance file)
(GE: Yahoo Finance file)
(GE: StockChart chart)
(GE: Investertech chart)
(GE: ADVFN Financial Data)
(GE: Value Line Report Jul. 20: next one is due Oct. 19)
United Technologies [GICS 20, Dow 30, Cara 100]
(UTX: Google Finance file)
(UTX: Yahoo Finance file)
(UTX: StockChart chart)
(UTX: Investertech chart)
(UTX: ADVFN Financial Data)
(UTX: Value Line Report Jul. 20: next one is due Oct. 19)
Coca Cola [GICS 30, Dow 30, Cara 100]
(KO: Google Finance file)
(KO: Yahoo Finance file)
(KO: StockChart chart)
(KO: Investertech chart)
(KO: ADVFN Financial Data)
(KO: Value Line Report Jul. 27: next one is due Oct. 26)
Kraft Foods [GICS 30, Dow 30]
(KFT: Google Finance file)
(KFT: Yahoo Finance file)
(KFT: StockChart chart)
(KFT: Investertech chart)
(KFT: ADVFN Financial Data)
(KFT: Value Line Report Jul. 27: next one is due Oct. 26)
Wal-Mart [GICS 30, Dow 30, Cara 100]
(WMT: Google Finance file)
(WMT: Yahoo Finance file)
(WMT: StockChart chart)
(WMT: Investertech chart)
(WMT: ADVFN Financial Data)
(WMT: Value Line Report Aug 3: next one is due Nov 2)
While it is important to have an understanding of the financial summaries of the companies you invest in, I don’t think you need to be an expert financial analyst to become a great trader. In fact, details often get in the way. A successful trader has a big picture understanding of the macro-economic, corporate fundamental, quantitative data series, and stock price and volume technical picture.
In other words you need to know a little about a lot of things rather than have an expert understanding of one and very little about the rest of the factors that impact a company and its stock price.
Something for newbies to think about:
With respect to investing in general for most people, I think if you focus on just six to ten stocks and the reports of the same one or two analysts for each, you will be less likely to miss the nuances. The greater depth of understanding of the companies will help you better analyze the price charts. In other words, you’ll be able to gain control of your investments rather than get stuck on the road to perdition, flipping from one salesperson’s pitch to another.
With the help of the free Dow 30 quarter-yearly reports from Value Line, it’s not difficult to pick those 6 to 10 stocks, keep the reports and your notes in a hard-copy binder, plus carefully selected items from other analysts you can find on the Web and print out for your files.
To each his own because putting in the hours to study companies and stocks that don’t interest you at all is not going to work out. For me, a six-sector mix of Dow 30 companies like Chevron (CVX), Boeing (BA), Disney (DIS), Walmart (WMT), Merck (MRK) and Intel (INTC) would do the trick.
As of August 3, 2012, these six stocks had an average market cap of $146.9 billion, an average RoE of 30.3, and average dividend yield of 2.71%, average Performance YTD and over 12 months of 15.89% and 34.73% respectively, an average beta of 0.873 (you sleep better), and an average PE multiple of 14.2 (vs Dow 30 average of ~17.5).
At times, all of these stocks will encounter operating and financial challenges, but on average if you buy to hold (as a core portfolio), adding to your positions at long-term cycle lows (Monthly price series data showing a RSI-7 under 30 and basing), writing puts at those entry points, and selling a bit and writing calls on the rest at long-term cycle highs (Monthly price series data showing a RSI-7 over 70 and peaking), then you will do well for Total Return (capital growth plus dividend and premium income) over 5-10-20 years.
And every three to five years or so, when there seems to be a market long-term cycle peak occurring, you might wish to revisit the composition of this list, possibly switching one of the stocks with a replacement of similar high quality but probably more current in terms of a growth story.
Also, try to understand what Value Line can do for you: For 1700 stocks in its universe, VL offers a Timeliness Ranking (6 to 12 month relative price outlook) and a Technical Ranking (3 to 6 month outlook) from 1 to 5.
But VL is much more than a ranking system. It’s a discipline. Every quarter year, the empirical data is laid out in a consistent presentation along with notes from the covering analyst. Together with services like StockCharts, Finviz and ADVFN, you will find that VL gives you the tools you need for successful trading and managing wealth.
It may take years, but it really is worth the time and effort to get to know the companies you trade. After a while, you’ll appreciate the price motion of each stock and, with more confidence, you’ll be able to go with the flow, selling when the market is chasing the price, and then letting the price come to you when they are trying to sell it, and you may want it.
In other words, do the homework to find the companies with very high quality and then put yourself into selling in a seller’s market and being a buyer in a buyer’s market, as the real estate people like to say. To seize the opportunities without undue risk, you need to be prepared, and this is how to go about it.
Don’t let a salesperson yank your chain with every new idea that is a hot story: stick to your knitting and your goals and objectives will be reached.
People sometimes ask me why I don’t sell my story to Financial Entertainment TV. But these same people don’t understand that common sense in the form advocated by Charles Dow, and repeated often by me, is not exciting enough for today’s media.
You see; I have been writing the same things for years. In the 2005 WIR-13, I republished my public Dow 30 diary from Week 32-1999: Aug 14 (10973.65):
For years we’ve made the case that the market is a game that plays people. Without enough self-discipline to control one’s emotions, an investor will never be successful. He or she will simply be conned by every ‘head fake’ and outright deception that Wall Street can serve up in their constant pursuit of greed… Every individual investor has to have a plan and to work that plan. We’d like our Dow 30 Journal to carry a guarantee of investment success, but that’s not possible. What is absolutely certain however is that with just two things ” facts and common sense ” anybody can take on Wall Street and win… At the turn of the century, Charles Dow in fact said: “The man who is prudent and careful in carrying on a store, factory or real estate business seems to think that totally different methods should be employed in dealing with stocks. Nothing is further than the truth.”
All of this I also wrote in Lessons From the Trader Wizard (2008), which has been published in an updated 2012 e-book version on Thursday July 26. Not only is this stuff not interesting to a TV producer (except maybe BNN); I’m not interested in selling myself to them. At the end of the day, none of those people do a positive thing for me or you. They are trying to stir up emotions and I’m trying to calm them. They’re like (snake) oil; I’m like water – at least as I see it.
Sector ETF Summary for the US equity market
The price performance tables that I show every day are for eleven GICS Sector Index Funds (ETF’s), including two for Technology (XLK and SMH), for a total of ten GICS sectors. They cover the full spectrum of the US equity market.
Table 1: Cara ETF List is sorted by price performance Week over Week (W/W), i.e. 1W%N.
You can do a table like Table 1 (below) by entering the following string into the Summary window at Investertech.com and then clicking on the link for Performance. You can also add more ETFs – up to 30 in total. For a list of components to many ETFs, go to the AMEX.com and NYSE.com web sites, and click on ETFs.
You can use this tool to set up personal watchlist charts by industry group and sub-groups.
Another chart you ought to be reviewing every week is the candleglance view from StockCharts.com:
Sector rotation is one study I spend hours doing every week.
For a summary chart view, this presentation from StockCharts will save you lots of time.
Once involved, you’ll drill down into the nuances of this next chart (link), looking at the cyclical reversals and trying to see the drivers.
The principles of sector rotation have been studied and written about for hundreds of years by many people. My work is based on the individual who mentored me in this subject and taught me more about investing and trading than any other, the late Ian Notley, my former associate. Notley is considered perhaps the finest trend and cycles analyst of the past 50 years. He was recruited to North America in the 1970’s by another friend of mine, Ian McAvity, editor of Deliberations, himself one of the world’s great trend and cycle analysts.
The technical analysis work of both Ian’s was inspired by E.S. Coppock.
Here’s the SPY Monthly, Weekly and Daily data charts:
SPY Monthly data:
SPY Weekly data:
SPY Daily data:
10 (energy: XLE)
15 (basic materials: XLB)
20 (industrial: XLI)
25 (consumer discretionary: XLY)
30 (consumer staples: XLP)
35 (healthcare: IYH)
40 (financial: XLF)
45 (technology, semiconductor: SMH)
50 (telecom: IYZ)
55 (utilities: XLU)
Individual US Sector ETFs and Stocks Review
Table 1 shows that for the past three months, the S&P 500 (SPY) has gained +0.07%. Over the past 12 months, there has been a gain of +10.45%. The Y/Y results are starting to look respectable; but it’s been a tough year for those of us who have been over-weighted Basic Materials and Energy (-4.9% and -4.5% respectively over 12 months).
I wrote previously in this space:
Trading got very choppy in the 2Q2012, and the commodity price-sensitive sectors (Energy XLE, Basic Materials XLB and Industrials/Transports XLI) stayed bearish. But after a double-bottom in June, there seems to be signs of a summer rally building… As opined previously in this space: “This week was more work in the cycle bottoming process. With the onset of Quantitative Easing (QE), I project a solid lift in equity prices in the next year… There are still some pundits who are claiming a bubble exists and it is now deflating, but they are flat-out wrong. Corporate earnings drive stock prices, and I have showed you the Price to Forward Earnings of the largest cap stocks in each sector of the US equity market, which are very low and clearly represent a long-term buying opportunity and not a cycle top… QE is now being ushered in. Liquidity is being added to the banks, which is being directed to the equity market.”
Three weeks ago I added, “We had been in a severe short-term Bear phase for all of May, illustrated by the charts showing successively lower highs and lower lows, but there has been a reversal to a new short-term Bull phase that started in early June… Long-only investors and bullish traders are now hoping to see a ten-week high in the S&P 500 later this week.” Then, two weeks ago the S&P 500 hit a high of 1380.39, and the close was 1362.66, both of which are the highest since the last week of April. One week ago, the S&P hit another high of 1390.7, which was the highest since April. The high this week was 1394.16, and the close 1390.99. So the Bull move, aka Summer Rally, continues.
Over past year, five sectors have beat the S&P 500 benchmark (+6.18%), led by Healthcare (IYH +18.20%), Consumer Staples (XLP +17.44%), Consumer Discretionary (XLY +15.96%), Technology (XLK +15.80%), and Utilities (XLU +15.78%).
In the past four weeks, Energy (XLE +6.26%) is by far the top performer, which is quite a turnaround after losing -4.54% over the past year.
With sector rotation and the extent of volatility affecting performance, you have to learn to trade. I repeat this statement every week.
Here’s the XLE Monthly, Weekly and Daily data charts:
XLE Monthly data:
XLE Weekly data:
XLE Daily data:
Table 2: Senior oil & gas equities
The ETF for Oiler stocks is XLE. The $WTIC Crude Oil contract (+$1.37/bbl and +1.52%) and the XLE shares (+0.31%) were both higher this week. The stocks lifted because the US Dollar plunged -1.18% on Friday, leading to a gain in XLE of +2.35% on the day, which more than made up for losses earlier in the week.
This week, XLE closed at 70.44.
Talisman (TLM +5.1% W/W) was a winner on the week, and also was up +16.1% a week ago.
But it was Friday when the most notable gains were made in Cdn stocks Canadian Natural Resources (CNQ +4.8% on the day) and Suncor (SU +4.0% on the day).
Here is the Daily chart of XLE (in solid blue with the 8-day EMA in dashed blue), and the $SPX in thin solid orange.
Here is the Weekly chart of XLE (in solid blue with the 8-week EMA in dashed blue), and the $SPX in thin solid orange.
TRIX and RSI are showing more bullishness ahead.
Three weeks ago I stated in this space: “The Daily and Weekly have given a new BUY ALERT but the Monthly would need 68.13. The price at present is 66.77.” Two weeks ago, I added: “We got that Monthly data BUY ALERT with the weekly close of 68.79 and the 8-month EMA of 68.57.” The price is now 70.44.
FD: This week, we are long APA, CVX, NFX, PBR, PDS, SLB, SU, TLM and XOM in the Growth portfolio accounts, with TLM our biggest position by a tad, and all those except PBR in the All-Weather. We are now about a 100% S&P sector weighting for Energy this week, a small drop from a week ago.
For All-Weather, we are in a much smaller individual position weighting because this account invests in more of a balance of equities, bonds, precious metals and cash, although recently we dropped our bond position to zero and significantly reduced our cash position.
Note that our equity positions are, by company policy, restricted to Cara 100 companies in the broad based portfolios.
Here is the current candleglance chart of 10 important Sector 10 components:
Here below is the list of Cara 100 companies in this sector along with their stock tickers. For the Energy (Oil & Gas industries) Sector, the market cap (Dec. 9, 2011) of the 12 Cara 100 stocks was $1.114 trillion. I’ll try to update this data once a quarter.
As you know by now, there is a difference between a company and a stock. At times, you can be invested in a great company but the stock is a disappointment.
A stock is a price set in the market. It could change minute to minute depending on various price drivers, some of which have little or nothing to do with the corporation. That price might be materially different that say a consensus valuation of enterprise value of the company, which in turn might be materially different than one company or individual might be prepared to pay to acquire the whole company.
But, first and foremost I believe in investing in the shares of the highest quality companies – just like I believe that we must choose our friends wisely. Track records like price trends tend to persist. For a Cara 100 company, I select only those that trade its shares on the NYSE or NASDAQ, which requires a high level of transparency and where the information is easy to come by. Most major Canadian companies and a great many international companies are dually listed on these exchanges in the US too. I try to build the Cara 100, which is where I invest, with an international flavor, which helps me diversify risk and also observe many different operating environments simultaneously, which also helps me better interpret the macro-economic data we get.
A Cara 100 company has to have a strong balance sheet and a strong Board of directors and management team, the CEO in particular. Compared to the peer group, the operating and net profit margins must be at or near the highest, the Return on Shareholder Equity up there as well, generally close to or above 20%. I need to see acceptable growth rates in revenues, cash flow, earnings, dividends and book value.
These figures are easy to get. FINVIZ.com does a good job of that.
As for the price data charts I find best, I like StockCharts.com.
Cara 100 Sector 10 (Energy) list:
APA Apache Corporation [GICS 10, Cara 100 V50]
CNQ Canadian Natural Resources [GICS 10, Cara 100 V50]
CVX Chevron Corp [GICS 10, Cara 100 V50]
CEO CNOOC [GICS 10, Cara 100 G50]
XOM Exxon Mobil Corp [GICS 10, Cara 100 V50]
NFX Newfield Exploration [GICS 10, Cara 100 G50]
NE Noble Corp [GICS 10, Cara 100 V50]
PBR Petroleo Brasileiro SA [GICS 10, Cara 100 V50]
PDS Precision Drilling [GICS 10, Cara 100 G50]
SLB Schlumberger [GICS 10, Cara 100 V50]
SU Suncor Energy Inc [GICS 10, Cara 100 G50]
TLM Talisman Energy [GICS 10, Cara 100 G50]
Here’s the XLB Monthly, Weekly and Daily data charts:
XLB Monthly data:
XLB Weekly data:
Table 3: Senior Basic Materials:
XLB Daily data:
The ETF for Basic Materials stocks is XLB. These are the producers of commodities and related products.
This week, XLB gained +0.03% W/W (a penny earned!) to close at 35.12, which was 3rd worst sector performer, after being the worst a week ago.
Over the past three months, XLB is down -3.22%, under-performing the S&P 500, which gained +0.07%. Over 12 months, XLB has dropped -4.82% (worst of the 10 sectors) while the S&P 500 gained +10.45%. In the past four weeks, XLB has dropped -0.09%, which is worst of the ten sectors and the only one to lose ground.
With the US Dollar plunging on Friday, most of the gains that were made in this sector this week were made on Friday. Gerdau Steel (GGB) was up +2.8% W/W but +4.3% on Friday.
Also on Friday, Fibria Celulose (FBR) and ArcelorMittal (MT) made gains of +5.4% and +7.0% on Friday. FBR and MT had gained +6.1% and +7.1% respectively the previous week.
As noted a week ago, Dow Chemical (DOW) had dropped into our Accumulation Zone and we added some. But this week DOW gained +2.58% W/W all because of the gain of the same % on Friday.
Here is the Daily chart of XLB (in solid blue with the 8-day EMA in dashed blue), and the $SPX in thin solid orange.
Here is the Weekly chart of XLB (in solid blue with the 8-week EMA in dashed blue), and the $SPX in thin solid orange.
A week ago I noted in this space: “I do believe that traders are concerned about the economic state of the Union, and are not yet ready to bid up the stocks in this sector. Besides, there have been some operating disappointments in the major base metal and gold metal miners that have tugged at prices here.”
I’ll tell you when I think that outlook has changed.
FD: CEF is our biggest All-Weather position (along with Physical Silver Trust PHYS), and we increased our holdings significantly recently. We also hold several goldminers, plus copperminer FCX. We now hold BHP (BHP), DOW (DOW), Potash (POT), Teck (TCK), and Tenaris (TS) in this sector, in the Growth portfolio accounts, and the same except no FBR in the All-Weather.
As I have repeated for several weeks: “Like Energy, the stocks in this Basic Materials sector are the most cyclical in nature meaning that as demand and supply changes, the prices rise and fall.”
As at Dec. 9, 2011, the total market cap of the 17 Cara 100 stocks in this sector was $567.3 billion. Of course, over 50% of the total is attributed to two stocks, BHP and VALE.
Cara 100 Sector 15 (Basic Materials) list:
BHP BHP Billiton Ltd [GICS 15, Cara 100 V50 G50]
CCJ Cameco Corp [GICS 15, Cara 100 G50]
CEF Central Fund [GICS 15, Cara 100 V50]
VALE Companhia Vale Do Rio [GICS 15, Cara 100 G50]
DOW Dow Chemical Co [GICS 15, Cara 100 V50]
FBR Fibria [Votorantim] Celulose [GICS 15, Cara 100 G50]
FCX Freeport McMoRan [GICS 15, Cara 100 G50]
GGB Gerdau SA [GICS 15, Cara 100 G50]
GG Goldcorp Inc [GICS 15, Cara 100 G50]
MUX McEwen Mining [GICS 15, Cara 100 G50]
NGD New Gold Inc [GICS 15, Cara 100 G50]
NUE Nucor Corp [GICS 15, Cara 100 V50]
POT Potash Cp of Saskatchewan [GICS 15, Cara 100 G50]
SLW Silver Wheaton Corp [GICS 15, Cara 100 G50]
SVM Silvercorp Metals [GICS 15, Cara 100 G50]
TCK Teck-Cominco Ltd [GICS 15, Cara 100 G50]
TS Tenaris SA [GICS 15, Cara 100 G50]
Here is the current candleglance chart of 10 important Sector 15 components:
Here’s the XLI Monthly, Weekly and Daily data charts:
XLI Monthly data:
XLI Weekly data:
XLI Daily data:
Table 4: Senior capital goods makers and transportation:
The ETF for Industrial and Transportation stocks is XLI. These are the users of commodities and related products as well as the freight transportation systems that move commodities and business packages to markets around the world.
This week XLI gained +0.42% W/W to close at 36.16. There was a gain of +2.18% on Friday.
A big reason was the $USD, which dropped -1.18% on Friday.
XLI had gained +2.19% on the previous Friday.
Some traders understand that revenue prospects for this sector increase as the US Dollar weakens. As I pointed out in this space several weeks ago: “QE would help. Even without QE, the Dollar is over-bought here.”
Over the past three months, XLI is down -1.82%, under-performing the S&P 500, which was up +0.07%. There has been a gain of +7.75% over the past year, against a gain in the S&P 500 of +10.45%. You might expect this with the relative strength in the $USD over the past year.
FD: We hold ABB, CAT, CMI, JOY and UTX in both the All-Weather and Growth portfolios.
One of our holdings, Cummins (CMI), which dropped -8.0% and -2.9% for two previous weeks before gaining +7.6% one week ago was up a further +6.9%this week.
Big winners on Friday were Fluor (FLR), Textron (TXT) and ABB (ABB), which gained +5%, +5% and +4.6% on the day.
Here is the Daily chart of XLI (in solid blue with the 8-day EMA in dashed blue), and the $SPX in thin solid orange.
Here is the Weekly chart of XLI (in solid blue with the 8-week EMA in dashed blue), and the $SPX in thin solid orange.
These charts plus the Monthly all are bullish, and will likely stay that way as long as the US Dollar trends lower.
As noted here three weeks ago, “Like the other sector charts in the economically-sensitive segment of the market, XLI needs another bullish follow-through on Monday to continue the next Bull phase of the market.” Two weeks ago I reported: “Friday’s loss shows the vulnerability to the strong $USD.” Then one week ago, the $USD dropped a lot, which was followed by more weakness this week.
Giving a weighting to each sector is not reliable as during weak periods we often hold some puts as a hedge.
As at Dec. 9, 2011, the total market cap of seven Cara 100 stocks in this sector was $257.5 billion. Almost 90% of the total is attributed to four stocks, UTX, MMM, BA and ABB.
Cara 100 Sector 20 (Industrials and Transports) list:
MMM 3M [GICS 20, Cara 100 V50]
ABB ABB Ltd [GICS 20, Cara 100 V50]
BA Boeing Co [GICS 20, Cara 100 V50]
CAT Caterpillar [GICS 20, Cara 100 G50]
CMI Cummins Inc [GICS 20, Cara 100 V50]
ERJ Embraer-Empresa Brasil [GICS 20, Cara 100 G50]
JOY Joy Global [GICS 20, Cara 100 G50]
PAYX Paychex Inc [GICS 20, Cara 100 V50]
UTX United Technologies, [GICS 20, Cara 100 V50]
The Industrials, Base Materials and Energy sectors are typically the three sectors that are most inversely correlated to the US Dollar.
The US, Swiss and Brazilian companies in the Industrial sector, like the others, get most of their income from abroad. They are also producers and/or transporters of commodities, which increase in price as the Dollar falls.
Here is the current candleglance chart of 10 important Sector 20 components:
To check on general and detailed info for the Industrials group, the Thomson Reuters service is a good one:
Here is the link to all sectors and industries as classified by Reuters:
Here’s the XLY Monthly, Weekly and Daily data charts:
XLY Monthly data:
XLY Weekly data:
XLY Daily data:
Table 5: Senior consumer discretionary equities
Consumer stocks are organized by the S&P industry classification system as Discretionary Spending, Staples (the ‘must have’ consumer purchases) and Healthcare (also ‘must have’). Most income here is from the US consumer – in US Dollars – so there is less of an inverse correlation to the US Dollar as we saw in Energy, Basic Materials and Industrials/Transports.
The ETF for Consumer Discretionary stocks is XLY. This week XLY was up just +0.11% W/W to close at 44.33, after a big +1.98% gain on Friday. There was also a gain of +1.98% on the previous Friday.
Amazon.com (AMZN was off -0.99% W/W. A week ago I joked that the stock had lifted +7.6% on Friday after it started to sell the “Lessons From the Trader Wizard” e-book the previous day. Anyway, this week was a consolidation one for AMZN.
With the big loss in the US Dollar on Friday, most of the stocks I would expect to do well did: Toyota (TM) was up +6.5% after Friday’s gain of +5.2%. Las Vegas Sands (LVS) was up +5.4% W/W after raking in +5.0% on Friday. Brunswick Corp (BC) was up +5.5% on Friday.
A week ago, I reported: “Big winner in this sector this week was the Joe Fresh’d JC Penny (JCP +11.5% W/W).” This week JCP dropped -9.1% W/W but I didn’t see what caused that other than the prior week’s gain was likely a pump and dump play.
Over the past three months, XLY is down -3.21%, under-performing the S&P 500, which has gained +0.07%. However, there has been a gain of +15.96% over the past year while the S&P 500 has gained +10.45%.
Here is the Daily chart of XLY (in solid blue with the 8-day EMA in dashed blue), and the $SPX in thin solid orange.
Here is the Weekly chart of XLY (in solid blue with the 8-week EMA in dashed blue), and the $SPX in thin solid orange.
FD: We hold Costco (COST), Disney (DIS), Nike (NKE) and Whirlpool (WHR) in the Growth and all but DIS in the All-Weather portfolios. We are presently at ~64% S&P weighting in this sector.
As at Dec. 9, 2011, the total market cap of the 15 Cara 100 stocks in this sector was $572.6 billion. Over 50% of the total is attributed to three stocks, TM, MCD and AMZN.
Cara 100 Sector 25 (Consumer Discretionary) list:
AMZN Amazon.com [GICS 25, Cara 100 G50]
BBBY Bed Bath & Beyond [GICS 25, Cara 100 G50]
BC Brunswick Corp [GICS 25, Cara 100 G50]
CCL Carnival Corp [GICS 25, Cara 100 G50]
COST Costco [GICS 25, Cara 100 V50]
DIS Disney Co [GICS 25, Cara 100 V50]
KSS Kohl’s Corp [GICS 25, Cara 100 V50]
MCD McDonalds Corp [GICS 25, Cara 100 V50]
NKE Nike Inc [GICS 25, Cara 100 G50]
SNA Snap-On Inc [GICS 25, Cara 100 G50]
TGT Target Corp [GICS 25, Cara 100 V50]
TTM Tata Motors [GICS 25, Cara 100 G50]
TM Toyota Motor Corp [GICS 25, Cara 100 V50]
WHR Whirlpool Corp [GICS 25, Cara 100 V50]
Here is the current candleglance chart of 10 important Sector 25 components:
Here’s the XLP Monthly, Weekly and Daily data charts:
XLP Monthly data:
XLP Weekly data:
XLP Daily data:
Table 6: Senior consumer staples equities
The ETF for Consumer Staples stocks is XLP. As the purchases of consumer staples are considered must-have, the normal swings in economic growth and contraction do not affect these companies as much as say the Consumer Discretionary stocks.
This week, XLP gained +0.39% W/W to close at 35.75. The gain on Friday was +1.68%.
This ETF hit an all-time high again this week, on Monday, at 35.82.
Over the past three months, XLP is up +4.08%, out-performing the S&P 500, which has been up +0.07%. There has been a market leading gain of +17.44% over the past year while the S&P 500 has gained +10.45%.
The only notable mover this week was Kraft (KFT), which gained +2.8% W/W after gaining +4.0% on Friday.
Here is the Daily chart of XLP (in solid blue with the 8-day EMA in dashed blue), and the $SPX in thin solid orange.
Here is the Weekly chart of XLP (in solid blue with the 8-week EMA in dashed blue), and the $SPX in thin solid orange.
FD: We hold KO, SBUX, WFM and WMT in both the Growth and All-Weather portfolios in this sector, plus PG in All-Weather.
As at Dec. 9, 2011, the total market cap of the 8 Cara 100 stocks in this sector was $773.8 billion. About 80% of the total is attributed to four stocks, WMT, KO, PG, and ABV.
Cara 100 Sector 30 (Consumer Staples) list:
ABV AmBev (Companhia de Bebidas) [GICS 30, Cara 100 V50]
KO Coca-Cola [GICS 30, Cara 100 V50]
DEO Diageo plc (ADR) [GICS 30, Cara 100 V50]
PG Procter & Gamble Co [GICS 30, Cara 100 V50]
SBUX Starbucks Corp [GICS 30, Cara 100 G50]
WAG Walgreen Company [GICS 30, Cara 100 V50]
WMT Wal-Mart Stores Inc , [GICS 30, Cara 100 V50]
WFM Whole Foods Market Inc [GICS 30, Cara 100 G50]
Here is the current candleglance chart of 10 important Sector 30 components:
Here’s the IYH Monthly, Weekly and Daily data charts:
IYH Monthly data:
IYH Weekly data:
IYH Daily data:
Table 7: Senior healthcare equities
The ETF I use for Healthcare stocks is IYH.
This week, even with a gain on Friday of +1.19%, IYH was still down -0.92% W/W to close at 80.48.
The multi-year high of 81.41 set a week ago Friday was not exceeded this week. The high this week was 81.12 on Monday.
Over the past three months, IYH is up +3.35%, solidly out-performing the S&P 500, which has been up +0.07%. There has been a sector best gain of +18.20% over the past year while the S&P 500 has gained +10.45%.
Here is the Daily chart of IYH (in solid blue with the 8-day EMA in dashed blue), and the $SPX in thin solid orange.
Here is the Weekly chart of IYH (in solid blue with the 8-week EMA in dashed blue), and the $SPX in thin solid orange.
FD: We presently hold ABT, CELG, GILD and MRK in both the All-Weather portfolios and the Growth portfolios.
As at Dec. 9, 2011, the total market cap of the nine Cara 100 stocks in this sector was $867.8 billion. Of these, the smallest two are AET, with a market cap of $14.4 Billion and Gilead Sciences at $29.3 B. Five of the nine are over $100 B in market cap.
Cara 100 Sector 35 (Healthcare) list:
ABT Abbott Laboratories [GICS 35, Cara 100 V50]
AET Aetna Inc [GICS 35, Cara 100 G50]
BMY Bristol Myers Squibb Co [GICS 35, Cara 100 V50]
GILD Gilead Sciences [GICS 35, Cara 100 G50]
GSK GlaxoSmithKline plc (ADR) [GICS 35, Cara 100 V50]
JNJ Johnson & Johnson [GICS 35, Cara 100 V50]
MRK Merck [GICS 35, Cara 100 V50]
NVS Novartis [GICS 35, Cara 100 V50]
PFE Pfizer [GICS 35, Cara 100 V50]
Here is the current candleglance chart of 10 important Sector 35 components:
Here’s the XLF Monthly, Weekly and Daily data charts:
XLF Monthly data:
XLF Weekly data:
XLF Daily data:
Table 8: Senior financial company equities
The ETF for Financial stocks is XLF. If you want to check on strictly banking stocks, the $BKX Banking industry Index is what you want. For Insurance, try $INSR.
A week ago, the head of the European Central Bank stated that the ECB would help the banks. He said that after the close on the Wednesday, which led to much higher stock prices for the Banks on Thursday and Friday.
This week, other political and national bank leaders sang the same tune that the Euro would be preserved, and the countries would pay their sovereign debt (which are the assets of the banks) when they come due.
Earlier in the week, the market enthusiasm for these words seemed to wane but then came Friday when yields dropped and Euro sovereign debt prices lifted. Ergo: European bank stocks soared on Friday. On that day alone, Deutsche Bank (DB) and UBS (UBS) gained +10.1% and +5.0% respectively.
You can tell though when the financial condition of Europe strengthens when you see Morgan Stanley (MS) up +5.8% on Friday, +2.2% W/W and +7.8% over two weeks. MS had dropped -9.1% the prior week.
A week ago I noted: “The biggest in Europe, UBS (UBS) and Deutsche Bank were off -5.1% and -4.9% respectively a week ago, but this week were up +8.0% and +2.4%.” This week, with those big gains on Friday, DB gained +1.43% but UBS still lost -1.73%.
Overall, even with the gain of +2.35% on Friday, the XLF had a modest gain of +0.41% W/W to close at 14.82, which was a six cent gain.
So traders still need to be convinced that the recent bump is sustainable.
Deutsche Bank is still the next bank to come under pressure on the LIBOR bid-rigging front, which has been holding back the stock.
Over the past three months, XLF is down -3.39%, under-performing the S&P 500, which has been up +0.07%. There has been a gain of +2.77% over the past year while the S&P 500 has gained +10.45%.
The big winner W/W was the India bank HDFC (HDB +4.2% W/W). This bank has made a significant gain of +32.7% YTD, which is the best of those I follow.
FD: Mastercard (MA) is our only position in the Financial sector, and we are now just ~6.6% invested to the S&P weighting for Financials, down this week from ~14% and from two weeks ago at ~26%.
Here is the Daily chart of XLF (in solid blue with the 8-day EMA in dashed blue), and the $SPX in thin solid orange.
Here is the Weekly chart of XLF (in solid blue with the 8-week EMA in dashed blue), and the $SPX in thin solid orange.
As noted previously, “Traders are getting impatient waiting for QE3” but at least they now smell it. At least they did until the FOMC reported, and now they think the Fed plan is more twisting and shouting than easing.
But, we shall see.
As at Dec. 9, 2011, the total market cap of the seven Cara 100 stocks in this sector was $307.2 billion. Of these, the smallest three are SCHW, and the two Indian banks IBN and HDB.
Cara 100 Sector 40 (Financials) list:
BBD Banco Bradesco SA (ADR) [GICS 40, Cara 100 V50]
BNS Bank of Nova Scotia (USA) [GICS 40, Cara 100 V50]
HDB HDFC Bank [GICS 40, Cara 100 G50]
IBN ICICI Bank [GICS 40, Cara 100 G50]
MA Mastercard [GICS 40, Cara 100 G50]
RY Royal Bank of Canada (USA) [GICS 40, Cara 100 V50]
SCHW Charles Schwab Corp [GICS 40, Cara 100 G50]
TD Toronto Dominion Bank (USA) [GICS 40, Cara 100 V50]
Here is the current candleglance chart of 10 important Sector 40 components:
The ETF for Technology stocks is XLK. Because the Semi-conductor manufacturers are a technology that is needed in the manufacture of most equipment and in most manufacturing processes today, I think it is the most important technology. So; I also focus on the Semi-conductor industry group, and the ETF for that is SMH.
A week ago I reported: “SMH (+4.83% W/W) and XLK (+1.32%) received a big bump this week after comments from the ECB.”
This week SMH gained a further +1.51% W/W, while XLK gained a sector leading +1.41%. The gains on Friday were +2.63% and +1.97% respectively, so the whole week was made on Friday.
With risk-on money flowing into prices, the SMH is usually going to lead XLK, and often the broad market. This week and last, both of these occurred.
Apple (AAPL +5.2% W/W) was one of the leaders this week.
There is much chatter among the talking heads about the upcoming iPhone 5, and about a possible stock split.
Over the past three months, XLK is down -0.51%, under-performing the S&P 500, which up +0.07%. There has been a gain of +15.80% over the past year while the S&P 500 has gained +10.45%.
Over the past three months, SMH is down -3.81%. There has been a gain of +4.32% over the past year.
Here is the Daily chart of XLK (in solid blue with the 8-day EMA in dashed blue), and the $SPX in thin solid orange.
Here is the Weekly chart of XLK (in solid blue with the 8-week EMA in dashed blue), and $SPX in thin solid orange. Like many other sectors, it’s now bullish.
FD: We presently hold AAPL, ATVI, CSCO, GOOG, IBM, INFY, INTC, JNPR, MSFT, ORCL and QCOM in both the All-Weather and Growth portfolios, in this sector. We moved to ~112% S&P weighted in Tech, from ~98% a week ago and ~78% two weeks ago.
Our holdings are restricted to Cara 100 companies.
A former interest of mine, Suntech Power (STP), was crushed -40.1% this week. The stock is now down -86.6% over one year.
There are significant indications of possible fraud. Thank goodness I didn’t get too close to this one.
As at Dec. 9, 2011, the total market cap of the 17 Cara 100 stocks in this sector was $1.625 trillion. Of these, there are seven over $100 billion in market cap each. There are also seven under $20 billion.
Cara 100 Sector 45 (Technology) list:
AAPL Apple Inc [GICS 45, Cara 100 G50]
ADBE Adobe Systems Inc [GICS 45, Cara 100 G50]
ATML Atmel Corp [GICS 45, Cara 100 G50]
ATVI Activision Inc [GICS 45, Cara 100 G50]
BIDU Baidu [GICS 45, Cara 100 G50]
BRCM Broadcom Corp [GICS 45, Cara 100 G50]
CSCO Cisco Systems Inc [GICS 45, Cara 100 V50][added to DJIA June2009]
CTSH Cognizant Technology [GICS 45, Cara 100 G50]
GOOG Google [GICS 45, Cara 100 G50]
IBM IBM [GICS 45, Cara 100 G50]
INFY Infosys Technologies Ltd [GICS 45, Cara 100 G50]
INTC Intel Corp [GICS 45, Cara 100 V50]
JNPR Juniper Networks [GICS 45, Cara 100 G50]
MSFT Microsoft [GICS 45, Cara 100 V50]
ORCL Oracle [GICS 45, Cara 100 G50]
QCOM Qualcomm Inc [GICS 45, Cara 100 G50]
SNDK SanDisk Corp [GICS 45, Cara 100 G50]
Here is the current candleglance chart of 10 important Sector 45 components:
Here is the current candleglance chart of 10 important Semi-conductor stock components:
Here’s the SMH Monthly, Weekly and Daily data charts:
SMH Monthly data:
SMH Weekly data:
SMH Daily data:
Here’s the XLK Monthly, Weekly and Daily data charts:
XLK Monthly data:
XLK Weekly data:
XLK Daily data:
Table 9: Senior technology equities
The ETF for I use for Telecom stocks is IYZ.
This week, IYZ was quiet, advancing just +0.21% W/W on a gain of +0.17% on Friday. The close was 23.67, a gain of five cents.
The prior week IYZ had soared +3.37%, and was the 2nd best sector performer that week.
This week AT&T (T +1.2%) and Verizon (VZ -0.98%) went in opposite directions. The big winner again was Nokia (NOK), which gained +12.3% W/W and is now up +38.6% over two weeks. That stock is still down -53.9% YTD though.
Over the past three months, IYZ is up +8.08%, out-performing the S&P 500, which has been up just +0.07% and out-performing every other sector. This move has been mostly to do with traders seeking income after bond prices got too dear. The dividend yield on Verizon (VZ) and AT&T (T) are +4.5% and +4.7% respectively. Uncle Sam cannot match that.
IYZ now, finally, has had a gain of +3.18% over the past year while the S&P 500 has gained +10.45%. It was in a large losing position previously. As noted repeatedly, most of “that loss took place in July 2011, so in August the Y/Y comparables will look very good”.
Here is the Daily chart of IYZ (in solid blue with the 8-day EMA in dashed blue), and the $SPX in thin solid orange.
Here is the Weekly chart of IYZ (in solid blue with the 8-week EMA in dashed blue), and the $SPX in thin solid orange.
FD: We continue to hold only MBT in the All-Weather and Growth portfolios for this sector.
As at Dec. 9, 2011, the total market cap of the 3 Cara 100 stocks in this sector was $147.8 billion. Of these, Telefonica (TEF) has 83.4 billion in market cap, which is smaller than Verizon and about half the size of AT&T’s market cap.
Cara 100 Sector 50 (Telecom) and Sector 55 (Utilities) list:
CHA China Telecom Corp [GICS 50, Cara 100 V50]
MBT Mobile TeleSystems (ADR) [GICS 50, Cara 100 G50]
TEF Telefonica SA [GICS 50, Cara 100 G50]
EXC Exelon Corp [GICS 55, Cara 100 V50]
TRP TransCanada Corp [GICS 55, Cara 100 V50]
Here is the current candleglance chart of 10 important Sector 50 components:
Table 14: Telecom
Here’s the IYZ Monthly, Weekly and Daily data charts:
IYZ Monthly data:
IYZ Weekly data:
IYZ Daily data:
The Utilities sector ETF is XLU.
This week, XLU lost -0.60% W/W, and closed the week at 37.86, which was 2nd worst performing sector.
However, an all-time high of $38.54 was hit on Wednesday this week.
A week ago I reported: “The sector leader this week was Public Service Enterprise Group (PEG +2.8% including a gain of +1.5% on Friday when most stocks were getting pumped).” This week PEG was the biggest loser in my list, dropping -3.3% W/W.
The prior week was simply ‘pump and dump’. On Tuesday morning the company reported earnings that were much lower than the prior year’s quarter and that missed consensus estimates.
FD: For our portfolios, we only hold EXC in this sector. When the North American economy starts to roll again, and when Congress gets around to approving the politically-sensitive pipeline of this company, we will also add TransCanada (TRP). And, for the record, we hold almost no EXC in the Growth portfolio accounts.
Over the past three months, XLU is up +6.59%, significantly out-performing the S&P 500, which has been up +0.07%. There has been a gain of +15.78% over the past year while the S&P 500 has gained +10.45%.
Like the Telcos, the move into Utilities was mostly one of seeking a high dividend yield as a counter to low bond yields.
Here is the Daily chart of XLU (in solid blue with the 8-day EMA in dashed blue), and the $SPX in thin solid orange.
Here is the Weekly chart of XLU (in solid blue with the 8-week EMA in dashed blue), and the $SPX in thin solid orange. This chart shows a continuous trend northward.
Table 12: US Utilities
Here’s the XLU Monthly, Weekly and Daily data charts:
XLU Monthly data:
XLU Weekly data:
XLU Daily data:
Here is the list of North American Utilities that I follow:
AEP D DUK ED EXC FE NEE NGG PCG PEG SO TRP
For study purposes, there is a good mix of electric (AEP, D, DUK, FE, NEE and SO), gas (NGG, TRP) and diversified (ED, EXC, PCG, PEG) utilities.
Here is the current candleglance chart of 10 important Sector 55 components:
Bonds & Yields Review
Wall Street traders no longer view the Treasuries as income instruments. They trade them like penny stocks – only there is significantly less margin required by Humungous Bank & Broker (HB&B). lol
Of course, there is not much default risk to HB&B because they always have a buyer in the Fed ready to take them off the hook. That is not so funny.
Yields this week on the 5-, 10- and 30-year Treasuries were up +1, +2 and +2 basis points (bp) to 0.66%, 1.56%, and 2.64% respectively. The yield on the 2-year dropped -1 bp to 0.23%.
Because of Friday’s move into bonds in Europe, the US Bonds were weaker again this week.
Here is the Econoday write-up on Bonds this week:
One of the key US Treasury prices is the TLT (average 20-year Treasury fund). A long time ago, these bonds ceased being income instruments; but, with a -0.28 beta, they do hedge portfolio risk for some (very, very long-term oriented) traders, and the counter-cyclicality to the S&P 500 is obvious from the chart below.
As there has been a lot of volatility in bond prices in the past couple weeks, here is the Hourly chart of TLT (in solid blue with the 8-hour EMA in dashed blue) with the inversely correlated S&P 500 ($SPX) in the thin solid orange line.
Here is the Weekly chart of TLT (in solid blue with the 8-week EMA in dashed blue) with the inversely correlated S&P 500 ($SPX) in the thin solid orange line.
I will reiterate that charts of TLT show that traders are exposed to a blow-off top or at the very least a significant correction. It’s just a matter of time as the Fed has little ammunition remaining. Their speeches amount to nothing more than buying time for the economy to get rebounding so that the fiscal dilemma is relieved somewhat.
Table 10: US Treasury Yields
|Maturity||Yield||Yesterday||Last Week||Last Month|
|Maturity||Yield||Yesterday||Last Week||Last Month|
|Maturity||Yield||Yesterday||Last Week||Last Month|
Here is the $USB 30-year Treasury Bond chart.
US Bond Funds — Interactive Monthly Data Charts SHY Monthly data series chart:
IEF Monthly data series chart:
TLT Monthly data series chart:
AGG Monthly data series chart:
LQD Monthly data series chart:
TIP Monthly data series chart:
SHY Weekly data series chart:
IEF Weekly data series chart:
TLT Weekly data series chart:
AGG Weekly data series chart:
LQD Weekly data series chart:
TIP Weekly data series chart:
SHY Daily data series chart:
IEF Daily data series chart:
TLT Daily data series chart:
AGG Daily data series chart:
LQD Daily data series chart:
TIP Daily data series chart:
Table 11: Interest-sensitive securities
Some people think this 11-minute video is a good basic explanation of the bond market:
Despite a huge +2.10% gain on Friday, the commodities index ($CRB) gained a small +0.36% this week, to close at 300.69.
So far, as the US dollar has dropped a fair bit over the past two weeks, the $CRB has been, until Friday, surprisingly quiet.
The index may have been weaker than expected this week because Copper was weak.
I have written in this space previously: “As long as the US Dollar and US Bonds are rising, don’t expect a turnaround in commodity prices. But at some point, trader sentiment will change… To repeat: the question now is whether or not a new round of central bank QE will push commodity prices higher or at least stabilize them.”
To repeat: “QE, in fact, is not directed to the economy but to addressing liquidity issues in the financial system, which crop up from time to time when counter-parties in the banking system either don’t trust each other, i.e., when the credit of one party drops substantially below that of the other. That happened recently in the case of the Spanish and Italian banks.”
Here is the Daily data chart of $CRB (solid blue line with 8-day EMA in thin dashed blue) vs S&P 500 Index (solid thin orange line).
Although I use the $CRB (Reuters/Jeffries Index), principally because it’s the oldest, there are many commodity indexes: http://www.crbtrader.com/crbindex/ • Astmax Commodity Index(AMCI) • Commin Commodity Index • Dow Jones-AIG Commodity Index • Goldman Sachs Commodity Index • Reuters/Jefferies CRB Index • Rogers International Commodity Index • Standard & Poor’s Commodity Index • NCDEX Commodity Index • Deutsche Bank Liquid Commodity Index (DBLCI) • UBS Bloomberg Constant Maturity Commodity Index (CMCI)
Here is a link to an article that discusses the major ones that have been around for a while: http://www.rogersrawmaterials.com/overviewandanalysis.PDF
Here is a current price summary of the heaviest weighted commodities contracts: http://money.cnn.com/data/commodities/
These indexes change their component weightings perhaps annually or even monthly, for example: http://www.seekingalpha.com/article/43586-the-new-generation-of-diversif… http://tinyurl.com/a5myfj
This week the West Texas Intermediate Crude contract ($WTIC) was up +$1.37/bbl (+1.52to close at 91.41. But this week there was a gain of $4.01/bbl on Friday (+4.59%) that made the week.
Oil prices lifted when the US Dollar sank -1.18% on Friday.
The hi-lo for the week was 91.74-86.92 vs 91.64-86.84 the prior week, which was almost a copy.
Here’s the Weekly data chart of $WTIC in solid blue vs the S&P 500 Index in solid thin orange.
To reiterate from a week ago: “I think this is a bullish chart, but remember this is Presidential election campaign season and don’t put it past Obama to start talking of a release of Crude Oil from the Strategic Petroleum Reserves… Crude Oil is a political football and this year is a big game for the US. But Crude Oil is a consumable, so supply can only be manipulated so much.”
Using slightly different prices, Econoday summed up this week in the Crude Oil market as one that pushed up prices resulting from increased tension in the Middle East.
The sector index for the oiler company stocks (XLE) was up +0.31% W/W after a gain of +2.35% on Friday.
Here is the e-miNY Dec-07 Crude Oil chart.
Gold & Precious Metals Review
The gold market
This week, $GOLD dropped -$13.70/oz (-0.85% W/W) to $1606.20. There was a gain of +$12.40/oz (+0.78%) on Friday.
For the past four to eight weeks, noting the widespread pessimism, I noted: “The gains and losses have amounted to nothing of significance.”
The high-low for the week was 1631.60-1586.30 vs 1628.60-1562.00 one week ago and 1598.80-1567.20 two weeks ago. The market is firming, albeit a little at a time.
To repeat: “I believe the trend is up. Usually when there is a trend reversal in Precious Metal markets, the causative factor is connected to monetary authorities, i.e., either central bankers or government leaders and finance ministers. These past few weeks, the authorities have paved the roads with quantitative easing, lower interest rates and extension of the duration of sovereign bonds on their balance sheets, [but they have not given the matter much publicity]. In other words, a yellow brick road is in the making. There is little else these authorities can do.”
That Yellow Brick Road happens to be paved on the continuous stream of deficits and debts run up by all the major country governments.
Here is the Daily data charts of $GOLD vs US Dollar index ($USD), not $SPX, in the overlaid solid orange line:
Here is the Weekly data charts of $GOLD vs US Dollar index ($USD), not $SPX, in the overlaid solid orange line:
The Weekly and Daily data charts are bullish, and the Monthly chart would turn bullish once the price lifts above the 8-month EMA (presently 1623.14), which is near by.
Here is the Monthly data charts of $GOLD vs US Dollar index ($USD), not $SPX, in the overlaid solid orange line:
Projecting the ten-year trend a year forward, you could see 2100 is possible.
To repeat: “When the trend turn does happen, it will climb one heck of a wall of worry.”
Yes, I remain a long-term Gold Bull. We have a large and heavily over-weighted position in both the Growth and All-Weather account portfolios, which admittedly has hurt our short-term performance. But I believe we are part of a group called “the strong hands” – the ones who are not held back by debt, but stronger because others are.
In the All Weather portfolio we are over-weighted in the precious metal physical (CEF and PHYS) partly to balance the portfolio beta and also for insurance against a failure in the banking system or perhaps a major war. But mostly, it’s a trade put on because the Fed rates are almost zero and the inflation rates, while low, are much higher than the Fed rate.
That means negative real rates, which is a classic long-term buy situation for precious metals. Of course this is also a time when the Interventionists want to make you think there is no problem at their end.
Recently my company was approved as an Authorized Dealer of the BMG BullionBar Program. When I have some time to work on it, my website will reflect this.
I also plan to sell rare Diamonds in bags of $100,000 or more because the price increase has been constant over 5-, 10-, 15- and 20-years. Of course, it takes considerable expertise to purchase inventory that is well priced for growth. Very few people are up to that task. Also, the new website will reflect this service as well.
Here is the current candleglance chart of 10 important precious metals and copper market components:
The silver market
$SILVER gained +$0.06/oz (+0.22% W/W) this week to close at $27.74/oz.
Here is the Weekly data chart of $SILVER in the solid blue line (with the 8-week EMA in dashed thin blue), and the $USD in the thin solid orange line.
Patience is required.
As an active trader, I usually watch the Sydney and London miners overnight to give me a heads-up as to where prices will be at 9:30am ET in the US and Cdn market.
I also watch the action of all the major precious metals and metals, and the related stocks, before I come to a conclusion on any one of them. As I see it, the inevitability of QE3 leads me to regard the price drop as a buying opportunity.
Here is the current candleglance chart of 10 important precious metals and copper market components:
The platinum market
This week $PLAT dropped -$3.00/oz (-0.25% W/W). The close was $1404.50.
Here is the Weekly data chart of $PLATINUM in the solid blue line (with the 8-week EMA in dashed thin blue), and the $USD in the thin solid orange line.
$PLAT (1404.50) has lifted over the 8-day EMA (1403.68), but the 8-week EMA (1430.97) is still a bit away. If the price surpasses that, it ought to rally a lot, and, if so, GOLD and SILVER and PALLADIUM will also likely be in rally mode.
Here is a list of PLAT/PALL stocks to watch:
ANO Anooraq Res.
ELR.TO Eastern Platinum
JLP.L Jubilee Platinum
NKP.AX Nkwe Platinum
PDL.TO North American Palladium
PLA.AX Platinum Australia
PLG Platinum Group Metals
NKL.V Prophesy Platinum Corp
The palladium market
This week $PALLADIUM gained +$5.00/oz (+0.87% W/W) to close at 579.00.
Here is the Weekly data chart of $PALLADIUM in the solid blue line (with the 8-week EMA in dashed thin blue), and the $USD in the thin solid orange line.
$PALL (579.00) needs to lift above the 8-week EMA (588.13) to turn the technical picture bullish.
The (base metal) copper market
This week $COPPER dropped -$0.06 (-1.76% W/W) to close at 3.368.
There was a gain of almost four cents on Friday just like the previous week. So, while not much has happened over a couple months, traders now don’t seem to want to avoid being long prior to the weekend after the USD drops on Fridays.
Here is the Weekly data chart of $COPPER in the solid blue line (with the 8-week EMA in dashed thin blue), and the $USD in the thin solid orange line.
The US Dollar will likely have to stumble a couple points before $COPPER and copper stocks like Freeport-McMoRan (FCX) take another Bull run.
This week FCX ($33.50) gained three cents. As noted a week ago, a break-out is likely if the stock lifts past $35.00.
Table 12: Senior gold equities
Two weeks ago I reported: “Traders are on edge. The Daily, Weekly and Monthly charts are Bearish.” A week ago, I noted: “This week the selling stopped, at least for now. GDX lifted +3.37% W/W and GDX was up a strong +5.53%. While the GDXJ chart has turned bullish for the Weekly and Daily price series data, the GDX Weekly chart is still bearish.”
This week, there were big gains on Friday, but the goldminer stocks were still down W/W.
GDX (-0.63% W/W) and GDXJ (-0.92%) show that the Gold Bears are still in control.
Here is the GDXJ Daily data chart:
As you can see, a lower US Dollar does give GDXJ a lift. But the market is still looking for higher prices that would signal a break-out. The Weekly price series data chart shows that has not happened, but could be fairly close.
Here is the GDXJ Weekly data chart:
Prices rise and fall. At the end of the day I think it makes good sense to stay invested in the companies that are growing assets relatively quickly and have good management and funding (or funding capability). That is the only way to get you through the pain of holding high-risk stocks during downturns in the market.
Here is the current candleglance chart of 10 important Gold and Silver mining companies:
To watch the moves in precious metal miners, you will have to monitor the individual stock charts, preferably in real-time, as follows: NEM ABX AU GFI GG HMY AUY KGC BVN
LIHR IAG EGO RGLD GOLD TSE_AGI GSS NG NGD AEM
Here are the key Silver miners and the SLV ETF: SLV SIL SVM CDE HL PAAS SSRI SLW MGN
Here are the Weekly and Daily Data charts of the indexes:
The US goldminer share trust ETF trades under the ticker symbol GDX.
Here are the US Goldminer ETF (GDX) index Weekly and Daily data charts:
GDX Weekly data:
GDX Daily data:
The Toronto Exchange-listed goldminer iUnits S&P/TSX Capped Gold Index ETF trades under the ticker symbol TSE:XGD.
Just like GDX on the AMEX, you can trade XGD on Toronto. Canadian Dollar fluctuations will impact XGD vs GDX.
Here are the Weekly and Daily data charts for the TSX Goldshares (XGD) index:
Central Bank Update
You know my posture re currencies: “We are all forced to be currency traders today.” That requires continuous study of the central bank meetings.
In this section, I reproduce any of the Econoday studies of international central bank meetings for the current week – if there are any.
This week there were plenty of meetings, lots of talk and several reviews.
These are important reviews to be reading and following month to month.
Here is the Econoday summary of what they saw in the international currency market this week, a week that seemed to be much about ECB President Mario Draghi:
The $USD is a trade-weighted US Dollar index, we used to call the Morgan Dollar.
The Forex market is a four trillion dollar a day marketplace, which dwarfs the size of the stock and bond markets. In this market, the Euro/USD is the highest volume trader, and London is the center of the universe.
The current value of $USD is a mean value of rate fluctuations of six world currencies (Japanese yen, Euro, British pound, Canadian dollar, Swiss franc and Swedish krona) that each trade against the USD. The Euro is by far the biggest component.
I would not be surprised if this index is soon reconstructed to include the Yuan, Brazilian Real, Indian Rupee, Russian Ruble, and Mexican Peso. As I see it, such a development has been crucially needed for the eight years I have been blogging. If you recall, I referred to it as a need for a General Agreement on Currencies,
There is a Powershares ETF that tracks the G-10 currencies (NYSE:DBV). I think we need track that vs the $USD. The ratio is expressed as a line $USD:DBV.
(As inserted in this space continuously) For some time I have opined that the $USD clearly no longer meets the needs of a globalized world with respect to a reserve currency benchmark.
I have suggested that Gold may now be the de facto benchmark although I do not foresee a time when politicians or central bankers want the return of a gold standard. I don’t think the G-20 governments want to cede power to the hard money crowd, so a new form of paper money is likely to be introduced.
As commodities are mostly priced in $USD for international transactions presently, you still need to study forex price trends and cycles when trading commodity price-sensitive instruments.
For currency traders, there is also an Emerging economy E-10 currency fund, the Wisdom Tree Emerging Currency Fund (NYSE:CEW), apparently holding the Mexican new peso, Brazilian real, Chilean peso, South African rand, Polish zloty, Israeli shekel, Turkish lira, Chinese yuan, South Korean won, Taiwanese dollar, and Indian rupee. I don’t know much about it.
Regarding currencies, I find the ADVFN.com service (with inexpensive real-time price feed) to be quite useful. I have set up a monitor (one of 200-some tickers) for currencies, which you can do as well.
Click on: http://www.advfn.com/p.php?pid=m_tools
Into the window for stocks, enter the following string of currency pairs:
FX:EURUSD, FX:AUDUSD, FX:GBPUSD, FX:EURGBP, FX:EURCHF, FX:EURCAD, FX:USDCAD, FX:EURJPY, FX:USDJPY, FX:AUDJPY, FX:EURAUD
When you call up the stocks, you’ll see they are interactive, which means they update in real-time (if you paid the $10/mo for this data) or 15-20-minute delayed prices (free), and can be displayed with indicators and overlays.
If you are new to examining currency pairs charts; think about it that in any pair where the latest trend line is rising, the first ticker is the one that is strong. So EURUSD, which is the way the contract is traded, when the trend line is up, the Euro is in rally mode against the US Dollar.
The symbol USD in any pair is the denomination versus $USD, which is the trade-weighted US Dollar index (i.e., multiple currencies as described above).
A chart of the Euro vs Dollar (i.e., EURUSD) with an overlay of currencies (GBP, AUD and CAD in this case) will show you if, as, and the point when, currencies are impacting capital markets. We are looking for commonality in trend direction of the currencies in their trading against the US Dollar.
The US Dollar ($USD) dropped -0.92% W/W to close at 82.71, down from 83.48.
Here is the Daily data chart of the $USD (solid blue line along with 8-day EMA in thin dashed blue) vs S&P 500 solid thin orange line, showing counter-cyclicality.
Here is the Weekly data chart of the $USD (solid blue line along with 8-week EMA in thin dashed blue) vs S&P 500 solid thin orange line, showing counter-cyclicality.
The high this week was 83.51 and the low 82.20 vs the prior week when the high was 84.10 and the low 82.34, which is an indication the price is softening.
A week ago about this situation, I opined in this space: “I think down, but we’ll have to wait.” Also, two weeks ago I remarked here that: “This is a clear sign that most everybody who wants to buy Dollars has already done so – for the time being.” I added: “What happens now is that traders must determine the market’s confidence in the ability of the Eurozone to stabilize the Euro with their new Stabilization Fund. Then we have to look at the Fed policy of weakening of the US Dollar… In the interim came the statement from the Eurozone authorities that the Euro would be protected at all costs.”
For now it appears the US Dollar is softening.
The Euro this week gained +0.57% W/W to 123.88, up from 121.58 two weeks ago. The gain on Friday was +1.68%.
Here is the Weekly data chart of the Euro ($XEU) in US Dollar terms (in the solid blue line with the 8-week EMA in thin dashed blue) vs the S&P 500 (in the thin solid orange line).
After the ECB had spoken in definitive terms, traders were waiting for Bernanke’s FOMC to act this week, but he decided not to.
This week the Pound sterling future ($XBP) dropped -0.60% W/W to close at 156.44, but there was a gain of +0.82% on Friday.
Here is the Weekly data chart of the Pound (solid blue line) and the S&P 500 (in the solid thin orange line).
Weekly British Pound Index:
Daily British Pound Index:
Weekly Japanese Yen Index:
This week the Yen contract ($XJY) gained +0.01% to close at 127.46, but there was a loss of -0.30% on Friday.
Here is the Weekly data chart of the Yen (solid blue line) and the S&P 500 (in the thin solid orange line). The Yen is mostly counter-cyclical to the S&P 500, but also occasionally cyclical to it, as it was during Dec-Jan, and again recently.
The Yen is no longer a key to the international forex market. The key to the $USD strength (i.e., weakness, which is what traders are hoping for) is the decision by the G-8 to usher in high levels of QE across the board or at the very least to tell us that’s their plan for the next year or two. That has not happened yet.
Daily Japanese Yen Index:
Daily Canadian Dollar:
This week the Cdn Dollar ($CDW) gained +0.21% W/W to close even closer to par, at 99.88 American. There was a large gain of +0.56% on Friday.
The Weekly data chart shows the high correlation between the Cdn Dollar ($CDW) in the solid blue line to the S&P 500 ($SPX) in the thin solid orange line.
The Daily data chart also shows the high correlation between the Cdn Dollar ($CDW) in the solid blue line to the S&P 500 ($SPX) in the thin solid orange line.
There is usually a rising Canadian Dollar when commodity prices and related beneficiaries like Oilers and Miners are in strong long-term Bull phases. The opposite happens in disinflationary markets, and early on in deflationary markets. In deflationary markets, the G-8 govts and central banks tend to flood the international financial system with new money (to generate a wealth effect) and the Oilers and Miners benefit from that.
Weekly Canadian Dollar Index:
Daily Canadian Dollar Index:
Here is the China Yuan (CNY) chart.
We have had some computer server issues this week, starting shortly after I published the WIR a week ago Saturday. Many of the charts may still be missing. Sorry; however, we are soon going to port the entire system to a new system (not Drupal) on a new server, this one in Europe.
That may also present issues, but eventually we will get it right.
To repeat: the Lessons From the Trader Wizard 2012 e-book is available at Amazon.com. I’m hoping that all of you tell your friends and family. The price is only $10. I’d be real proud if the sales could hit the top 10,000 or something at Amazon.
Note: That’s funny because I see we are now ranked #129,949
Please direct people to http://www.caracommunity.com/ and point them to the right sidebar.
Amazon in the UK has it too.
The Cara Community Toronto Conference is upcoming (Sept 27-30), and we are making plans for that as well.
My daughter Stefanie informed me that for the conference, the official airline (discount rates) is Porter Airlines, the one that flies from Chicago, Washington, New York and Boston as well as most Eastern Canadian cities direct to the Toronto Island airport, which is adjacent to the financial district and location of our Conference hotel.
Although it is only short haul, Porter is my favorite airline. I find just avoiding the stress of the main airport in Toronto is a wonderful thing. I really think you will enjoy the experience.
In the next week or so, Stefanie will announce the Conference details. I believe it will be the best one yet.
I now can take a few hours to watch the Olympic Men’s 100 meter race, one of the features of every Games. Of course, I won’t be sitting alongside the track where the tickets cost around $2,000 each.
Isn’t it amazing that each ticket, enabling the owner to enjoy a few hours entertainment, will cost more than the annual per-capita GDP of almost 20% of the countries in the world? Even in Jamaica, home to three of the world-class 100 meter runners, the per-capita GDP is only around $9,100.
Reminds me of an incident about 20 years ago when the civil war in one of Africa’s poorest countries was coming to an end. My friend who lived next door to one of the world’s top five-star hotels in London would walk through the lobby every day on his way to work. One day he spotted an old man sitting in a high-backed chair, apparently alone, and he nodded to the person. The next day, the same thing happened, and this time both men smiled and nodded. On the third day, when the old man saw my friend, he waved him over. What is your name my friend, he asked. Then he told my friend he was the King of (anon country since I don’t want to make enemies), obviously living out the civil war spending his days in the lobby of one of the costliest hotels on earth.
These are realities we don’t often talk about, unfortunately.
Anyway, I hope you all are finding the Games as entertaining as I do. The struggles, perseverance and successes of young people representing their countries is great theater.
Canadian markets are closed on Monday for what is called Civic Holiday. I plan to do a 5-mile walk along the lake front – hopefully before the US market opens.
Have a good day.