Bill Cara’s Week in Review #33, 2012
[1:39 pm ET Sunday] Go Go Christine!
More about that later.
Well, as for this week, Friday was nothing to write home about, but the rest of the week was a constructive one for the Bulls. Despite strength in the US Dollar (USD +0.22% W/W), by week’s end the top two equity sectors were Energy (XLE +2.74% W/W) and Basic Materials (XLB +2.68%). US Bonds ($USB -0.48% W/W) reflected a continuing move, albeit still a small one, out of bonds and into stocks.
Traders need to focus now on the US Treasury market because if prices continue to fall, that means a shift of confidence in the global economy and in equity prices.
The Monthly $USB data is still quite bullish, but the Weekly indicates the Bears are now taking hold. Should the recent selling continue for another couple weeks, then prospects for equities, commodities and precious metals are going to be, some say, brilliant in the months ahead.
Here are the Monthly and Weekly charts of $USB:
I think it is now a good time to be looking at other relationships that together would possibly provide the weight of the evidence that capital market prices may be in a major trend reversal.
For this I would look at the weekly ratio charts of:
• Dow Jones World Equity ($DJW) vs the US S&P 500 ($SPX)
• Canada (EWC, in USD) vs US S&P 500 (SPY)
• US Industrials (XLI) vs S&P 500 (SPY)
• Consumer Discretionary (XLY) vs Consumer Staples (XLP)
• Euro ($XEU) vs US Dollar ($USD)
• Goldminers (GDX) vs Gold Bullion ($GOLD)
• Silver Bullion ($SILVER) vs Gold Bullion ($GOLD)
• Junior Gold Miners (GDXJ) vs Senior Gold Miners (GDX)
• Oil Services Companies ($OSX) vs Integrated Oil companies ($XOI)
• Semi-Conductor Tech Companies (SMH) vs Major Tech Companies (XLK)
Dow Jones World Equity ($DJW) vs the US S&P 500 ($SPX)
Canada (EWC, in USD) vs US S&P 500 (SPY)
US Industrials (XLI) vs S&P 500 (SPY)
Consumer Discretionary (XLY) vs Consumer Staples (XLP)
Euro ($XEU) vs US Dollar ($USD)
Goldminers (GDX) vs Gold Bullion ($GOLD)
Silver Bullion ($SILVER) vs Gold Bullion ($GOLD)
Junior Gold Miners (GDXJ) vs Senior Gold Miners (GDX)
Oil Services Companies ($OSX) vs Integrated Oil companies ($XOI)
Semi-Conductor Tech Companies (SMH) vs Major Tech Companies (XLK)
Except for the uncertainty that exists over the Euro and US Dollar, these ten important ratio charts, plus the possible breakdown in US Bonds as also seen in the Weekly data, show that equity markets have a predominantly bullish outlook over the next 6-12 months.
A week ago in the WIR I stated: “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.”
That means the S&P 500 has lifted +3.0% in six sessions, which is extremely strong performance.
With corporate earnings on the rise, despite many missteps, and dubious guidance for the next quarter from many leading companies, total market capitalization has lifted a lot. Many companies, like Disney (DIS) and sector ETFs have reached all-time highs. Prices are growing up a wall of worry.
What is going on here is that all of us are being forced to protect the assets of Humungous Bank & Broker (HB&B) as central banks and governments are working together to ensure that sovereign debt will not fail. They are all buying time until the next bullish economic cycle comes along, now possibly starting in 2013, at which time the fiscal debts and deficits problem starts to solve itself.
Capital market prices are based on fundamentals but move in trends and cycles based largely on emotion and hype.
For the summary of what happened in the US with the economic reports this week, here are the headlines from the Econoday analysts:
• International trade deficit narrows in June — with higher ag prices
• Import prices continue to dip — with lower oil prices
• Consumer credit growth slows in June
• Productivity up in Q2 but on slower growth in hours
From the four previous weeks, the headlines were as follows:
• 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
• 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
The bottom line this week, says Econoday: “The latest numbers were limited and mixed. The best news was that exports are still growing. This is good for the manufacturing sector. The productivity numbers put company profit growth on the fence. With unit labor costs trending low, a boost in output and revenues could lead to upside potential for profits. But lack of output growth leaves profits languishing—bearing in mind that expectations for profits are rather low.”
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
Most equity indexes were up last week even though they slumped on Friday. They retreated at week’s end in thin trading as new evidence of slowing global economic growth was revealed. Earnings reports in both Europe and in Asia Pacific were mixed. But investors focused on economic data — and especially the monthly outpouring from China. They were looking for more evidence that new stimulus packages would be forthcoming from the major central banks including the People’s Bank of China… Last week’s slew of Chinese data dealt policymakers fresh blows as Friday’s merchandise trade and new bank lending data suggest that recent pro-growth policies have been slow to gain traction and that more urgent action may be needed to stabilize the Chinese economy. July exports were up just 1.0% from a year ago and new loans were at a 10-month low. These data added to Thursday’s data that showed factory output increasing at its lowest pace in three years and retail sales fading. The first hard data of the third quarter has led some analysts to question the strength of what was expected to be the start of a shallow rebound in the economy after growth had slipped for six successive quarters… China is not alone in feeling the pressure. Earlier in the week, Taiwan posted a fifth straight monthly export decline in July, dragged down by double digit drops in shipments to China, Europe and the United States, while South Korea’s July exports were the worst in nearly three years. Analysts said that the decline in July consumer inflation to a 30-month low of 1.8% should reassure policymakers they have some room to relax policy.
Econoday’s Global Perspective is written by chief economist Anne Picker.
This past week equities were up partly on hope that the Federal Reserve and People’s Bank of China would act to loosen policy. More realistically, the strength in equities may have been corporate earnings beating lowered expectations.
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.
Following the release of the latest data on 08/08/2012, 8:30:00 AM ET, Econoday reported, Productivity growth for the second quarter improved despite a slowing in output. Nonfarm business productivity rebounded an annualized 1.6% from a 0.5 decline in the prior quarter. Expectations were for a 1.3% rise for the second quarter. Unit labor costs decelerated to 1.7% annualized, following a 5.6% increase in the first quarter. The consensus projected a 0.9% rise… The rise in second quarter productivity reflected a 2.0% gain in output after a 2.7% boost in the first quarter. But the key factor was a slowing in hours worked to a 0.4% rise in the second quarter from 3.2% in the first… Unit labor costs slowed on a 3.3% gain in compensation after a 5.1% spike in the first quarter. The first quarter surge may have been due to one-time bonuses… Today’s report includes annual revisions to prior data… Year-on-year, productivity was up 1.1% in the second quarter, following 1.0% the quarter before… Year-ago unit labor costs were up 0.8%, compared to unchanged in the first quarter. Compensation gained 1.9% versus 1.0% in the first quarter year-on-year… What do the numbers suggest for any improvement in the labor market? You can get more than one view on this. One view is that businesses have squeezed labor costs all that is possible and that companies must hire to do more business. A competing view is that demand (output) is still too sluggish and improvement in job gains will not take place until demand is up. The truth is probably somewhere in between, still leaving job growth lackluster in the near term.
Following the release of the latest data on 08/09/2012, 8:30:00 AM ET, Econoday reported, The U.S. trade balance in June shrank, again thanks in part to lower oil prices but also from a general import dip. The trade deficit decreased to $42.9 billion from $48.0 billion in May (originally $48.7 billion). Analysts forecast a deficit of $47.5 billion. Exports advanced 0.9%, following a 0.3% rise in May. Imports shrank 1.5% after a 0.8% decrease in May… The narrowing in the trade gap was led by the non-petroleum goods gap which narrowed to $34.4 billion from $37.5 billion in May. With help from lower prices, the petroleum deficit decreased to $22.5 billion in June from $24.8 billion the prior month. The services surplus slipped to $14.6 billion from $14.9 billion… On a not seasonally adjusted basis, the June figures showed surpluses, in billions of dollars, with Hong Kong $2.6 ($2.9 for May), Australia $1.9 ($1.7), Singapore $1.2 ($1.0), among others. Deficits were seen, in billions of dollars, with China $27.4 ($26.0), OPEC $8.5 ($11.2), European Union $8.4 ($10.5), Japan $6.0 ($6.4), Mexico $5.9 ($6.3), Germany $4.1 ($4.9), Ireland $2.6 ($2.7), Canada $1.5 ($2.0), among others… There are pluses and minuses in the detail. The big plus is that exports were positive. Looking specifically at goods (Census basis), exports rose 1.3%, following a 0.5% gain in May. The big negative was a dip in goods imports excluding petroleum which suggests softness in demand or at least expectations by business for softness in consumer and business spending. These imports dipped 0.9% after a 1.0% rise in May… The latest numbers will help Q2 GDP revisions but there are still questions about demand further out.
Following the release of the latest data on 08/09/2012, 8:30:00 AM ET, Econoday reported, The trend in initial jobless claims is offering a slightly upbeat signal for payroll growth and the unemployment rate. Claims fell 6,000 in the August 4 week to 361,000 and though the 4-week average, at 368,250, is up 2,250 from the prior week it is still nearly 10,000 lower than the trend this time last month. Prior data are revised to show a 367,000 level in the July 28 week, which is up 2,000 from the initial reading, with the 4-week average revised 500 higher to 366,000… Data on continuing claims are less upbeat with the level for the July 28 week up 53,000 to 3.332 million and the 4-week average up 5,000 to 3.305 million. The unemployment rate for insured workers, at 2.6%, remains where it’s been since March… This report isn’t likely to build much early optimism for the August employment report due to doubts over adjustment issues tied to summer retooling in the auto sector. Still, the Labor Department reports nothing unusual in today’s results.
Following the release of the latest report on 08/09/2012, 10:00:00 AM ET, Econoday reported, Warning signals are coming from the wholesale trade report where sales plunged in June and inventories relative to sales show their highest level since early in the recovery. Wholesale sales fell 1.4% in June against only a 0.2% decline for inventories, a mismatch that puts the inventory-to-sales ratio for the sector at 1.20 which is well up from 1.18 in May and is the highest reading since December 2009. The build in wholesale inventories is centered in durable components including hardware, machinery, and computers. These are components where sales fell sharply in June… When including three months of factory data and two months of retail data, the picture for total inventories during the second quarter points to a slowing build which is a negative for GDP. Relative to sales, the slowing rate of inventory accumulation isn’t slow enough and suggests that businesses may be getting behind the curve and are keeping too much inventory on hand. The second-quarter picture will fill out with Tuesday’s release of the business inventories report that will include the still missing retail component.
Following the release of the latest report on 08/10/2012, 8:30:00 AM ET, Econoday reported, Deflation, or rather disinflation, may not be at play right now given continued pricing power for services, but prices for many goods are on the retreat. Import prices fell 0.6% in July for the fourth straight decline and the third straight sharp decline. And contraction isn’t isolated to swings in oil prices as import prices excluding petroleum fell 0.3% for a third straight decline. Year-on-year, total import prices are at minus 3.2% with the ex-petroleum reading at minus 0.5% for the largest year-on-year drop in nearly 3 years… A look at finished goods also points to contraction. Import prices for consumer goods are down 0.1% for a second straight negative reading with import prices for capital goods down 0.1% for the third negative reading in 4 months. A shift over to the export side shows consumer prices down 0.6% in the month with capital goods prices down 0.1%… Total export prices do show pricing power, up 0.5% but following contractions of 1.7% and 0.5% in the prior two months. Year-on-year, total export prices are down 1.2%. Inflation for agricultural products is appearing with the component jumping a monthly 6.4% but this follows a 3.6% fall in June. Excluding agriculture, export prices are down 0.3 for a year-on-year rate of minus 1.9%… Though the rise in agricultural prices is a concern, today’s report won’t raise much inflation alarm for next week’s producer and consumer price reports. There’s no significant reaction in the financial markets to today’s report.
Following the release of the latest report on 08/10/2012, 2:00:00 PM ET, Econoday reported, The Treasury’s deficit in July is $69.6 billion for the lowest July deficit since 2007. Calendar effects did move about $12 billion of spending into June and boosted receipts for July by about $6 billion but, even accounting for these effects, the results are better than the Econoday consensus for a $103.0 billion deficit… Ten months into the fiscal year, the Treasury’s deficit, at $973.8 billion, is 11.5% smaller than the prior year. Receipts are up 6.1% so far this fiscal year with corporate income taxes, at $182.4 billion, showing the largest gain at 29.8%. Individual income taxes, at $928.2 billion, are up 4.2%. In contrast, the outlay side shows little change with a only 0.4% decline. Defense spending, at $564.4 billion, shows the largest decline at 3.2%.
Before release of the latest data on 08/14/2012, 7:30:00 AM ET, Econoday reported, The NFIB Small Business Optimism Index fell 3 points in June to 91.4 in a setback that reversed year-to-date improvement. Labor market measures were especially weak with job creation showing its first contraction of the year. Also accounting for much of the decline were capital investment plans and earnings trends. The report also notes special weakness in consumer spending, especially on services. Only 1 of 10 components improved in the month.
Before release of the latest data on 08/14/2012, 8:30:00 AM ET, Econoday reported, The producer price index in June edged up 0.1%, following a sharp 1.0% plunge the prior month. The core PPI rose 0.2%, following a 0.2% gain in May. By major components, energy dropped 0.9% after falling 4.3% in May. Food costs rebounded 0.5%, following a 0.6% decline. Within the core, accounting for 70% of the June increase, the index for light motor trucks moved up 1.4%. Higher prices for major household appliances and pet food also contributed to the rise in the finished core index.
Before release of the latest data on 08/14/2012, 8:30:00 AM ET, Econoday reported, Retail sales in June were much softer than expected, including auto sales which contradicted manufacturers’ numbers for the month. Retail sales in June fell 0.5%, following a 0.2% decrease in May. Motor vehicle sales dropped 0.6%, following a 0.8 boost in May. Excluding motor vehicles, retail sales decreased 0.4% after declining 0.4% in May. Gasoline sales were a big factor, dropping 1.8%, following a 2.0% fall in May. Sales excluding autos and gasoline in June slipped 0.2%, following a 0.1% dip in May. Core sales showed widespread weakness in June.
Before the release of the latest report on 08/14/2012, 10:00:00 AM ET, Econoday reported, Business inventories in May rose 0.3%, outpacing sales which fell 0.1%. The mismatch for May raised the stock-to-sales ratio one notch to 1.27 for the highest level since May last year. Importantly, the trouble was centered in the final demand component, that is retail sales where inventories surged 1.0% in the month against a 0.2% decline for sales.
Before the release of the latest report on 08/15/2012, 8:30:00 AM ET, Econoday reported, The consumer price index was unchanged in June after falling 0.3% in May. Excluding food and energy, the CPI rose 0.2%, following a 0.2% increase in May. By major components, energy declined 1.4% after falling a sharp 4.3% in May. Gasoline fell 2.0%, following a plunge of 6.8% the prior month. Food prices in June gained 0.2% after no change in May. Within the core, the shelter index posted its smallest increase since September.
Before the release of the latest report on 08/15/2012, 8:30:00 AM ET, Econoday reported, The Empire State manufacturing index in July rose more than 5 points to 7.39 to indicate monthly growth in general business conditions. But this was offset by a decline in new orders. Weakness in orders points to slowing activity ahead for the New York region’s manufacturing sector. Unfilled orders also contracted and steeply.
Before release of the latest data on 08/15/2012, 9:15:00 AM ET, Econoday reported, Industrial production rebounded 0.4% in June, following a 0.2% decline in May. By major components, manufacturing gained 0.7% after falling 0.7% in May. Motor vehicles output added significantly to manufacturing, rebounding 1.9% in June after a 2.2% decline in May. Manufacturing excluding motor vehicles was quite strong also gaining 0.6% in June, following a 0.5% drop in May. In June, mining output gained 0.7%, following no change the prior month. Utilities output declined 1.9%, following a 2.8% boost in May. Overall capacity utilization improved to 78.9% from 78.7% in May. Looking ahead, production worker hours gained 0.6% in June, suggesting a strong manufacturing component in industrial production.
Before release of the latest data on 08/15/2012, 10:00:00 AM ET, Econoday reported, NAHB housing market index surged 6 points in July to 35. The monthly gain was the largest in nearly 10 years while the level, which has been moving higher all year, is now at its highest of the recovery, since March 2007. All regions report gains with strength centered in sales six months out.
Before release of the latest data on 08/16/2012, 8:30:00 AM ET, Econoday reported, Housing starts in June rebounded 6.9% after dropping 4.8% in May. The June pace of 0.760 million units was up 23.6% on a year-ago basis. For the latest month the single-family and multifamily components both gained. Single-family starts increased 4.7% after a 2.2% in May. The multifamily component-which is volatile-rebounded 12.8%, following an 19.3% drop in May. Housing permits have been bumped around recently by volatility in the multifamily component but also appear to be on a modest uptrend. Permits slipped 3.7% in June but followed a sharp 8.4% surge the prior month. Permits in June posted at an annualized pace of 0.755 million units.
Before release of the latest data on 08/16/2012, 8:30:00 AM ET, Econoday reported, Initial jobless claims fell 6,000 in the August 4 week to 361,000 and though the 4-week average, at 368,250, was up 2,250 from the prior week it is still nearly 10,000 lower than the month-ago trend. Prior data were revised to show a 367,000 level in the July 28 week, which was up 2,000 from the initial reading.
Before release of the latest data on 08/16/2012, 10:00:00 AM ET, Econoday reported, The general business conditions index of the Philadelphia Fed’s Business Outlook Survey improved to minus 12.9 from June’s minus 16.6. Forward momentum was still not good even though the new orders index rose to minus 6.9 from June’s minus 18.8. New orders are declining-just not as rapidly.
Before release of the latest data on 08/17/2012, 9:55:00 AM ET, Econoday reported, The Reuter’s/University of Michigan’s consumer sentiment index was essentially flat in July, which finished the month at 72.3 for a marginal 3 tenth gain from mid-month and a 9 tenths decline from June. The best news was in the assessment of current conditions where the index was at 82.7 which, though down 5 tenths from mid-month, was up 1.2 points from June. The outlook, however, is deteriorating but only slightly with the expectations index at 65.6 which was up 8 tenths from mid-month but down 2.2 points from June.
Before release of the latest data on 08/17/2012, 10:00:00 AM ET, Econoday reported, The Conference Board’s index of leading indicators fell 0.3% in June after a 0.4% boost the prior month. Weighing down on the June number were the new orders index (minus 0.16%age contribution), consumer expectations (minus 0.13% contribution), building permits (minus 0.10%age contribution), jobless claims, stock prices, and new orders for nondefense capital goods excluding aircraft. On the positive side, the leader continued to be the rate spread between the 10-year Treasury and fed funds rate (0.16% contribution). Also slightly positive were the leading credit index, and new orders for consumer goods. But the economy is still growing, according to the coincident index which rose 0.2% in June, matching May’s pace.
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 turned 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]:
Note how this week’s RSI-7 Daily data turned incredibly bullish.
The Cara 100 Scoreboard at the end of this week [WIR 33] shows:
1 with Daily RSI-7 below 30 [0 below 20] [0 below 15] [0 below 10]
0 with Weekly RSI-7 below 30
2 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from one week ago [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 two weeks 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 three 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 four 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 five 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 six 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 seven 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 eight 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 nine 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 ten 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 eleven 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 twelve 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, in time, 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 have been using the WIR to state my understanding from the data that from late in the 2Q2012, and going forward, the market has been undergoing a cycle bottom process. I noted that my perspective was not the conventional wisdom. I cautioned that a bottoming process takes time and that 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 do understand: if you happen to rent and then become a buyer 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 and much less costly than ‘trading’ houses!
Many people disagree with my thinking, which is fine because differences of opinion are what makes markets. However one criticism I received 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 have read the book and who follow the blog have considerable 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 equity markets of the important ones I follow were Japan (Nikkei 225 up +3.9% W/W) and Brazil (Bovespa up +3.5% W/W).
Mexico (Bolsa) was weakest again, down -0.4% this week.
The Canadian equity market was up +2.0% this week.
Here is this week’s international equity re-cap from Econoday:
Here is the India Report from Deepak Lalwani, which can be retrieved in full by writing email@example.com
• Industrial output, considered to be volatile data but a barometer of GDP growth, fell for the third time in four months. June recorded a fall of 1.8% YoY vs growth of 9.5% a year ago;
• Finance Minister, Mr P. Chidambaram, may well find his third term since 1996 the most challenging. The economy is growing at its slowest pace in 10 years and many economists have reduced growth to under 6% to March 2013. However, he has raised hopes for swift action to kick start the economy and to calm investors, especially re: tax proposals;
• He swaps high officials in the tax office from the income and expenditure departments. Signals a move to dilute tax proposals;
• Interest rates will next be reviewed on Sep 17. Pressure on the Central Bank to cut interest rates, which at 8% makes India among the highest among major economies. Blue chips pay 10%+ and medium/small firms 13%+. Has hit investment plans and contributed to a slowing economy;
• Highly respected and outspoken former IMF Chief economist, Mr Raghuram Rajan, appointed Chief Economic Advisor. He predicted the 2008 global financial crisis. In a speech to the PM Dr Singh earlier this year he was openly critical of New Delhi’s populist policies and said corrupt relationships between politicians and businessmen were creating an oligarchy. Excellent credentials. A very good appointment;
• Competition law in India is being taken more seriously after 12 major cement firms have to pay fines of $1.1bn for price fixing. Auto makers now being investigated according to press reports;
• Rising incomes and a modernising India are influencing holiday travel tastes. Adventure travel is on the rise in a country where travel is still at a nascent stage and growing at 30% annually.
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.
After two straight weeks of the same type of action — down all week followed by an explosive up day on Friday – this week’s gains – and it was eleven for eleven of the Country ETFs I monitor – were made through Thursday.
The best performers W/W were Brazil (EWZ +3.76% W/W), Canada (EWC +3.38%), and Russia (RSX +2.95%). Seven of these eleven ETFs were up over +2.0%. The laggard, Hong Kong (EWH +0.82%) happened to drop -0.93% on Friday. The only other loser Friday was France (EWQ), down a tad (-0.15%) on the day.
On the prior Friday, all of the eleven ETFs had gains on Friday and four of them had gains of +3.1% or more that day when the laggard, Brazil, was up +0.89%.
So, it has been a very bullish six sessions and a sparkling three weeks for these international market ETFs.
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
A week ago Friday, the S&P 500 was up a solid +1.90% on the day. Only Verizon (VZ) lost a little ground that day. Five days later, the S&P 500 was up a further +1.07%.
NASDAQ, which soared +2.00% the prior Friday, jumped a further +1.78% this week. The Semi-conductors, which mostly trade on NASDAQ, have been white hot, soaring +3.23% this week and +2.63% a week ago Friday.
The laggards have clearly been Consumer Staples, Utilities and Healthcare, so just as clearly the US market has been risk-on for the past six sessions.
Econoday summed up the US equity market this week as follows:
Econoday points to traders’ enthusiasm following the European Central Bank statement they would support the Euro to whatever degree necessary to preserve it, which means partially monetizing the debts of Spain and Italy. But US corporate earnings too have fared rather well and the national jobs report of a week ago Friday also have put a bloom on the rose.
By peering through the clutter, I could see the recent corporate and economic data was better than what was being generally discussed, so I am not surprised that prices have lifted. You know that.
Despite having been beaten down over the past six months, one of my favorites, Cisco, is back in vogue. A week ago I wrote in this space: “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.” Following that massive gain a week ago Friday, CSCO was up a further +7.28% this week.
But the leaders of the Dow 30 this week were a couple long-term dogs, Hewlett-Packard (HPQ +7.89%) and Alcoa (AA +7.29%), while three big losers were Pfizer (PFE -1.40%), McDonald’s (MCD -1.55%) and Coca-Cola (KO -2.52%), all Cara 100 companies. The only problem there, I think, is MCD, which has really fallen out of favor in 2012 – their once piping hot McCafe seemingly having chilled and their Chicken McBites biting them where it hurts. I don’t get it really – surely commodity inflation and higher interest expenses are not the biggest problem – and I have to think the flattish sales reported before the market this Wednesday is an aberration and that the earnings outlook will be better than some people think. Besides, is MCD a short-term trader? Definitely not!
MCD typically trades counter-cyclically to the S&P 500 bull-bear moves, so this one is best to be looked at again when the S&P 500 next appears to be weakening. I believe the stock will come out of its doldrums no later than Q4.
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 [cycle 7, 20, 33 and 46], Value Line reported on one DJIA component: Disney (DIS). Disney is in the Cara 100, and as you know I will only trade Cara 100 stocks in my All-Weather and Growth portfolios because I feel it best to focus on quality.
You are starting to understand that I like Disney a lot. This quarter we decided to own the stock in our Growth portfolios, but not the All-Weather. I’ll discuss that here.
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 Aug 10: next one is due Nov 9)
Here is what I wrote about DIS in previous WIRs:
[For WIR#13-2010 Feb 14 $29.74]
Although the Weekly RSI for DIS is pointing higher here, I’m just not interested (in buying the stock at this level). Although I see a possible lift in price (DIS to a lower high, possibly 31) before eventually dropping again (to a lower low, maybe 27, maybe even 25). I’d let the price come to you. At the worst, the price would hit $24, so if I owned the stock and wanted to keep it as a core position in the portfolio, I might write $31 covered calls (against part) and $25 puts (to add a lot more possibly), using the premium income to lower my cost base. But the options are not that liquid.
The Value Line report for Disney shows continued improvement in the balance sheet, but there is only so much management can do. It’s now up to the economy, and I don’t think the consumer economy is going to be that great for most of the rest of 2010.
Management has taken a couple positive steps for the long run benefit of the company: (i) obtained approval to build an entertainment park in Shanghai, and (ii) bought Marvel Entertainment ($4.2 billion acquisition) that gives the company marketing and development rights to thousands new characters. I like that.
[For WIR#20-2010 May 16 $34.06]
For the past three months (13 weeks), DIS lifted from $30.07 to $34.06. It had reached $36.59 a week or so ago when Value Line published their report.
After the VL February report, I opined I was not interested, but may want to write puts if anything. That tactic would have returned an infinite profit if the positions had been left to expire, which was worthless. In our case, we never let a short put expire, preferring to close the contract a bit early to optimize the gain and the use of capital.
Here is my current thinking re DIS ($34.06 May 14):
The simple little RSI-7 system generated a SELL Alert this month for DIS. I’d avoid it now as the price is still not low enough for me to want to write puts.
As for operations at Disney, the revenues are expected to set a record high this year, but for earnings the record high is not expected until 2011.
The VL analyst is using a projected buy-back of shares to be enough to jack up Return on Equity to a more reasonable number. Operating margins and net profit margins are projected to improve quite significantly.
I do like this company; however, the next couple years in America is going to be tough times, so the timing isn’t right to expect huge improvement at Disney. Improvement yes; but great improvement? I think not.
“Dancing with the Stars”? I think the reality will be somewhat different than Pamela Anderson’s.
[For WIR#33-2010 Aug 15 $33.68]
Here is my current thinking re DIS ($33.68 Aug 13), based on the charts:
For the past three months (13 weeks), the Disney stock price (DIS) dropped from $34.06 to $33.68. It had very much met my expectations from the earlier SELL signal, falling to a May low of $31.99 and a July low of $31.38. Recently there was a high of $35.29, and the Daily RSI-7 shows even higher prices in the short-run. But then I anticipate more selling.
For DIS, the May and July lows are actually higher than the Feb low, although the two most recent highs are lower than the May high, and there is a bearish looking downtrending channel.
…Disney earnings per share are likely to set a record high in 2011; but …liquid assets are …are always ‘iffy’. Like most entertainment companies, Disney’s hype is big today; but tomorrow’s outlook always seems better.
[For WIR#46-2010 Nov 14 $37.75]
Here is my current thinking re DIS ($37.75 Nov 14), based on the charts:
Here is a statement from my last report on Aug 15: “(DIS) had very much met my expectations from the earlier SELL signal, falling to a May low of $31.99 and a July low of $31.38. Recently there was a high of $35.29, and the Daily RSI-7 shows even higher prices in the short-run. But then I anticipate more selling.”
Soon after that the Disney stock price (DIS) dropped from $33.68 to a low of $31.55 on Aug 25. So that April sell signal had been a good one, and I was right to avoid DIS for about five months. For the past three months (13 weeks), however, DIS did become a good Buy in early October after it set a higher low in late October at $33.01, moving up to about $37-$38 a week ago before trading became a bit crazy.
In the past couple days, there has been another insider trading leak at Disney, but the earnings did improve, beating street expectations, largely from better advertising revenues from the company’s TV and cable businesses.
As for the Value Line write-up on Disney (DIS) I noted the following:
The Technical rating (i.e., 6-month share price anticipated relative performance to the market) a ‘3’ (average) for DIS in the past month. The 12-month Timeliness rating was lowered from ‘2’ to ‘3’ for DIS.
Disney earnings per share this week ($0.50) beat analyst estimates ($0.47), which pumped the stock, for a couple days at least. The Value Line analyst had been expecting $0.53. Earnings for 2011 are expected to be about $2.45, up from $2.12, which is a significant lift, if it happens. Earnings ought to improve, but by how much is always the $64,000 question. Theme parks and hotels have been slow though, and I don’t know how many more bullish Pasodoble’s Dance with the Stars can produce for the ABC TV division.
All in all though, the street analysts like the dance. Besides, Disney’s balance sheet has been getting stronger, and dividends are expected to lift from $0.35 this year to $0.38 in 2011.
[For WIR#7-2011 Feb 13 $43.41]
The RSI-7 for the Daily and Weekly price series data is 90.0 and 83.6 respectively. That is quite elevated.
Volume was huge on Wednesday as the company reported a surprisingly high Q1 earnings of $0.68, up from the expected +$0.56, and on revenues of $10.7 mil revenue, which was higher than the anticipated $10.5 mil. We’ve known that Disney’s 2011 would be a record breaking year, but these results are superb.
Traders also liked the +14% dividend increase to $0.40, which was up from the $0.35 that had been paid out each of the past three years.
As the global economy improves, Disney is expected to be a cash cow, with lots of that cash flow being used for share buy-backs, which ought to keep the growth of quarter yearly performance results very solid.
Except for the temporary over-bought conditions – probably +8% higher than a sustainable uptrend average – DIS is a good Hold. The stock ranks an average 279 in the Cara 500 based on current price relative to growth in Enterprise Value factors.
Value Line raised their Technical (6-month price outlook) from a ‘4’ (poor) to a ‘3’ (average) on Jan 21. Back on Oct 1, they lowered the 12-month outlook (Timeliness Rating) from a ‘2’ (good) to a ‘3’, but they were clearly wrong on that.
As for me, I think DIS will be priced lower at times during the next two months, but ought to be a very good winner from that point to the end of the year.
[For WIR#20-2011 May 12 $41.58]
Here is my current thinking re DIS ($41.52 May 13, down -4.4% in 13 weeks from $43.41 on Feb 11, which had been, up +15.0% in 13 weeks from $37.75 Nov 14), based on the charts:
You can see that my previous WIR thinking about a near-term sell-off was very accurate. The price did drop -4.4% in two months to $41.23 and $41.52 cycle lows, then popped a bit in the past month before falling back to $41.52 again, largely due to the drop this week.
This week, Disney reported a disappointing quarterly earnings per share of $0.49 vs an expected $0.58 by 14 analysts and $0.60 from Value Line. Bloomberg summed it up nicely:
Some of these problems, like Japan, will continue past the April 2 cut-off for Q1. Fuel costs are also hurting ops (see cruise line) and resort park customers.
However, if the latest Pirates of the Caribbean and Cars movies turn out to be hits, it’s also possible that earnings could improve as much as previously expected, but probably not more. I don’t have a strong view on this. Also, I don’t think their cash management is superior, and it’s weakening a bit, but probably is not an issue.
Overall, I think the company is diversified, global, well managed, Revenues, margins, cash flow, earnings and dividends are picking up again after a couple so-so years; hence, long-term I still like DIS.
Bottom line here is that if the global economy strengthens and the broad market lifts, then I foresee higher prices for DIS, but at 15x or even 16x 2012 projected earnings of say $3.00, I am not too excited.
[For WIR#33-2011 Aug 14 $33.09]
Chart of Weekly data (S&P 500 in brown and DIS 8-week EMA in blue): RSI-7 is at 20.81
The Current Price (-5.94% W/W) is back to the mid-year 2010 cycle low. The stock price is presently tracking the S&P 500. A massive volume spike this week may be a sign of capitulation.
Chart of Daily data (S&P 500 in brown and DIS 8-week EMA in blue): RSI-7 is at 35.21, having set a short-term Buy Alert after crossing 30 on the upside
The price jumped +3.02% on Friday. Should it get higher than 34.00, it would be above the 8-day EMA, which would be a further buy signal.
After the plunge to $30.46 at the open on Wednesday, DIS quickly rebounded to $33.48 on Friday morning, closing at $33.09. Forward PE is just 11.3, which is extremely low and not likely to be seen for several years once this market cycle bottom as well as the improving fundamentals helps lift the stock.
By following along these quarter yearly write-ups in the WIR, and the free (Dow 30) Value Line quarterly reports themselves, you can gain a sense of when and why to buy. I’ll argue today that now is the time to buy.
For starters, DIS is down -20.4% in three months. Yes, in the previous quarter there was a shocker of an earnings disappointment ($0.49 actual vs $0.58 anticipated); but this quarter was a terrific improvement.
Against a projected $0.73 for the latest quarter, Disney earned $0.77 (and vs $0.67 a year ago this quarter). The company is expected to earn $0.70 in the next quarter, leaving total 2011 earnings of $2.64 vs $2.07 in 2010, which is a +27.5% growth in earnings Y/Y, which is pretty good in my book.
Revenues and earnings are expected to grow through 2012 at least. Operating margin and Return on Shareholder Equity are also rising.
Under Robt Iger, this company has got its act together, and deserves the Cara 100 rating.
The holdings are diversified and growing. When the global economy gets back into high gear, I anticipate great things from DIS. Looking out 3 to 5 years, I believe the company will earn up to $5.00/share and trade at a 15 to 16 multiple for a price of $75 to $80. I can see a double in three years, particularly as the company will have significantly fewer shares outstanding by then, caused by a buy-back program.
In 2006 there were 2.064 billion shares out, and that number has fallen to 1.85 billion today and will be down to about 1.60 billion within about four years.
Value Line is projecting an annualized Total Return (share price appreciation plus a relatively small dividend) of between +22% and +16%, which is very good, but begs the question why there is so much insider selling here.
As of July 29, Value Line upped the Technical (6-month share price outlook) from ‘3’ (market average) to ‘2’ (superior). The balance sheet, while not the strongest, is rated A+.
One final remark on Disney: Americans may be greatly disappointed in Washington and Wall Street, but in the opposite end of the country there is an entertainment and media industry that no one can dispute is the greatest on earth, centered in Hollywood and Burbank California.
[For WIR#46-2011 Nov 11 $36.70 vs Aug 14 $33.09]
Chart of DIS Weekly price in solid black line (S&P 500 in dashed orange and DIS 8-week EMA in blue): RSI-7 is at 61.94, up from 20.81 at the WIR#33 write-up… The 7-week RSI, STO and TRIX have room on the upside for prices to continue lifting.
Chart of DIS Daily data (S&P 500 in dashed orange and DIS 8-day EMA in dashed blue)… The price jumped +5.95% on Friday. The downtrend channel was broken and the stock appears to be headed north now. The 7-day RSI, STO and TRIX have room on the upside for prices to continue lifting.
Chart of DIS 30-Minute data: If you are looking for an entry point, the next time the 30-Minute chart or the 60-Minute chart 7-period EMA is intersected on the upside is possibly a good point. By doing that you are trading against the order flow, waiting til the sellers have exhausted their sell orders. In boxing parlance, this is like the Muhammed Ali rope-a-dope, waiting til the opponent is tired from throwing punches and then you counter.
The latest Value Line report was issued several days ago, a week or so ahead of the Disney quarterly earnings report on Nov 10 AMC (after market close). The numbers jut reported were solid. Friday Nov 11, then saw DIS lift +5.95% on the day, leading to a gain of +5.58% W/W, closing at $36.70.
For the last WIR I wrote: “By following along these quarter yearly write-ups in the WIR, and the free (Dow 30) Value Line quarterly reports themselves, you can gain a sense of when and why to buy. I’ll argue today that now is the time to buy… The Current Price ($33.09 -5.94% W/W) is back to the mid-year 2010 cycle low. The stock price is presently tracking the S&P 500. A massive volume spike this week may be a sign of capitulation.”
Proof of concept: Over the past 13 weeks, DIS is up +10.91%.
But rather than tell you some nonsense such as that +10.9% gain in a quarter year is like an annualized gain of +51.3%, I will note that half the gain was made on the last day of the quarter and that the other 60-odd trading days of the quarter led to a gain of +23.9% annualized.
The point I am making is not sublime, but rather that traders deal in cause and effect, time and motion. In the prior WIR write-up, I gave specific reasons to buy and when to buy and there followed in the next quarter a price movement in the expected manner with a result that any trader would deem to be satisfactory for such a case (i.e., large cap, fully invested, no leverage, no derivatives, end of week prices).
I also stated that: “By following along these quarter yearly write-ups in the WIR, and the free (Dow 30) Value Line quarterly reports… (you are empowered)” and that is my message, DIS being just a case study.
Following the Disney data, and price jump, this week, it pays to read the media discussion.
You see, I believe that the crowd that follows Disney got a simple message, one that says (as the one writer stated) “Disney Theme parks saw an unexpected 11% revenue pop over the same quarter last year. This is huge for Disney, but it also may be exciting for the larger economy, as many believe that increasing theme-park sales are indicative of an improvement in the overall economy. This is very encouraging, and it’s a long way from the double-digit declines in theme-park revenue Disney became accustomed to in 2009.”
The writer in the following link made the same point.
So when I say the sky is not falling, there was never a fire in the theater, and a few of you respond that I am full of hog-wash because, why, your sons and daughters and neighbors have lost their jobs, and you want to know what stuff I read that could possibly lead me to believe we are not in a depression or at worse a recession of great proportions, I can simply point to Disney as proof of concept. I deal in facts, not stories or emotions.
I will not let this point go for the simple reason that no matter what I have written in these pages over the past seven and a half years there are some of you who don’t get it, and maybe never will, so every time you take up space here with your personal stories and emotions, I have to respond by saying the market is not about you – it’s about all of us, the people for instance that go to Disney parks, cruises, and movies, and watch ESPN and ABC’s The View, Good Morning America, Nightline, General Hospital, Jimmy Kimmel Live, Desperate Housewives, Dancing With The Stars, or my favorite Grey’s Anatomy.
The market is us. Disney is about us, and Disney is doing ok as the hard numbers show. Moreover, Disney management is guiding higher for 2012.
Total revenue for the company increased +7.5% for 2010 and almost +7.6% for 2011. Earnings for the same periods grew +13.7% and +22.2% respectively. These are facts.
The key is that profit margins are growing. When I started blogging, Disney’s Net Profit Margin was about 7% and now it’s almost 12%, which is impressive on its own merits but also because the corporate tax rate is still around 35%. Unlike General Electric and others, Disney pays its fair share of taxes.
Moreover, Value Line is projecting Disney’s Net Profit Margin to grow to 14.4% in the 2014-2016 period. I hope they do because it would mean pricing power would be enhanced via a stronger economy. It would also mean greater revenues in their basically fixed cost parks and cruise ships.
Revenue growth can be expected. VL is projecting higher revenues of +8.5% annually over the next 3-5 years. Think Disneyland Shanghai in 2015, and rapid downloads to home entertainment centers (and even smartphones) of Disney studio entertainment hits.
Admittedly the economy is not strong these days; so, think about what’s going to happen to Disney cash registers during a booming economy.
The stock high earlier this year was $44.34 on Feb 28. The FINVIZ chart shows a double top at 44. Within 12 months I anticipate a test of the 44, which would require a lift of +20.0% from today’s price ($36.70).
Dividends don’t yield a lot. The company paid $0.40 for 2011 and will pay $0.45 for 2012, which is a yield of not much more than +1%. So DIS is not a stock held in a Total Return portfolio as there are much better quality stocks for that. For a conservative growth portfolio, DIS will appeal to some as the company is a Cara 100, and has revenue, cash grow, earnings, and dividends growing at +8.5%, +12.5%, +15.0%, and +12.5% respectively. That’s quite good for a company that has a market cap of $64.7 billion.
Conclusion: DIS is a feel-good company with a very likeable stock for long-term investors. Add to positions, without any new cost, after price dips by writing puts and buying calls. Lower your cost base by writing calls at times you think the stock is over-bought and the broad market looking toppy. But hang in. And, if you are a semi-active trader, sell when the DIS 7-week RSI, STO, and TRIX reaches extremes on the upside and all three are starting to point down, and the current price drops below the 8-Week EMA. Buy the position back, at lower prices, when the opposite condition appears. Don’t try to hit the top and bottom price because you have a greater chance of winning the State/Provincial lottery. Go with the flow with a company/stock like Disney/DIS and over the years you’ll be happy.
[For WIR#7-2012 Feb 10 $41.45 vs Nov 11 $36.70 vs Aug 14 $33.09]
(For the Weekly chart, the) RSI-7 is now at 73.41, up from 61.94 at the WIR#46 write-up.
The 7-week RSI, STO and TRIX may have room on the upside for prices to continue lifting, but now are starting to get extended on the high side. On a risk:reward basis, it was best to buy Disney during August-Sept.
The Daily RSI-7 is now at 79.05, which is very high. Do not expect much more on the upside for the next few weeks.
For the DIS 60-Minute data, this chart, taken together with the Weekly and Daily, shows me that maybe a new high of around $41.70 might be hit this week, but I wouldn’t hold my breath waiting for more.
There is a time to buy and a time to sell or hold. Now’s not the time to buy.
But, you can see that in the past six months (i.e., in the past couple WIR’s), when it was the time to buy, that I got really fired up about Disney. At least I did in the WIR.
For WIR#33-2011 (Aug 14 $33.09), I wrote, among other positive notes: “By following along these quarter yearly write-ups in the WIR, and the free (Dow 30) Value Line quarterly reports themselves, you can gain a sense of when and why to buy. I’ll argue today that now is the time to buy.”
For WIR#46-2011 (Nov 11 $36.70), I added: “…you want to know what stuff I read that could possibly lead me to believe we are not in a depression or at worse a recession of great proportions, I can simply point to Disney as proof of concept. I deal in facts, not stories or emotions… The market is us. Disney is about us, and Disney is doing ok as the hard numbers show. Moreover, Disney management is guiding higher for 2012… Total revenue for the company increased +7.5% for 2010 and almost +7.6% for 2011. Earnings for the same periods grew +13.7% and +22.2% respectively. These are facts… The key is that profit margins are growing. When I started blogging, Disney’s Net Profit Margin was about 7% and now it’s almost 12%, which is impressive on its own merits but also because the corporate tax rate is still around 35%. Unlike General Electric and others, Disney pays its fair share of taxes… Moreover, Value Line is projecting Disney’s Net Profit Margin to grow to 14.4% in the 2014-2016 period…”
Today, for those of you who still write in the blog that the world is in a recession, I’ll simply point out that revenues have increased from $36.149 B (2009) to $38.063 B (2010) to $40.893 B (2011) and are projected to be $43.120 B (2012). Disney earns its revenue 46% from TV advertising (ABC and ESPN), 29% from theme parks, resorts and cruise ships, 16% from studio entertainment, and 7% from consumer products. If the world was in recession, the consumer could not allow Disney to have such success. As I say, “Disney is about us”.
Disney is also about good management. Earnings have escalated from $1.82/share (2009), to $2.07 (2010), $2.54 (2011) and an estimated $2.90 (2012).
In fact annual growth rates of the key metrics (Revenues, Cash Flow, Earnings and Dividends) are booming now and for the next 3 to 5 years vs the past 5 and 10 years.
Value Line concludes that: “These top-quality shares offer wide long-term appreciation potential” and I agree. My additional point is that you want to buy on weakness when the shares are temporarily out of favor. Let the market come to you. Ignore during those times the negative media because, being bought and paid for by persons much wealthier than you, it’s just a ruse to blind you to the buying opportunity so that those people can buy without competition.
Remember; the market is a game that plays people. You are those “people” – the 99% who are continuously conned by the 1%, the ones who are getting richer and richer on your mistakes.
Remember; Disney is your friend. When the time is right, buy some. Just don’t do it right now.
[For WIR#20-2012 May 11 $45.56 vs Feb 10 $41.45 vs Nov 11 $36.70 vs Aug 14 $33.09]
RSI-7 is now at 74.96 for the Weekly and 73.13 for the Monthly. The 7-week RSI, STO and TRIX may have room on the upside for prices to continue lifting, possibly for 3 to 6 months, but are extended on the high side.
On a risk:reward basis, it was best to buy Disney during August-Sept 2011. At this point, the 8-week EMA (presently 43.30) presents a worthy stop, one that should me moved higher as the 8-week EMA lifts in the weeks ahead.
The Daily data chart shows how extended on the upside that DIS is presently. A good stop for short-term traders would be the 8-day EMA (44.50).
The big story in the market this week has in fact been Disney. DIS was the #1 Dow 30 performer by a mile, rising +6.13% W/W.
Not only was Avengers a massive win for the company, clearly proving the wisdom of Disney’s $4.1 billion acquisition of Marvel, but we also got a superb quarterly earning report.
Here’s what was reported:
“With 18% adjusted growth in earnings per share, we’re pleased with our second quarter performance,” said Robert A. Iger, Disney Chairman and CEO. “We’re incredibly optimistic about our future, given the strength of our core brands, Disney, Pixar, Marvel, ESPN, and ABC, and our extraordinary ability to grow franchises across our businesses, such as The Avengers, which shattered domestic box office records with a $207.1 million opening weekend for a global performance of more than $702 million to date.”
My only concern is CEO Bob Iger’s pump and dump, selling $81.6 million in shares at an average price of $45.36, clearing $26.6 million before taxes and commissions, right after the Avengers hit a home run.
Otherwise, it’s obvious Iger has this company running on all cylinders. So who is going to complain?
Well, what about Bernard L. Madoff Investment Securities? That one sounded perfect too, until it didn’t.
Yes, I think that Iger should have waited a few weeks before dumping those shares.
Value Line raised the 6-12 month Timeliness Rating from a ‘3’ (market performer) to a ‘2’ (out-performer) on Feb 17, which is a Disney comedy in itself because the publishing date of the last VL report on Disney is stamped February 10, 2012, and the Timeliness Rating is ‘3’. What happened in that week to get them to raise the rating?
This anomaly just goes to make my point that the SEC overlooks any possible issue with companies like Value Line, and HB&B of course, always seeming to give them the benefit of the doubt, but then nails the little guy. If you don’t believe that, try forward dating your recommendations ten days in advance of releasing a newsletter, during which the SEC would be down your back for any trades made or different advice given in the interim.
Believe me; this b.s. goes on because the SEC knows they can scare the little guy. Do you think they can lay a hand on Banksters Jon Corleone of MF Global? They even dismiss the allegations of competent whistle-blowers. Ain’t right, and they know it.
Going back to the earnings report, Disney’s $0.63 (adjusted) earnings handily beat the consensus estimate of $0.49. Now the 2012 estimate is over $3.00, which will be over +20% growth Y/Y, and that is outstanding.
Dividends that popped from $0.35 (2010) to $0.40 (2011) to $0.60 (2012) could lift to $0.75 or even $0.80 for 2013, typically paid in mid-January, which is like a baby bonus nine months from now.
After my last WIR report (Feb 10) on DIS @ $41.45, I clearly was in love with the company, but thought the stock might come off before buying. Hmmm. You might have been able to score a few shares under $41.00, but you’d have to have had a lightning finger to do so. The stock just kept on climbing. Then after a bit of weakness to $41.00 on April 8, the stock literally and figuratively avenged that selling.
Not a surprise, but look at that extreme volume from Monday through Thursday this week. Iger was just eating it up!
I don’t want to say another bad thing about Disney because, truly, I love the company, and it has been a Cara 100 forever. I still remember my young son Will after his ride on Space Mountain, with both of us hanging on for dear life. He was ten at the time, but was unable to speak for two days afterward.
Now he drops by for Mother’s Day with the most beautiful bouquet of roses and our almost two-year old Caitlin in tow – 672 days actually, but who’s counting.
Now Caitlin’s a talker, but what can you expect from a long-distance traveler who has been to the US more times in the past year than me. She was even in the CME seats at Wrigley. Obviously she has lots of stories.
But I can’t wait to tell her about Space Mountain!
Unfortunately we don’t own DIS. We never seem to get a worthwhile pull-back.
[For WIR#33-2012 Aug 10 $49.65, up +9.65% vs May 11 $45.56 vs Feb 10 $41.45 vs Nov 11 $36.70 vs Aug 14 $33.09]
Chart of DIS Weekly price in solid blue line (S&P 500 in solid orange and DIS 8-week EMA in thin dashed blue): The chart shows the high correlation with the S&P 500.
RSI-7 is now at 77.15 for the Weekly and 80.08 for the Monthly. The 7-week RSI, STO and TRIX are extended on the high side and now have very little room on the upside for prices to continue lifting, and may indicate prospects of lower prices ahead, possibly within 3 months. This is a time when Sell Stops and covered call writes are in order for long holders.
On a risk:reward basis, it was best to buy Disney during August-Sept 2011. At this point, the 8-week EMA (presently 48.61) presents a worthy stop, one that should me moved higher as the 8-week EMA lifts a tad in the weeks ahead.
The Daily data chart shows how extended on the upside that DIS is presently. In the last WIR, I opined “A good stop for short-term traders would be the 8-day EMA (44.50)” but that would have taken you out right before the Bull move this past quarter. My bad!
Of course, anybody who uses a daily EMA for a stop would also as likely be using it to be a buyer. The Daily chart data shows this strategy would have been effective if consistently applied in this case.
The Daily EMA-8 is now 49.70 and the current price is 49.63, which means this indicator would have given a Stop Sell after the stock hit an all-time high of 50.65 on Wednesday. Again, this strategy is for day traders. Longer term position holders would more likely be using the Weekly EMA-8 (48.61) or the Monthly EMA-8 (45.47) as trading guides.
In any case, the Daily RSI-7 (52.71) is falling and barely positive and the Daily STO and TRIX are borderline turning negative. The same is for the Weekly data. Since the Monthly data is extended on the high side for all these indicators, I’d tend to use extreme caution here if I were holding the stock – at least for the short-term. If the broad market continues to move higher, then DIS is likely to pause a bit soon and then get carried higher, putting even more risk into the equation.
Value Line has DIS rated a ‘2’ [better than average] for 6-12 month performance against the S&P 500. The anticipated Total Return over 3 to 5 years is 7% on the low side to 12% on the high side. The Financial Strength A++ is very strong and the balance sheet has strengthened in the most recent five quarters.
VL also projects 3 to 5 year annual improvement in cash flow, earnings and dividend rates over the past five years. The quarterly details show improvements, and no concern for long-term position holders.
After the market close on Tuesday, the company reported earning $1.83 billion ($1.01/sh) in the June quarter vs $1.48 billion ($0.77) a year earlier. Consensus was $0.93 and VL had forecast just $0.87, so this was a considerable beat. Revenue though was up +4% to $11.09 billion vs consensus of $11.30 billion.
CEO Robert Iger said: “We had a phenomenal third quarter, delivering the largest quarterly earnings in the history of our company”.
This excellent Q3 will now mean a full year earnings of about $3.19/sh, which would mean a growth of +26%.
If the global economy were to be stronger, DIS would be reaching to the sky. Really, there is no need to sell. Over-bought technical indicators can stay over-bought for an awfully long time in situations like this.
But you do need to place higher Stop Sells over time because as the price rises so too does the risk of subsequent price pull-back.
The Dow 30 Company links in chronological order of the upcoming reports.
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)
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 Aug 10: next one is due Nov 9)
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, available at Amazon.com.
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 +3.54%. Over the past 12 months, there has been a gain of +25.43%. The Y/Y results are now at an extreme because of the broad market sell-off a year ago August.
Four weeks ago I opined in this space: “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.”
Later I added: “So the Bull move, aka Summer Rally, continues.”
Despite widespread debate, and disbelief in some quarters, equity prices continue to rise.
Over past four weeks, four sectors have beat the S&P 500 benchmark (+3.75%), led by Energy (XLE +8.39%), Technology (XLK +6.58%), Telecom (IYZ +5.85%), and Industrials (XLI +5.19%). All ten sectors are up, but the laggards are Utilities (XLU +0.54%) and Consumer Staples (XLP +0.85%).
This is what happens when the broad market goes risk-on.
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 (+$1.97/bbl and +2.16%) and the XLE shares (+2.74%) were both higher this week. $WTIC was also up +1.52% a week ago.
This week, XLE closed at 72.37.
Among plenty of big winners, the leaders this week were Cdn Natural Resources (CNQ +11.9% W/W and +19.9% over four weeks) and Precision Drilling (PDS +10.4% W/W and +39.3% over four weeks).
Canadian Natural (CNQ) was also up +4.8% on the prior Friday.
PetroBrazil (PBR) jumped +8.1% this week.
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.
Four 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.” Three 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 72.37.
FD: This week, we are long APA, CVX, NFX, PBR, PDS, SLB, SU, TLM and XOM in the Growth portfolio accounts, with XOM now our biggest position by a tad, and all those except PBR in the All-Weather. We are now slightly under 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 +2.68% W/W to close at 36.06, which was 2nd best sector performer, next to Energy (XLE).
Over the past three months, XLB is up +2.71%, under-performing the S&P 500, which gained +3.54%. In the past four weeks, XLB has gained +3.80%, which is about equal to the S&P 500 gain of +3.75%, and a clear improvement over what happened in the past year.
Big winners this week were Teck Corp (TCK +11.8% W/W), Freeport McMoRan (FCX +8.4%), Rio Tinto (RIO +8.2%), and Alcoa (AA +7.3%).
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.
Two weeks 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.”
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), Tenaris (TS) and Vale Mining (VALE) in this sector, in the Growth portfolio accounts, and the same except no FBR in the All-Weather.
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 +1.44% W/W to close at 36.68.
Over the past three months, XLI is up +2.63%, under-performing the S&P 500, which was up +3.54%.
FD: We hold ABB, CAT, CMI, JOY and UTX in both the All-Weather and Growth portfolios.
Cummins (CMI +2.33% W/W) is now up +14.31% in the past four weeks. In the same time frame, ABB is up +11.50%, CAT +8.37%, UTX +5.84% and JOY +13.14%. But JOY was up +13.17% this week alone.
CMI and JOY are our biggest positions in Industrials. Like FCX and many of the Gold/Silver Miners in Basic Materials, when they are good they are great, but when they sink they go down like lead.
Lots of talk about Fedex (FDX), which was down -2.25% W/W, but I won’t add to it other than to say some people, for some reason, think it has to do with a projected strike in the US postal service.
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 if, as and when the US Dollar trends lower.
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 +0.65% W/W to close at 44.62. There had been a big +1.98% gain on the prior Friday.
Over the past three months, XLY is up just +0.65%, under-performing the S&P 500, which has gained +3.54%.
Wall Street option traders favorites (because of volatility) JC Penny (JCP) and Brunswick (BC) were up +12.0% and +5.1% respectively W/W.
There were no big losers, but McDonald’s (MCD) dropped -1.6% W/W.
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 Disney (DIS), Nike (NKE) and Whirlpool (WHR) in the Growth and NKE and WHR in the All-Weather portfolios. We are presently at ~44% S&P weighting in this sector down from ~64% after selling Costco (COST) this week. Same store sales made a good jump as reported this week, and back-to-school sales are solid, but the 27 PE is a bit rich
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 dropped -0.34% W/W to close at 35.63. There had been a gain on the prior Friday of +1.68%, so over six sessions XLP is ok. But it is still lagging the rest as traders moved to risk-on.
This ETF hit an all-time high again this week, a regular occurrence, at 35.95. However, watch the divergence between price and momentum.
Over the past three months, XLP is up +4.43%, out-performing the S&P 500, which has been up +3.54%.
The only notable mover this week was Procter & Gamble (PG), which gained +1.9% W/W.
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, our biggest position, 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 IYH gained +0.66% W/W but was down -0.92% the prior week. IYH closed at 81.01.
The multi-year high of 81.41 set two weeks ago Friday was not exceeded in the past two weeks. The high a week ago was 81.12 on Monday and this week it was 81.06, set on Friday.
Over the past three months, IYH is up +4.98%, solidly out-performing the S&P 500, which has been up +3.54%.
This week Wellpoint (WLP +5.2% W/W) and (Cara 100) Celgene Corp (CELG +3.8%) were the sector leaders.
Another cara 100 in this sector, Bristol Myers (BMY) dropped -2.8% W/W and has a very low RSI. Maybe the company overpaid for Amylin Pharma?
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.
There is a lot of chatter amongst traders in Europe and the US as to how much pressure the European banks will be under if the ECB does not bail them out.
A week ago in this space I wrote: “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.”
This week XLF gained +0.81% and the biggest gains were Banco Bradesco (BBD +6.7%), Morgan Stanley (+6.0%) and Bank of America (BAC +4.2%), so it seems that many traders still like what they are hearing from out of Europe. As for me, there is too much smoke in the air to see much of anything.
Over the past three months, XLF is down -0.27%, under-performing the S&P 500, which has been up +3.54%.
FD: We returned Schwab (SCHW) to our positions in the Financial sector along with Mastercard (MA). is, and we are now up to ~24% invested to the S&P weighting for Financials, after dropping from ~26% to ~14% to ~6.6% in the past few weeks.
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.
Two weeks ago I reported: “SMH (+4.83% W/W) and XLK (+1.32%) received a big bump this week after comments from the ECB.” Then a week ago I added: “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.”
And this week, XLK was up +2.00% W/W while SMH soared +3.23%.
What I don’t care for is where the leadership came from this week. In the semi-conductors, the embattled Atmel (ATML) was up +8.1%, and in the Tech space the solar leaders, First Solar (FSLR +25.6% W/W) and Suntech Power (STP +16.0%) were very strong and so too was Research in Motionless (RIMM +18.6%). RIMM was up +6.3% on Friday. FSLR is now up +47.8% in two weeks.
Apple (AAPL +1.41% W/W) was higher this week, and the weekly high was 625.00 on Wednesday, not quite up to the 644.00 set the week of April 9.
I was in an Apple retail store this week. When I was arriving the entire mall had a general fire alarm, but Apple was the only store that evacuated. After the bells went off, we were invited to stand in line at the door while the staff paraded out of the back, all cheering. What amazed me was this was a massive team, all dressed alike, which I never would have realized was so many in number until I saw them taking their positions. There must have been over 30 of them. Impressive, and costly. I didn’t buy anything, but was there to get my faulty iPhone tested. I couldn’t figure out the problem even after spending time with my handy iPhone for dummies, Seniors edition! I need to get with it. There is absolutely no technology vendor that provides such simple to use products. I have a Blackberry, but it like the company is motionless because the iPhone is superior.
Over the past three months, XLK is up +5.09%, now out-performing the S&P 500, which up +3.54% in that time. There has been a gain of +6.58% over the past four weeks while the S&P 500 has gained +3.75%.
Over the past three months, SMH is up +3.13%, which is quite a turn-around. There has been a gain of +11.44% over the past four weeks.
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.
The XLK has hit another ten or eleven year high, but is still down quite a bit from the high of 2001.
FD: After adding Broadcom (BRCM), we presently hold AAPL, ATVI, BRCM, CSCO, GOOG, IBM, INFY, INTC, JNPR, MSFT, ORCL and QCOM in both the All-Weather and Growth portfolios, in this sector. We moved to ~115% S&P weighted in Tech, from ~112 a week ago, ~98% two weeks ago and ~78% three weeks ago.
Our holdings are restricted to Cara 100 companies.
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 up +2.49% W/W to close at 24.26, following a quiet week the one before.
This week AT&T (T -0.24%) and Verizon (VZ +0.31%) went in opposite directions again, but were both quiet.
The big winner once again was Nokia (NOK), which gained +16.5% W/W and is now up +30.81% over two weeks, and +50.00% over four weeks. From terrible to terrific, but NOK is still down over -43.4% in the past 52 weeks.
Thanks to NOK, IYZ is up +5.85% over four weeks and +13.84% over the past three months, which happens to be #1 sector performer in 13 weeks.
Traders like those dividends. As I say, Uncle Sam cannot match them, or even come close.
A week ago I reported: “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.”
This week, the results are in, as expected, with IYZ being up +18.57% over 52 weeks.
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 -0.85% W/W, and closed the week at 37.54, which was worst performing sector. A week ago there was a loss of -0.60% and XLU was 2nd worst performer of the ten sectors.
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.
American Electric Power (AEP +2.9% W/W and +4.5% over four weeks) has had a heck of a run up recently and since mid-April.
In the other direction, FirstEnergy (FE -7.4% W/W and now -7.1% over four weeks) has been a loser. Disappointing earnings on Tuesday morning have led to several analyst downgrades:
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 2-, 5-, 10- and 30-year Treasuries were up +3, +4, +6 and +9 basis points (bp) to +0.26%, 0.70%, 1.62%, and 2.73% respectively. So the Treasury bond market took a hit as capital decided to go into equities.
A week ago I reported: “Because of Friday’s move into bonds in Europe, the US Bonds were weaker again this week.” So, maybe some of the bonds capital was also ending up in Europe.
The big point is that Bonds are weakening, and this may be a significant ‘tell’ on traders’ new found confidence in equities – based partly on corporate earnings that are coming in a tad better than expected. That might be the case, but I think it’s a picture taking shape around QE among the G-20 central banks.
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 charts below.
You know I have to repeating the following statement for a couple weeks:
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.
While prices don’t go straight up or straight down, we might have seen the absolute peak in Treasury bond prices on July 25 when TLT hit 132.21 intraday and closed that day at 132.16.
Here is the Monthly chart of TLT (in solid blue with the 8-month 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.
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 $USB 30-year Treasury Bond chart.
US Bond Funds — Interactive Monthly Data Charts SHY Monthly data series chart:
IEF Monthly data series chart:
TLT Monthly data series chart:
AGG Monthly data series chart:
LQD Monthly data series chart:
TIP Monthly data series chart:
SHY Weekly data series chart:
IEF Weekly data series chart:
TLT Weekly data series chart:
AGG Weekly data series chart:
LQD Weekly data series chart:
TIP Weekly data series chart:
SHY Daily data series chart:
IEF Daily data series chart:
TLT Daily data series chart:
AGG Daily data series chart:
LQD Daily data series chart:
TIP Daily data series chart:
Table 11: Interest-sensitive securities
Some people think this 11-minute video is a good basic explanation of the bond market:
With a huge +2.10% gain on the prior Friday, the commodities index ($CRB) gained a further +0.37% this week, to close at 301.81. The trend is starting up.
But, while I could not pinpoint the losses other than Nat Gas, Cotton, Wheat, OJ, and Corn, there was a loss of -0.98% on Friday though.
I have written in this space often: “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 Weekly data chart of $CRB (solid blue line with 8-week 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 +$1.97/bbl (+2.16%) to close at 93.38. There was also a gain of $4.01/bbl on the prior Friday (+4.59%) that made that week.
What I think is happening here has to do with Iran, Syria, Lebanon and Hezbollah, but I don’t want to get into politics.
No, I have enough to think about today with Mitt Romney’s VP candidate Paul Ryan.
Not that Ryan has much to do with Oil & Gas, it’s just that he will, for certain, be a lightning rod politically speaking. I happen to like the guy – in fact any politician who says he leads by his chin is going to be a favorite in my books because I guess that’s my style. A former General Electric executive once told me I’m a hockey player playing business, and I kind of think Paul Ryan is a bit like that too.
Enough for politics.
Oil prices are on the rise, headed apparently for $100/bbl.
The hi-lo for the week was 94.72-90.63 vs 91.74-86.92 the week before and vs 91.64-86.84 the week before that.
So is a break-out or a continuation of the short-term trend? Or, is this a ‘Blame it on Hezbollah and Iran because we in the White House cannot fight a presidential election campaign on the back of higher oil prices (caused by QE)’ kind of thing?
Here’s the Weekly data chart of $WTIC in solid blue vs the S&P 500 Index in solid thin orange.
To reiterate from two weeks 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, just like they did the last one, as one that pushed up prices resulting from increased tension in the Middle East.
For another perspective on why I think the Middle East is the big issue, here is the ratio chart for $BRENT (which is the European oil price) vs West Texas Intermediate ($WTIC). The rising line shows $BRENT out-pacing $WTIC:
The sector index for the oiler company stocks (XLE) was up +2.74% W/W, which after a gain of +2.35% on the prior Friday, is a rather large six session move – the biggest of any market sector.
This is all about politics.
Here is the e-miNY Dec-07 Crude Oil chart.
Gold & Precious Metals Review
The gold market
This week, $GOLD gained +$15.30 (+0.95% W/W) to close at $1621.50. We’re back to where we were two weeks ago as one week ago the price dropped -$13.70/oz (-0.85% W/W).
But with the gain of +$12.40/oz (+0.78%) a week ago Friday, there’s been a gain of $27.70 in six sessions.
The high-low for the week was 1629.70-1605.30 vs 1631.60-1586.30 a week ago and vs 1628.60-1562.00 two weeks ago and 1598.80-1567.20 three 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.”
But in the short term, I think this is mostly about the anticipation of QE, of political issues in the Middle East, and a US presidential election campaign that is bound to have the two candidates promising the moon.
Here is the Daily 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 weekly closing 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 +$0.31/oz (+1.12% W/W) this week to close at $28.05/oz.
The stars are lining up.
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.
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 -$2.90/oz (-0.21% W/W). The close was $1401.60.
There was a similar loss the previous week. The charts need some buying before they go Green.
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 (1401.60) is still a lot lower than the 8-week EMA (1424.45) and is now a tad below the 8-day EMA.
It’s time to watch the stocks.
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 +$3.75/oz (+0.65% W/W) to close at 582.75. There was a gain of +$5.00 the prior week.
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 (582.75) needs to lift above the 8-week EMA (586.93) to turn the technical picture bullish, but the Weekly chart looks promising.
The (base metal) copper market
This week $COPPER dropped -$0.039 (+1.17% W/W) to close at 3.41.
After gaining 4 cents this week, there was also a gain of almost four cents on the prior Friday, so traders possibly are also looking at the Middle East political situation.
As I pointed out a week ago: “…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.” The Dollar did drop a bit (-0.10%) on Friday but was up +0.22% W/W.
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.
Freeport-McMoRan (FCX +8.39% W/W) has had a break-out in the Daily data chart.
As noted two weeks ago in this space: “…a break-out is likely if the stock lifts past $35.00.” The price is now $36.31.
Table 12: Senior gold equities
Three weeks ago I reported: “Traders are on edge. The Daily, Weekly and Monthly charts are Bearish.” Two weeks 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.” Then one week ago, I reported: “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… 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.”
Junior Goldminers (GDXJ +4.67% W/W) and Senior Goldminers (GDX +4.64% W/W) were higher this week, but most traders are still nervous. I think they are looking for too much too soon. A lot of technical damage was done in a very short period of time, catching most of us off guard at the time, and so the angst is still palpable.
But the trend is now up. I showed the reasons off the top of this WIR, which can be summed up in a single word, “QE” or “politics”. But, make no mistake about it; the trend is now up.
Here is the GDXJ Daily data chart:
Yes, the ratio charts of $SILVER:$GOLD, and GDXJ:GDX, and GDXJ:$GOLD are all now bullish.
As I have repeated here many times: 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 and reports 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 where the Cdn Loonie gained ground on the Yankee Buck, even passing par:
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) gained +0.22% W/W to close at 82.553, but is still down from the close two week’s ago at 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 $USD (solid blue line along with 8-week EMA in thin dashed blue) vs S&P 500 solid thin orange line, showing counter-cyclicality.
The weekly data chart shows a possible break-down in the making. The current price (82.55) is bang on the 8-week EMA, and the STO and TRIX are on the decline while the RSI weakened at the time the cycle high was set in July. Traders look for divergence like this example.
The high this week was 82.87 and the low was 82.04 vs the prior week when the high was was 83.51 and the low 82.20, so the US Dollar is weakening. Two weeks ago the high was 84.10 and the low 82.34, which is a further indication the price is softening.
Two weeks ago about this situation, I opined in this space: “I think down, but we’ll have to wait.” Also, three weeks ago I remarked here that: “This is a clear sign that most everybody who wants to buy Dollars has already done so – for the time being.” I added: “What happens now is that traders must determine the market’s confidence in the ability of the Eurozone to stabilize the Euro with their new Stabilization Fund. Then we have to look at the Fed policy of weakening of the US Dollar… In the interim came the statement from the Eurozone authorities that the Euro would be protected at all costs.”
For now it continues to appear that the US Dollar is softening.
The Euro this week dropped -0.79% W/W to 122.90.
Here is the Weekly data chart of the Euro ($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).
The Euro backed off the falling 8-week EMA, but the indicators are neutral.
What I’ll be looking for is to see if the contract can exceed this week’s high of 124.42 during the next week. That may be a tough order, but is doable.
This week the Pound sterling future ($XBP) gained +30% W/W to close at 156.91, all because of the gain of +0.33% on Friday. There was also a gain of +0.82% on the prior Friday.
Here is the Weekly data chart of the Pound (solid blue line) and the S&P 500 (in the solid thin orange line).
Weekly British Pound Index:
Daily British Pound Index:
Weekly Japanese Yen Index:
This week the Yen contract ($XJY) gained +0.23% W/W to close at 127.75, which was due to the gain of +0.35% 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 $USD strength (i.e., weakness, which is what traders are hoping for) is the decision by the G-8 to usher in high levels of QE across the board.
Perhaps the Yen strength this week has occurred with the strong move (+3.93%) in the Nikkei 225.
Daily Japanese Yen Index:
Daily Canadian Dollar:
This week the Cdn Dollar ($CDW) was very strong, gaining +1.02% W/W to close above par par, at 100.90 American. There was a large gain of +0.56% the previous Friday.
Interviews this week with Canada’s Bank of Canada Governor showed a very confident person, telling us that Canada’s banks would not be having any possible reserve requirement issues going forward.
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.
Like the London Games of 2012, this WIR is coming to a close.
It was not just Olympic mania, but I think there were many exciting things happening in many countries this week. This was not just a single Bolt of lightning. As I opened this week’s WIR, I explained with many pictures why I think the 2H2012 is going to be much superior to what the market pundits have been anticipating.
With Romney adding Ryan – the wrong Paul, but a very electable VP – I know the Republican crowd is a happy one this weekend. Well, I don’t know that for certain because I have not had the time to watch their Talking Heads tell me what I should know, but let’s say I feel it.
I’ll feel it better after watching Paul Ryan take on the Obama VP – what’s his name? – in the televised debates. Yes, I don’t think Letterman and Leno will be having as much fun with Ryan as the field day they’ve had with Joe Biden.
This is serious stuff now.
I’m wondering how many of the US Gold medal winners get their photo day at the White House? Will all of them go or will some like The Bruins goalie Tim Thomas skip the trip saying “the government has grown out of control”?
There is always a story to tell in America. American’s are good at it.
I try too. It keeps me vertical.
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.
I see we are now ranked #78,721 at Amazon.com, down from #129,949. Amazing!
Please direct people to http://www.caracommunity.com/ and point them to the right sidebar.
Amazon in the UK has it too.
What I do not understand is how my original hardcover Lessons From the Trader Wizard (2008) is available via Amazon.com priced between $99.95 and $164.47 plus shipping – from four different book-sellers. Wow!
Where would they get these books anyway as there was only one edition printed and they are long gone except for the few I have personally that I use for gifts.
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.
Next week or so, Stefanie will announce the Conference details. I believe it will be the best one yet.
In closing, I want to say that people should not doubt my crystal ball. A few days ago I wrote some nasty words about the FIFA handling of matters at the Olympic Games. I opined they would be eating their words if they ever acted to censure Canada’s Christine Sinclair because I figured she would get past that shocking behavior of the FIFA referee in the crucially important US match and go on to win a bronze medal, lead Canada’s contingent at today’s closing ceremonies by waving the flag, and soon be voted by the sportscasters (and the Prime Minister) as Canada’s Female Athlete of the Year.
If FIFA does suspend Christine Sinclair from participating in the Bronze medal game for her post-game remarks, they will soon be watching her carrying Canada’s flag to the closing ceremonies and acknowledging her next year as Canada’s female Athlete of the Year. Good on her.
I wrote this on Monday, well before Thursday’s match against the favored French team, a game they probably should not have won, being out-chanced 25 to 4, when their only shot went into the opposition net.
Winning makes us happy, but winning (and losing) with Christine Sinclair was something special.
Have a good day. Sorry about some of the charts that are missing. We are moving the site to a new system and a new server, and my rule of five is coming true: 5x the problems that had been anticipated. Actually it’s going very well. Life is good.