Bill Cara’s Week in Review #5, 2012
[4:22pm ET] It was a strange week in that the NASDAQ was very strong, but the Dow 30 was weak. There were 7 rising sectors and 3 that fell. But that result didn’t measure up to the Dow 30 since 20 of the 30 were down.
Like a thief in the night, some of America’s biggest cap stocks dropped a lot of market cap this week even though the NASDAQ was solidly up +1.1% and even the S&P 500 gained a tad (+0.1%). While international stocks were performing well, the US Big Telco duo, T -4.4% and VZ -4.5%, and the Big Oil duo, CVX -2.7% and XOM -1.9%, dropped a lot, and they were in a group of other US mega-caps like MCD -3.0%, PG -2.9% and PFE -1.9% W/W. Friday’s losses did most of the damage.
Maybe traders flinched at the Republican Party leadership debate on Thursday night – the one where Newt the Bomber (wants to take out Cuba, like Syria) decided to send his campaign to the moon (send a colony there to create the 51st State!), and likely his chances of election to the ocean floor. The other candidates did ok though, so it may be a horse race yet.
What did almost hit the moon though was the senior goldminer ETF (GDX) soaring +9.6% W/W and the juniors (GDXJ) up +9.9%. Six weeks ago they were all underwater and I was a lonely voice calling for traders to step into US Gold (UXG) at about $3.00.
Even a week ago in the WIR I was working overtime here:
In recent months, many of you were being scared out of positions in some of the goldminers, particularly US Gold (UXG), so a month ago I wrote up a glowing report, in considerable detail, telling you it was ok to buy the stock and that it would be my pick for the year ahead. You also saw me support Silvercorp (SVM), calling for regulators and police to stop the intervention by fraudsters trying to screw the shareholders. Many of you were afraid to touch the stock, fearing that maybe there was truth behind the outlandish accusations… The results that followed are that the two best performers of the quality US listed goldminers over the past month have been UXG and SVM. SVM is up +13.19%, the #2 best performer, which is well ahead of the #3. But the #1 is UXG, up a stunning +53.7% over the past four weeks.
Now UXG is trading at almost $6.00, under a new name McEwen Mining and under the MUX ticker, up this week alone a stunning +19.9%. However, even I got a nosebleed, seeing stars after $5, and sold off about 30% of my position. It’s back to risk management for me.
The merger news is history – the shorts and other disbelievers have now given their heads a shake. There was in fact substance to the information I published in the blog, which you now appreciate. So, yes, it’s onwards and upwards for McEwen Mining — albeit not quite at the same explosive rate of growth. I still hold a 10.1% portfolio weighted position (junior precious and other metals) in MUX, which I intend to trade around.
This particular junior precious metals portfolio btw is up +21.2% YTD and we’re still in January. Oh, if I could only have skipped four weeks from mid-November! Is it any wonder I ended up with GI health issues.
But, I do feel that Bernanke has helped send us on to bigger and better prices this year, not just for precious metals but for the broad market. In the next section of the WIR, we’ll cover his FOMC announcement on Wednesday and his media conference that followed.
As for the markets this week, let’s see what happened regarding the Economy, Currencies, Bonds, Equities, Commodities and Precious Metals.
From the published reports, here are this week’s headlines from the highly regarded Econoday analysts:
• Fourth quarter GDP improves +2.8% vs +1.8% for Q3, but detail disappoints
• The Fed surprises with an extension of exceptionally low rates
• Durables orders unexpectedly strong in December
• New home sales disappoint
• Pending home sales come off prior surge
• FHFA house prices rebound in November
• Consumer sentiment continues to rise from recent low
• Leading indicators gain
The results continue to be positive, as they have been for at least six months. The bottom line is “ The recovery clearly improved in the fourth quarter. The big question is regarding momentum. The mix of GDP between inventories and final sales was not good. But details about PCEs may indicate that underlying demand is a little stronger than implied by official final sales numbers. And recently favorable durables orders and consumer sentiment appear to outweigh sluggish housing data. The strength of the recovery is more uncertain in both directions after this past week’s data. And the Fed decided to err with keeping policy loose. At this point, for the first half of 2012, odds are that growth will be modest with equal upside and downside risks but no signs of recession.”
Let’s now look at the detailed economic data for the week that passed and the one ahead.
Global Economics Review
Investors were kept busy last week monitoring the avalanche of new earnings reports, following the ongoing saga in Greece and vigiling the FOMC announcement along with its newly transparent policy making tools. There were also key economic data releases that warranted attention along with the IMF’s lowered global growth projections. For the week, equities were mixed… According to the IMF, the Eurozone debt crisis is escalating and dragging down the world economy. As a result, it sharply cut its outlook for global growth and called for policies to restore confidence. The IMF lowered its 2012 forecast for global growth to 3.3% from 4% just three months ago, saying the outlook had deteriorated in most regions. It projected world growth would strengthen to 3.9% in 2013. The organization said economic activity was decelerating but not collapsing. However, it warned that global growth would come in about 2.0%age points below its already soft forecast if European leaders did not resolve the crisis and allowed it to drag on… For the first time since the debt turmoil erupted two years ago, the IMF said the Eurozone would likely slip into a mild recession in 2012, with output contracting by about 0.5%. However, it maintained its 1.8% growth forecast for the United States in 2012, but cut its projection for Japan to 1.7% from 2.3%. The IMF said the United States and other advanced economies would likely not escape unharmed if Europe’s crisis escalates further. The fund projects a sharp slowdown in the pace of growth in emerging and developing countries and urged them to focus policies to stimulate their economies… As expected, the Federal Reserve left its federal funds target interest rate range at zero to 0.25%. In a change from last time, the FOMC said their benchmark interest rate will stay low until at least late 2014 — it had previously been mid-2013. The committee also anticipated that unemployment will remain high and inflation “subdued.” The FOMC said that the economy is expanding “moderately” despite slowing in global growth and that the unemployment rate would decline, but only gradually. Inflation is expected to run at levels at or below the FOMC’s mandate which is 2.0%. Finally, the Maturity Extension Program (Operation Twist) will continue.
Econoday’s Global Perspective is written by chief economist Anne Picker.
Despite the end of QE2 and policy rates at essentially zero, Fed officials have continued to maintain that they have not run out of ammunition. The latest bullet is “communications” as the FOMC announced a dramatic extension of the period it expects rates to remain exceptionally low. Meanwhile, economic news was mixed. However, lack of notable negative news out of Europe helped offset mixed earnings reports.
Econoday’s US report is written by Mark Rogers. He is the author of The Complete Idiot’s Guide to Economic Indicators, Penguin Books, 2009. I recommend it.
The reason I devote much time to the reporting and analysis of economic data is for us to gain an understanding of the reasons behind the ebb and flow of capital market prices and the sector rotation within markets. After you follow these reports from month to month you will get a sense of the interrelationships between the business or economic cycle and the market cycle.
Following the release of the report on 01/25/2012 10:00:00 AM ET, Econoday reported, Contract signings eased in December after moving sharply higher in the prior two months. Pending home sales fell 3.5% in the month following a 7.3% gain in November and a 10.4% surge in October. Year-on-year, pending home sales are up 5.6% and are only three tenths slower than November. The trend in this series, despite December’s dip, points to continuing improvement in existing home sales.
Following the release of the latest data on 01/25/2012 12:30:00 PM ET, Econoday reported, The FOMC announcement at 12:30 p.m. ET for the January 24-25 FOMC policy meeting is expected to leave the fed funds target unchanged at a range of zero to 0.25%. Some Fed watchers are increasingly expecting QE3 and traders will be looking for language supporting this view or not. Also, the Fed will release its quarterly forecast between the announcement and the chairman’s press conference. This forecast for the first time will include projections for the fed funds rate.
Following the meeting on 01/25/2012 at 2:15 PM ET, Econoday reported, A couple of minutes ahead of schedule (yes, again), the Fed announced it retained the current policy rate range of 0.0 to 0.25% but the FOMC changed key language. Instead of saying that the policy rate will remain exceptionally low likely through mid-2013, the Fed now says the fed funds rate is likely to remain exceptionally low through LATE 2014 (emphasis added). Otherwise, the statement was essentially the same as in December 2011… The vote for the statement language was 9 to 1 with Richmond Fed President Jeffrey M. Lacker dissenting. He wanted to omit language indicating how long the rate is expected to remain exceptionally low. In contrast, Chicago Fed President Charles Evans did not dissent this time. In December, he dissented in favor of immediate additional easing… Since the statement is otherwise essentially unchanged, the following summarizes key points: (i) The economy is expanding “moderately” despite slowing in global growth. (ii) The unemployment rate will decline but only gradually. (iii) Inflation is expected to run at levels at or below the FOMC’s mandate. (iv) The Maturity Extension Program (aka Operation Twist) continues. The Fed will continue to reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and will continue to roll over maturing Treasury securities at auction… Essentially, the Fed is keeping monetary policy extremely loose and is encouraging businesses to make plans based on low interest rates. Also, the Fed does not seem to buying into the view that the recovery is gaining notable traction. Or at least the Fed sees the risk of too slow growth as too high. Though there is no reference in the statement (but could be in the minutes), the Fed must be aware that fiscal policy is likely to be modestly contractionary in coming quarters… On the news, Treasury yields declined.
Following the release of the latest data on 01/26/2012 8:30:00 AM ET, Econoday reported, Manufacturing is picking up steam as December durables were strong and above expectations and November was revised up notably. New factory orders for durables in December jumped another 3.0%, following a 4.3% surge the month before (prior revised estimate, up 3.7%). The December increase topped market expectations for a 2.2% gain. Excluding transportation, durables rose a healthy 2.1% after a 0.5% advance in November (prior revised estimate, up 0.3%). The December gain came in much higher than the consensus forecast for a 0.7% increase… By components, strength was widespread in December. Transportation grew 5.5%, following a 16.6% surge in November. Subcomponent strength was in nondefense aircraft although motor vehicles also gained… Outside of transportation, orders were positive in most major subcomponents. Increases were seen in primary metals, up 5.1%; machinery, up a robust 6.0%; computers, electronics & communications equipment, up 1.2%; and “other” durables, up 0.2%. Declining were fabricated metals, down 1.4%, and electrical equipment, down 1.1%… We also saw a 2.9% rebound in nondefense capital goods excluding aircraft, following a 1.2% dip in November. Shipments for this series also improved, rising 2.9% in December, following a 1.0% decline the month before. The latest shipments number will have economists nudging up their forecasts for the business equipment component in fourth quarter GDP… Today’s report indicates the manufacturing is gaining strength and points to a recovery that actually may be gaining momentum despite Fed skepticism about the outlook. On the news, equity futures rose slightly. At the same time, jobless claims came in a little higher than expected but remained on a downtrend.
Following the release of the latest data on 01/26/2012 8:30:00 AM ET, Econoday reported, A big swing, week after week, has been the story for jobless claims the last two months, but behind the seasonal volatility is a steady trend that points to moderate strength for the labor market. Initial claims rose 21,000 in the January 21 week, yet despite the big jump the 4-week average actually fell 2,500 to 377,500. Though this level is little changed from the month-ago comparison, it is convincingly below 400,000 to indicate another month of meaningful improvement for the monthly employment report… Continuing claims in data for the January 14 week rose 88,000 to 3.554 million following the prior week’s major decline of 181,000. The four-week average for this reading is down 16,000 to 3.569 million, meaningfully below the month-ago comparison. But declines for continuing claims are hard to read, reflecting new hiring but also unfortunately new drop outs from the jobs market. The unemployment rate for insured workers rose 1 tenth to 2.8%.
Following the release of the latest data on 01/26/2012 10:00:00 AM ET, Econoday reported, The home builders’ housing market index may be indicating a surge of strength underway in the new home market, but this surge has yet to appear in current sales of new homes. New home sales fell 2.2% to a disappointingly soft annual rate of 307,000 vs the Econoday consensus for 320,000. Details show a swing lower in the South which in this series is by far the largest and most important region. Nationally, the number of new homes on the market slipped slightly but not enough to offset the larger decline in sales, making for an uptick to 6.1 months of supply. This is the first time in six months that this reading failed to improve… Another disappointment in the report is the median price which fell 2.5% to $210,300. Year-on-year, the median price is down 12.8% for the worst reading of the recovery… But lower prices in the month, not to mention lower mortgage rates, failed to spark much commitment to new home purchases. Though most indications on housing have been improving, today’s report is a reminder of yesterday’s FOMC assessment that the sector remains depressed. The Dow is moving off opening highs following this report.
Following the release of the latest data on 01/26/2012 10:00:00 AM ET, Econoday reported, The LEI kicks off a new youth today, in a recasting of components that include the casting out of money supply in favor of a credit measure and the casting out of deliveries in favor of the ISM new orders index. The first reading from the mix shows a respectable 0.4% gain for December vs sharply downward revised gains in the prior two months of plus 0.2 and plus 0.6%… The new mix hasn’t upended the dominant positive factor for the LEI which is the rate spread between low and high rates. The downward trend for jobless claims is the second biggest plus. Other readings are neutral to mildly positive and there are few negatives, but the negatives do include consumer expectations, which is another component that has undergone a revamping… Other details include a 0.3% gain for the coincident index, up from a 0.1% gain in December but down from an outsized 0.8% gain in November. For the markets, the new mix limits the importance of the LEI, at least initially.
Following the release of the latest data on 01/27/2012 8:30:00 AM ET, Econoday reported, The economy actually did post a moderate acceleration in the fourth quarter but the recovery is still sub-par. GDP growth rose to 2.8% from 1.8% in the third quarter. The advance estimate came in lower than market expectations for a 3.1% boost… However, the component mix was not favorable. Inventory growth accelerated moderately and added 1.94%age points to overall growth… Demand numbers decelerated as final sales of domestic product increased an annualized 0.8% in the fourth quarter after a 3.2% rise in the third. Final sales to domestic purchasers (excludes net exports) advanced 0.9%, following a 2.7% gain in the second quarter… Strength in the fourth quarter as mentioned above was largely in inventory investment. Also, PCE spending accelerated to 2.0% from 1.7% in the third quarter and residential investment improved to 10.9% from 1.3%. Partially offsetting, government spending fell 4.6% after a 0.1% dip, nonresidential fixed investment slowed to 1.7% from 15.7%, and net export worsened slightly… On a year-ago basis, GDP was up 1.6%, compared to 1.5% in the third quarter… Economy-wide inflation according to the GDP price index eased sharply to 0.4% annualized from 2.6% in the third quarter. Analysts had called for a 1.5% rise… The economy overall improved in the fourth quarter but the mix was not as favorable as hoped. The modest improvement in consumer spending is encouraging but more is needed. The Fed appears to have been correct that low rates are needed for some time to boost investment and spending.
Following the release of the latest data on 01/27/2012 9:55:00 AM ET, Econoday reported, Consumer sentiment has improved the second half of the month but at a slower pace than the first. The index rose 1 point in the final January reading to 75.0. The mid-month reading of 74.0 was up more than 4 points from the final December reading which is a very strong gain. The implied reading for the last two weeks is a very solid 76.0. Levels are now above the year-ago comparison for the first time in a year… Gains are being led by the leading component of expectations which is at 69.1 for a 5.5 point gain from December. Current conditions, at 84.2, are up 4.6 points from December… Gas prices are on the rise and are showing up in inflation expectations which, at 3.3% for the 1-year outlook, are up 1 tenth from mid-month and up 2 tenths from December. The 5-year outlook is unchanged from final December at 2.7%.
Prior to release of the report on 01/30/2012 8:30:00 AM ET, Econoday reported, Personal income in November grew 0.1%, following a 0.4% increase the month before. However, the wages & salaries component slipped 0.1% after a 0.6% increase in October. Consumer spending in November advanced a soft 0.1%, following a 0.1% increase the month before. The headline PCE price index was unchanged after dipping 0.1% in October. Analysts had called for a 0.1% increase. The core rate held steady at 0.1% in November. Looking ahead, we are likely to see a notable gain in the private wages & salaries component in December as aggregate payroll earnings jumped 0.7% for the month. Personal consumption expenditures are likely to be sluggish in general. For the month, unit new motor vehicle sales nudged down 0.5% while retail sales excluding autos dipped 0.2%. PCE inflation should be tame as the CPI for December was flat and the core CPI rose 0.1%.
Prior to release of the latest data on 01/30/2012 10:30:00 AM ET, Econoday reported, The Dallas Fed general business activity index in December dipped to minus 3.0 from plus 3.2 in November. The production index improved but remained in mild contraction at minus 1.3 versus minus 5.1 in November. The index for volume of new orders posted a similar pattern, improving to minus 0.5 from minus 5.1 the prior month.
Prior to the release of data on 01/31/2012 at 8:30 AM ET, Econoday reported, The employment cost index rose a quarter-to-quarter 0.3% in the third quarter from outsized 0.7% and 0.6% gains in the prior two quarters. In the latest period, benefit costs slowed to 0.1% in the third quarter, down from 1.3% and 1.1% in the prior two quarters. Wages & salaries rose a respectable 0.3%, following a run of 0.4% gains.
Prior to release of the latest data on 01/31/2012 9:00:00 AM ET, Econoday reported, The S&P/Case-Shiller 20-city home price index (SA) fell 0.6% in October following a revised 0.7% decline in September and a 0.4% decline in August. On an unadjusted basis, contraction steepened from a revised 0.7% in September to 1.2% in October. The deeper monthly contraction here likely reflects, at least in part, the dampening effects on demand from seasonally colder weather. In some parts of the U.S., atypically early snow storms in October likely hurt demand.
Prior to release of the latest data on 01/31/2012 9:45:00 AM ET, Econoday reported, The Chicago PMI for December was little changed at a very strong 62.5 versus 65.2 the month before. Strength was led by the new orders index which posted at a healthy 68.0 compared to 70.2 the prior month.
Prior to release of the latest data on 01/26/2012 10:00:00 AM ET, Econoday reported, The Conference Board’s consumer confidence index in December posted a solid 9.3 point rise to 64.5 for the best reading in eight months. The consumer view of the jobs situation clearly is improving, although slowly. Those saying jobs are currently hard to get were down to 41.8% from 43.0% in November for the lowest level of the recovery. And for the first time since April, there were more optimists, 17.1%, than pessimists, 14.4%, when it comes to their own income outlook.
Prior to release of the latest data on 02/01/2012 during the morning, Econoday reported, Sales of total light motor vehicles slipped incrementally in December but remained at a relatively strong sales level. Combined domestics and imports nudged down 0.5% to fractionally above 13.6 million units annualized from fractionally below 13.6 million units the month before. In plain English, sales were essentially unchanged at 13.6 million. Sales were up 8.4% on a year-ago basis. Total imports rose 0.4% in December to 3.3 million units annualized while domestics slipped 0.9% to 10.2 million.
Prior to release of the latest data on 02/01/2012 10:00:00 AM ET, Econoday reported, The composite index from the ISM manufacturing survey in December improved to 53.9 from 52.7 in November, moving further into positive territory. Index levels above 50 indicate positive growth with higher levels indicating stronger rates of growth. The latest gain in the composite was led by increases in the production and employment indexes. Production jumped to 59.9 from 56.6 in November. Employment rose to 55.1 from 51.8. The boost in employment is likely a vote of confidence by manufacturing management for stronger demand in coming months.
Prior to release of the latest data on 02/01/2012 10:00:00 AM ET, Econoday reported, Construction spending in November jumped 1.2% after slipping 0.2% in October. The November increase was led by a 2.0% gain in private residential outlays, following a 2.3% boost in October. Both the single-family and multifamily subcomponents showed strength. Public outlays rebounded 1.7%, following a 1.8% decline in October. Private nonresidential construction spending was unchanged in November after decreasing 0.6% the prior month.
Prior to release of the latest data on 02/02/2012 8:30:00 AM ET, Econoday reported, Initial jobless claims for the January 21 week rose 21,000 in the January 21 week, yet despite the big jump the 4-week average actually fell 2,500 to 377,500. This level was convincingly below 400,000 to indicate another month of likely meaningful improvement for the monthly employment report. Continuing claims in data for the January 14 week rose 88,000 to 3.554 million following the prior week’s major decline of 181,000. The four-week average for this reading was down 16,000 to 3.569 million.
Prior to release of the latest data on 02/02/2012 8:30:00 AM ET, Econoday reported, Nonfarm business productivity for the third quarter was revised down to a 2.3% rise, compared to the initial estimate of 3.1% and a 0.1% dip in the second quarter. The output component was revised down to a gain of 3.2% from the original 3.8%. Hours worked were nudged up to a 0.8% annualized increased from the original 0.6%. Unit labor costs were revised to an annualized 2.5% decrease, compared to the first estimate of a 2.4% drop.
Prior to release of the latest data on 02/03/2012 8:30:00 AM ET, Econoday reported, Nonfarm payroll employment in December jumped a relatively healthy 200,000 after rising a revised 100,000 in November and increased a revised 112,000 in October. Private payrolls again outstripped the total, gaining 212,000 in December, following increases of 120,000 in November and 134,000 in October. Average hourly earnings strengthened in December, rising 0.2% after no change in November. The average workweek for all workers in December posted at 34.4 hours, compared to 34.3 hours in November. From the household survey, the unemployment rate unexpectedly continued to decline, slipping to 8.5% after dropping to 8.7% in November from 8.9% in October.
Prior to release of the latest data on 02/03/2012 10:00:00 AM ET, Econoday reported, The (prior month’s) decline on the durables side was skewed by a monthly downswing in aircraft orders while the decline on the non-durables side reflected price changes for energy products. More recently, new factory orders for durables in December jumped another 3.0%, following a revised 4.3% surge the month before (prior revised estimate, up 3.7%). Excluding transportation, durables rose a healthy 2.1% after a 0.5% advance in November (prior revised estimate, up 0.3%).
Prior to release of the latest data on 02/02/2012 10:00:00 AM ET, Econoday reported, The composite index from the ISM non-manufacturing survey in Dec. edged only six tenths higher to 52.6, indicating only mild month-to-month growth in general business conditions. New orders, at 53.2, were no more than moderate though they were up two tenths from Nov.
Technical Indicators & Patterns of International Markets
Clearly, this week’s technical indicators and patterns, as used by technical analysts, must be summarized as bullish.
Data to be found at http://stockcharts.com/def/servlet/SC.scan
Compare the current data above with the prior Friday’s data:
I recommend this service. Now I am looking to find someone in the Cara Community who is able to interpret the signals and patterns and the week over week changes so that I can insert their text in this space each week. Anybody out there who is able and willing?
International Equity Markets Review
The international equity markets continued to move higher this week, but except for isolated gains like India (+3.0% W/W), Singapore (+2.3%) and Italy (+2.0%), the gains were much less than a week ago. Still, this is one of the most bullish starts to the year for many years.
Markets in China and Taiwan were closed for Chinese New Year.
Here is this week’s international equity re-cap from Econoday:
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.
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 Dollar buying gets out of hand as appeared to happen this week, the markets take on the appearance of a death plunge.
This week all 11 of the top 11 country ETF’s were up for the second consecutive week although the gains this week were not nearly as much as a week ago. The laggard was the UK (EWU +0.90% W/W), which was pulled down by a loss of -0.65% on Friday.
The leader was Russia (RSX +5.57% W/W). Germany (EWG +3.54% W/W) was #2 performer.
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 was a winner for the equity Bulls, but over six sessions the Dow 30 and S&P 500 were flat.
NASDAQ and the Russell 2000 small cap, however, continue to be winners.
Econoday has summed up the US equity market as follows:
Here is the list of the ten highest-weighted non-financial stocks in the NASDAQ Composite. Put them in a watchlist (see Google Finance Portfolio) and watch them like a hawk:
AAPL MSFT GOOG QCOM RIMM CSCO INTC ORCL GILD EBAY
Add two of AMZN, DELL, JAVA or YHOO to get a Cara Dozen.
Or while you are at Investertech.com, input up to 30 tickers in the window above “Summaries” – say AAPL MSFT GOOG QCOM RIMM CSCO INTC ORCL GILD EBAY AMZN DELL JAVA YHOO plus up to 16 more – and click on Tech Chart, Basic View, Daily Watch, Performance or Fundamentals and you’ll get a lot of information to compare one against the others.
Here is the Monthly data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Weekly data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Daily data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Value Line Dow 30 Stocks Review
This week in the quarter-yearly WIR 5-18-31-44 series; Value Line reported on two DJIA components, Coca-Cola (KO) and Kraft Foods (KFT). Of these, Coca-Cola is a Cara 100 company.
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 Jan. 27: next one is due Apr. 27)
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 Jan. 27: next one is due Apr. 27)
Here are my notes from previous WIRs re Coca-Cola and Kraft Foods:
Notes for WIR#18 May 2, 2010
The 13-week stock price performance up and down here. KO ($53.45) dropped from $54.25 on 1/29 to $53.45, and KFT ($29.60) lifted from $27.66 on 1/29 to $29.60. But the KFT price was trading around the current price within a day or two of 1/29, so really not much has changed.
I’m just (not going to spend too much time here today) because neither is in an Accumulation Zone, or has signaled a recent BUY Alert. I defer to the broad market direction, which appears to be down for now.
Value Line increased the 6-month Technical timing rating on KFT from a ‘3’ to a ‘2’ on April 9. But they lowered the same 6-month Technical rating on KO on March 5 from a ‘2’ to a ‘3’. Then on March 26, the 12-month Timeliness rating was also dropped to a ‘3’.
Both companies have improved their balance sheets in the past 15 months, despite increasing their dividends.
Overall, both companies look quite solid to me, and their annualized Total Return (TR) projections by Value Line look fair, although I wouldn’t be a buyer right now. A few months from now will likely present a more favorable entry level if that’s your plan.
Notes for WIR#31 Aug 1, 2010
With regard to this week’s Value Line review of the Dow 30 stocks Coca-Cola (KO $55.11, up from $53.45 13 weeks ago) and Kraft (KFT $29.21, down from $29.60 13 weeks ago), I put the technical charts on my screen, which communicates as follows:
The Daily price data chart shows a substantial run-up in prices for each stock. While both still have lifting Monthly RSI-7s, KFT has started to tail off (Daily RSI-7 has fallen in two weeks from 70 to 47.1), while KO is still being priced very aggressively (where the Daily RSI-7 is up to 81.1 after dipping only to the mid-70’s. KO then is likely to run into head winds in the near future, although being a defensive stock, I anticipate it to lag any further Summer Rally in the Dow 30 index and to fare relatively better than the more aggressive consumer stocks and the DJIA as well should those stumble in the weeks and months ahead, as I expect.
The Value Line reviews this week for Coca-Cola and Kraft add little of value, as I see it.
I did see that, on July 2, VL’s Justin Hellman raised the Technical (6 month’s price trend forecast) from ‘3’ (average’) to ‘2’ (good), possibly based on his discussion of the Cadbury “merger synergies, which will have a big impact on the bottom line starting in 2011.”
VL’s Nira Maharaj lowered the rating on KO from 2 to 3 on May 28, and spent a lot of words on so-called healthy products of Coca-Cola. It may take the company a while to get in shape though as the analyst figures on “decent price appreciation potential for the 2013-2015 time frame.”
The last line is a pip: “And a nice dividend payout sweetens incentives further”.
What could I add to that?!!
Earth to Value Line… come in Nira. Hello, are you there?
Today, as seen by Barron’s, “KO could rise +10% or more in the next year after the company pinpointed North America as a growth market.”
Earth to Barron’s…
Notes for WIR#44 Oct 31, 2010
This stock performance of Kraft (KFT $32.27) on a scale of 1 to 30 of the Dow 30 stocks has been: (i) this week #7 at -0.47%, (ii) this month 12th at +4.57%, (iii) this past quarter #7 at +10.44%, and (iv) this past year #7 at +21.82%. Not bad. In fact, much better than my take on the company.
For Coca-Cola (KO $61.32), the stock performance has been: (i) this week #21 at +1.16%, (ii) this month 11th at +4.78%, (iii) this past quarter #10 at +9.52%, and (iv) this past year #11 at +16.96%. Also, pretty good.
Do I expect gains of +21.8% and +17.0% for these two stocks in the next 12 months? No. How it could happen, however, is under QE2 there is a market bump in the Price to Earnings multiple, although in truth the PE’s ought to fall because inflation-generated earnings are not high quality earnings. The market, however, has a mind of its own, or rather has a mind that is easily led by the powers to be. So if Buffett, PIMCO, Blackrock, Goldman, and the rest tell you they are raising the PE, that’s what will happen.
What this means is that it’s the relative metrics that are crucial, which is why we computer model fundamentals as well as study the technical price action.
For the M-W-D RSI-7, KFT shows 72.5 and rising, 69.5 and rising, and 64.1 and rising. Fairly high on the Monthly, and easy to knock down should another rally take the Weekly and Daily RSI-7’s up over 70, depending of course on what the broad market does after the stock rallies, if it does.
Value Line likes the KFT stock, although lowered the 6-month price outlook on Aug 13 from ‘2’ (good) to ‘3’ (average), and has a ‘3’ rating for the longer-term outlook as well as a ‘1’ for safety, i.e., balance sheet strength.
Kraft is a defensive stock that I cannot get enthused about whereas there are others like Walmart (WMT), Procter & Gamble (PG), McDonalds (MCD), Johnson & Johnson (JNJ) and Coca-Cola (KO) that I do like to review. Honestly, when I’m in the supermarket and I look at all that sodium and MSG filled processed meats and sliced cheese, it turns me away, like cigarette butts in a wet ashtray.
Yes, I do my shopping.
I also buy Coca-Cola, but as I say mostly for the rum. For a healthier drink, I stick with coconut water and just plain iced water and ice tea with lemon.
For the M-W-D RSI-7, KO shows 73.1 and rising, 78.8 and rising, and 70.5 and rising modestly. These are elevated numbers – in the Distribution Zone, as I call it – where traders need to be anticipating a possible sell, depending on their time horizon.
Value Line likes the stock, raising the 6-month price outlook to a ‘2’ on Oct 29, the date of this report. At $61.32, its well up from 50 in July and 55 in August, probably no better than an average DJIA or S&P 500 mover.
The Value Line report shows that Coca-Cola’s balance sheet has gotten stronger over the past couple years, like Kraft stronger than Uncle Sam and paying a superior yield. Dividends continue to grow. The important metrics [revenues, cash flow, earnings, dividends and book value] are shown by VL as growing over the next five years at about the same pace as over the past ten years.
Over the past several years, the stock has had its ups and downs but overall is a definite winner at this point. The PE ($60.34/3.35e earnings for 2010) is 18.0, which is ok. VL suggests that the company will use its strong operating cash flow to buy back shares and raise the dividend, which should help support the stock. Their projection of an annual Total Return (price growth plus dividend) through 2013-15 is midway between +14% to +20%, which is hard to disagree with.
Notes for WIR#5, Jan 30, 2011
Coca-Cola (KO $62.21)
Management guidance from Coca-Cola, reflected by the Value Line report, is that the company expects the performance of the next five years to be pretty much in line with the past ten years. VL rates the KO price stability and earnings predictability at 100%. For the next 3 to 5 years, VL forecasts an Annualized Total Return (i.e., price growth plus dividends) to be in the range from a low of +13% to a high of +18%. It hasn’t happened in the past dozen years, and yet the financial strength and operational metrics have remained solid. So I don’t see the reason for optimism, or why VL improved the Technical Rating (6 month price outlook) from ‘3’ (average) to ‘2’ (good), although they did keep the year ahead outlook at a ‘3’.
The company did take on a massive debt in acquiring the North American Coca-Cola bottling operations, but they also added a similar cash increase, so there is much more liquidity (i.e., much higher current ratio), and the annual $150 million cost savings in back office efficiencies amounts to an increase of almost +2% in net profit. So, this was a good deal, and if the long-term debt was rolled over at current rates, it could be a very good deal.
Nevertheless, Coca-Cola, like McDonalds, is not a company in transition, but another of the 800-pound gorillas in the global consumer spending space, known for its consistently acceptable products and slick marketing, including ‘feel-good’ TV commercials. It’s a formula that makes it kinda hard for their competitors to knock them off the #1 spot.
So, when the share price drops to a 52-week low, it’s usually a good time to buy the stock. That might not happen for a while as it was just on Dec 23 that KO hit a 52-week high of $65.88. Since then the accum/distr line has turned down and a Sell Alert was issued on the Monthly, Weekly and Daily price series. The price is falling and also has dropped below its 8-Week and 8-Day EMAs, which are falling. All this is negative, despite the Daily RSI-7 being below 30 in the Accumulation Zone (AZ).
The Monthly price data series indicates a sell-off is occurring, with Sell-Alert in place, but that the long-term Bull phase, while under pressure, is still intact. I suspect if consumer spending data continues to weaken in February, there will be talk of a ‘double dip’ recession, and the shares of KO are headed significantly lower.
The AZ btw is the point where it pays to start looking, not deciding. You first need to see an RSI-7 reversal before a Buy Alert could be noted. As I see it, KO could fall into the mid-50’s (or even lower) before the indicators would be telling me to take long-term or even intermediate term bullish positions.
I still like the company, and its products. It’s just that a company is different than its stock price. We trade prices. It’s when enough of them like KO are weak that we see why the S&P 500 is having difficulty moving higher than the 1300-1305 apparent glass ceiling.
Kraft Foods (KFT $30.53)
You know my biases here too. Probably not constructive for an independent appraisal.
The Value Line analyst maintains a 12-month Timeliness rating of ‘4’ (below average), and yet states clearly in the report: “Kraft is poised to have a breakout year in 2011… The company should be able to grow its top line at a faster pace than the overall industry… All in all, we see share net rising 16% in 2011, to $2.35, and then trending higher through mid-decade… These high-quality shares should generate good risk-adjusted returns to 2013-2015.”
I think Justin has been eating too many Cadbury chocolate bars. Otherwise if his words translated into rankings, KFT ought to be a ‘2’ and not a ‘4’.
With the Cadbury acquisition, Kraft has taken on a huge long-term debt. Its balance sheet, while strong, is not pristine. Heaven forbid their debt services costs might rise, although that doesn’t appear to be likely.
Also, almost 60% of earnings are paid out as dividends so the three year freeze on annual dividend hikes may continue.
Hey, why not pay those dividends in chocolates? Along with kaimu’s Hawaiian orchids, could be a plan.
The stock has done little this past decade, as the following chart shows. It has also been under distribution for 18 months, despite a share price that bottomed with the Bear market in March 2009 at under $21 and then zoomed to $32.67 on Oct 26.
My crystal ball is showing me lower prices for KFT.
Notes for WIR#18, May 1, 2011
I must admit there was little of interest in either of the Coca-Cola or Kraft quarterly results or Value Line analysis that excited me.
Commodity cost inflation is likely to weigh on future prospects for both companies. That’s a negative.
Recognizing the economic growth issues in the US and Europe, both companies are looking to the Emerging Economies of China and India for growth. As size matters, I suppose they will compete effectively, but that is a longer-term picture than what interests me. Even Value Line’s analyst for Kraft says that investors should have an eye on 2014-2016, which I’m afraid is too far in the future for me to see unless the income potential is worth the wait. Alas, I’m not happy with either dividend yield, especially since KFT has had such a big stock lift in the past few weeks.
The VL analyst has downgraded the 6-month share price outlook (VL calls this “Technical”) for KFT, from ‘3’ (average) to ‘4’ (below average), which may have more to do with the recent share price run-up than any other factor, although in both cases the commodity price inflation will be a burden. Interestingly, the VL analyst for KO raised the Technical rating from ‘4’ (below average) to ‘3’ (average).
Both stocks are behaving differently though. KO is up +8.4% over 13-weeks, +10.0% over 26-weeks and +25.5% over 52-weeks, which puts it in the top quartile of the Dow 30, while KFT is up +10.0% over 13-weeks, +4.1% over26-weeks, and +12.3% over 52-weeks, which puts it in the middle of the Dow 30.
That’s reasonable in light of their relative corporate performance. Comparing the two companies, I do like the growth in top line revenue, earnings and dividends better in KO than KFT. I also think the balance sheet strength has improved the most in the past two years for KO.
Would I be a new buyer here? No, I’d wait through the next 3-4 months to find a more timely opportunity. I’d like to be more positive, but the consumer in the US and Europe, which is the backbone of company revenues and profits, are under stress and too many of these products are non-essential.
Notes for WIR#31, July 31, 2011
In the past 13 weeks, with the anxieties building in the equity market, these defensive consumer staples stocks have (i) not moved much (KO +0.82%) and KFT +2.35%), but (ii) have avoided the pull-back in the Banks (BAC -20.93% and JPM -11.35%) and Industrials (BA -11.67%, GE -12.42%, CAT -14.40% and MMM -10.37%) and Basic Materials (AA -13.35% and DD -9.46%).
If the risk-on trade returns after the Debt Ceiling Deal then I expect these stocks to well under-perform the others.
The Value Line reports are quite positive on both companies, looking for capital appreciation od about +14% for KO and +11% for KFT on average for each of the next three years, plus annual dividends of from 2.7% to 3.6% for KO and 3.3% to maybe 4.0% for KFT on today’s cost base. These are excellent returns, if the targets are met.
I think it could be done with KO, but probably not for KFT. In fact in the VL report, I found too much “if-come” discussion. But, that may be my negative bias speaking since I believe that Kraft produces too many products of dubious nutritional value, much like the products I was forced to consume in my childhood. I think intelligent people are past that stage today.
The balance sheet of Kraft is rated slightly less strong than Coca-Cola’s, but I also noted that a rather large short-term debt item has popped up on the Kraft balance sheet, which might be a reason not to expect any time soon an increase in the dividend, which has been flat since 4Q2008.
VL raised the Technical (6-month price outlook) for KO from a ‘4’ (below average’ to a ‘3’ (market average) on July 8. For KFT, they lowered it from a ‘2’ (above average) to a ‘3’ on June 17, but in May they raised the 12-month+ outlook from a ‘4’ to a ‘3’.
Notes for WIR#44, October 30, 2011
I apologize, but I have too much on my mind this weekend to get sufficiently enthused about either of these stocks to put in the time to derive much if any benefit.
These stocks are likely to muddle through as market performers. If the US Dollar weakens, then Coca-Cola might benefit a tad more because its non-US business is 70% of total revenues versus 51% for Kraft.
Kraft, I note, but don’t much care, will be doing another corporate engineering, apparently splitting in two, for some reason.
If I have enough time afterwards, I might return to KO – or have one. However, I do prefer my Anejo straight up, warm, in a cognac glass. The Coke I like is the Diet stuff. Doesn’t taste great, and the sodium probably isn’t too healthy either, but it’s wet and sugar-free.
Notes for WIR#5, January 29, 2012
Here are the Monthly, Weekly and Daily charts for KO (S&P 500 in orange line):
Here are the Monthly, Weekly and Daily charts for KFT (S&P 500 in orange line):
Coca-Cola (KO $67.44) is down -1.7% over the past 3 months and up +7.6% over 12 months. The charts have turned bearish however. The Monthly RSI-7 is falling and was unable to reach the previous cycle high when above 70. It is now 58.4 and nearing the danger level of 50. The Monthly EMA-8 is 67.26, which is only 18 cents above the current price. The Weekly RSI-7 is declining and down to 47.5 and the EMA-8 is 67.91, which is above the current price. The Weekly STO has been dropping all year. The Daily RSI-7 is 39.3 and EMA-8 is 67.95, which are both bearish. It appears to me that a November low at about $67 will soon be tested, and the price might get down to about $65, which is the bottom of a rising channel. At $65, I’d write puts and buy calls, prepared to hold it at 65 or better and also looking for a gain on the calls if the price moved up in the following period. But I wouldn’t do a thing for now.
The PE (ttm earnings of $3.78) is 17.8 and the PE fwd on $4.12 estimated earnings is about 16.4, which is about the company’s recent average.
Value Line likes the dividend (~2.8%), but the increase is not likely to be reported for another quarter. VL also “trimmed the 2011 and 2012 share-net estmates” recently due, they say, to “near-term currency effects”. Ex-US revenue is 70%, so currency is always an issue. Having said that, I’m not sure that VL has the currency trend right in any event.
There is nothing else in the VL report that interests me.
FD: Although Coca-Cola is a Cara 100 company, we hold no KO in any of the accounts.
Kraft (KFT $38.47) is up +8.5% over the past 3 months and +26.0% over 12 months. The charts are all bullish in terms of RSI, Stochastics and TRIX, but are indicating an over-bought level. The Monthly and Weekly RSI-7 is at 81.0 and 77.1. The Daily RSI-7 is 58.7 and falling. The current price (38.47) is trending toward the 8-day EMA (38.41), and should it cross-over, would be a near-term concern for the Bulls.
VL raised their 3-6 month price outlook on Jan 13 from a ‘4’ (underperform to a ‘3’ market perform. I guess by Jan. 13, they had to admit they were wrong as the stock was trading under $34 in late Nov. and had a heck of a bull move since. I missed it too, but then again I do have a bias against the company and don’t follow the stock.
The PE (ttm earnings of $2.18) is 17.6 and the PE fwd on $2.51 estimated earnings is about 15.3, which is a tad higher than the company’s recent average.
If you are interested in the stock, you ought to be aware of the tax-free spin-off of the slower growing North American grocery business by calendar year-end. The remaining global snacks business might be of interest to those who like Coca-Cola as kind of an offsetting food and beverage deal in your portfolio. As far as I’m concerned, the Return on Equity would have to go from around 10 at present up to close to KO’s 27 before I’d be interested. But if it did, which is unlikely, I’d consider it as a Value component of the Cara 100.
FD: It’s not in the Cara 100 and therefore not a candidate for me to trade.
The Dow 30 Company links in chronological order of the upcoming reports.
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 Nov 4: next one is due Feb 3)
Disney [GICS 25, Dow 30, Cara 100]
(DIS: Google Finance file)
(DIS: Yahoo Finance file)
(DIS: StockChart chart)
(DIS: Investertech chart)
(DIS: ADVFN Financial Data)
(DIS: Value Line Report Nov. 11: next one is due Feb. 10)
American Express [GICS 40, Dow 30]
(AXP: Google Finance file)
(AXP: Yahoo Finance file)
(AXP: StockChart chart)
(AXP: Investertech chart)
(AXP: ADVFN Financial Data)
(AXP: Value Line Report Nov 18: next one is due Feb 17)
Bank of America [GICS 40, Dow 30]
(BAC: Google Finance file)
(BAC: Yahoo Finance file)
(BAC: StockChart chart)
(BAC: Investertech chart)
(BAC: ADVFN Financial Data)
(BAC: Value Line Report Nov 18: next one is due Feb 17)
JP Morgan [GICS 40, Dow 30]
(JPM: Google Finance file)
(JPM: Yahoo Finance file)
(JPM: StockChart chart)
(JPM: Investertech chart)
(JPM: ADVFN Financial Data)
(JPM: Value Line Report Nov 18: next one is due Feb 17)
Microsoft [GICS 45, Dow 30]
(MSFT: Google Finance file)
(MSFT: Yahoo Finance file)
(MSFT: StockChart chart)
(MSFT: Investertech chart)
(MSFT: ADVFN Financial Data)
(MSFT: Value Line Report Nov 18: next one is due Feb 17)
Johnson & Johnson [GICS 35, Dow 30, Cara 100]
(JNJ: Google Finance file)
(JNJ: Yahoo Finance file)
(JNJ: StockChart chart)
(JNJ: Investertech chart)
(JNJ: ADVFN Financial Data)
(JNJ: Value Line Report Nov 25: next one is due Feb 24)
McDonalds [GICS 30, Dow 30, Cara 100]
(MCD: Google Finance file)
(MCD: Yahoo Finance file)
(MCD: StockChart chart)
(MCD: Investertech chart)
(MCD: ADVFN Financial Data)
(MCD: Value Line Report Dec 2: next one is due Mar 2)
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 Dec. 9: next one is due Mar. 9)
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 Dec. 9: next one is due Mar. 9)
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 Dec. 16: next one is due Mar. 16)
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 Dec. 16: next one is due Mar. 16)
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 Dec. 23: next one is due Mar. 23)
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 Dec. 23: next one is due Mar. 23)
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 Dec. 30: next one is due Mar. 30)
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 Dec. 30: next one is due Mar. 30)
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 Jan. 6: next one is due Apr. 6)
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 Jan. 6: next one is due Apr. 6)
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 Jan. 6: next one is due Apr. 6)
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 Jan. 13: next one is due Apr. 13)
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 Jan. 13: next one is due Apr. 13)
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 Jan. 13: next one is due Apr. 13)
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 Jan. 13: next one is due Apr. 13)
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 Jan. 20: next one is due Apr. 20)
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 Jan. 20: next one is due Apr. 20)
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 Jan. 20: next one is due Apr. 20)
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 Jan. 20: next one is due Apr. 20)
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 Jan. 27: next one is due Apr. 27)
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 Jan. 27: next one is due Apr. 27)
Recognizing how destructive a force volatility is, all investors must nevertheless study the price data as well as the corporate fundamentals. Previously I have written in this space:
Admittedly, these are really challenging times in capital markets for anybody who hopes to grow wealth. But the message I continue to give is that by studying the facts and using them to your advantage, while dissociating the excessively hyped, agenda laden, storylines from MSM and Financial Entertainment TV, you can and will succeed… You must, however, develop an investment plan and stick to it through thick and thin. In recent years, the market volatility has caused me to trade more frequently than before, using short-term technical indicators, but the essential study of corporate fundamentals, quantitative peer reviews and macroeconomic data is timeless, and the Cara 100 companies, selected for Growth or Value reasons, enables anyone to focus on quality. Over time, the combination of understanding price drivers and the quality of one’s selections is a proven winner.
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 easy 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.
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.
For our Growth accounts we are significantly over-weighted in Technology issues presently, with high expectations for 2012. The Tech sector has been hammered lately, but the guidance of management indicates things are not that bad. The mood of investors is being set by politicians and central bankers who have their own problems. But as long as interest rates and wage rates stay low, and productivity and job growth rising, then I think the equity market will come out of its funk.
Sector ETF Summary for the US equity market
The price performance tables that I show every day are for eleven GICS Sector Index Funds (ETF’s), including two for Technology (XLK and SMH), for a total of ten GICS sectors. They cover the full spectrum of the US equity market.
Table 1: Cara ETF List is sorted by price performance Week over Week (W/W), i.e. 1W%N.
Table 1 shows that for the past six months, the S&P 500 (SPY) has dropped about -0.84%. Four of the ten sectors have been the culprits: Telecom (IYZ -11.0%), Energy (XLE -8.3%), Basic Materials (XLB -7.8%), and Financials (XLF -5.7%).
If your portfolio has out-performed over the past 26 weeks, you should be thankful; however, I continue to believe and report here that XLE, XLB and XLF are on the rise and I think 2012 will be much superior to 2011. After a few weeks, I can say it has started out that way.
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
This week nine of the ten sectors and 28 of 30 Dow 30 stocks lifted, for the week. But, on Friday only five of the ten sectors lifted and one was flat. The charts and the summary table of technical indicators and patterns continues to show overall bullishness, both for the US and non-US equity markets.
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 was up +0.14% W/W to close at 71.48.
Over the past three months, XLE is down -1.47%, which is the #8 sector performer, underperforming the S&P 500, which has been up +2.48%.
Here is the Monthly chart of XLE (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid orange.
Here is the Daily chart of XLE (in solid blue with the 8-day EMA in dashed blue).
These charts continue to show bullishness for the Monthly and Weekly; however, the Daily indicators are indecisive.
This week, TransGlobal (RIG +7.6% W/W after being up +10.2% a week ago) was the leader.
As I see it, the big news here was that Chevron (CVX) and Exxon (XOM) were down -2.7% and -1.9% respectively. All the other major oilers were winners. This made me think twice as VZ and T in the telecom sector were also hammered worse than any of the others, and quality Dow 30 stocks like MCD, PG and PFE were also down a lot this week.
Why were the stocks of the large and very high quality companies down when the smaller and riskier ones not? I don’t know yet, but I don’t like what I see.
FD: For Growth accounts we hold APA, CVX, NE, PBR, PDS, SLB and XOM, and, for All-Weather portfolios in this sector, we hold the same stocks except PDS, but with a smaller total percentage weighting.
Note that we are still under-weighted Energy to the S&P sector weighting, given the cash plus the excessive weighting we hold in Technology and in the Metals. Note also that our equity positions are, by company policy, restricted to Cara 100 companies in the broad based portfolios.
Here is the current candleglance chart of 10 important Sector 10 components:
Here below is the list of Cara 100 companies in this sector along with their stock tickers. For the Energy (Oil & Gas industries) Sector, the market cap (Dec. 9, 2011) of the 12 Cara 100 stocks was $1.114 trillion. I’ll try to update this data once a month or two.
I won’t repeat this for every sector study we do, but 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 or second to second depending on various price drivers, some of which have little or nothing to do with the corporation. That price might be materially different that say a consensus valuation of enterprise value of the company, which in turn might be materially different than one company or individual might be prepared to pay to acquire the whole company.
But, first and foremost I believe in investing in the shares of the highest quality companies – just like I believe that we must choose our friends wisely. Track records like price trends tend to persist. For a Cara 100 company, I select only those that trade its shares on the NYSE or NASDAQ, which requires a high level of transparency and where the information is easy to come by. Most major Canadian companies and a great many international companies are dually listed on these exchanges in the US too. I try to build the Cara 100, which is where I invest, with an international flavor, which helps me diversify risk and also observe many different operating environments simultaneously, which also helps me better interpret the macro-economic data we get.
A Cara 100 company has to have a strong balance sheet and a strong Board of directors and management team, the CEO in particular. Compared to the peer group, the operating and net profit margins must be at or near the highest, the Return on Shareholder Equity up there as well, generally close to or above 20%. I need to see acceptable growth rates in revenues, cash flow, earnings, dividends and book value.
These figures are easy to get. FINVIZ.com does a good job of that.
As for the price data charts I find best, I like StockCharts.com.
Cara 100 Sector 10 (Energy) list:
APA Apache Corporation [GICS 10, Cara 100 V50]
CNQ Canadian Natural Resources [GICS 10, Cara 100 V50]
CVX Chevron Corp [GICS 10, Cara 100 V50]
CEO CNOOC [GICS 10, Cara 100 G50]
XOM Exxon Mobil Corp [GICS 10, Cara 100 V50]
NFX Newfield Exploration [GICS 10, Cara 100 G50]
NE Noble Corp [GICS 10, Cara 100 V50]
PBR Petroleo Brasileiro SA [GICS 10, Cara 100 V50]
PDS Precision Drilling [GICS 10, Cara 100 G50]
SLB Schlumberger [GICS 10, Cara 100 V50]
SU Suncor Energy Inc [GICS 10, Cara 100 G50]
TLM Talisman Energy [GICS 10, Cara 100 G50]
Here’s the XLB Monthly, Weekly and Daily data charts:
XLB Monthly data:
XLB Weekly data:
Table 3: Senior Basic Materials:
XLB Daily data:
The ETF for Basic Materials stocks is XLB. These are the producers of commodities and related products.
This week, XLB was up +1.64% W/W. The close was 37.18.
A week ago in this space, I remarked that “I find that (under-performance) hard to believe because the key stocks I follow in this sector were very strong indeed.” This week XLB was the #1 sector performer. There are times I wish I worked for the SEC!
Over the past three months, XLB is up +4.03%, which is the #3 sector performer, next to Industrials XLI and Healthcare IYH, outperforming the S&P 500, which has been up +2.48%. YTD though, XLB is #1 performer with a gain of +12.36%.
I saw nothing remarkable in this sector this week apart from the Precious Metals and Copper, which I review separately.
Here is the Monthly chart of XLB (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid orange.
Note the extremely high correlation with the S&P 500. Also note the recent bullishness with a rising RSI-7 off the August lows plus the current price (37.18) that has lifted well above the 8-week EMA (35.29) and the 8-month EMA (35.16), which are bullish signs.
Here is the Daily chart of XLB (in solid blue with the 8-day EMA in dashed blue).
FD: Other than the CEF, which is by far our biggest All-Weather position and several other goldminers, plus copperminer FCX, we presently hold POT and VALE in the All-Weather portfolios and, after adding CCJ, we now hold BHP, CCJ, FBR, POT, TCK, TS and VALE in the Growth portfolios in this sector. Overall, we are over-weighted the S&P sector weighting.
Like Energy, the stocks in this Basic Materials sector are the most cyclical in nature meaning that as demand and supply changes, the prices rise and fall. They are also most susceptible to big Dollar rallies. We have been waiting for the Dollar rally to reverse, and it has not as yet, but still the stocks in this sector are rallying. The stocks are also higher beta, which means that they tend to move to a greater degree, both up and down, than does the broad market.
As at Dec. 9, 2011, the total market cap of the 17 Cara 100 stocks in this sector was $567.3 billion. Of course, 56% of the total is attributed to two stocks, BHP and VALE.
Cara 100 Sector 15 (Basic Materials) list:
BHP BHP Billiton Ltd [GICS 15, Cara 100 V50 G50]
CCJ Cameco Corp [GICS 15, Cara 100 G50]
CEF Central Fund [GICS 15, Cara 100 V50]
VALE Companhia Vale Do Rio [GICS 15, Cara 100 G50]
DOW Dow Chemical Co [GICS 15, Cara 100 V50]
FBR Fibria [Votorantim] Celulose [GICS 15, Cara 100 G50]
FCX Freeport McMoRan [GICS 15, Cara 100 G50]
GGB Gerdau SA [GICS 15, Cara 100 G50]
GG Goldcorp Inc [GICS 15, Cara 100 G50]
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]
UXG US Gold [GICS 15, Cara 100 G50]
Here is the current candleglance chart of 10 important Sector 15 components:
Here’s the XLI Monthly, Weekly and Daily data charts:
XLI Monthly data:
XLI Weekly data:
XLI Daily data:
Table 4: Senior capital goods makers and transportation:
The ETF for Industrial and Transportation stocks is XLI. These are the users of commodities and related products as well as the freight transportation systems that move commodities and business packages to markets around the world.
This week, XLI was up +0.83% W/W to close at 36.46, which was the 2nd best sector performance out of 10.
Over the past three months, XLI is up +5.7%, which is the #3 sector performer, outperforming the S&P 500, which has been up +3.7%.
This week’s leadership has come from Textron (TXT) and Caterpillar (CAT).
CAT was up +5.3% W/W and +3.6% a week ago.
Textron (TXT) continues to fly – from about $18.50 at Christmas to $25.21 now, up a lofty +17.3% W/W. The situation here is that earnings have probably bottomed out. Are you ready to sign your order for that new Cessna or Bell Jet Ranger helicopter? Management is guiding much higher for 2012. http://www.rttnews.com/1804730/textron-slips-to-loss-in-q4-quick-facts.a…
Here is the Monthly chart of XLI (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid orange.
Note the extremely high correlation with the S&P 500. The current price (36.46) is above the 8-month EMA (34.12) and the 8-week EMA (34.89). The Monthly and Weekly RSI-7 are at 63.2 and 71.0 respectively and all are rising. The Monthly Stochastic is now very definitely positive.
Here is the Daily chart of XLI (in solid blue with the 8-day EMA in dashed blue).
The XLI Daily RSI-7 has been elevated for three weeks.
As noted previously, my picks for the next 12-24 months are Cummins (CMI) for Growth and ABB (ABB) for All-Weather.
FD: We presently hold ABB, CMI and UTX in this sector in the Growth and All-Weather portfolios, and also some PAYX in the All-Weather, but we are underweighted vs the S&P 500.
As at Dec. 9, 2011, the total market cap of the 7 Cara 100 stocks in this sector was $257.5 billion. Almost 90% of the total is attributed to four stocks, UTX, MMM, BA and ABB.
Cara 100 Sector 20 (Industrials and Transports) list:
MMM 3M [GICS 20, Cara 100 V50]
ABB ABB Ltd [GICS 20, Cara 100 V50]
BA Boeing Co [GICS 20, Cara 100 V50]
CMI Cummins Inc [GICS 20, Cara 100 V50]
ERJ Embraer-Empresa Brasil [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 either Discretionary Spending, Staples (must have consumer purchases) and Healthcare. Most income here is from the US consumer – in US Dollars – so there is less of an inverse correlation as we saw in Energy, Basic Materials and Industrials/Transports.
The ETF for Consumer Discretionary stocks is XLY. This week XLY was up +0.70% W/W to close at 41.45. That was the 3rd best sector performance out of 10.
Tata Motors of India gained +8.3% W/W after gaining +11.6% a week ago, and is up +44.4% over four weeks. As you know, I really like this company, but to trade it successfully you need to be in tune with XLY, India’s Sensex index, and the Rupee.
Toyota Motor gained +3.0% W/W and +4.8% a week ago.
Following the catastrophe in Italy, Carnival Cruise (CCL) dropped -3.4% this week and -10.1% a week ago.
Here is the Monthly chart of XLY (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid orange.
Note the extremely high correlation with the S&P 500. The current price (41.45) is above the 8-week EMA (40.03) and the 8-month EMA (38.84) and all are rising, and so the intermediate- and long-term charts are bullish. The RSI-7 for the Weekly price series data is 69.6 and rising.
Here is the Daily chart of XLY (in solid blue with the 8-day EMA in dashed blue).
The Daily chart shows a rising trend and a price at $41.45 is still higher than the 8-day EMA (41.22), which is bullish.
FD: We presently hold COST, MCD, NKE and TM in the All-Weather and Growth portfolios, with NKE and TM in both.
As at Dec. 9, 2011, the total market cap of the 15 Cara 100 stocks in this sector was $572.6 billion. Over 50% of the total is attributed to three stocks, TM, MCD and AMZN.
Cara 100 Sector 25 (Consumer Discretionary) list:
AMZN Amazon.com [GICS 25, Cara 100 G50]
BBBY Bed Bath & Beyond [GICS 25, Cara 100 G50]
BC Brunswick Corp [GICS 25, Cara 100 G50]
CCL Carnival Corp [GICS 25, Cara 100 G50]
COST Costco [GICS 25, Cara 100 V50]
DIS Disney Co [GICS 25, Cara 100 V50]
JCP J.C. Penney Company Inc [GICS 25, Cara 100 V50]
KSS Kohl’s Corp [GICS 25, Cara 100 V50]
MCD McDonalds Corp [GICS 25, Cara 100 V50]
NKE Nike Inc [GICS 25, Cara 100 G50]
RCL Royal Caribbean Cruises [GICS 25, Cara 100 G50]
TGT Target Corp [GICS 25, Cara 100 V50]
TTM Tata Motors [GICS 25, Cara 100 G50]
TM Toyota Motor Corp [GICS 25, Cara 100 V50]
WHR Whirlpool Corp [GICS 25, Cara 100 V50]
Here is the current candleglance chart of 10 important Sector 25 components:
Here’s the XLP Monthly, Weekly and Daily data charts:
XLP Monthly data:
XLP Weekly data:
XLP Daily data:
Table 6: Senior consumer staples equities
The ETF for Consumer Staples stocks is XLP. As the purchases are considered must-have, the normal swings in economic growth and contraction do not affect these companies as much as say the Consumer Discretionary stocks.
This week, XLP was down -0.56% W/W to close at 32.22, which was the 2nd worst performing sector.
There was nothing remarkable among the leading stocks here this week.
Here is the Monthly chart of XLP (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid orange.
Note the extremely high correlation. Since March, the chart does show that XLP out-performed the S&P 500, but since mid-December the S&P 500 has the upper-hand, which means that traders are taking on more risk now.
The current price (32.22) is above the 8-month EMA (31.13) and 8-week EMA (32.03) and both are rising, but the Weekly RSI-7 lifted from 65.17 to 77.6 this week, which is very high. At this point I usually look at the Daily data to check for any signs of developing weakness.
Here is the Daily chart of XLP (in solid blue with the 8-day EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid orange.
A week ago in this space I wrote: “The Hourly chart shows a rising trend and a price at $32.40 that is barely above the 8-hour EMA (32.35), which is bullish. Normally, I only look at the hourly EMA spread if I see issues in the Weekly and Daily.” As I saw a potentially over-bought price in the Weekly data, I did check this Daily data this week and lo and behold, the price (32.22) has fallen below the 8-day EMA (32.34) and the lines are now sloping down. In fact the Daily STO has bounced back from a ceiling of 80 and is now down to 61 and the Daily RSI-7 at 44.2 has dropped below the important 50-line. Looks like a period of weakness ahead.
FD: We presently hold SBUX, WFM and WMT in this sector in the Growth portfolios and all those plus PG in the All-Weather. But we are under-weighted to the S&P 500.
The WMT is now at $60.71, having dropped -0.49% this week.
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, PG, KO 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 for Healthcare stocks is IYH. At least, that is the ETF I use.
This week IYH gained +0.42% W/W to close at 74.43.
Bio-tech company Myriad Genetics (MYGN +4.7% W/W was a leader after being up +7.1% the week before) and Baxter (BAX) gained +6.1%.
BAX was written up by Zacks and also given a ratings upgrade by Goldman Sachs: http://www.zacks.com/stock/news/68531/Baxter+Beats+Estimates
Wellpoint (WLP -8.9% W/W) was hammered after net earnings dropped to $335.3 million ($0.96/sh) vs. $548.8 million ($1.40/sh) a year earlier, which was a -38.9% Y/Y drop.
Here is the Monthly chart of IYH (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid orange.
Note the extremely high correlation, and, as pointed out four weeks ago in this space, “the relative bullishness of this chart”. The IYH price (74.43) is above the 8-month EMA (70.39), 8-week EMA (72.19), and 8-day EMA (74.06) with all lines rising, which is bullish. But the stock is getting a bit over-bought short-term. The Weekly RSI-7 has lifted this week to 74.4 from 60.48 and the Daily RSI, dropping from 75 to 69, is showing a potential near-term soft period.
Like many other sector charts, the Weekly data chart of IYH shows that Healthcare has had a successful re-test in mid-Sept and mid-Nov of the early August low and an end to the mid-cycle correction that was similar to the one in May 2010.
Here is the Daily chart of IYH (in solid blue with the 8-day EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid orange.
FD: We presently hold AET, JNJ, MRK, NVS and PFE in this sector in the All-Weather portfolio, all these except MRK is not in the Growth portfolio.
As at Dec. 9, 2011, the total market cap of the nine Cara 100 stocks in this sector was $867.8 billion. Of these, the smallest two are AET, with a market cap of $14.4 Billion and Gilead Sciences at $29.3 B. Five of the nine are over $100 B in market cap.
Cara 100 Sector 35 (Healthcare) list:
ABT Abbott Laboratories [GICS 35, Cara 100 V50]
AET Aetna Inc [GICS 35, Cara 100 G50]
BMY Bristol Myers Squibb Co [GICS 35, Cara 100 V50]
GILD Gilead Sciences [GICS 35, Cara 100 G50]
GSK GlaxoSmithKline plc (ADR) [GICS 35, Cara 100 V50]
JNJ Johnson & Johnson [GICS 35, Cara 100 V50]
MRK Merck [GICS 35, Cara 100 V50]
NVS Novartis [GICS 35, Cara 100 V50]
PFE Pfizer [GICS 35, Cara 100 V50]
Here is the current candleglance chart of 10 important Sector 35 components:
Here’s the XLF Monthly, Weekly and Daily data charts:
XLF Monthly data:
XLF Weekly data:
XLF Daily data:
Table 8: Senior financial company equities
The ETF for Financial stocks is XLF. If you want to check on strictly banking stocks, the $BKX Banking Index is what you want.
This week XLF was flat W/W, losing a penny to close at 14.14, which was the 3rd worst sector performer.
Traders are happy with the Fed report this week, but still unsure how the Greek sovereign debt crisis will work out.
The leaders in this sector this week were Deutsche Bank again (DB +4.6% W/W after being up +14.9% a week ago). Two weeks ago I called DB high risk!, which shows why I am significantly underweighted Financials. These money center banks are trading like penny stocks, so I am not interested.
The Indian banks HDFC (HDB +4.4% W/W) and ICICI (IBN +3.4%) have been soaring in the month since the monetary authorities of India permitted foreign nationals to buy stocks on the National and BSE exchanges. The resultant capital inflow has served to propel the Rupee higher against the US Dollar, and led to a surge in gold buying there.
Here is the Monthly chart of XLF (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid orange.
Over the past 12 months the XLK gained +1.74% while the S&P 500 ($SPX) gained +1.41%.
Here is the Daily chart of XLF (in solid blue with the 8-day EMA in dashed blue).
The Hourly chart shows a bullish phase since Dec. 20.
We hold only SCHW in this sector, and have a fairly small position, thank goodness. This week SCHW was hammered -8.9% W/W. According to the website LocalizedUSA:
Several investment firms have updated their stock ratings and price targets on shares of Charles Schwab(NASDAQ: SCHW) in the last week:
Charles Schwab was downgraded by analysts at Wells Fargo & Co. from an “outperform” rating to a “market perform” rating.
Charles Schwab was upgraded by analysts at Goldman Sachs from a “neutral” rating to a “buy” rating. They now have a $14.00 price target on the stock.
Charles Schwab had its “neutral” rating re-affirmed by analysts at Nomura.
Charles Schwab had its price target raised by analysts at BMO Capital Markets to $15.00. They now have an “outperform” rating on the stock.
Charles Schwab had its “neutral” rating re-affirmed by analysts at Zacks Investment Research. They now have a $12.50 price target on the stock.
The company has scheduled a Business Update for institutional investors on Thursday, February 2 (11:30 am – 4:00 pm) ET re: recent developments and management’s strategic focus. A simultaneous webcast of this Update will be accessible to the public atschwabevents.com/corporation.
Regarding the Financials in general, we prefer to wait to see how the international Financial Stability Board is able to put Humungous Bank & Broker (HB&B) in their place, ending the extreme risk appetite of the crowd that is supposed to be risk averse.
As at Dec. 9, 2011, the total market cap of the 7 Cara 100 stocks in this sector was $307.2 billion. Of these, the smallest three are SCHW, and the two Indian banks IBN and HDB.
Cara 100 Sector 40 (Financials) list:
BBD Banco Bradesco SA (ADR) [GICS 40, Cara 100 V50]
BNS Bank of Nova Scotia (USA) [GICS 40, Cara 100 V50]
SCHW Charles Schwab Corp [GICS 40, Cara 100 G50]
HDB HDFC Bank [GICS 40, Cara 100 G50]
IBN ICICI Bank [GICS 40, Cara 100 G50]
RY Royal Bank of Canada (USA) [GICS 40, Cara 100 V50]
TD Toronto Dominion Bank (USA) [GICS 40, Cara 100 V50]
Here is the current candleglance chart of 10 important Sector 40 components:
I wrote all the following previously, but it still applies:
I personally like the Canadian banks because of the more prudent way they are managed, but they a part of a global credit ring, and hence are exposed to massive risk. The Indian banks are much more reliant on domestic operations, but that too has been a problem in the past couple years with stagflation being the issue. The very high inflation has caused the central bank of India to tighten harshly in order to try to cap the rising cost of food, which if it keeps being a problem will lead to considerably more social unrest than is apparent today. Also, with the tightening, the banks have had to pull back on business lending, which has negatively impacted the country’s normally very high rate of economic growth. But now the central bank has just agreed to permit foreign investors to trade stocks right on the BSE and National exchanges, which ought to give a lift (and liquidity) to the Indian banks. So, overall I think that India is at a cross-road here, but may have seen the cycle bottom.
As far as the large US banks, the recent failure of MF Global has already pointed to many weaknesses in the US financial system, eg, the laws, rules and regulations as well as ongoing imprudent management practices, greed at the highest levels, and so forth. I think Congressional committees will discover that the MF CEO Don Corleone knew that his colleagues in the leading gangs had his client money stolen legally and that he hadn’t “intended” for that to happen. But I think he’ll get nailed on perjury, somehow.
This smear against the industry is a shame because, in my view, most of the people in financial services are honest and capable and the tools they have are second to none. US banking ought to be leading America back to its place as the strongest economy, not one that is deeply in debt and failing its people.
In a country that prides itself on competition, it’s strange that its banks have been allowed to become too large and unwieldy to manage effectively, nevertheless efficiently. There is, in my mind, no reason (other than the grab for control/power witnessed in the past 30 years) that the top 4 US banks could not be replaced by a top 40 or a top 20, each much more specialized and streamlined. Self-regulated oligopolies have seized control, and what has resulted is the decline of the once proud American way of life.
I assure you that free markets and competition is the best prescription for social equity.
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 closed at 26.90, up +0.37% W/W and SMH was up +0.27% W/W to close at 33.76.
While the sector continues to move higher, although barely this week, I think the big story here is the continuing negative media and stock sell-off re Google. GOOG was down -1.0% W/W and is now down -7.9% over two weeks, -9.3% over 4 weeks and -12.8% YTD.
Traders might have had some advance knowledge that Google’s ad sales and net earnings were going to be big misses when reported before the market on Friday:
But, by and large, I still very much like GOOG. Net earnings rose to $2.71 billion ($8.22/share), compared with $2.54 billion ($7.81/share) a year earlier. We hold GOOG in the Growth but not the All-Weather portfolios.
The solar company stocks bounced back this week, but nonetheless I removed First Solar (FSLR +18.4% W/W) from the Cara 100 because of deficiencies in share price stability. I have never opined that I don’t like the company. I do. But I no longer have an interest in trading any stock in my portfolios that soars and crashes like this one. As you know, I only trade Cara 100 company stocks.
There was a lot going on in this sector this week. Unfortunately I don’t have the time to discuss it. One stock we own in both All-Weather and Growth portfolios is SanDisk (SNDK), which this week dropped -11.0%, which concerns me. Schaeffer’s Research wrote it up: http://www.schaeffersresearch.com/commentary/content/sandisk+sinks+on+so…
Here is the Monthly chart of XLK (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid orange.
Note the extremely high correlation, and the bullish perspective with the current price (26.90) being higher than the 8-month EMA (25.56), the 8-week EMA (26.11) and the 8-day EMA (26.78). But the Daily RSI and Stochastics give me some concern as they are extended on the high side and may come down, indicating several days of weakness ahead possibly.
Over the past 4 weeks, XLK is up +6.2%, which is 5th best performer of 10 sectors.
Here is the Daily chart of XLK (in solid blue with the 8-day EMA in dashed blue).
As you know, when (i) Tech stocks and (ii) the broad market indexes begin to rally, I look for the semi-conductors to be leading. For the same reason, at the beginning of a construction boom, I expect to see (i) the activity increase in the offices of architects and engineers, and (ii) mortgage applications begin to soar.
FD: We presently hold AAPL, ATVI, CSCO, CTSH, EA, GOOG, IBM, INFY, INTC, MSFT and SNDK in this sector in various portfolios. We are considerably over-weighted in Tech to the S&P, particularly in the Growth oriented portfolios.
As at Dec. 9, 2011, the total market cap of the 17 Cara 100 stocks in this sector was $1.625 trillion. Of these, there are seven over $100 billion in market cap each. There are also seven under $20 billion.
Cara 100 Sector 45 (Technology) list:
AAPL Apple Inc [GICS 45, Cara 100 G50]
ADBE Adobe Systems Inc [GICS 45, Cara 100 G50]
ATML Atmel Corp [GICS 45, Cara 100 G50]
ATVI Activision Inc [GICS 45, Cara 100 G50]
BIDU Baidu [GICS 45, Cara 100 G50]
BRCM Broadcom Corp [GICS 45, Cara 100 G50]
CSCO Cisco Systems Inc [GICS 45, Cara 100 V50][added to DJIA June2009]
CTSH Cognizant Technology [GICS 45, Cara 100 G50]
ERTS Electronic Arts Inc [GICS 45, Cara 100 G50]
FSLR First Solar, Inc [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 Telecom stocks is IYZ. At least, that is the ETF I use.
IYZ has been the worst performing sector over six months (26 weeks), being down -10.7%, and 2nd worst over the past year (-9.0%).
Four weeks ago I opined in this space: “But, although the long and intermediate-term charts don’t really show it, the worst might now be over.”
This week, IYZ dropped -1.44% W/W, which was the worst performing sector. However, over the past 4 weeks, IYZ is up +3.1%. The close on Friday was 21.28.
This week, China Mobile (CHL +3.1% W/W) was the leader in this sector and it has been #1 over 4 weeks.
Verizon (VZ -4.5%) and AT&T (T -4.4%) were hammered – the 2nd and 3rd worst performing stocks in the Dow 30 this week.
Here is the Monthly chart of IYZ (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid orange.
The current price (21.28) is above the 8-week EMA (21.09) but below the 8-month EMA (21.52) and the 8-day EMA (21.37). The Weekly RSI-7 dropped from 62.6 to 55.5 this week and is close to falling below the important 50-line. In fact the Monthly and Daily RSI are both below the 50-line, so this chart is showing clear signs of (i) an inability to reach July’s highs, and (ii) turning quite bearish.
What surprised me was the size of the sell-off this week in VZ and T.
Here is the Daily chart of IYZ (in solid blue with the 8-day EMA in dashed blue).
FD: We hold only Russia’s Mobil TeleSystems MBT in the Telecom sector – for both Growth and All-Weather accounts.
As at Dec. 9, 2011, the total market cap of the 3 Cara 100 stocks in this sector was $147.8 billion. Of these, Telefonica (TEF) has 83.4 billion in market cap, which is smaller than Verizon and about half the size of AT&T’s market cap.
Cara 100 Sector 50 (Telecom) and Sector 55 (Utilities) list:
CHA China Telecom Corp [GICS 50, Cara 100 V50]
MBT Mobile TeleSystems (ADR) [GICS 50, Cara 100 G50]
TEF Telefonica SA [GICS 50, Cara 100 G50]
EXC Exelon Corp [GICS 55, Cara 100 V50]
TRP TransCanada Corp [GICS 55, Cara 100 V50]
Here is the current candleglance chart of 10 important Sector 50 components:
Table 14: Telecom
Here’s the IYZ Monthly, Weekly and Daily data charts:
IYZ Monthly data:
IYZ Weekly data:
IYZ Daily data:
The Utilities sector ETF is XLU.
This week, XLU gained +0.35% W/W, which was an improvement from the previous month from which XLU is down -3.47%. XLU closed the week at 34.73.
American Electric Power (AEP) took a bit of a dive on Friday (-3.2% on the day to send the stock down -2.6% W/W) after reporting consensus earnings of $0.40 on flat revenues. The close on Friday (39.95) is now below the Weekly and Daily 8-period EMA but still above the 8-month EMA (38.71). If the price can hang in at say 39 or better, the stock could regain momentum. If not this would be a strong bearish indicator for the stock and a warning sign for XLU.
Here is the Monthly chart of XLU (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid orange.
This chart shows how bullish the sector has been throughout the long-term Bull phase that began in March 2009, and, except for the past month, has significantly out-performed the S&P 500 since April. I attribute the latter to an interest in high quality, high dividend yield stocks in 2011 as traders became disappointed with the risk-reward profile of the US Treasury Bond market.
Two weeks ago in this space, I added: “Interestingly, the XLU current price (34.89) is now a tad below the 8-week EMA (34.91), which is not bullish. It’s not bearish either, but is clearly much less bullish than most of the higher-risk sectors. That shows me that traders might be switching to Growth stocks for 2012.”
It could be, following a phenomenally strong four weeks for risk equities (GDXJ up +29.7%, GDX up +14.1%, XLB up +12.4%, SMH up +11.5%, XLF up +9.9% and XLI up +8.7% vs XLU down -3.4% and XLP down -0.8%), that traders have simply decided to take profits.
Here is the Daily chart of XLU (in solid blue with the 8-day EMA in dashed blue).
Four weeks ago in this space I opined: “The Hourly chart indicates that the bullishness is over-done, and risks are now very high.” In the next three weeks, XLU dropped over -4%, so my assessment proved accurate. At this point the XLU chart is looking bearish. The price (34.73) has dropped below the 8-week EMA (34.82) and 8-day EMA (34.85). All that is needed for a full-out bearish opinion is for the price to drop below the 8-month EMA, which is presently 34.02 and rising modestly.
I have opined in this space for the past couple weeks, “… the market Bulls want this Defensive indicator (XLU, XLP) to stay bullish but just be under-performing the commodity price sensitive XLE, XLB and XLI sectors. But the Bears want the Defensive sectors to go negative as that would likely lead to a market pull-back or even a break-down.” Whereas I opined at the time, “I continue to say, I don’t see it happening this month,” I now must say that risk management is becoming more important than chasing reward.
FD: For our portfolios, we hold EXC and TRP in this sector. We hold dropped TRP from the Growth portfolio a couple weeks ago, although we still believe that the company’s Keystone XL pipeline will ultimately get to carry crude oil from the Alberta oil sands to refineries in Houston TX even after the White House put the matter off on a “technicality”. What they mean is politics. This project will get the green light right after the Presidential election in November. Also, we dropped EXC from the All-Weather portfolio recently.
Once again, I want to say that while finding new jobs is crucial to the US economy there is a cost factor. I am increasingly concerned with the energy industry practice of high volume hydraulic fracturing (“fracking”), for health reasons but also because of the linkage to earthquakes the procedure appears to be causing. As I see it, the jury is certainly out on this matter!
Table 12: US Utilities
Here’s the XLU Monthly, Weekly and Daily data charts:
XLU Monthly data:
XLU Weekly data:
XLU Daily data:
Here is the list of North American Utilities that I follow:
AEP D DUK ED EXC FE NEE NGG PCG PEG SO TRP
For study purposes, there is a good mix of electric (AEP, D, DUK, FE, NEE and SO), gas (NGG, TRP) and diversified (ED, EXC, PCG, PEG) utilities.
Here is the current candleglance chart of 10 important Sector 55 components:
Bonds & Yields Review
Bond prices lifted a bit this week as traders restrained the flow of capital into equities, showing me that maybe the risk-on trade has reached a maximum of enthusiasm, and equity markets are likely to take a breather next week. Otherwise, after Bernanke said he’d keep rates depressed to near zero until maybe 2015, what’s there to worry about in buying bonds. But, bonds id get bought.
Here is the write-up on Bonds done by Econoday this week:
One of the key US Treasury prices I follow and trade is the TLT (average 20-year Treasury fund). A long time ago, these bonds ceased being income instruments; however with a -0.28 beta, they do hedge portfolio risk, and the counter-cyclicality to the S&P 500 is obvious from the chart below.
A week ago in this space, after TLT dropped -2.3% W/W, I remarked: “… the TLT got a bit oversold on Friday and may even bounce back early in the week – especially if, as and when you hear that there are problems putting the Greek debt negotiations to bed.”
This week TLT lifted +0.94% W/W to close at 118.08, up from 116.98, which might have been the short-term cycle low. But, I still feel that when traders get back to moving more capital into equities, the TLT will drop to between 112 and 115. You see, Greek is but a pimple on the hide of the Euro elephant. These things take time to resolve.
Yields on the 2-, 5-, 10- and 30-year US Treasuries dropped -2, -13, -13, and -4 basis points (bp) to 0.21%, 0.75%, 1.89%, and 3.06% respectively.
Here is the Monthly chart of TLT (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid orange.
This chart shows the inverse correlation of bonds to stocks.
Here is the Weekly chart of TLT (in solid blue with the 8-week EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid orange.
Here is the Daily chart of TLT (in solid blue with the 8-day EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid orange.
I have remarked that traders are no longer pleased with the risk-reward profile of the US Treasury Bond market, but until the equity prices (S&P 500) start breaking to intermediate and long-term cycle highs, I don’t believe the Bond market will collapse. Also, inflation does not seem to be a problem, and deflation is often the topic of the day. Bond buyers like that.
Table 10: US Treasury Yields
|Maturity||Yield||Yesterday||Last Week||Last Month|
|Maturity||Yield||Yesterday||Last Week||Last Month|
|Maturity||Yield||Yesterday||Last Week||Last Month|
Here is the $USB 30-year Treasury Bond chart.
US Bond Funds — Interactive Monthly Data Charts SHY Monthly data series chart:
IEF Monthly data series chart:
TLT Monthly data series chart:
AGG Monthly data series chart:
LQD Monthly data series chart:
TIP Monthly data series chart:
SHY Weekly data series chart:
IEF Weekly data series chart:
TLT Weekly data series chart:
AGG Weekly data series chart:
LQD Weekly data series chart:
TIP Weekly data series chart:
SHY Daily data series chart:
IEF Daily data series chart:
TLT Daily data series chart:
AGG Daily data series chart:
LQD Daily data series chart:
TIP Daily data series chart:
Table 11: Interest-sensitive securities
Some people think this 11-minute video is a good basic explanation of the bond market:
The commodities index I use ($CRB) was up +2.55% W/W to close at 3317.81.
In 2011, since April, the commodity prices have been under pressure as the US Dollar has strengthened.
I have opined in this space: “Bearish for the past quarter, but we are watching to see if a reversal is underway. The co-ordinated expansionary policy of the G-20 central banks (a month ago) made it appear that $CRB is headed north again. But we have to watch the prices (not the headlines).”
Several weeks ago in this space I remarked, “The recent two months shows a consolidation process in an ongoing Bull phase, I believe; but a $USD that continues to fall will be needed if $CRB remains headed north.” In the past two weeks, the US Dollar has been weakening. The Commodity price bull move seems to be underway.
Here is the Monthly data chart of $CRB (solid blue line with 8-month EMA in thin dashed blue) vs US Dollar ($USD) (thin dashed green line) and S&P 500 (thin solid orange line).
The chart is a little busy, but worthwhile I think for analysis. This chart clearly shows the inverse correlation of Commodities to the US Dollar, and a fairly close correlation to the S&P 500. If the US Dollar is down, it’s usually commodities up, and vice versa.
The Weekly data chart reflects the beginning of a turn-around.
The Daily data chart reflects a turn-around that began the week of Dec 19, but the US Dollar remained strong until two weeks ago. Now the stars have lined up, and we’ve seen what happened in the precious metals as a result.
Overall, I am a long-term believer in commodities, especially metals, and in the survival of the Euro. I just believe that the European banks will ultimately take the hit in their sovereign debt holdings if they want to stay in business. The big write-off will be balanced by the big reflation as the IMF and ECB find a way to stem the deflation from those write-offs. They will help the banks to recapitalize, and that process will lead to higher commodity prices and interest rates.
I repeat this statement often here.
Although I use the $CRB (Reuters/Jeffries Index), principally because it’s the oldest, there are many commodity indexes: http://www.crbtrader.com/crbindex/ • Astmax Commodity Index(AMCI) • Commin Commodity Index • Dow Jones-AIG Commodity Index • Goldman Sachs Commodity Index • Reuters/Jefferies CRB Index • Rogers International Commodity Index • Standard & Poor’s Commodity Index • NCDEX Commodity Index • Deutsche Bank Liquid Commodity Index (DBLCI) • UBS Bloomberg Constant Maturity Commodity Index (CMCI)
Here is a link to an article that discusses the major ones that have been around for a while: http://www.rogersrawmaterials.com/overviewandanalysis.PDF
Here is a current price summary of the heaviest weighted commodities contracts: http://money.cnn.com/data/commodities/
These indexes change their component weightings perhaps annually or even monthly, for example: http://www.seekingalpha.com/article/43586-the-new-generation-of-diversif… http://tinyurl.com/a5myfj
West Texas Intermediate Crude Oil ($WTIC) lifted +$1.26/bbl (+1.28% W/W) to 99.76 this week. The high-low was 101.39 and 97.40, which was a tad tighter than the prior week’s 102.24 and 98.02.
Econoday also summed up this week in the oil market:
Here’s the Daily data chart of $WTIC in solid blue vs the $USD in thin dashed green and S&P 500 in thin solid orange:
To repeat: I’m not too concerned about economic Armageddon. From what I see about the massive oil finds off Brazil and Cuba, and the new technology to extract shale oil and gas, which is plentiful, and the growing alternative energy sources, including nuclear, solar and biomass, I don’t think that peak oil stories will be much more than stories going forward. So that means a glass ceiling to the price. I have fallen into the camp that the Big Oil companies must become Big Energy companies, diversifying into natural gas (and even solar) for this reason.
Inflation effects on extraction, processing and delivery will however maintain a floor. I do think the Oiler companies will sustain their profitability in 2012.
Here is the e-miNY Dec-07 Crude Oil chart.
Gold & Precious Metals Review
The gold market
Although some of you disagree, I do believe that Gold is money, which, unlike the fiat money that has debt against it, is awfully strategic because it can buy ANYTHING IT WANTS.
The rally in $GOLD heated up this week. The closing price on Friday was $1733.50, up +$67.90/oz (+4.08% W/W) and up $168.70 in the past four weeks. The high-low for the week was 1739.80 and 1649.20.
Here is the Monthly, Weekly and Daily data charts of $GOLD in the solid blue line (with the 8-period EMA in dashed thin blue), the $USD in the dashed thin green line, and the S&P 500 in the thin solid orange line.
I’m not going to rehash my arguments for the past month that $GOLD was likely to break-out in a Bull phase. But I will say that, after the fact, the Doubting Thomases seem to be lined up at Financial Entertainment TV to tell you they called it all along. At least you know they didn’t.
And non of them have told you about the Rupee vs US Dollar turning stronger, as I did several weeks ago, and how that would facilitate buying from India.
This week, the Rupee strengthened further, and so did Gold.
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. In the latter we are very over-weighted in the precious metal physical (CEF and PHYS). My junior portfolio is up +21.2% for the month and year to date.
Here is the current candleglance chart of 10 important precious metals and copper market components:
The silver market
On top of the gains of +7.68% and +3.57% in the past two weeks, this week $SILVER lifted +5.81% W/W to close at 33.89. The high-low was 33.97 and 31.52.
Here is the Daily data chart of $SILVER in the solid blue line (with the 8-day EMA in dashed thin blue), the $USD in the dashed thin green line, and the S&P 500 in the thin solid orange line.
Compare it to the Daily chart for $GOLD.
The Daily RSI-7 was elevated at 78.9 a week ago and is now up to 85.5, but the Weekly RSI-7 is still just at 61.8, moving up this week from 53.97, so I’m anticipating a continuation to the present Bull phase, but at the same time recognizing the added risk.
The weekly EMA-8 is at 31.30, up from 30.57, which ought to be a strong support level; however, Silver prices are volatile and hot money moves quickly in and out, so beware of traps.
A week ago, I opined: “While the current price has lifted to $32.03, the 8-month EMA (32.91) must be surpassed before I would call a new Bull cycle for Silver. The US Dollar remains hot, so if, as and when the Dollar breaks down, then Silver is likely to soar.”
The current price is $33.89 and the 8-month EMA is now 33.33, the 8-week EMA is 31.30 and the 8-day EMA is 32.40.
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
In the past two weeks, $PLAT soared +$120.00/oz to close at $1530.00. This week, $PLAT soared +$90.00 W/W to close at $1620.00.
In the WIR four weeks ago, $PLAT closed at 1391.00, and I reported in this space: “The RSI-7 is now below 30 for the Monthly price data series, and it’s down to 25.23 on the Weekly and 23.40 on the Daily. There has been a positive RSI divergence, which you Bulls should be watching. Could be a sign of a turn-around. So too could the smoke signals out of Moscow… Seriously, watch the Ruble. The Dollar might be peaking against the Ruble here, which would be terrific for Platinum and the precious metals generally.” A week ago I opined: “This week, the Russian Ruble appears to have broken out, which ought to be another bullish indicator for precious metals.”
This week, the Ruble got even stronger.
The palladium market
This week $PALL had a gain of +$14.00 (+2.06% W/W) to close at 692.90.
A few weeks ago, following five months of Bearish and bottoming action, I opined in this space: “But there could be a turn-around coming in January.”
$PALL has broken-out. The current price is 692.90 has now surpassed the 8-month EMA of 682.76 and above the 8-week EMA (656.92).
However, like the others, risk management now becomes the primary job as RSI-7 for the Daily is very high. Thankfully, the Bulls are pleased that the Monthly and Weekly price series data has bullish RSI-7’s with plenty of room to grow on the upside.
Importantly, what this means is that traders will want to quickly buy the dips – the ones that take the pressure off the extreme levels of the short-term RSI-7’s.
Also, remember that $PALL is a key indicator for the whole precious metals group as is the $SILVER:$GOLD ratio chart.
The (base metal) copper market
$COPPER is a lot like the Precious Metals – over-bought in the short-term, but now in a new Bull cycle. 2012 will be good for copper, I think.
After gaining +$0.33 in the past two weeks, this week $COPPER gained a further +$0.14 (+3.68% W/W) to close at 3.89. The high-low was 3.939-3.722.
Here is the Daily data chart of $COPPER in the solid blue line (with the 8-day EMA in dashed thin blue), the $USD in the dashed thin green line, and the S&P 500 in the thin solid orange line.
The Daily chart shows the need for consolidation of recent gains, but the Weekly and Monthly charts show room for $COPPER to grow on the upside beyond that brief interlude. In fact the 8-week EMA/RSI and 8-month EMA/RSI is 3.63/68.9 and 3.77/52.6 respectively and the current price is now 3.89, so the Bull cycle is in play.
Two weeks ago in the WIR, I wrote in this space: “It’s time to reconsider Freeport McMoRan (FCX), which typically closely tracks the copper price. The current price (42.00) is now above the 8-week EMA (38.75), and 8-month EMA (41.75). The Monthly RSI-7 (48.8) looks ready to break through the important resistance of the 50-line. If, as and when the Dollar strength abates, I think FCX is going to soar.”
This week FCX gained +7.03% W/W to close at $46.13, which is above the 8-week EMA (41.14), and 8-month EMA (42.67). The Monthly RSI-7 (54.4) is now well above the important 50-line, while the Weekly RSI-7 (70.1) is elevated but has room for the share price to grow on the upside.
FD: We hold FCX in both the Growth and All-Weather account portfolios.
Table 12: Senior gold equities
A week ago I noted that the ETF for the senior producers (GDX) dropped -4.64% W/W (although the juniors (GDXJ) were up) and that …”Pulling down the majors were Kinross (KGC -20.5%), IAMgold (IAG -9.1%) and Newmont (NEM -7.5%), but there were several more like that.” I also noted that “my biggest positions in the Precious Metals accounts are: US Gold (UXG) plus Silvercorp (SVM), Silver Wheaton (SLW), and Minera Andes (MAI.TO)”.
I stated that I was committed to the juniors, but was making changes in how I manage these portfolios: “Given that my weighting in the UXG+MAI.TO combo (the new MUX) had grown to about 15% of the junior miners portfolios late this week, I lightened a bit for risk management purposes. I also will cut my list from about 30 to 20 in total and plan to actively trade about half of them.”
This week there was a significant lift to prices in this industry group: GDX and GDXJ were up +9.51% and +9.87% respectively. My portfolio was up +10.0% W/W. Six weeks ago, I urged you all to hang in. This portfolio is up +32.6% since then (and +21.2% YTD) and I’m now able to make the portfolio changes I wanted.
Now that the Fed chairman has announced the policy to keep interest rates at current levels for the next couple years, I will keep buying the junior miners, mine developers and explorers, with diversification between various precious metals, and some copper, iron ore and other metals.
I have noted in the daily blog that the strength of the Indian Rupee has also had an impact in my buying as I believe that the Dollar squeeze against the Rupee for the entire 2H2011 was one of the major factors putting downward pressure on the precious metals market. Since the start of this year, however, the Rupee has been lifting.
Here is the Daily data chart of GDX in the solid blue line (with the 8-month EMA in dashed thin blue), the $USD in the dashed thin green line, and the S&P 500 in the thin solid orange line. The Goldminers clearly trade inversely to the US Dollar.
Here is the same chart for GDXJ. Not being major producers, these junior stocks are not as affected by changes in the US Dollar, and the indicators are more bullish.
I like the juniors because (i) many of the companies are growing their resources much more quickly than the senior companies, and (ii) the seniors are likely to buy out the best of the smaller ones at premiums of +30 to +60% to market. The goodwill on these transactions is what depreciates the stocks of the majors, and is the reason I normally avoid them. However, including goldminers in a balanced portfolio does lower the beta, and hence the risk over many years.
As pointed out until mid-December in this space, GDX had been out-performing GDXJ, so the big Bull move still had not happened. I remarked that “For a Bull market in the gold/silver miners, we need a stronger Euro, weaker Dollar, and the really good picture would have the weaker Yen even weaker than the Dollar.”
This Daily data chart shows the ratio of GDXJ and GDX. Gold Bulls want to see a rising line where GDXJ is outperforming GDX. Unfortunately from May til mid-December 2011, GDX was out-performing GDXJ, which is the sign of a liquidity squeeze. I wrote in this space: “We need to see the GDXJ:GDX ratio chart showing the RSI running continuously above 70 rather than below 30!” Later I added: “(Four) weeks ago I noted in this space: “The tide may have turned in favor of GDXJ and risk-on for the goldminers… This (GDXJ:GDX) is an important chart.”
Two weeks ago I added: “And now you see the proof of concept.” A week ago I added, “This week you saw more.” And now this week was the extreme move. But be careful to put in stops.
Here is the current candleglance chart of 10 important Gold and Silver mining companies:
I previously stated in this space:
To reiterate my belief: I believe the next bullish wave in the Goldminers market will be driven by acquisitions by the major producers acquiring smaller companies – not just intermediate producers, but small producers and developers that will put large scale resources into production within three years… I also believe that resolving today’s financial system problems in Europe, Japan and the US will require central bank balance sheet expansion and that will drive precious metal prices, and with it the related stock prices, to higher levels.
A factor that you need to consider when investing in the major miners – the ones with cash flow and non-cash expenses – is the IFRS (International Financial Reporting Standards), which are being adopted worldwide.
The use of IFRS became a requirement for Canadian publicly accountable profit-oriented enterprises for financial periods beginning on or after January 1, 2011.
This link might be helpful: http://www.ifrs.com/ifrs_faqs.html
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
In this section, I shall reproduce any of the Econoday studies of international central bank meetings for the current week.
The important meeting was the FOMC meeting as well as the Fed Chairman’s media interview on Wednesday Jan. 25, which I reported on earlier.
You know my posture re currencies: “We are all forced to be currency traders today.”
I have been saying it for years. Now the world agrees… The problem is that the US Dollar is still the reserve currency, and the Fed the reserve bank of last resort, which means that prices of all currencies are affected significantly by US politics and fiscal and monetary policy… For many years I have written about the pressing need for a General Agreement of Currency. I now believe that there will be such an agreement by the G-20 within five years. [Note: Three months ago, I changed my forecast from 10 years] … The biggest problem that I see is the leverage permitted by regulators of the deposit taking banks. While I am typically against more regulation and bigger government, we definitely need banking reform that includes a return of Glass-Steagall legislation that would separate low risk taking deposit banks from the much higher risk taking investment banks… The only reason that the US Congress will not pass such essential legislation is because the leaders in Congress and the White House have taken in the majority of their campaign funds from Wall Street. Upon retirement, or on the graduation of their offspring, these people also can count on incredibly high paying jobs from Wall Street – but only if they have voted in favor of Wall Street’s interests during their time in power… I say Wall Street, but really I mean the people who control Goldman Sachs, JP Morgan, and State Street Bank. They have names like Rockefeller… I say the leaders who have been elected by the US public (and even now the ones in Greece and Italy who have not been) have been bought-and-paid-for and they have. This take-over has happened in Canada, the UK and Europe as well. Canada is no longer a nation that supports peace although they call themselves peace-makers, which is laughable. This change, to which as a Canadian I strongly disagree, has only happened under the Conservatives after Brian Mulroney was elected Prime Minister… The key financial jobs now in government service and at central banks, and the IMF, etc, are now going only to the people who have the best connections on Wall Street. Common sense is no longer a prerequisite. Membership in the country club is… The banks have caused the problems in the currency markets, most of the problems in the capital markets and many of the problems in the economy. HB&B is now so entrenched with the world’s leading politicians and central bankers that, especially now that they are at war against each other, I fail to see who is going to introduce stability, and I don’t see it happening soon. In fact, the situation is so weighty, I think the Interventionists are no longer able to cope…. For years, I thought there was needed a G-20 General Agreement on Currencies – a set of rules if you will – that would serve to stabilize global capital markets — In other words, less volatility… Who benefits most from volatility, at least to a certain level, are the Banks. They use it to control the governments that are deep in debt. Sixteen Tons… Now and then whenever volatility, i.e., the amplitude of price swings, becomes extreme, one of the Banks discovers that a so-called “rogue trader” causes huge losses for them, which is another way of saying that their colleague banks can book their huge profits… That rogue trader is usually a 20-something or early 30-something. Now they have stooped to telling us the latest rogue is Jon Corzine. They must be really getting desperate.
The $USD is a trade-weighted US Dollar index, we used to call the Morgan Dollar.
The Forex market is a four trillion dollar a day marketplace, which dwarfs the size of the stock and bond markets. In this market, the Euro/USD is the highest volume trader, and London is the center of the universe.
The current value of $USD is a mean value of rate fluctuations of six world currencies (Japanese yen, Euro, British pound, Canadian dollar, Swiss franc and Swedish krona) that each trade against the USD. The Euro is by far the biggest component.
I don’t understand why the Yuan is not a part of this index, or the Mexican new peso, Brazilian real, Indian rupee, or Russian rouble, and why the krona is so important, but admitting this maybe shows my ignorance.
There is a Powershares ETF that tracks the G-10 currencies (NYSE:DBV).
For some time I have opined that the $USD clearly no longer meets the needs of a globalized world with respect to a reserve currency benchmark. I have suggested that Gold may now be the de facto benchmark.
As commodities are mostly priced in $USD for international transactions, you also need to study forex price trends and cycles when trading commodity price-sensitive instruments.
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.
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.
Here is the Econoday summary of the currency market trading this week:
The US Dollar had a pull-back of -1.65% W/W which followed the loss of -1.58% a week ago. The price is now 78.90. The weekly high-low was 81.70 and 80.00.
Many countries are now fighting the “hot” Dollar, which has been jeopardizing their economies. About four weeks ago, India reacted to support the Rupee.
The current price (78.90) is now below the 8-week EMA (79.81) which is a bearish indicator.
Here is the Weekly data chart of the $USD (solid blue line along with 8-week EMA in thin dashed blue) vs S&P 500 solid thin orange line, showing counter-cyclicality.
Be wary that the Daily chart shows the Dollar is a tad over-sold here.
The Euro soared this week +2.23% W/W after soaring +2.02% the previous week. The close was at 132.20.
Where are all those traders on CNBC who just a couple weeks ago were calling for a Euro-Dollar at par? Obviously it’s not in CNBC’s interest to expose these people as clowns because the circus tent is what that network provides and they relish the entertainment values.
As I say, the gains and losses in the Euro have had quite an impact on the equity market. When the Euro rises, the S&P 500 also rises and vice versa.
The charts shows that the Euro has been under pressure since the end of Oct., and really started to under-perform about late Nov. So I asked at that point: “Does that mean equities are ready to collapse like many pundits are shouting?” I continue to say I doubt it, and it hasn’t happened.
Here is the Weekly data chart of the Euro ($XEU) in US Dollar terms (in the solid blue line with the 8-week EMA in thin dashed blue) vs the S&P 500 (in the thin solid orange line).
The current price (132.20) is now above the 8-week EMA (130.59), and the Weekly RSI-7 at 51.5, and rising, so I now consider the Euro bullish.
At this point, commodity, precious metals and broad equity market prices will be favored to lift.
This week, the Pound sterling future lifted +0.96% W/W to close at 157.24 American.
The Pound Sterling has under-performed the S&P 500 since the March 2009 long-term cycle low, apparently more closely aligned with the US Dollar as the UK has seemed to have sided with the Americans against the EU. I wonder if that is much about the worries that high taxes in London have pushed the financial services industry to leave in droves for friendlier places in Europe?
Here is the Weekly data charts of the Pound (solid blue line) and the S&P 500 (in the solid thin orange line).
This chart is bullish since the price (157.24) is above the 8-week EMA (155.84), which happened a week ago and I reported it. Also the Weekly RSI-7 is now up over the 50-line at 55.2, which confirms the Bull.
Weekly British Pound Index:
Daily British Pound Index:
Weekly Japanese Yen Index:
This week, the Yen (in Dollar terms) gained +0.40% W/W to close at 130.35. There was a gain of +0.91% on Friday.
Here is the Weekly data charts of the Yen (solid blue line) and the S&P 500 (in the thin solid orange line), showing that the Yen is mostly counter-cyclical to the S&P 500, but also occasionally cyclical to it, as it has been recently.
Because the Weekly RSI-7 is at 59.7and the Weekly EMA-8 is at 129.71 while the current price is 130.35, the Yen is bullish.
Traditionally, but not always week to week, the Yen is an indicator of market direction and sector rotation.
If, as and when there is a broad risk-off trade in global markets, it is usually accompanied with a stronger Yen, as well as a stronger US Dollar.
And, when I see the Dollar down and the Yen to the Dollar down even more, then, all other factors being equal, I believe the equity markets, commodity markets and precious metal markets are probably going to lift sharply around the world. Didn’t happen with the Yen this week; however the Yen was considerably weaker than the Euro and Pound and Loonie.
As I say, if you hope for the current major rally to continue in those markets, look for a weaker Yen, but particularly against an also dropping US Dollar.
Daily Japanese Yen Index:
The Canadian Dollar aka Loonie gained +1.08% W/W to close at 99.77 this week. There was a tiny loss on Friday.
The Weekly data chart shows the high correlation between the Cdn Dollar ($CDW) in the solid blue line to the S&P 500 ($SPX) in the thin solid orange line.
The Loonie has begun to fly given the boost from the Weekly RSI-7 (now at 60.5) and the Weekly EMA-8 (98.31), which is now below the current price (99.77). Also, I have pointed out that the crucial levels must be reached for the Monthly RSI-7 (a week ago “46.51, which must rise to above 50” is now 50.09), and the Monthly EMA-8 (a week ago “99.46, which is still well above the current price” is now 99.70, which is exactly the current price).
So the Loonie is in a new flight pattern, rising again.
There is usually a rising Canadian Dollar when inflation beneficiaries like Oilers and Miners are in strong long-term Bull phases. The opposite happens in disinflationary markets, and early on in deflationary markets. Longer-term in deflationary markets, the important govts and central banks tend to flood the international financial system with new money and the Oilers and Miners benefit.
The equity Bulls, particularly the Oilers and Miners, are just calling for Canada to let the Loonie fly! After the early October cycle low for the Cdn Dollar and Equities, Commodities and Precious Metals, the Cdn Dollar under-performed the S&P 500, and exerted downward pressure on Commodities and Precious Metals. Now the cycle has reversed!
Weekly Canadian Dollar Index:
Daily Canadian Dollar Index:
Here is the China Yuan (CNY) chart.
This week, the Dollar sold off a lot again but US Bonds firmed up with the Bernanke decision and media conference, so less capital flowed into equities than might have been expected. The capital however did flow strongly into commodities and especially precious metals, which were, for the most part, already bullish. Now prudence must dictate your risk management as prices have lifted a long way in January and only does Newt Gingrich believe that traders should go to the moon. The rest of us are more down to earth.
Finally this week, there must be a country song with lyrics along the lines of getting old and coming home. Recently, my old hometown of Toronto became my new hometown, but I still cannot handle the winters here so my old number two home (Ft Lauderdale) is likely to be the new #2. I love Bahamas, but from now on it will only be a place to be a tourist. In the next few weeks, Pat and I will likely visit south Florida, look at what’s available in a condo near the ocean, and then make the move.
Enjoy your weekend and your week.
Btw it occurred to me while writing this WIR, it’s a bit like teaching an MBA class – to ghosts.