Bill Cara’s Week in Review #39, 2012
[5:06 pm ET Sunday] A week ago I opened the Week In Review with these words:
The Fed has spoken. “Read my lips: QE until unemployment falls to an acceptable level.”
At this point, the US, European, UK and Japanese central banks are on board for QE. Of the difference makers, only China has not made an unbridled commitment to QE, preferring to only announce greater infrastructure spending, and Canada says they are so inclined, but are waiting to see how high the Loonie will fly before the Bank of Canada has to ground it.
But, in the case of China, investors have remained unconvinced that extra spending for long-term infrastructure projects like roads and bridges is enough to help in the short-run; the equity market remains in the tank. In fact the Shanghai Stock Exchange Composite index this week was down -4.6% and is down over -1.0% over the past month.
In fact, it’s been a tough 18 months, and a terrible past year.
Something else must be done by the People’s Bank of China as the macroeconomic data has looked bad for almost a year now, month after month looking a little weaker. So given that the other central banks have hopped aboard the Great Reflation Bandwagon, I think that the PBOB will follow inside three weeks, possibly as early as the week ahead.
The week prior was firmly bullish — even aggressively so – but this week was a move to the defensive.
With the US S&P 500 dropping -0.4% and the MSCI World Equity ex-US ($MSWORLD) Index dropping -1.6%, this week was a time for consolidation for equity traders all over the world. Most of the selling occurred Monday, Tuesday and Wednesday.
I noted that the principal headline at the UK-based influential Financial Times from very early Monday (time-stamped 8:00am BST) and continuing through the day ad nauseum was:
September 17, 8:05am
Shares start week on a subdued note
Monday 08:00 BST. The bullish surge from last week’s confirmation of more Federal Reserve largesse is losing impetus, leaving many stock and commodity barometers easing back from recent highs.
I received the same headline another eight times: time-stamped 8:50am BST, 10:50am BST, 12:35pm BST, 2:30pm BST, 4:00pm BST, 6:45pm BST, the same one repeated 21 minutes later, and just in case I missed the message from this medium, again at 9:20pm BST.
For the uninitiated, British Summer Time (BST) is five hours ahead of Eastern Standard Time (EST), which is the clock we use in New York and Toronto. So these messages started at 3:00am EST (which I just call ET because when we go to Daylight Savings Time, the media still refers to it as EST), and they ended at 4:20pm EST, timed well for the closing of the markets on this side of the pond.
I have also made note of this process at FT previously. It does not happen often, but when it does, there is weight to the message in more ways than one. Clearly, FT is making a point on somebody’s behalf. On Monday, that message, given nine times, was SELL.
As I say the selling continued for three days.
Once again, if I’m running the SEC, I’m on the job looking into the propriety of this matter.
If you think I ought not be so cynical, then you ought to consider that the IOSCO, which is the world body of securities commissions, this week announced that if a few banks manipulated LIBOR, the London InterBank Offered Rate, and they clearly did, then other market benchmarks are also likely being manipulated.
If a single bank, Barclays, agreed to a fine of $460 million re LIBOR and many banks were involved, and now IOSCO says many benchmarks might similarly be affected, then how many billions is it worth to Humungous Bank & Broker (HB&B) to continue manipulating our markets?
As the chairman of IOSCO said, “Iosco, as the international organization of financial market regulators, is firmly committed to restoring confidence in benchmarking activities globally”. But it is not happening. These cases of fraud are continuing at an astounding rate, the fines are being paid from shareholder capital, earned by cheating their clients, and nobody is being prosecuted and sent to prison. A poor man can be given a life sentence for stealing food for his desperate family and yet no senior banker is going to prison for stealing billions, and tens of billions, and sometimes more. What does this say about securities regulators, criminal prosecutors, and the society we live in? I say it’s pathetic.
My point today is that if we are counting on the mainstream media to scream outrage, all we are getting are headline stories, like those of FT, that are talking the book of some patron. Cheaters are prospering.
Back to the market: On Friday, the US S&P 500 and the MSCI World Equity ex-US ($MSWORLD) Index were virtually unchanged on the day, so maybe next week might see a renewal of the short-term bullish trend.
Three weeks ago on August 31 the S&P 500 closed the week at 1406.6 and, despite this week’s loss, still stands at 1457.6, which is a gain of +3.5%. I am impressed and, while some of the technical indicators definitely show a bit of weakness here, I am not turning bearish in my outlook.
It’s the Wall of Worry. I get it.
Given that summer officially starts on June 21 and ended Friday Sept 21, and the equity market is up about +7.0% since the end of June, I say it’s been a heck of a summer rally, and I’m not going to be worried about it, particularly when I see the b.s. manipulation going on in mainstream media.
Despite the loss in the S&P 500 this week, the Goldminer stocks were up. The senior gold producers index (GDX) lifted +1.76% W/W including a gain of +0.83% on Friday. Also the junior gold miners and explorers index (GDXJ) lifted +3.16% W/W including Friday’s gain of +2.00%.
It’s QE. Traders get it.
Bonds (TLT), which a week ago had plunged -4.6% W/W, were up +2.75% this week, with a very small gain on Friday. The big gains were made Monday through Wednesday, of course! Conditioned reflex. Make people believe that bonds are not crashing is their plan.
How high can Ivan Pavlov’s dog jump? Maybe the question should be, how long? I don’t understand why most people can be fooled so much of the time. I put it down to the fact that it is human nature to be trusting of authority since we put these people in that elevated position and we don’t like to admit our stupidity for doing so.
More than anything, this is the reason I think differently, act differently, to most people. I, from experience, have learned to generally distrust authority and to rely on myself for all decisions.
This week, the US Dollar ($USD), which had been a major loser a week ago (-1.75%), was back to testing resistance on the upside with a gain of +0.61% W/W. I wasn’t too much impressed and consider the gain to be a failed test so far. I cannot see how QE by the Fed is going to grow the value of the Dollar. The only hope for the Dollar will not be found in value but in the cross-rates to currencies of other countries also involved in QE. But against a storehouse of value, such as gold, that currency trend is simply a race to the bottom. In other words, how fast and high can the price of gold go?
Yes, I continue to believe in the Bull, including the trend for precious metals, but I also recommend studying certain key ratio charts in capital markets that together might provide “the weight of the evidence that prices are caught up in a major bullish trend”.
For these studies I would look at the ratio charts of:
• US Bonds ($USB) vs the US S&P 500 ($SPX)
• Global Dow Index ($GDOW) vs US 20-year Treasury Bonds (TLT)
• MSCI World Equity ex-US ($MSWORLD) vs the US S&P 500 ($SPX)
• US small cap Index ($RUT) vs the US large cap S&P 500 ($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)
• US Treasury Inflation Protected Bonds (TIP) vs US 20-yr Treasury Bonds (TLT)
• 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 ($XOI)
• Semi-Conductor Tech Companies (SMH) vs Major Tech Companies (XLK)
These charts, taken together, show what I call the weight of the evidence of the bullish trend now in place. It’s a big picture view that is important. You need to stick with the trend, and also continuously apply your stops.
Daily US Bonds ($USB) vs the US S&P 500 ($SPX)
Daily Global Dow Index ($GDOW) vs the US 20-year Treasury Bond (TLT)
Daily MSCI World Equity ex-US ($MSWORLD) vs the US S&P 500 ($SPX)
Daily US small cap Index ($RUT) vs the US large cap S&P 500 ($SPX)
Daily Canada (EWC, in USD) vs US S&P 500 (SPY)
Daily US Industrials (XLI) vs S&P 500 (SPY)
Daily Consumer Discretionary (XLY) vs Consumer Staples (XLP)
Daily Euro ($XEU) vs US Dollar ($USD)
Daily US Treasury Inflation Protected Bonds (TIP) vs US 20-yr Treasuries (TLT)
Daily Goldminers (GDX) vs Gold Bullion ($GOLD)
Daily Silver Bullion ($SILVER) vs Gold Bullion ($GOLD)
Daily Junior Gold Miners (GDXJ) vs Senior Gold Miners (GDX)
Daily Oil Services Companies ($OSX) vs Integrated Oil companies ($XOI)
Daily Semi-Conductor Tech Companies (SMH) vs Major Tech Companies (XLK)
With these ratio charts, the good thing is that you are looking at the market speak, not the media. You can see for yourself the unfolding of relationships – what is actually happening in the market today.
I don’t have the time today to review these charts here in the opening of the WIR. Hopefully you all are starting to understand the nuances. If so, you can see some break-downs in the usual bullish indicators, and some that have fallen back into “iffy” territory. But, it the big picture, the weight of all of the evidence, that helps you grapple with the question of trend.
Yes, my remark of two weeks ago is true:
The drumbeat of monetary policy easing grows louder and louder as it becomes apparent that three years into an economic recovery something’s not right, normal growth rates are not being attained, and any politician who claims success is a liar.
I link QE to bullishness for equities, commodities and precious metals, but I also know that prices in a bullish trend do not go up in a straight line. And, when I see trend anomalies, I am looking for reasons, and having to decide whether the patrons of the mainstream media are beating down certain prices to be able to accumulate positions, or to elevate them to over-valued levels in order that they may distribute positions.
There is always an angle to market prices. It’s up to us to figure it out. The rich and powerful in our society are not going to take money out of their pockets and put it into ours. The government is already doing that to them, and they are not foolish enough to let us do it too.
For an objective presentation of what happened this week in the US with the economic reports, here are the headlines from the Econoday analysts:
• Housing starts rebound—mild uptrend in housing construction continues
• Existing home sales show growing demand in the housing sector
• Empire State and Philly Fed mostly negative for September
• Markit PMI stays positive in September—but barely
• Leading indicators point to slowing growth
From the four previous weeks, the econ headlines were as follows:
• The Fed makes major policy moves—but effectiveness still a question
• Retail sales spike on gasoline
• Consumer sentiment unexpectedly improves in early September
• International trade remains steady in July but exports and imports dip
• Industrial production drops in August
• Consumer price inflation spikes on gasoline prices
• Producer price inflation surges in August
• Employment disappoints for August
• Motor vehicle sales rev up in August
• Markit and ISM manufacturing surveys weaken in August
• Construction outlays decline—but new residential still headed up
• ISM non-manufacturing growth improves in August
• Second quarter GDP a little better than earlier believed
• Personal income and spending gain in July
• Consumer confidence (weak) and sentiment (positive) give mixed signals
• Pending home sales rebound in July
• Home prices continue to improve, according to Case-Shiller
• Chicago PMI suggests forward momentum is improving
• Dallas (+), Richmond (+) & Kansas City (neg) Fed surveys show divergence
• Beige Book shows continued growth
• Bernanke makes no commitment at Jackson Hole symposium
• Durables orders fly in July on aircraft—other components grounded
• Markit PMI flash manufacturing index improves
• Existing home sales make a comeback
• New home sales gain in July
• FHFA house prices continue uptrend in June
• The Fed leans toward additional ease in minutes—but data are stale
The bottom line this week, says Econoday: “The recovery continues but with shifts in sector strength. Housing is rising and manufacturing is softening. The Fed is giving a boost to the housing sector with purchases of mortgage-backed securities but the marginal impact is likely slight compared to pre-QE3.”
I don’t like the moniker QE3. It’s just QE, part of a process, not an event.
Because of the track-record of independence and objectivity, I encourage you to read the Econoday reports on the US economy. If we had more time in a day, we’d also be looking at the econ data for the rest of the world – at least more of it.
As for our studies this week, we’ll first look at the detailed economic data for the week that passed and the one ahead. Then we’ll get into the market prices, and the trends and cycles of Currencies, Bonds, Equities, Commodities and Precious Metals.
Global Economics Review
Equities were mixed last week as the euphoria from the multiple central bank moves of the previous weeks wore off. Continued concerns about global economic growth and in particular in China, had investors switching from optimistic — that the central bank moves over the past few weeks will return the world to growth — back to pessimistic. The Bank of Japan joined the other major central banks in announcing a surprise increase to their asset purchase program. Investors are still digesting the major central bank moves while new economic data have been on the weak side.
Econoday’s Global Perspective is written by chief economist Anne Picker.
After the latest Fed decision to engage in another round of quantitative easing, traders actually took the time to look at economic and corporate news and decided that maybe the financial and economic world is not so rosy after all. Still, economic news was mixed as shifts in sector strength continued with both pluses and minuses.
Mark Rogers is the author of The Complete Idiot’s Guide to Economic Indicators, Penguin Books, 2009. I recommend it.
The reason I devote much time in the WIR to the reporting and analysis of economic data is for us to gain an understanding of important reasons behind the ebb and flow of capital market prices and the sector rotation within markets. After you follow these reports from month to month you will get a sense of the interrelationships between the business or economic cycle and the market cycle.
After the release of the latest data on 09/17/2012, 8:30:00 AM ET, Econoday reported, Orders continue to fall and shipments continue to slow in the New York region’s manufacturing sector. The Empire State general business conditions index fell more deeply into negative territory, to minus 10.41 for a second straight negative reading vs minus 5.85 in August. The new orders component is at minus 14.03 to signal significantly greater monthly contraction than August’s minus 5.50. New orders first slipped into the negative column in July at minus 2.69. Unfilled orders, which have been shrinking all year, show their most severe rate of monthly contraction at minus 14.89. A partial offset to these order readings is an upturn in six-month expectations for new orders which is up nearly 15 points in the month to 17.02 for the best reading since May… Shipments are at plus 2.75, down from 4.09 in August for the slowest rate of monthly growth of the year. The number of employees index is also positive but is also showing the year’s slowest growth rate. Delivery times are slowing slightly which is a mild sign of strength while inventories are unchanged. Price readings show increasing pressure for inputs but some welcome pricing power for finished goods… The factory sector appears to be bumping along as manufacturers, at least for now, ride out choppy conditions by relying on backlogs. Stock futures are softening following today’s report. The Philly Fed, which has been weak since May, will be posted Thursday morning while Markit Economics, whose US data have been on the strong side, will offer its national view in a flash reading earlier that morning.
After the release of the latest data on 09/18/2012, 10:00:00 AM ET, Econoday reported,
After the release of the latest data on 09/19/2012, 8:30:00 AM ET, Econoday reported, Builder confidence in the new home market continues its strong improvement, up three points to 40 on the housing market index for September. This is the fifth straight gain and lifts the index to a five-year high. An optimistic outlook is now the dominant factor lifting the index as six-month sales expectations are up a big eight points to 51. The component for current sales, at 42, is up a solid four points in the month. Lagging is traffic, up only one point to 31 in a hint that buyers who are looking are serious. Top concerns among builders include tight conditions in the credit market and a lack of building lots. Housing news tomorrow will lead off with housing starts & permits followed by existing home sales.
After the release of the latest data on 09/19/2012, 10:00:00 AM ET, Econoday reported, Existing home sales rose strongly for a second straight month, up 7.8% in August to an annual unit rate of 4.82 million. This is the largest monthly%age gain since last August and the highest rate since May 2010. All regions show high single digit gains in the month… Supply on the market, at 6.1 months at the current sales rate, remains tight and may be limiting sales. Supply was last this tight in January. Helping sales are soft prices with the median down 0.2% to $187,400. Still, the comparison with last year, when sales were weak, shows a 9.5% gain for the median. All cash transactions are unchanged in the month at 27% with distressed sales easing to 22% from 24%… The National Association of Realtors, which compiles the existing home sales report, says the housing recovery is becoming much more convincing. The Dow is moving to opening highs following today’s report.
After the release of the latest data on 09/20/2012, 8:30:00 AM ET, Econoday reported, There isn’t much reversal, at least so far, in initial claims following the effects of Tropical Storm Isaac. Claims for the September 15 week are down only 3,000 to a 382,000 level that’s sizably above the Econoday consensus for 373,000. The September 8 week is revised to 385,000 with roughly half of the week’s 18,000 jump due to Isaac. Stock futures are moving lower in immediate reaction to today’s report… The four-week average for initial claims is not pointing to any improvement for the September employment report. The average is up 2,000 which is the fifth straight weekly rise. The 377,750 level is the highest since June… Continuing claims are more positive, falling 32,000 in data for the September 8 week to 3.272 million for the lowest level since May. The 4-week average is down 12,000 to 3.310 million. But the improvement isn’t enough to bring down the unemployment rate for insured workers which stands where it has for the last six months at 2.6%.
After the release of the latest data on 09/20/2012, 9:00:00 AM ET, Econoday reported, Growth in factory activity is modest and stable, according to the PMI manufacturing flash index from Markit Economics which is unchanged at 51.5. A modest but healthy rise in new orders, up five tenths to 52.4, leads the details of the report. This reading now shows two months of gains after hitting a recovery low in July at 51.0. But strength in new orders is centered in the domestic economy based on new export orders which, at 47.9, are below 50 for the fourth straight month to indicate monthly contraction. Another offset to the new order gain is the third contraction in four months for backlogs, but this should reverse if new orders keep coming in… Other details include steady and moderate growth for production and for the sample’s workforce, as well as slight and healthy inventory draws for both raw materials and finished goods. Price data show only the slightest pressure… This report has definitely been on the positive side compared to other reports. The rival manufacturing report from the ISM has been picking up negative signals since June with new orders especially weak. Hard government data on the factory sector lag anecdotal reports significantly but what’s available shows a big dip in production during August but one, however, preceded by a big jump in new orders during July.
After the release of the latest data on 09/20/2012, 10:00:00 AM ET, Econoday reported, A gain for new orders is a positive signal from a downbeat report. New orders in the Mid-Atlantic manufacturing sector rose a sharp 6.5 points to plus 1.0 for the first positive reading since way back in May. A positive reading indicates monthly growth… The prior run of contraction in new orders is depressing readings on other activity. Backlog orders are still in contraction, though at a slightly less severe rate. But shipments are contracting more severely though the gain in new orders, if of course sustained in the months ahead, points to strength for future shipments. And future readings are very positive in this report, showing a massive 28.7 point jump in the six-month outlook for general business conditions… Other readings include continued contraction for current employment, continued drawdown in inventories, and tame readings on prices. The headline index, at only minus 1.9, indicates only slight contraction in general activity. The Philly Fed report was the first to signal trouble for the manufacturing sector and though most of its readings remain depressed, the gain in new orders is a very special positive. Watch next week for a run of regional factory orders starting Monday morning from the Dallas Fed.
After the release of the latest data on 09/20/2012, 10:00:00 AM ET, Econoday reported, The index of leading economic indicators is down 0.1% for the third contraction in the last five months. The decline for the ISM new orders index weighs most heavily on the August LEI, but this decline looks to possibly reverse this month based on this morning’s rise in new orders for both the PMI manufacturing flash report as well as the Philly Fed report. Consumer expectations are the second biggest negative in today’s report but this too looks to reverse based on the big surge in last week’s consumer sentiment index and also improvement underway for the Bloomberg consumer comfort index… But jobless claims, which are stubbornly high, look to be a sustained negative. A sustained positive will be interest rates though the decline underway in long rates, instead of giving a boost, has been taking steam out of the Conference Board index. The spread between the overnight fed funds rate and the 10-year Treasury rate has been narrowing which has been narrowing the contribution to the LEI. But the contribution is still the strongest of any component… Other data include a small 0.1% rise in the coincident index, down from 0.3% July but up from June’s 0.2% decline. In sum, today’s report is mixed with the Conference Board saying the pace of economic growth is not likely to change in the months ahead.
Before release of the latest data on 09/24/2012, 10:30:00 AM ET, Econoday reported, The Dallas Fed general business activity index in its Texas manufacturing survey improved but remained in negative territory, posting at minus 1.6 versus minus 13.2 in July. The production index, a key measure of state manufacturing conditions, fell from 12.0 to 6.4, suggesting softer growth in output. The new orders index eased to 0.2 from 1.4 in July, barely remaining in positive territory.
Before release of the latest data on 09/25/2012, 9:00:00 AM ET, Econoday reported, The S&P/Case-Shiller 20-city home price index (SA) reported a 0.9% rise in June for its 20-city index which followed a robust 1.0% gain the prior month. The latest reading was the fifth rise in a row and the fourth very strong rise in a row. The year-on-year rate, at plus 0.5%, showing its first positive reading in nearly 2 years. Gains swept 18 of the 20 cities led by a sharp rebound for Detroit and a third straight monthly rebound for Atlanta. West Coast cities also show strong gains.
Before release of the latest data on 09/25/2012, 10:00:00 AM ET, Econoday reported, The Conference Board’s consumer confidence index was down 4.8 points in August to a 60.6 level. Weakness in the latest report was centered in the assessment of future conditions which makes up 60% of the composite index. One relative positive in the report was stability in the assessment of current conditions, which points to stable monthly readings for August economic data including jobs data. Those saying jobs are currently hard to get actually eased slightly to 40.7% which was just a little bit better than it’s been since April.
Before release of the latest data on 09/25/2012, 10:00:00 AM ET, Econoday reported, The FHFA purchase only house price index in the report for June extended a run of gains including a 0.7% rise for June. Year-on-year, the index was up 3.6%, which was slightly lower than May’s upward revised 3.8% but otherwise well above prior months.
Before release of the latest data on 09/25/2012, 10:00:00 AM ET, Econoday reported, The Richmond Fed manufacturing index for August posted at minus 9 indicating monthly contraction in general activity though at a less severe rate than July’s minus 17 reading. Less severe contraction is about the only good thing that can be said in this report with new orders, at a very weak minus 20, only a bit improved from July’s minus 25. Backlog orders also showed slightly less severe contraction.
Before release of the latest data on 09/26/2012, 10:00:00 AM ET, Econoday reported, New home sales were up 3.6% in July to an annual unit rate of 372,000. This is the best of the recovery outside of stimulus driven sales in the spring of 2010. The rise in total sales is drawing down supply, which explains the very strong readings in the monthly home builders’ housing market index. Supply at the current sales rate was 4.6 months which was down from 4.8 months in June and compares with 6.7 months a year ago.
Before release of the latest data on 09/27/2012, 8:30:00 AM ET, Econoday reported, Durable goods jumped 4.1% in July on top of a 1.6% jump in June. But when looking at orders excluding transportation equipment the story was one of softness with the reading at minus 0.4% following a downwardly revised minus 2.2% result in June. Civilian aircraft orders surged a monthly 53.9% in July following a 32.5% surge in June. But also part of the July gain for transportation equipment were motor vehicle orders which jumped 20.6% following a 1.8% dip in June. Numbers reflect revisions from the more recent total factory orders report.
Before release of the latest data on 09/27/2012, 8:30:00 AM ET, Econoday reported, GDP growth for the second quarter for the second estimate was revised up to 1.7% annualized, compared to the initial estimate of 1.5% and to 2.0% in the first quarter. The mix of component revisions was mostly favorable. The upward revision was due to higher estimates for personal consumption, nonresidential structures, and exports. Also, import growth was revised down and government purchases fell less than previously estimated. Pulling down on the second revisions were lower estimates for growth in equipment & software, residential investment, and inventories. The downward revision to inventory growth was notable in that businesses are keeping stocks under control. Economy-wide inflation according to the GDP price index was unrevised at 1.6% annualized. The median market forecast was for 1.6%.
Before release of the latest data on 09/27/2012, 8:30:00 AM ET, Econoday reported, Initial jobless claims for the September 15 week were down only 3,000 to a 382,000. The September 8 week was revised to 385,000 with roughly half of the week’s 18,000 jump due to Hurricane/Tropical Storm Isaac.
Before release of the latest data on 09/27/2012, 10:00:00 AM ET, Econoday reported, The pending home sales index rebounded 2.4% in July, following a 1.4% dip the month before. The latest gain points to further improvement for existing home sales. The year-on-year rate of plus 12.4% is the highest in nearly 2-1/2 years. Regional data show gains in 3 of 4 regions led by the South which is the largest region. Sales of existing homes have been trending higher for the last year though gains have been slightly lagging those for new homes.
Before release of the latest data on 09/27/2012, 11:00:00 AM ET, Econoday reported, The Kansas City Fed manufacturing index in August posted at 8, up from 5 the prior month. Other indicators also were somewhat positive as the production index showed slightly stronger growth at 7 versus 2 in July. Shipments jumped to 12 in August from minus 3 the month before. The new orders and backlog index point to some pick up in forward momentum. New orders increased to 11 from minus 4. Backlogs gained to 4 from minus 10. However, the strength in new orders appears to be related to domestic demand as the export orders remained negative at minus 6 versus minus 13 in July.
Before release of the latest data on 09/28/2012, 8:30:00 AM ET, Econoday reported, Personal income in July advanced 0.3%, matching the revised boost the prior month. The wages & salaries component, however, eased to a 0.2% rise from 0.4% in June. Consumer spending had softened in May and June and began to create worries about the recovery faltering. mportantly, the consumer made a comeback in July in the retail sector. Consumer spending increased 0.4% in June, following no change in June. Turning to inflation, weak energy costs (at least in July) weighed on headline inflation which was unchanged, following a 0.1% uptick in June. The core rate also was flat in July, following a 0.2% boost in June.
Before release of the latest data on 09/28/2012, 9:45:00 AM ET, Econoday reported, The Chicago PMI remained in positive territory although with minor slippage as the composite index posted at 53.0 in August, compared to 53.7 the prior month. Importantly, the prospects for the Chicago-area economy picked up in August as the new orders index advanced 1.9 points to 54.8 to show the strongest monthly growth of the last 4 months.
Before release of the latest data on 09/28/2012, 9:55:00 AM ET, Econoday reported, The Reuter’s/University of Michigan’s consumer sentiment index in early September was up a very sharp 4.9 points to 79.2. This is just about the best reading of the year. The gain was concentrated entirely in the expectations component which was up 8.3 points to 73.4 which was also just about the best reading of the year. A separate reading on the 12-month outlook also jumped, up 15 points to 88. The current conditions component showed little change, edging four tenths lower to an 88.3 level that is also, despite the dip, just about the best level of the year.
Technical Indicators & Patterns of International Markets
The technical indicators and patterns, as summarized by StockCharts and used by technical analysts, were very bullish again this week.
There were many more New 52-week Highs (498 vs 943) on Friday this week (vs 546 the previous Friday and 210 the week before that).
Using various technical indicators there were fewer buy signals and many more sell signals this Friday vs last as there were one week ago vs two weeks ago.
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 question now is whether that reversal can become a bearish trend.
We have to drill down into the data to see if the technical indicators that a few weeks ago was showing me a bullish case slowly unfolding is now going to reverse or consolidate and prepare for another bull run.
Here too is the Daily, Weekly, Monthly RSI-7 and EMA-8 data at Friday’s close for the Cara 100:
[The recent Cara 100 change from Silvercorp to Rogers Communications has not yet been incorporated in this table. Also the monthly and weekly data may take a while to become accurate for JOY as the ticker switched from JOYG, and the KO data is inaccurate after the 2:1 share split]
Two weeks ago I wrote in this space: (Despite two weeks of consolidation) Note how this week’s RSI-7 Daily data stayed bullish after it went incredibly bullish the previous week.
I had anticipated some blow-back a week ago, but that did not happen until Monday through Wednesday of this week. Because there is a lag effect when using trend following indicators, my own system showed a weakening of the former technical strength of the Cara 100 stocks each day this week, particularly noticeable Thursday and Friday. The Friday picture is better than the close back on Sept 5, but has been weakening every day since the peak of Sept. 13.
The Cara 100 Scoreboard at the end of this week [WIR 39] shows:
3 with Daily RSI-7 below 30 [0 below 20] [0 below 15] [0 below 10]
2 with Weekly RSI-7 below 30
2 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from one week ago [WIR 38] shows:
0 with Daily RSI-7 below 30 [0 below 20] [0 below 15] [0 below 10]
2 with Weekly RSI-7 below 30
1 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from two weeks ago [WIR 37] shows:
1 with Daily RSI-7 below 30 [0 below 20] [0 below 15] [0 below 10]
1 with Weekly RSI-7 below 30
1 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from three weeks ago [WIR 36] shows
6 with Daily RSI-7 below 30 [2 below 20] [0 below 15] [0 below 10]
1 with Weekly RSI-7 below 30
4 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from four weeks ago [WIR 35] shows
6 with Daily RSI-7 below 30 [1 below 20] [0 below 15] [0 below 10]
1 with Weekly RSI-7 below 30
2 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from five weeks ago [WIR 34] shows
1 with Daily RSI-7 below 30 [0 below 20] [0 below 15] [0 below 10]
0 with Weekly RSI-7 below 30
4 with Monthly RSI-7 below 30
The Cara 100 Scoreboard from six weeks ago [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 seven weeks 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 eight 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 nine 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 ten weeks 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 eleven 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 twelve 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 thirteen 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
After the new website goes live, 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 by incorporating EMA and having performance tracking.
This basic system is 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.
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, frankly, 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., drilling down into the data and also 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 had been undergoing a cycle bottom process. I noted that my perspective early on was not the conventional wisdom. I also cautioned at the beginning 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, in fees and commissions, than ‘trading’ houses! The advantage in securities trading is in the great liquidity of the market.
Many people disagree with my thinking, which is fine because difference of opinion is what makes markets.
In time I hope to write more advanced books, some with Geoff Goetz and Deron Wagner. Deron is recommending we self-publish them, and we’ll look into that.
Deron will be coming to the Cara Community Toronto 2012 Conference, by video skype from Thailand. Unfortunately kaimu from Hawaii had to pull out owing to his work schedule. If we were able to tie it into one of his trips to the mainland, he’d be here in person.
International Equity Markets Review
The MSCI World Equity ex-US ($MSWORLD) dropped -1.57% this week after gaining +3.63% one week ago, including a gain of +2.71% on that Friday. So, over six sessions, the international equity market has been strong.
Here is the Daily chart of the $MSWORLD with the 8-day EMA in dashed blue and the S&P 500 ($SPX) in thin solid orange behind.
NOT FOUND: wir12_39.26. gif
Note how the weakness this week has put the price close to the 8-day EMA. The Bulls will want to see some strength on Monday or Tuesday. Some of the Bears will be shorting prices if the price crosses below the 8-day EMA.
Here is this week’s international equity re-cap from Econoday:
The Sensex 30 (+1.6% W/W) (India) (and +4.4% a week ago) was the real big winner the past two weeks. This is timely because at this week’s conference in Toronto I plan to extol the virtues of the India economy going forward. In fact I plan to say that I believe India will likely grow annually at in excess of +8% for the next three to five years whereas China’s growth will drop to an annual average between 5% and 7%.
Here is Deepak Lalwani’s latest Report on India, which you can obtain free by writing to firstname.lastname@example.org:
• Investors cheered by the Government’s resolve not to roll back “big bang” reforms despite country-wide protests;
• The biggest partner, Trinamool Congress (W. Bengal) leaves fragile coalition over reforms and reduces PM Dr Singh’s coalition to a minority Government;
• However, no risk for now to Government falling and a snap General Election being forced. 2 powerful regional parties from Uttar Pradesh (SP and BSP) to give support from outside coalition for survival to ensure Parliamentary majority. For now, at least;
• Both regional parties have opposed moves in the past to liberalise economy. But for now will help the shaky coalition to limp along in survival;
• Despite being a minority coalition, Government shows courage and introduces small, uncontroversial reforms to keep momentum up on reforms;
• Investors push SENSEX 30 to a new 2012 high as confidence returns. It is now only 11% below the all-time high in Nov 2010. Investors focus shifts from defensive to growth stocks as risk appetite returns;
• Hopes rise for cabinet clearance next week to raise the foreign investment limit in insurance from 26% to at least 49%, and possibly 51%. However, it will only be cabinet clearance. The more tortuous journey through parliament to make this law will be a separate challenge.
• India offers big sectors. But is a long-term bet and one for the patient investor. India is often about 3 steps forward and 2 behind. Experience shows not to give up hope while the 2 reverse steps are in motion.
For my conference next week I will have a presentation from a tech company CEO who is coming to meet me and some investment/management associates. Also this week I have been arranging business visas for mining company associates to travel to India to meet my contacts. I too would hope to be there after say Nov. 20 this year, for a couple weeks on business.
I believe the five-year economic growth of the 12 countries in the South Asia region, including India, but which does not include China, HK, South and North Korea or Taiwan, will exceed the latter.
The population of these 12 countries (not including Singapore) is in excess of 2.010 billion vs 1.343 billion in China and a total of 1.447 billion for the five Chinese and Korean countries. So the emerging South Asia market is almost +40% bigger in population than the East Asian market countries.
The potential of South Asia is enormous.
FD: Starting soon, Deron Wagner and I will co-produce a new blog on the India domestic market for investors in India and ex-pats who support that market. We will also be writing about the entire south Asian market in a premium blog.
The weakest international equity markets this week were China (Shanghai Composite down -4.6% W/W) and Italy (Milan -3.8%).
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.
Whereas a week ago, these ETFs were solidly green, for a second week, this week was quite different. Of the eleven main country ETF’s I follow, all closed lower. The two worst hit this week were Russia (RSX -4.03% W/W) and France (EWQ -2.34%).
But, Russia and France ETF’s were up +7.1% and +3.9% respectively a week ago and both have been very strong over the past month.
However, when you detect some nervousness in markets, it pays to focus on how the weakest perform in the days ahead.
Also watch the US dollar performance. A week ago I wrote in this space: “With the US Dollar contract plunging -1.75% W/W and -0.97% on the previous Friday, these eleven country ETFs are on fire.” This week the $USD gained +0.61% W/W, so you would expect some equity market weakness, or profit taking, particularly in those that were up the most quite recently.
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
This week, the S&P 500, Dow 30, NASDAQ Composite and the small cap Russell 2000 equity indexes dropped -0.38%, -0.10%, -0.13% and -1.06% W/W respectively. But a week ago these major indexes had gained +1.94%, +2.15%, +1.52%, and +2.66% respectively, so the bottom line is that over the past two weeks, the US equity market is up a lot..
I alerted you to the possibility of weakness this week. I wrote in this space: “The higher beta Russell 2000 index was also up +3.72% a week ago, and is now getting frothy. Traders need to tighten their stops.”
For the ten US equity market sectors, three were up this week, with Telecom (IYZ +3.24% W/W), Healthcare (IYH +1.94%) and Consumer Staples (XLP +0.50%) – all the defensive sectors – making the gains.
I attribute this to profit taking in the other sectors, which is to be expected in any ongoing bullish trend, as I believe this trend is.
Financials (XLF -2.76% W/W) and Energy (XLE -2.47%) were down the most this week. Crude Oil prices sank – nobody seemed to understand why the instant it happened, so I presume it was the thick headed idiots at the International Energy Agency getting on the phone to friends and family. Similarly it was the weakest banks Morgan Stanley (MS) and Bank of America (BAC) that took big hits. So, they are volatile as hot money rushes in and out. I’ll leave it at that.
With BAC, you must have understood that might happen. I wrote the following a week ago in this space:
With the European QE big bang on the previous Friday followed up by a potentially bigger one this week from Chairman Bernanke, Dow 30 winners were led by Bank of America (BAC) were up +5.39% the previous Friday plus a further +8.52% this week.
The biggest loser in the Dow 30 this week was Alcoa (AA -7.22% W/W). I wrote the following in this space a week ago:
Alcoa (AA), which had gained +3.88% the prior Friday followed that up with this week’s gain of +8.13%.
Hot money in; hot money out.
Econoday summed up the US equity market this week as follows:
Table 1 shows that for the past three months, the S&P 500 (SPY) has gained +10.14%. So the fact there has been a summer rally is indisputable. Nine weeks ago, at a time most people probably disagreed, I opined in this space: “So the Bull move, aka Summer Rally, continues.” So, the fact I called it also cannot be disputed.
Although the situation may change – markets do fluctuate you know – we have to acknowledge that investor confidence is returning to the equity market, and to commodity and precious metals markets.
QE is the reason just as Obama is counting on entitlements to get his group elected.
Unfortunately, QE and entitlements are not wealth creating – just juice for the needy, and unsustainable at that.
Over the past 12 months, from an intermediate term market cycle low in September 2011, there has been a gain of +25.07%, which happens to be almost four times an average annual gain and about 4½ times what many analysts today are forecasting for the next three to five years.
That 25.07% gain is not sustainable unless the gains ahead for the 4Q2012 and 1Q2013 exceed those of the past year comparable quarters, which I do not believe is likely owing to the extreme cycle low of Sept 2011.
So, while the path ahead may be bullish, as I see it, it is not likely to move forward at an annual 25% growth clip.
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
The DJIA stocks being reviewed this week [Value Line cycle 13, 26, 39 and 52], are Cisco Systems (CSCO), Verizon (VZ) and AT&T (T). One of them (Cisco) is a Cara 100 company, and we have positions in it for our All-Weather and Growth accounts.
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 Sep. 21: next one is due Dec. 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 Sep. 21: next one is due Dec. 21)
Always before I study a company, I review my prior written notes. In 2011, wth Christmas and traveling during this quarterly cycle, I missed some of those reports. But, I do what I can do.
For WIR #26-2011
AT&T (T June 24 @ $30.44)
Verizon (VZ June 24 @ $36.00)
The $39 billion acquisition of T-Mobile USA from Deutsche Telekom AG, which is not expected to close until 1H2012, will have a large impact on the company’s balance sheet and operations. So, it’s fair to say that the stock could head in various directions.
Like Verizon (VZ), there is a huge dividend for AT&T (T), yielding over 5.5% in both cases, but fairly soft revenue and earnings growth.
I’m sure these stocks are of interest to long-term income-oriented accounts that desire a relatively low risk, but I’m not too keen unless the dividend yield could be supplemented with put option writes premium.
Something to ponder if you are an income-oriented investor is that future dividends might not be safe for some companies. A few years ago I made an assessment in the blog that JP Morgan (JPM) was like the US Treasury, never going to miss a dividend. I was wrong. The dividend was cut after the government bail-out deemed the banks’ shareholder dividends to be unfair to taxpayers even though, I believe, JP Morgan could have made those payments.
For many high-yielding stocks, there is presently a very high pay-out, which for Verizon is presently about 87% of earnings and for AT&T is about 73%. These companies, in a severe recession or depression, could suffer losses and be forced to cut the dividend. The companies also have a lot of debt, and their balance sheets are not as strong as say Cisco’s. It could be that a period of rapidly rising interest rates might impair their debt service ability and threaten the dividend. I don’t think these situations are likely to happen in the case of Verizon and AT&T, but it is a factor to consider if income is your requirement.
Not much else to say.
Cisco Systems (CSCO June 24 @ $14.93)
These charts show that CSCO is over-sold and tried to make a rally move starting this past Monday, but was hit with selling on Wed and Fri.
Technically, CSCO would be a very low risk purchase in the $14-$15 range as that price takes the stock back to the 2008-2009 Bear market lows. In other words, almost every buyer of stock for almost the past two and a quarter years has paid higher.
What strikes me immediately when looking at the Value Line page is:
1. the massive cash position of the company, roughly $8 per share, while the stock is trading at under $15
2. the balance sheet is massively liquid
3. Value Line’s analyst Kevin Downing raised the 6-month price outlook (“Technical”) from a ‘3’ (average) to ‘2’ (superior)
4. 2009 was a cycle low for revenues and, despite all the negative portrayals of this company, the revenues are now in constant lift, with 2012 expected to set a record high for revenues and revenues/share
5. 2012 earnings per share are expected to set a record
6. Cisco is now paying a dividend, which they ought to as they have more cash reserves and a stronger balance sheet than the Fed, and the ops are a cash cow
7. The downside is that CSCO sells their big telecom switches to governments that are having severe budget stresses these days
8. Return on Shareholder Equity has fallen below a 20% level that I require for tech and industrial companies that make it into the Cara 100 highest quality companies, but as long as revenues, cash flow and earnings continue to rise every year by some 7%-8% or more, then I’ll stick with it. Surely the growth in the Internet space can accommodate several strong competitors in addition to Cisco.
Taking a long view on this one is needed, but worth it I believe.
For WIR #39-2011
Telecom equipment and services giants, all of these:
AT&T (T Sept 23 @ $27.85)
A loss of $2.59 in the 13 weeks since June 24.
Verizon (VZ Sept 23 @ $35.88)
A loss of $0.12 in the 13 weeks since June 24.
Cisco Systems (CSCO Sept 23 @ $14.93)
A gain of +$0.68 in the 13 weeks since June 24.
From these charts, it is obvious that, although they lost in % terms over the past quarter, in terms of the broad market sell-off the traders have recently sought haven in the telco’s. In the past several hours, VZ has out-performed T, which might be due to differences in perceived risk, i.e., thoughts that US regulators will not ease up on their concerns about the proposed $39 billion take-over of T-Mobile by AT&T. In the past quarter, investors have obviously concerned about the deal because the stock is well under-performing VZ.
Cisco (CSCO) has dropped the most % wise in the past month and even in the 10 days since Value Line wrote their report. In a period of broad market weakness that is not surprising since the telco’s pay a rich dividend and Cisco, although starting to pay a dividend after all these years, pays very little.
On a balance sheet basis, with $45 billion in cash, Cisco wins hands down. The company could more than eliminate 100% of its debt if the Board chose to do so. Over the past ten years, the decision was to buy back stock, about 25% over that time. But, in absolute dollars, the company’s revenues and earnings have flourished too, far exceeding the growth of the telco’s.
Cisco’s products are precisely what are needed for all users, from the largest to the smallest, of the Internet. As sales are so heavily dependent on government orders, however, and those orders are under budget pressure, the company is having to reduce its growth estimates. Its projected earnings are helter-skelter too.
So the stock has been hammered in the past 18 months. At the best of times recently, the stock has been dead money. Will that improve? I think so. As VL projects a 17 PE multiple and 2012 earnings of $1.35 plus a dividend of $0.32, I can see a high price next year that could be close to the average of the highs of the past four years, which is about $25.60. Using the VL average PE multiple and $1.35 earnings, the stock could get to $23.00 or higher, well up from its current price of $15.61.
I note that on Sept 2 VL raised the stock outlook for the next 6 months (“Technical”) from a market average performer ‘3’ to a superior ‘2’. They did the same for T on Aug 26 and for VZ on Sept 16. So far, VZ is the only one that has performed significantly.
Not that I’m pleased with Cisco’s lower Return on Equity or Net Profit Margin metrics in recent years, there are other reasons for me keeping this company in the Cara 100. But I also have their number one competitor there too, which happens to be Juniper (JNPR).
To sum up the VL reports this week, the analysts seem to like the telco’s only for their high dividend yield, but CSCO they see as having perhaps the better long-term risk adjusted potential. I agree with that assessment. Presently in the major portfolios, we have a 1.43% portfolio weighted position in CSCO and zero in the other two.
For WIR #52-2011
Things are looking up for these telecom equipment and services giants. The current prices are all higher than their respective 8-month, 8-week and 8-day Exponential Moving Averages, which is a bullish sign.
As Cisco is a Cara 100 company, CSCO is therefore eligible for investment in our accounts. We do in fact hold CSCO in both the All-Weather and Growth portfolios. For pure telco’s, however, we presently only hold the Russian company Mobile TeleSystems (MBT), which we hold in both portfolios.
All charts here will show the stock in the solid black line vs the S&P 500 in the dashed orange line.
AT&T (T Dec 23 @ 29.87 vs Sept 23 @ $27.85)
A gain of $2.02 (+7.3%) in the 13 weeks since Sept 23.
The Daily chart shows that T is a bit on the high-risk side now, but I doubt it will pull back below $29.31 in the next couple days or $29.02 in the next couple weeks, based on the 8-period EMA and rising RSI, STO and TRIX.
VL lowered their 3-6 month ‘Technical’ price outlook on Dec 9 from a ‘2’ to a ‘3’.
The T-Mobile deal may in fact crash unless the EU exerts pressure on the US regulatory agencies. But the loss is just 50 cents a share cash in break-up cost, and there is still a chance the deal may get the approval. It’s probably now in the White House hands.
Does Obama look to Germany for campaign funds?
The $1.72 dividend this year, with $1.76 in the wings for 2012, represents a solid income component to this stock if that’s what you are seeking. Even if they have to pay out on the T-Mobile deal, I think the dividend is well protected.
Do I like the capital appreciation potential? Not really. The metrics for revenue, cash flow and dividends looking forward a couple years are not sufficiently enticing to make me want to buy-and-hold this one.
Verizon (VZ Dec 23 @ $39.38 vs Sept 23 @ $35.88)
A gain of $3.50 (+9.8%) in the 13 weeks since Sept 23.
VZ is even more over-bought than T, for now. Bullish long-term, but cautious in the short-term, especially if risk-on capital is slow to move into equities and decides to go for the commodity price sensitive stocks first, which sometimes happens.
The Verizon dividend may not be as high as for AT&T, but it is still very attractive for income seeking long-term holding accounts. But, again, the metrics for revenue, cash flow and dividends looking forward a couple years are not sufficiently enticing to make me want to buy-and-hold this one either.
Sorry, but even if I think the S&P 500 might lift in 2012, and I do, I cannot look to VZ or T to interest me.
Cisco Systems (CSCO Dec 23 @ $18.47 vs Sept 23 @ $14.93)
A gain of +$3.54 (+23.7%) in the 13 weeks since Sept 23.
Now, Cisco is a different story. This one is the 800-pound gorilla in the internet infrastructure space and demands for bandwidth and speed are never-ending.
CSCO stopped under-performing and began to out-perform the market after bottoming in early August. The chart is bullish going into 2012. It did get a bit over-bought on Friday though.
Looking forward a couple years, I find that the Cisco metrics for revenue, cash flow and dividends may not be superb, but they are still strong enough to be enticing. I remain pretty much in the buy-and-hold camp with CSCO even though for several quarters many traders questioned my wizdom.
However, I think that a lot of Cisco’s problems are in the past. We’ll see. Btw, for my 12+ month outlook for a balanced Growth portfolio, I selected CSCO in this telecom space at the Whistler Conference that ended Oct 3 and for the Balanced accounts (conservative all-weather type), I went with Mobile TeleSystems, largely for the huge dividend. MBT did not disappoint since then capital growth wise either!
Value Line raised their 6-12 month ‘Timeliness’ and 3-6 month ‘Technical’ share price outlooks in mid-Nov from ‘4’ to ‘3’ and from ‘3’ to ‘2’ respectively.
The company has over $8 in cash and the share price is still just $18.47. The company has phenomenal cash flow and earnings power, which on the $10 non-cash component of the share price is a tremendous bargain.
VL has increased their 2012 earnings projection from $1.35 to $1.45 since the last quarterly report, and management is very narrowly guiding forward so that number is likely to be out-performed. At 2012 earnings of say $1.50 and a 17x PE in a stronger equity market looking out a year, I think the prospects of $25.50 are good. That would be a gain of +38% in the next 12-18 months. The 18 cent dividend this year could possibly double next year as well.
All in all, I like this stock, which is why we hold it.
For WIR #13-2012
AT&T (T Mar 23 @ 31.52 vs Dec 23 @ 29.87 vs Sept 23 @ $27.85)
A gain of about +5.5% in the 13 weeks since Dec 23.
The Daily data chart shows a possible break-down in the bullish price momentum seen in the longer-term Weekly and Monthly data charts. Depending on your time horizon, you can go to the Weekly or Monthly EMA-8 to see the current level of support. Also the RSI-7 for both Weekly and Monthly data is above 70, which puts T into the Distribution Zone, but there is no obvious price or RSI breakdown at this point, so there is no SELL Alert.
The Value Line analyst likes the company and the stock. As for me, I like the dividend yield, which is an extremely high 5.6%, but choose not to hold the stock because the company is too slow growing and has an inadequate ROE for my needs. T is not in the Cara 100 and so I would not consider investing in it.
Verizon (VZ Mar 23 @ 39.42 vs Dec 23 @ $39.38 vs Sept 23 @ $35.88)
Flat in the 13 weeks since Dec 23.
These charts are quite similar to the ones for T, which is not surprising since the two companies are direct competitors and both 800-pound gorillas in the US telephony space. The Daily data chart shows a possible break-down in the bullish price momentum seen in the longer-term Weekly and Monthly data charts. Depending on your time horizon, you can go to the Weekly or Monthly EMA-8 to see the current level of support. Also the RSI-7 for both Weekly and Monthly data is above 70, which puts VZ into the Distribution Zone, but there is no obvious price or RSI breakdown at this point, so there is no SELL Alert. But, just like for T, you have to keep your eye on the Daily and Hourly price data now.
The Value Line analyst likes the company and the stock. As for me, I like the dividend yield, which although not as good as T is still an extremely high 5.1%, but I choose not to hold the stock because the company, like AT&T, is too slow growing and has an inadequate ROE for my needs. VZ is not in the Cara 100 and so I would not consider investing in it.
Cisco Systems (CSCO Mar 23 @ 20.53 vs Dec 23 @ $18.47 vs Sept 23 @ $14.93)
A gain of about +11.2% in the 13 weeks since Dec 23.
These charts are much more bullish to the ones for T and VZ.
Cisco is the 800-pound gorilla in the international internet communications space. The Daily data chart shows the same bullish price momentum seen in the longer-term Weekly and Monthly data charts. Even the Hourly data is quite positive. Depending on your time horizon, you can go to the Weekly or Monthly EMA-8 to see the current level of support. Also the RSI-7 for both Weekly and Monthly data is still below the 70 line for the Monthly, Weekly and Daily price data, and the level is rising in each case, so this is a very bullish technical condition.
Of these three companies, only Cisco is a member of the Cara 100 best quality, large cap companies in the world, based on financial strength, management, returns on equity, profit margins, and so forth. Although Return on Shareholder Equity has dropped below the level I’d like to see, once you factor in the company’s $47 billion in cash, then ROE is not a problem for me. In other words, the extreme financial strength and safety is a balancing factor. If the company were to dividend out much of that cash, the ROE would pop up to a much higher level. The first time dividend of $0.18 this past year will likely grow to $0.26 this year and $0.30 for 2013. I’d like to see that dividend tripled.
The business factor that is most growing the Cisco business is the phenomenal growth in mobile bandwidth demand, cloud computing and virtualized data centers. The telephony switch business is also returning to normal levels.
I agree with the conclusion of the Value Line analyst: “These timely shares should appeal to long-term investors as well as those focused on momentum. In addition to its rebounding core operations, the company’s strong positions in data center, collaboration, wireless, and video products augur well for solid risk-adjusted long-term price appreciation potential.”
In fact at the Cara Whistler 2011 Conference on Sept 29-Oct 3, I selected CSCO as my pick for large cap Growth in the 12-24 month time frame. Since then, the stock has grown +35.15% from $15.19 to $20.53.
Also if you re-read what I wrote about Cisco in the past three WIRs (see above), you cannot say I have not been extremely bullish on CSCO when most traders were avoiding it. Yes, I was buying it. It’s my second biggest Tech position in Growth and biggest in All-Weather in our portfolios.
For WIR #26-2012
AT&T (T J 22 @ 35.17 vs Mar 23 @ 31.52 vs Dec 23 @ 29.87 vs Sept 23 @ $27.85)
A gain of about +10.9% in the 13 weeks since March 23, which had been up +5.5% in the 13 weeks since Dec 23.
If you look back to the week of April 23, you will see that T was launched to higher prices. About two days before that the fuse for VZ was lit.
The Daily data chart shows a possible break-down in the bullish price momentum seen in the longer-term Weekly and Monthly data charts. Depending on your time horizon, you can go to the Weekly or Monthly EMA-8 to see the current level of support. Also the RSI-7 for both Weekly and Monthly data is above 70, which puts T into the Distribution Zone, but there is no obvious price or RSI breakdown at this point, so there is no SELL Alert.
As stated the previous quarter: “The Value Line analyst likes the company and the stock. As for me, I like the dividend yield, which is an extremely high 5.6%, but choose not to hold the stock because the company is too slow growing and has an inadequate ROE for my needs. T is not in the Cara 100 and so I would not consider investing in it.” With the price bump, the yield is now about 5.1%. My opinion has not changed, either for T or VZ.
Verizon (VZ Jun 22 @ 43.95 vs Mar 23 @ 39.42 vs Dec 23 @ $39.38 vs Sept 23 @ $35.88)
Up +10.8% in the 13 weeks since Mar 23 following a flat quarter before that.
These charts are quite similar to the ones for T, which is not surprising since the two companies are direct competitors and both 800-pound gorillas in the US telephony space.
The Value Line analyst likes the company and the stock. As for me, I like the dividend yield, which although not as good as T is still an extremely high 4.7%, but I choose not to hold the stock because the company, like AT&T, is too slow growing and has an inadequate ROE for my needs. VZ is not in the Cara 100 and so I would not consider investing in it.
But I’d like to point out an observation about the Telco ETF. In the past year, T and VZ have gained +13.9% and +22.3% respectively. These companies/stocks dominate in the Telco industry ETF (IYZ), but in the past year, IYZ is down -9.9%. Even the S&P 500 is only up +3.7% in the past year.
So, what’s going on? I suspect that the managers of major funds have gone long T and VZ to earn the extremely high dividend and they have shorted IYZ and/or possibly constituent stocks like Nokia (NOK -60.0% Y/Y), Telefonica (TEF -46.6%) and France Telecom (FTE -39.2%). Now, if you are an astute speculator, you might want to watch the extremely high dividends of the latter three companies, checking for non-payment risk, plus note the relative differences in the RSI-7 for the Monthly, Weekly and Daily.
Cisco Systems (CSCO Jun 22 @ 17.13 vs Mar 23 @ 20.53 vs Dec 23 @ $18.47 vs Sept 23 @ $14.93)
A loss of -16.0% in the 13 weeks since Mar 23 vs a gain of about +11.2% in the prior quarter.
CSCO had a tough early May along with the rest of the market, but worse than the average of high quality companies. But, I think the worst is over. We’ll know more if and when the Weekly RSI-7 (presently 17.28) has been crossed to the upside by the end of week price (presently 17.13). But the RSI, Stochastics and TRIX for the weekly data charts are looking promising for the Bulls.
FD: Presently we hold no CSCO in either the Growth or All-Weather portfolio accounts.
I happen to think that the company turned in a fairly good quarter and their conservative guidance in early May was grossly over-reacted to by Wall Street. It is a fact that business conditions are not the best, but this company has managed to continue growing earnings and building balance sheet strength, and recently dividend pay-outs that will soon be quite acceptable, as good as most high-quality companies in the S&P 500.
There is no reason I can fathom as to why this stock is the Dow 30’s 4th worst performer in the past six months and the past three months. With a forward PE under 9 and a superb balance sheet, there is very low risk at this price.
From WIR #39-2012
All charts here will show the stock in the solid blue line vs the S&P 500 in the solid thin orange line.
AT&T (T Sep 21 @ 38.08 vs Jun 22 @ 35.17 vs Mar 23 @ 31.52 vs Dec 23 @ 29.87 vs Sept 23 @ $27.85)
A gain of about +8.7% in the 13 weeks since June 22, which had been up +10.9% in the 13 weeks since March 23, and up +5.5% in the 13 weeks after Dec 23.
Verizon (VZ Sep 21 @ 45.64 vs Jun 22 @ 43.95 vs Mar 23 @ 39.42 vs Dec 23 @ $39.38 vs Sept 23 @ $35.88)
Up +5.33% in the 13 weeks since June 23, which had been up +10.8% in the 13 weeks after Mar 23 following a flat quarter before that.
Cisco Systems (CSCO 18.90 @ Sep 21 vs 17.13 on Jun 23 vs Mar 23 @ 20.53 vs Dec 23 @ $18.47 vs Sept 23 @ $14.93)
A gain of +11.70% in the 13 weeks since Jun 23 vs a loss of -16.0% in the previous 13 weeks after Mar 23 vs a gain of about +11.2% in the prior quarter.
The Monthly chart reflects the tough market and business environment the company faced from competitors and from slowing corporate capex and much lower government purchases in the past eight years. But digital communications is a rapid growth industry and Cisco is the 800-pound gorilla as to its infrastructure. I believe there will be much better days ahead for this company.
The telco companies have benefitted greatly from smart phone adoption by consumers, and that market is expected to continue growing rapidly. The Apple iPhone 5 introduction this week has apparently broken all records around the world, so the sellers and carriers are bound to thrive as a result.
The telcos AT&T and Verizon are near multi-year highs, with very high RSI values, which indicates higher than average risk. The dividends are extremely high in each case, and the dividend to net earnings ratios are in the 70% to 80% levels, which is very high, also an indicator of risk should cash flow drop.
However the financial condition of both companies – if not the balance sheet — is very strong, mostly based on cash flow. But cash flow in each case is expected to slow in its growth rate over the next 3 to 5 years.
I note that Value Line analysts Hellman and Nugent increased the anticipated one-year price performance among large cap stocks to a “1” – on Aug 10 for T and on Jul 6 for VZ – which means superior performance was expected and that has happened. This week, in fact, IYZ (Telco ETF) was #1 sector performer and it has been well above average recently. I attribute this performance in the stock prices to the iPhone buzz, and it may continue for a while, although a week ago both VL analysts dropped the 3- to 6-month stock price outlook down to a market average “3”.
If you can play a defensive game with prudent and timely use of stops and put and call options overwriting, then you can earn a respectable Total Return from these telcos. The VL analyst who covers VZ is slightly more optimistic in that regard, mostly due to the company’s wireless services.
I don’t much care to follow these particular telcos, as you know.
Cisco (CSCO) is a Cara 100 company and usually one we have in the Growth and All-Weather portfolios, as we do today. But trading CSCO is always a challenge, particularly if you don’t do options overwriting, which we stopped doing a while back in order to put the focus back on portfolio performance and away from hedging.
In any case, the balance sheet at Cisco is impeccable, and the growth metrics for cash flow, earnings and dividends is quite impressive. The dividend doubled this year and is likely to grow by over +50% again in 2013, and very much after that. The company has the cash to push the envelope – all $49 billion in the bank vs current liabilities of just $18 billion, much of which is unearned as yet, a mere bookkeeping matter.
In fact, after the recent increase in dividend, the company stated it would use 50% of its cash flow to dividends and share buy-backs. With cash flow expected to grow +9.5% per year for the next 3- to 5-years, what does that tell you. It tells me that CSCO will become more heavily weighted in our portfolios, and also return as a Cara Growth portfolio selection at the conference this coming week.
Maybe that’s a spoiler alert, but it is what it is. CSCO is all good as far as I’m concerned. Revenues may grow at +8.0% going forward vs +11.0% for the past ten years, but that’s based on government budget constraints, which will affect many companies and many industries. However this company produces an essential product and has the resources to maintain industry leadership for many years. Value Line is a Cisco fan, and so am I.
Unfortunately I will be too busy with the conference and incoming business associates next weekend to do the WIR, so I will say here that next week Value Line will be reporting on Procter & Gamble (PG) and Home Dept (HD).
Both of these are very good companies, although only P&G is in the Cara 100 presently. Home Depot used to be but I dropped it several years ago – for good reason – but lately I have been considering a move to put it back – also for good reason.
Home depot is a company that will benefit in the Great Reflation. Besides the metrics are looking good enough to get into the Cara 100. The stock has enjoyed a terrific quarter thanks to expectations of QE.
The Dow 30 Company links in chronological order of the upcoming reports.
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)
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 Aug 17: next one is due Nov 16)
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 Aug 17: next one is due Nov 16)
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 Aug 17: next one is due Nov 16)
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 Aug 17: next one is due Nov 16)
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 Aug. 24: next one is due Nov. 23)
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 Aug. 24: next one is due Nov. 23)
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 Aug 31: next one is due Nov 30)
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 Sep. 7: next one is due Dec. 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 Sep. 7: next one is due Dec. 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 Sep. 14: next one is due Dec. 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 Sep. 14: next one is due Dec. 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 Sep. 21: next one is due Dec. 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 Sep. 21: next one is due Dec. 21)
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.
That’s not to say you would want to stay fully invested in these stocks at all times if in fact you do follow them and buy them. Every stock has a price motion that swings from over-sold to over-bought. You don’t want to be buying them when they are over-bought and you want to buy them when they are over-sold.
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 was published in an updated 2012 e-book version, available at Amazon.com since July 26.
Sector ETF Summary for the US equity market
Over past four weeks, nine of the ten sectors have lifted in price and seven have beat the S&P 500 benchmark (+3.70%), led by Telecom (IYZ +9.56%), Consumer Discretionary (XLY +5.62%), Healthcare (IYH +5.60%), Financials (XLF +5.18%), Energy (XLE +4.36%), Basic Materials (XLB +4.29%), and Technology (XLK +3.72%). Of the three sectors that have lagged over four weeks, Utilities (XLU -1.15%) is the only loser.
For the past two weeks, Telco (IYZ up +5.36%) was best, while Healthcare (IYH +2.34%) was next best.
Each week these numbers change dramatically.
With sector rotation and the extent of volatility affecting performance, you have to learn to trade. I repeat this statement every week.
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
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. This week, XLE closed at 74.68, down -2.47% W/W. There was a gain of +1.32% on the prior Friday, but a loss of -0.33% this Friday.
The $WTIC Crude Oil contract (-$5.93/bbl and -5.99% W/W) dropped from $99.01 to $93.08. The move was sudden and had everyone at CNBC scurrying to discover why.
Nobody wants to admit that insider trading and market manipulation is involved, preferring of course to hold to the incorrect view that integrity is the foundation of capital markets.
As I remarked a week ago in this space the price was “close to that potential glass ceiling of $100/bbl.” Somebody did not want to see $100, right now in any case so soon after the Fed announced more QE.
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. In this space a week ago I opined that this chart “shows extreme short-term performance that is probably unsustainable”. The selling on Monday through Wednesday was intense after the $WTIC tanked in a couple minutes.
XLE is still “close to a long-term upside break-out, which btw is an area of probable resistance” as noted in this space a week ago.
FD: We hold CNQ, CVX, SU and XOM in both portfolios and CEO was added to Growth this week. We are now at about 81.5% S&P weighting for this sector in the Growth portfolio accounts, down from ~90% a week ago.
This week, TransOcean drilling (RIG +4.2% W/W) was by far the big winner, higher because of the +4.7% gain on Friday and a gain on Thursday. These moves were on account of brokerage analyst upgrades:
Many of the high production cost Canadian Oilers sank quickly after $WTIC plunged.
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 (Aug. 17, 2012) of the 12 Cara 100 stocks was $1.114 trillion vs the same total on Dec. 9, 2011.
I’ll try to update this data once a quarter from now on.
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.
For the past two weeks, XLB has soared +3.79% and +3.65%. This week, XLB dropped -2.35% W/W to close at 37.45.
Over four weeks the XLB (+4.29%) has out-performed the S&P 500 gain of +3.70%.
The biggest winner this week was Potash Saskatchewan (POT +3.3% W/W).
In a sell-off week with a stronger US Dollar, as we had this week, the usual culprits were down and as usual by a lot: Teck Corp (TCK -9.6%), the world’s biggest steelmaker by far, ArcelorMittal (MT -8.3%), Alcoa (AA -7.2%), and Rio Tinto (RIO -7.1%).
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.
The point remains that since QE is now an international event, all currencies are likely to depreciate against commodity and precious metal prices, which means that XLB is likely soon headed to a break-out of the all-time highs reached in 2Q2008. I am certainly not discouraged by the commodity price pull-back this week.
FD: CEF is our biggest All-Weather position, and we increased our holdings significantly in early August. We now hold about 14.0% in CEF in All-Weather. This is an extreme position, although without PHYS not as much as recently, but we were ready for QE. In Growth, we are at ~7% in CEF, and we hold in order of size MUX, SLW, NGD, RBY, and FCX.
Rubicon (RBY) has been up +9.5% in the past four weeks, but I remain disappointed because, as stated previously here, “the trading action doesn’t feel as free as with the others. Something may be going on there, which might not be a bad thing as major holders might be holding it down in order to acquire a bigger position at lower prices. But, I don’t know.” This week, after a solid bullish performance in GDXJ (+3.16% W/W), RBY dropped -1.6%.
We also hold BHP (BHP), Nucor (NUE) and Potash (POT) in this sector in the All-Weather portfolio accounts and these plus Fibria (FBR) and DOW (DOW) in the Growth portfolios.
As at Aug. 17 2012, the total market cap of the 17 Cara 100 stocks in this sector was $492,456 billion. 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, and BHP is by far the biggest of those two.
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.
A week ago I started this section of the WIR as follows:
The Weekly US Industrials (XLI) vs S&P 500 (SPY) chart (produced in the opening comments) shows that XLI has been lagging, not providing leadership. The focus ought to be on Fedex, UPS and the major Railways to see if this situation persists. Also, I think Boeing (BA) has been writing down the over-budget expenses and delay charges on the 787 airplane, which has put XLI behind where it might otherwise have been. Boeing has also stated they will be taking reserves against unfunded pension liability over three or four quarters, which I opined 13 weeks ago in the WIR “will possibly make the stock look bad. This all depends on the spin artists who move the stock, and not being in the room I have no idea how it will play out.” I don’t think investors and even some of the analysts even look at the detail before they sell when they see earning go soft.
For the past two weeks, XLI has gained +1.76% and +2.05%. This week, XLI dropped -2.07% W/W to close at 36.98.
Fedex (FDX) led the losers with a loss of -6.4% W/W. FDX has big optics re the US and global economy, so what I believe is going on here is that big money is hitting FDX and waving the flag as they are buying this sector at lower prices. I don’t know for sure but I have that belief.
Over the past three months, XLI is up +6.79%, under-performing the S&P 500, which was up +10.14%. I think, generally, investors have been worried about global economic growth, but will now reconsider that notion after watching the announcements of monetary easing from all the leading central banks.
FD: After adding ABB this week, we hold ABB, PAYX and UTX in both the All-Weather and Growth portfolios and JOY also in Growth. We are ~74% S&P 500 weighted vs ~66% a week ago.
We dropped JOY in one portfolio and reduced it in another because it was over-bought. I wrote to indicate that a week ago in this space, as follows:
JOY was jumping a week ago Friday, up +6.7% on that day, and was up a further +8.9% this week. JOY is now up +18.5% over two weeks.
These large cap stocks don’t fly to the moon you know.
Fluor (FLR), which had gained +9.9% a week ago and was up +17.2% over two weeks, was down -1.6% this week. After a lull maybe, this is another QE-driven stock.
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.
Like many of the other sectors, the XLI charts for the Weekly and Monthly price series data are bullish, and will likely stay that way as and when the US Dollar trends lower. Then I noted that some of these stocks had a big run-up for four or five weeks until a few weeks ago, and needed a rest. Then two weeks ago I added that “the further pullback in $USD has finally given some juice to this sector.” One week ago the $USD was down -1.75% W/W, which gave a lot of juice to XLI, XLB and XLE, the commodity-price beneficiary sectors. With this week’s strength in the Dollar (+0.61% W/W), it is obvious why these sectors were three of the four biggest losers on the week.
As at Aug 17, 2012, the total market cap of nine Cara 100 stocks in this sector was $337,010 billion. About 87% of the total is attributed to five stocks, UTX, MMM, CAT, 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 down -0.38% W/W to close at 47.53. There was a loss of -0.42% this Friday and a gain of +0.40% on the prior Friday. So not much has happened over six sessions.
Over the past three months, XLY is up +10.23%, performing close to the S&P 500, which has gained +10.14%.
The leading winners in this sector this week were Whirlpool (WHR +2.3% W/W) and McDonald’s (MCD +2.2%).
The huge loser was Bed, Bath & Beyond (BBBY -14.0% W/W). Earlier in the week the new system I implemented caught the probable break-down and so we sold our positions the day before the crash. Relief!
Fiscal Q2 was less than hoped for: http://www.heraldonline.com/2012/09/19/4276411/bed-bath-beyond-inc-repor…
JC Penny (JCP -10.2% W/W) and Brunswick Corp (BC -5.9%) were also big losers.
Analysts didn’t like what they heard from the new CEO on Wed, or on Thursday at the Analyst Day meeting. Ka-boom.
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.
FD: We now hold Costco (COST), Disney (DIS), Kohls (KSS), McDonald’s (MCD), and Whirlpool (WHR) in both the Growth and All-Weather portfolios. We are at about 121% S&P weighting in this sector, again.
As at Aug. 17, 2012, the total market cap of the 16 Cara 100 stocks in this sector was $642.6 billion. About 67% of the total is attributed to four stocks, TM, AMZN. DIS and MCD. MCD was 2nd biggest of these in 4Q2011, but has suffered weakness in 2012.
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 was up +0.50% W/W to close at 35.96. There was a loss of -1.15% on Friday, led south by general market weakness. The high of the week was 36.27, a fresh all-time high.
Over the week, Kraft (KFT +4.6% W/W) and Kimberly Clark (KMB +3.2%) were best in class, while Walgreen (WAG -2.5%) was the loser here.
Over the past three months, XLP is up +6.36%, well under-performing the S&P 500, which has been up +10.14%.
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.
FD: We hold only SBUX and WMT in both the Growth and All-Weather portfolios in this sector, plus PG, our biggest position, in All-Weather.
As at Aug. 17, 2012, the total market cap of the 8 Cara 100 stocks in this sector was $791,473.5 billion. 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 +1.94% W/W. IYH closed at 85.28.
A multi-year high of 85.46 was set near the close on Friday this week, which is another indication that the broad Bull persists.
Over the past three months, IYH is up +10.49%, slightly out-performing the S&P 500, which has been up +10.14%.
A week ago I reported that: “The big winner over the past one and two-week period, plus the past 3-, 6- and 12-months and YTD has been Gilead Sciences (GILD), which was my pick at the Whistler Conference… GILD was up +4.7% W/W and is up +48.2% YTD.”
This week GILD soared +9.3% to $67.76, and is now up +14.3% over two weeks, +20.9% over 4-weeks, and +61.9% YTD. I wish all my winners were like that…
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.
It’s been a big month for IYH. I think that move is unsustainable and that as soon as the QE-fueled rally picks up again, IYH will fall away from profit-taking.
FD: We hold AET, CELG and GILD in both the All-Weather portfolios and the Growth portfolios, and also JNJ in All-Weather. GILD is our biggest position.
As at Aug. 17, 2012, the total market cap of the ten Cara 100 stocks in this sector was $992.3 billion. Of these, the smallest three are AET, with a market cap of $12.7 billion (down from $14.4 billion Dec 9, 2011), Celgene (CELG) at $29.8 billion, and Gilead Sciences at $42.9 billion (down from $29.3 billion Dec 9, 2011). Six of the ten 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.
This week the Financial (XLF) sector went from lifting the 2nd most of the ten sectors a week ago to dropping the most. XLF dropped -2.76% W/W to close at 15.83.
There had been some rather large gains in recent weeks as traders became enthused with the QE story.
A week ago I reported that: “…the banks that have been strongest in the past several days are ICICI Bank of India (IBN +11.1% W/W and +16.9% over two weeks)…”
This week IBN was up +4.2% W/W and Mastercard (MA +1.2%) was also higher.
Biggest losers this week were Morgan Stanley (MS -6.4% W/W), Schwab (SCHW -5.9%) and Bank of America (BAC -4.6%).
Some of these had been up a lot based on QE-driven stories. Bank of America (BAC) was up +8.5% a week ago and had been the #1 performer in the Dow 30.
FD: We hold only Mastercard (MA) in this sector after dropped Schwab (SCHW) this week. We are at just over 13% S&P weighted in Financial.
I recently noted that “the Canadian banks are probably worthwhile if you happen to catch the cycle lows, and under-weight your positions”.
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.
As at Aug. 17, 2012, the total market cap of the seven Cara 100 stocks in this sector was $323.3 billion vs $307.2 billion as at Dec. 9, 2011. Of these, the smallest three are SCHW, and the two Indian banks IBN and HDB. HDB is by far the smallest.
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.
This week, XLK dropped -0.22% W/W to close at 31.29 while SMH plunged -3.09% to 32.29.
Google (GOOG +3.4% W/W), Adobe (ADBE +1.5%) and Apple (AAPL +1.3%) were all up.
The semi-conductor group was pulled down by many losers that dropped over -5% each. Teradyne (TER) plunged -11.1%.
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.
The Daily chart of SMH (in solid blue with the 8-day EMA in dashed blue), and the $SPX in thin solid orange, reflects a much different picture.
FD: We presently hold AAPL, ATML, BRCM, CSCO, CTSH, GOOG, IBM, INFY, and ORCL in both the All-Weather and Growth portfolios, in this sector. We are up to ~103% S&P weighted in Tech, up from ~90% a week ago and ~73% and ~40% two and three weeks ago, but close to our ~94% position of four weeks ago.
Our holdings are restricted to Cara 100 companies.
As at Aug. 12, 2012, the total market cap of the 18 Cara 100 stocks in this sector was $1.984 trillion. Of these, there are eight over $100 billion in market cap each. There are also seven at about $20 billion down to ATML at $2.6 billion. At Aug. 17, 2012, AAPL market cap stood at $607.5 billion. MSFT ($259 billion) and IBM ($230 billion) are next biggest.
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 +3.24% W/W to close at 26.13, which has followed gains of +2.06% and +2.90% the previous two weeks.
The leaders this week were Verizon (VZ +2.5%) and AT&T (T +2.2% W/W), after being quiet the prior week.
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.
FD: A week ago, we dropped all positions in the All-Weather and Growth portfolios for this sector because the one we held, Mobil TeleSystems (MBT) began to look tired.
We recently added Canada’s Rogers Communications (RCI) to the Cara 100, for this sector although in addition to being a powerhouse in cable TV and Internet and wireless and fixed line telco, Rogers is a media giant, one that I have complained as being too big and monopolistic. However, they are good and are my vendor.
As at Aug. 17, 2012, the total market cap of the former group of three Cara 100 stocks in this sector was $120.3 billion, down from $147.8 billion as at Dec. 9, 2011. Of these, Telefonica (TEF) dropped from $83.4 billion to $59.6 billion in market cap. Then as of Aug 31, with Rogers included, the market cap of the four of them was $141.6 billion with RCI being $20.8 billion of that.
Cara 100 Sector 50 (Telecom) list:
CHA China Telecom Corp [GICS 50, Cara 100 V50]
MBT Mobile TeleSystems (ADR) [GICS 50, Cara 100 G50]
RCI Rogers Communications [GICS 50, Cara 100 V50]
TEF Telefonica SA [GICS 50, Cara 100 G50]
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 dropped -1.40% W/W and closed the week at 36.03.
FD: We hold Exelon Corp (EXC) in the All-Weather portfolio for this sector because of the dividend (but not in Growth).
EXC dropped -1.6% W/W.
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).
Over the past three months, XLU is down -0.61%, which was by far the worst sector performance and the only sector loser over that span, and it well under-performed the S&P 500, which was up +10.14%.
At the beginning of the summer, I can recall those Talking Heads on CNBC telling the dupes in the audience they needed these high dividend payers. Why even our EXC is down -3.91% in the past three months.
I have warned on this issue all summer: “Traders like some Utilities and Telcos mostly seeking a high dividend yield as a counter to low bond yields. But you also have to be conscious of the equity prices as well.” The name of the game is Total Return.
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.
XLU is at 36.03. A price above $36.33 (8-week EMA) would tweak my interest. I can see the sellers getting tired here.
As at Aug. 17, 2012, the total market cap of the two Cara 100 stocks in this sector was $64.4 billion.
Cara 100 Sector 55 (Utilities) list:
EXC Exelon Corp [GICS 55, Cara 100 V50]
TRP TransCanada Corp [GICS 55, Cara 100 V50]
Table 12: US Utilities
Sorted by 1-Week Price Performance. Symbol
Here’s the XLU Monthly, Weekly and Daily data charts:
XLU Monthly data:
XLU Weekly data:
XLU Daily data:
Here is the list of North American Utilities that I follow:
AEP D DUK ED EXC FE NEE NGG PCG PEG SO TRP
For study purposes, there is a good mix of electric (AEP, D, DUK, FE, NEE and SO), gas (NGG, TRP) and diversified (ED, EXC, PCG, PEG) utilities.
Here is the current candleglance chart of 10 important Sector 55 components:
Bonds & Yields Review
Wall Street traders no longer view the Treasuries as income instruments. They trade them like penny stocks – only there is significantly less margin required by Humungous Bank & Broker (HB&B). lol … Of course, there is not much default risk to HB&B because they always have a buyer in the Fed ready to take them off the hook. That is not so funny.
Yields this week on the 5-, 10- and 30-year Treasuries were down -4, -12, and -15 basis points (BP) this week. A week ago these yields were up +7, +20, and +27 basis points to 0.71%, 1.87%, and 3.09% respectively. Now they are 0.67%, 1.75% and 2.94%, so bond prices were up.
But over the two prior weeks, bond prices got hammered, and they are still down a lot over two and three weeks.
One of the key US Treasury prices is the TLT (average 20-year Treasury fund). Here is the Daily chart, offset by $SPX.
Despite the gain in bonds this week, and possibly next as well, my position remains that the trend is down and that capital flowing out of bonds will go into equities, commodities and precious metals.
Here is the Econoday write-up on Bonds this week:
A long time ago, the Treasury bonds ceased being income instruments; but, with an extremely low 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. The problem, again, is Total Return.
The TIP:TLT ratio chart is also a very effective indicator of trend reversals between inflation and deflation and back. Equity markets will lift when traders first see that inflation is on the way. I showed that chart at the open of this WIR.
Income investing btw will not go away. Risk averse investors have a need. This is an area of business I am personally pursuing now because I think the bond market is virtually dead, and will not be revived for a few years.
Table 10: US Treasury Yields
US Treasury Bonds Maturity Yield Yesterday Last Week Last Month 3 Month 0.08 0.09 0.08 0.08 6 Month 0.13 0.13 0.11 0.12 2 Year 0.25 0.25 0.25 0.25 3 Year 0.34 0.35 0.35 0.35 5 Year 0.67 0.69 0.71 0.69 10 Year 1.75 1.76 1.87 1.69 30 Year 2.94 2.94 3.09 2.80
Municipal Bonds Maturity Yield Yesterday Last Week Last Month 2yr AA 0.54 0.51 0.59 0.51 2yr AAA 0.48 0.44 0.45 0.39 2yr A 0.91 0.87 0.77 0.66 5yr AAA 0.87 0.82 0.81 0.73 5yr AA 1.00 1.00 1.02 1.02 5yr A 1.32 1.35 1.32 1.23 10yr AAA 1.86 1.76 1.78 2.05 10yr AA 1.86 1.86 2.06 1.74 10yr A 2.40 2.39 2.38 2.27 20yr AAA 2.90 2.83 3.09 2.81 20yr AA 3.12 3.20 2.91 2.35 20yr A 2.23 2.62 2.88 3.04
Corporate Bonds Maturity Yield Yesterday Last Week Last Month 2yr AA 0.49 0.51 0.42 0.51 2yr A 0.73 0.72 0.70 0.90 5yr AAA 0.82 0.86 0.82 0.94 5yr AA 1.26 1.29 1.28 1.29 5yr A 1.62 1.64 1.65 1.76 10yr AAA 2.78 2.78 2.87 2.65 10yr AA 2.59 2.60 2.79 2.21 10yr A 2.73 2.73 2.82 2.63 20yr AAA 3.83 3.81 3.88 3.81 20yr AA 3.61 3.65 3.66 3.96 20yr A 4.00 3.98 4.05 3.97
Here is the $USB 30-year Treasury Bond chart.
US Bond Funds — Interactive Monthly Data Charts SHY Monthly data series chart:
IEF Monthly data series chart:
TLT Monthly data series chart:
AGG Monthly data series chart:
LQD Monthly data series chart:
TIP Monthly data series chart:
SHY Weekly data series chart:
IEF Weekly data series chart:
TLT Weekly data series chart:
AGG Weekly data series chart:
LQD Weekly data series chart:
TIP Weekly data series chart:
SHY Daily data series chart:
IEF Daily data series chart:
TLT Daily data series chart:
AGG Daily data series chart:
LQD Daily data series chart:
TIP Daily data series chart:
Table 11: Interest-sensitive securities
Sorted by 1-Week Price Performance. Symbol
Some people think this 11-minute video is a good basic explanation of the bond market:
The commodities index ($CRB) trend had been rising for a couple months now, and was up +2.97% a week ago to close at 320.92. This week, however, the trade was reversed and $CRB dropped -3.72% W/W to close at 308.98. There was a gain of +0.67% on Friday.
Here is the Daily data chart of $CRB (solid blue line with 8-day EMA in thin dashed blue) vs S&P 500 Index (solid thin orange line).
Although I use the $CRB (Reuters/Jeffries Index), principally because it’s the oldest, there are many commodity indexes: http://www.crbtrader.com/crbindex/ • Astmax Commodity Index(AMCI) • Commin Commodity Index • Dow Jones-AIG Commodity Index • Goldman Sachs Commodity Index • Reuters/Jefferies CRB Index • Rogers International Commodity Index • Standard & Poor’s Commodity Index • NCDEX Commodity Index • Deutsche Bank Liquid Commodity Index (DBLCI) • UBS Bloomberg Constant Maturity Commodity Index (CMCI)
Here is a link to an article that discusses the major ones that have been around for a while: http://www.rogersrawmaterials.com/overviewandanalysis.PDF
Here is a current price summary of the heaviest weighted commodities contracts: http://money.cnn.com/data/commodities/
These indexes change their component weightings perhaps annually or even monthly, for example: http://www.seekingalpha.com/article/43586-the-new-generation-of-diversif… http://tinyurl.com/a5myfj
Six weeks ago I wrote in this space: “This week the West Texas Intermediate Crude contract ($WTIC) was up to 93.38… What I think is happening here has to do with Iran, Syria, Lebanon and Hezbollah… Oil prices are on the rise, headed apparently for $100/bbl.”
Then the $WTIC did quickly run up to $100 before backing off this week.
Does anybody know why the price drop was so sudden? Apparently many traders and reporters were stunned.
In any case it is what it is. This week $WTIC dropped -$5.93/bbl (-5.99%) to close at $93.08.
One week ago I was concerned about the messages we were getting about a war to come in the Middle East. After all the murder of a US Ambassador and three staff who were defenseless in their office amid an insurgent attack was an act of war.
I still believe the US and Allies intend to follow through, and are pretending to hide behind a sign of diplomacy despite Iran’s cranking up the war rhetoric today. The attack on the embassy staff was unexpected and must be traced to the source, possibly Iran. Whether the Americans discover the true source is debatable but for people who desire to go to war that incident was sufficient reason. It takes time to prepare for war. Nothing I have read makes me believe they are in preparation, but, as I wrote a week ago, I believe it 100%.
Well actually the fact that a full multi-nation naval force is headed for the Straits of Hormuz today is some indication of what is about to unfold.
A week ago I wrote in this space re the Crude Oil price escalation that had been underway: “I still think this trend was started and will continue due to the Middle East hostilities. Inventories in the US show no reason for escalating prices.”
Also: “Be aware that Canada, a country of the most traditionalist international relations, has this week taken the most extreme position on Iran, closing its Embassy there and also ordering the Iranian diplomats out of Canada as well… I see this move as potentially very important to Crude Oil prices moving forward.”
The hi-lo for the week was 99.52-90.96, which follows weeks of (i) 100.42-95.34 (ii) 97.71-94.08 (iii) 97.72-93.95 (iv) 98.29-95.32 (v) 96.28-92.05 (vi) 94.72-90.63 (vii) 91.74-86.92, and (viii) 91.64-86.84.
Except for the selling from Monday through Wednesday this week, I believe the trend for Crude Oil prices is still up; but I shall continue to watch the Weekly hi-lo as well as political news events in the Middle East.
Here’s the Daily data chart of $WTIC in solid blue vs the S&P 500 Index in solid thin orange.
Here’s the Daily data chart of the European $BRENT price in solid blue vs the S&P 500 Index in solid thin orange.
If you look again, you will see that the attack on oil prices happened at the same time on West Texas Intermediate in the US and Brent in Europe. There was no demand-supply factor here at all. Didn’t happen. This was a carefully coordinated sale by big money.
To reiterate from eight weeks ago: “I think $WTIC 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 also a consumable, so supply can only be manipulated so much.” I added a week ago: “Should war be inevitable, I believe (i) SPR will be released, but (ii) prices will go up in any event.”
Using slightly different prices than the ones I show, Econoday summed up this week in the Crude Oil market as follows:
Here is the e-miNY Dec-07 Crude Oil chart.
Gold & Precious Metals Review
The gold market
“In times of war, the price of precious metals, copper and diamonds go higher.”
Three weeks ago $GOLD was up +$18.90/oz (+1.13% W/W) to close at $1692.30.
Two weeks ago, $GOLD soared +$45.30/oz (+2.68% W/W) to $1737.60.
One week ago, $GOLD soared a further +$35.90/oz (+2.07% W/W) to $1773.50.
This week, despite major selling in Crude Oil, Platinum and Palladium and to a lesser extent in Silver and Copper, the price of $GOLD increased +$1.90 (+0.11%) to $1775.40.
One influence is that the India Festival of Lights is upcoming in early November, often a time when the gold price lifts because of the gifts that are purchased at that time.
I am projecting a price of Gold at $1900 or above before that festival. Moreover, I believe the price will continue to maybe $2200 by the end of February, right before the PDAC Convention in Toronto. After a period of consolidation, I think we’ll see a cycle peak up near $3000 before year-end 2013.
This is an aggressive forecast, but global QE, with only China to join the Club, which I anticipate happening within three weeks, all those currencies will be devalued against hard assets like Gold.
The high-low for the week was 1790-1753.20, compared to (i) 1780.20-1720.00 (ii) 1745.40-1687.60 (iii) 1695.50-1647.10 (iv) 1677.50-1611.80 (v) 1628.20-1592.10 (vi) 1629.70-1605.30 (vii) 1631.60-1586.30 (viii) 1628.60-1562.00 and (ix) 1598.80-1567.20 for the previous nine weeks.
“That is quite a bump, and the beat goes on.”
Four weeks ago I wrote in this space, “Now it’s a break-out with prices higher than at any time since March-April… Throughout this time we have increased our Precious Metal bullion-based ETF holdings.”
Here is the Daily data chart of $GOLD with the US Dollar index ($USD) and $SPX, in the overlaid solid green and orange lines:
To many people, the chart indicators look soft and getting weaker, but not to me!
To repeat: “When the trend turn does happen, it will climb one heck of a wall of worry.”
Let me repeat my words of several weeks ago, when most investors had jumped off the wagon:
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. Allocated (i.e., individually owned, safe from any other party) Silver bars of 1,000 oz are the smallest available, but I will be promoting them as I believe that hard assets are favored, and Silver will be the most attractive of these… When I have some time to work on it, my website will reflect this… I also plan to sell rare Diamonds in parcels 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 Diamond service as well. Besides, I have news to announce regarding my taking control of a public company that will be investing in diamonds for sale by retailers.
I will likely break the diamond company news in detail at the Cara Community Conference in Toronto in just four days. We still have maybe two empty seats remaining since a couple of people who expressed earlier interest have not got back in touch.
I look forward to meeting all those who are coming. The weather from Wed through Friday will be terrific. There is a 40% chance of some rain on Saturday. Then Sunday will be clear again.
For those who arrive early, you can book a tour bus of the popular sites. When Pat and I visit a new city, that’s what we do.
Here is the current candleglance chart of 10 important precious metals and copper market components:
The silver market
$SILVER has been soaring. But there was a small loss this week. This week $SILVER dropped -$0.17 (-0.30% W/W) to close at $34.58.
Four weeks ago, $SILVER soared +$2.52/oz (+8.98% W/W) to close at $30.58/oz.
Three weeks ago, $SILVER soared an additional +$1.14/oz (+3.73% W/W) to close at $31.72/oz.
Two weeks ago, $SILVER soared +$1.96/oz (+6.18% W/W) to $33.68/oz.
One week ago, $SILVER soared +$1.06/oz (+3.16% W/W) to $34.74/oz.
So, really the loss of 17 cents this week was a non-event.
The high-low for the week was 35.26-33.85, compared to (i) 34.99-32.51 (ii) 33.78-31.58 (iii) 31.82-30.26 and (iv) 30.79-27.88 over the previous four weeks. The trend is still up.
Six weeks ago I opined in this space that “The stars are lining up”. But then Silver gained only a penny the following week. You can see why I was saying: “Patience, Grasshopper”.
Here is the Daily chart of $SILVER in the solid blue line (with the 8-day EMA in dashed thin blue), and the $USD in the thin solid green line.
As many of you know, my company now offers allocated bullion bars to long-term investors who want to own numbered bars and store them in the world’s safest vaults. The smallest bar for Good Delivery (virtually pure) silver is 31.1 kg (1,000 troy ounces).
Silver Wheaton (SLW) is the key equity for long-term oriented investors to be positioned in. FD: I have a large position.
I like SLW because of the business model, a model btw that is not too much different than the one I plan to implement for diamonds except that my company model is based on sales, not production.
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.
Here is the current candleglance chart of 10 important precious metals and copper market components:
The platinum market
Platinum and Palladium prices had been soaring, partially due to extreme violence at or near the mines in Africa.
Three weeks ago, $PLAT dropped -$16.50/oz (-1.06% W/W) to close at $1535.00. I then wrote in this space: “But the gain the prior week was +$81.00 (+5.51%) so I think the pull-back was warranted.”
Two weeks ago, $PLAT soared $52.50/oz (+3.42% W/W) to $1587.50.
One week ago, $PLAT soared $115.50/oz (+7.28% W/W) to $1703.00.
I warned in this space a week ago: “We are really at extremes, making trading a super challenge. Use prudence if the prior week’s high is not exceeded. The high-low for last week was 1716.50-1588.80.”
This week $PLAT dropped -$67.40 (-3.96% W/W) to close at $1635.60. The hi-lo was 1716.00-1596.00. I don’t think we’ll see 1596 again. I believe the price will start to move higher again.
Here is the Daily chart of $PLAT in the solid blue line (with the 8-day EMA in dashed thin blue), and the $USD in the thin solid green line.
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
The Palladium market is linked to Platinum. The auto industry is growing and needed these metals, but there happens to be mine disruptions at the moment. That combo usually sends prices much higher and that was happening until this week when it appears the strike has been settled and labor relations back to being somewhat normal.
Four weeks ago, $PALL gained +$47.50/oz (+7.83% W/W) to close at 654.00.
Then three weeks ago, $PALL dropped -$34.40 (-5.26% W/W) to close at 619.60. I wrote in this space: “Now that is volatility… There were gains of +$23.75/oz, +$3.75 and +$5.00 the three weeks prior to the week before last.” So, I was not deterred.
Two weeks ago, $PALL gained $33.40/oz (+5.39% W/W) to $653.00.
One week ago, $PALL gained $40.00/oz (+6.13% W/W) to $693.00.
This week, $PALL dropped -$21.85 (-3.15% W/W) to close at $671.15. The hi-lo was 700.90-657.00.
Here is the Daily chart of $PALL in the solid blue line (with the 8-day EMA in dashed thin blue), and the $USD in the thin solid green line.
The (base metal) copper market
There are so many uses for copper that most people would be shocked to read the full list. War materiel is one of them.
Two weeks ago, $COPPER soared +$0.187 (+5.40% W/W) to close at 3.64.
One week ago, $COPPER soared +$0.170 (+4.67% W/W) to close at 3.81.
But this week, $COPPER dropped -$0.04 (-0.97%W/W) to close at 3.77.
For the week, the high-low was 3.839-3.727 compared to (i) 3.838-3.633 (ii) 3.652-3.432 (iii) 3.506-3.408 and (iv) 3.512-3.353 the four weeks earlier.
Here is the Daily data chart of $COPPER in the solid blue line (with the 8-day EMA in dashed thin blue), and the $USD in the thin solid orange line.
Table 12: Senior gold equities
Two weeks the Junior Goldminers (GDXJ) soared +8.26% W/W to close at $23.47.
One week ago, the Junior Goldminers (GDXJ) soared +5.16% W/W to close at $24.68.
This week, the Junior Goldminers (GDXJ) gained +3.16% W/W to close at $25.46. There was a +2.00% gain on Friday.
The Senior Goldminers (GDX +1.76% W/W) was up but not as much as the gains of +6.24% and +5.26% the two previous weeks.
But then $GOLD only lifted +0.11% this week..
Here is the Daily GDXJ chart with the $SPX in the background in solid orange:
Many of the silver producers had a big week this week.
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 two:
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 Yankee Buck rebounded a tad from the large loss of a week ago.
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.
(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.
There was some nonsense being peddled at the GOP convention this year that maybe the US ought to peg its Dollar to GOLD. Will not happen!
You see; neither side of the room at the country club in DC would agree to “play” in handcuffs.
I have suggested that Gold may now be the de facto benchmark and that I do not foresee a time when any of the G-20 governments or central bankers would want to cede power to the hard money crowd, so, if there are to be changes, a new form of paper money is likely to be introduced or, more likely, a new US Dollar index.
I would not be surprised, as I have often stated, if this US Dollar Index is someday reconstructed to include the Chinese Yuan, Brazilian Real, Indian Rupee, Russian Ruble, and Mexican Peso. What we have today – something we used to call the Morgan Dollar – is a joke. A new US Dollar index would simply be constructed by all G-20 currencies based on their past five-year trade weighted average. Then every five years, change the weighting to reflect the latest international trade data of the US.
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 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 $USD, which is the trade-weighted US Dollar index (i.e., multiple currencies as described above).
A chart of the Euro vs Dollar (i.e., EURUSD) with an overlay of currencies (GBP, AUD and CAD in this case) will show you if, as, and the point when, currencies are impacting capital markets. We are looking for commonality in trend direction of the currencies in their trading against the US Dollar.
This week the US Dollar ($USD) gained +0.61% W/W to close at 79.33. A week ago the Dollar plunged –1.75% to close at 78.85, and is well down from the close at 83.48 eight week’s ago.
“Throughout this period we were Dollar Bears.” We still are.
Here is the Daily data chart of the $USD (solid blue line along with 8-day EMA in thin dashed blue) vs S&P 500 solid thin orange line, showing counter-cyclicality.
The high-low this week was 79.66-78.72, compared to (i) 80.43-78.60 (ii) 81.67-80.15 (iii) 81.82-80.96 (iv) 82.72-81.22, (v) 82.88-82.20, (vi) 82.87-82.04, and (vii) 83.51-82.20, the seven weeks before that.
“The trend is clearly down… And you know I played this right.”
Yes, a blip on the radar screen, but I still believe the trend is down.
In the WIR three weeks ago I wrote:
Should the US Dollar suffer a break-down – the 8-month EMA is 80.66 — then I believe the US equity market and commodity prices (except Crude Oil) would be very strong as a consequence. With Crude there is the politically motivated International Energy agency that stands ready to dump Strategic Petroleum Reserves onto the market, if they deem that a wise thing to do… Despite an avalanche of one-sided media and bad econ data coming from Europe for 12-18 months, and widespread belief that the Euro was kaput, it’s the US Dollar that appears to be on the ropes. Perhaps it’s more a case where investors are recognizing that all governments and central bankers have run out of ammunition and their war against the hard money crowd has been lost.
A war will have a big impact on Dollar trading.
“It’s not a crystal ball when I tell you why things are happening. It’s mostly a matter of observation and common sense.”
A week ago I alerted to the possibility of a possible bump for the Dollar: “Prices seldom fall vertically. They drop a bit, then consolidate, possibly even lifting a bit before dropping again. As traders we should be looking for lower highs and lower lows in each short-term cycle.”
The Euro this week dropped -1.15% W/W to close at 129.79.
Here is the Daily data chart of the Euro ($XEU) in US Dollar terms (in the solid blue line with the 8-day EMA in thin dashed blue) vs the S&P 500 (in the thin solid orange line).
The Euro (129.79) has had a Bull run since late July when the price hit 120.65.
Six weeks ago I stated: “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.”
Two weeks ago I added: “The Euro continues to soar because short-sellers are not bigger than the ECB, especially when the ECB has the Fed’s help.” This week Bernanke really helped.
But a week ago the Euro had gained a huge +2.87% W/W and that followed the gain of 1.88% the week before that, and +0.54%, +1.46% and +0.34% the three weeks before that.
How many weeks can the Euro soar when the ECB is also committed to QE?
The new high-low for the Euro this week was 131.72-129.20 compared to (i) 131.68-127.55 (ii) 128.17-125.48 (iii) 126.38-124.87and (iv) 125.90-122.95 for the previous four weeks. The trend is still up.
This week the Pound sterling future ($XBP) gained +0.07% W/W to close at 162.29. Let’s call it flat on the week, which was a positive for the Pound Sterling Bulls as the US Dollar was strong this week.
Here is the Daily data chart of the Pound (solid blue line) and the S&P 500 (in the solid thin orange line).
A week ago, two US soldiers were killed at the air force base where Prince Harry (28 yesterday) is preparing his first war mission. That mission will come very soon and may in fact be in Iran.
Weekly British Pound Index:
Daily British Pound Index:
Weekly Japanese Yen Index:
The Yen contract ($XJY) was up +0.28% W/W to close at 127.95. It was 127.61 three weeks ago.
There was a very large loss of -1.12% a week ago Friday as the situation in the Middle East heated up. I think we’ll see more of that, which ought to support the $USD from falling very quickly, if at all, over the next month.
Here is the Daily 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.
As I wrote in the space a few weeks ago:
The Yen is no longer a key to the international forex market. The key to the $USD strength (i.e., weakness, which is what traders are hoping for) is the decision by the G-8 to usher in high levels of QE across the board.
That has now happened. The plans are being implemented.
Daily Japanese Yen Index:
Daily Canadian Dollar:
This week the Cdn Dollar ($CDW) was down -0.47% W/W to close at 102.42.
The Daily data chart shows the very high correlation between the Cdn Dollar ($CDW) in the solid blue line to the S&P 500 ($SPX) in the thin solid orange line.
As written in this space for several weeks:
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.
This week again, I’m thinking that a Middle East war by the US and its allies will also be a money printing exercise.
How you watch inflation (or a war) kicking in is to watch the TIP:TLT ratio line moving up. Track the data and don’t listen to the Talking Heads or read the Dept of Commerce reports. But don’t be fooled by the downward move this week. It happened early in the week at a time I think the US State Dept was trying to show their diplomatic face, the one before it gets ugly.
Weekly Canadian Dollar Index:
Daily Canadian Dollar Index:
Here is the China Yuan (CNY) chart.
The Cara Toronto 2012 Conference is just four days away! We have maybe two, possibly three seats remaining because that many still have not followed through on their earlier expression of interest. I hope they come. It would be nice to pack the room.
We arranged a terrific room rate at the Strathcona Hotel [code: Cara Conference], but I think the hotel is close to being booked up now.
We will be staying at the Strathcona from Wednesday check-in and then having our Hospitality Evening in their Wellington Room on Thursday evening, and we booked the York Street Café for private dinners on Friday and Saturday with drink tickets provided for the Pub downstairs afterwards.
Our conference sessions and meals during the day will be at LA’s. The room holds 42 for dinner but only 34 maximum, including speakers, for classroom seating.
The Strathcona Hotel is across the street from the Fairmont Royal York and LA’s is across the street from the Sheraton Centre, about three blocks up York Street. On Thursday and Friday, Joe Martin’s Cambridge Toronto Resources show is on – free if you register in advance by Internet, and about $40 (I think) if you register at the door.
If it’s raining, as it might possibly do so on Saturday – the other days will be clear – then we can use the underground PATH, which is a feature of downtown Toronto – a city below the city, for those like me who hate the winter here.
There will be no Week In Review published next week as I can only be one place at a time. Sorry.
A week ago I remarked in this space: “This week I have tried to keep people on the Precious Metals bandwagon, but as you know the market does react to many push and pull influences. I happen to believe the QE factor is important, but one that ebbs and flows in the opinions of investors. What is new at this point, however, is, I believe, the specter of war. I just cannot imagine the US President not taking appropriate response to the act of war committed this week against his country. If only because the perpetrators are not easily identified and segregated, this decision will be a more difficult one than the mission to murder Osama Bin Laden. But I believe the commitment to counter-attack the terrorists and the sources of their funding has been made, not just by the US but by all its closest allies. I see this as 100% probable, and that does mean war. Unfortunately.”
This was a strange week of indifference. Traders are waiting for the final QE shoe to drop, which is China, and they are watching the tense Middle East developments. Romney seems to be dropping in the polls, but in almost every election there are wide popularity swings in the final weeks.
There are parts of each party platform that I like and dislike; so from a policy substance view I call it a draw. However, just like it was time for change in other elections, I think change is needed here. Obama had the time to do what he promised in the 2008 campaign, and didn’t. He has that Teflon personality and is a great orator – probably a great human being as well – which is why I wanted him elected last time around. But if I had a vote, it would be to remove him and give the other team a chance.
How the analysts figure the scenario would play out for the market depending on which side wins is pretty clear by now. Obama’s team would spend more and, although it’s debatable, get the nation deeper in debt. Short term that’s bullish for the market, some of us calling it kicking the can down the road.
To sum up my thoughts after going through the data and the indications for global QE, I think the market Bull has another year to run, with about +15% capital growth likely before the Great Reflation becomes the Great Collapse.
In my scenario, Precious Metals and Metals will take the lead because essentially all that’s happening is currency devaluation. The Oilers will not keep the pace because the market is well supplied today and for many months to come. But at the end of the Bull run in the broad equity market, the point where capital will cease to flow easily out of bonds and into equities, there is usually a blow-off top in Crude Oil as well as precious metals. Only after that point do I expect to see the Great Collapse.
Until then I like all companies that are labor intensive because there is no wage inflation now or on the horizon. The Consumer Discretionary goods producers will be favored for this reason, and the fact that during the Great Reflation the unemployment rates will fall and there will be more people with discretionary income. I also like the commodity producers, where supply cannot keep up to demand, because this will be a QE-fueled Great Reflation.
This week Jack Bogle, the king of the index fund industry, was bemoaning the craziness of markets, telling the BNN audience that 30 years ago stocks turned over about once in six years on average and now the speculators and HFT players are forcing turnover about every couple months. I think Jack continues to ignore reality, however. Turnover is happening because it’s possible today. The equity market functions over that say of the housing market because of liquidity. When, back in the 1970’s and early 80’s, it cost 3% brokerage commission on entry and 3% on exit, trading volumes were necessarily very low – except in penny oil and mining stocks – because it was impossible to turnover the entire float of a Fortune 500 company in a couple months and make a net profit over and above the 6% commission. Institutional investors were prudent then, basing trades almost entirely on corporate fundamental and macro-economic factors, just as they are prudent today as almost zero cost commissions changed the game to one of technical trading and risk management. Why blame speculators unless you are talking your book, and Jack Bogle has always talked his book.
Today the market is most affected by momentum trading. Corporate fundamentals and macro-economic themes still play a role, but the game is about momentum, price series data that is easily computerized and analyzed by statistical tools where the results are entered into sophisticated trading algorithms. Well over 50% of all trading is done this way now on the world’s major stock exchanges. That is not speculation. It’s just different than when index funds were first promoted as the be all and end all for investors. Computers now project prices just like they do election winners.
I too have a market price forecast – quite different to many of yours or the people you read. The S&P 500 today is 1460. With a +15% gain that I anticipate, based on QE and increased liquidity, and currency devaluation, I see the S&P 500 lifting to about 1675 a year from now and at about that time starting to fall due to what I call the Great Collapse that I foresee.
Here is a very long-term chart of the S&P 500 and how I see the future playing out.
For my projection on Gold, I think we are going to see a very over-heated $3000/oz price about a year from now.
The attendees to the 2012 conference are going to hear me talk about Wall of Worry, the best of the junior mining stocks, allocated bullion investment, South Asia (positive), China (negative), coal, diamonds, income securities, private equity, the best and worst of the Cara 100 stocks, my Growth stock selections for the next 3-6 months, and my favorite technical indicators and how I use them in practice.
I’ll do some of that on Thursday afternoon plus introduce some very interesting speakers, one of whom will be traveling 8300 miles just to show you why I’m about to invest in his company – and of course to go home with the outline of a deal.
Geoff Goetz will traveling from Chicago to join us after the market close on Friday and he an I will have the stage on Saturday. Vad Graifer on Friday will be presenting his trading methods in what is always the most popular session.
Rob McEwen will be here from 3:15pm to 4:00pm on Thursday – in top form, no doubt.
And I have a few others like Rob also lined up, but cannot let you know until I get it in writing from them.
In any case, I know the attendees will have a most enlightening and enjoyable time. For outside fun, the Yankees are in town that week to beat up on the local Blue Jays in Canada’s biggest stadium, and next door there is the Top of the CN Tower, which is a must-see place on a weather friendly day.
Again, I hope to see you here.
Have a good day.