Bill Cara’s Week in Review #8, 2012
[5:22pm ET] I am now on a 10-day holiday, resting up for the annual grind of the PDAC Prospectors & Developers mining convention in Toronto March 4-7. Monday is a holiday for many of you too – US Presidents’ Day and Canada’s Family Day.
About the time that Bond and Equity markets open on Tuesday however, I’ll be hitting the beach in Ft Lauderdale.
Actually I’ll be there to look for a condo and possibly an office for trading and investor workshops during the winter months.
I’d like you to think about what I was saying about the economy improving since last summer, not going into the tank as the public was being told non-stop by political leaders and central bankers. As you know I was urging you not to miss the Bull cycle in the equity market.
Let’s review the six month performance:
S&P 500 (SPY) +14.0%
Industrials (XLI) +19.2%
Consumer Discretionary (XLY) +18.2%
Technology (XLK) +17.6% and Semi-conductors (SMH) +19.7%
Healthcare (IYH) +13.9%
Financial (XLF) +13.7%
Energy (XLE) +9.6%
Consumer Staples (XLP) +9.4%
Basic Materials (XLB) +8.2%
Utilities (XLU) +6.3%
Telecom (IYZ) +2.0%
20-year US Treasury ETF (TLT) +7.9%
Those of you who believed the sky was going to fall may have stayed in cash or gone to defensive holdings in Telecom and Utilities. Many would have sought “safe haven” in the Goldminers (GDX -10.9% over 6 mo.) and Junior Goldminers (GDXJ -22.5% over 6 mo.). Big mistake.
All of you doom and gloomers would have been wrong to ignore the empirical evidence I was repeating week after week for all six months and then, sadly, act on those fear mongering headlines.
Now you can see why I was getting miffed at times here in the blog.
Every week I was telling you my biggest portfolio weighting was in Tech. At the Cara Whistler conference on Oct 3 I gave you Intel (INTC), IBM (IBM), Microsoft (MSFT) and Cisco (CSCO) as my best 12-24 tech selections for All-Weather and Growth portfolios.
Here’s the proof of concept: since Whistler, INTC +32.7%, IBM +11.6%, MSFT +27.4%, and CSCO +33.6%. The average gain in these mega-cap stocks has been +26.33% in just four and a half months.
Since the Conference, my Junior Gold (includes silver, copper, iron ore and titanium) portfolio is up +32.61% as well. Unfortunately over the past six months, which included the late summer crash, that portfolio has been down -1.67%; however, the GDXJ benchmark, as noted, was down -22.5%. Had I stayed out of the market for four weeks in mid-November, I could have fully recovered the losses I took last summer. Woulda, coulda…
But now I have cut my Junior Gold portfolio stocks by about 1/3 and am watching the smaller basket like a hawk. Half of my holdings are available for sale on any day now.
The new trader support system I have been putting in for the Cara 100 will soon be installed for the Junior Gold portfolio too. Over the next two months, I will be devoting much of my time to that. I am also organizing a merchant bank for junior miners, which will collect more and better information for me, and so I anticipate improved performance this coming year.
Now, as you know, my point here is not about my performance. It’s directed to how misleading the so-called news has been (and will continue to be). The market is marketing. It’s a game set up by and for the benefit of highly networked wealthy persons to play us. They win; we lose. Same old. Same old. But, it doesn’t have to be and that’s my point.
When I spend some time over the next ten days swimming in Gulf Stream waters, sitting about with a G&T, you will know that I am smiling, happy to have delivered my proof of concept. Time to stop for a bit to smell the roses.
As for the markets this past week, let’s see what happened regarding the Economy, Currencies, Bonds, Equities, Commodities and Precious Metals.
In US equity markets, all 10 sectors lifted. Twenty-seven of the Dow 30 stocks were higher on the week. Most international markets plus most commodities (except the metals) were up. “Into The Abyss” never happened. Don’t waste your time reading that stuff.
Just pay attention to the factual data.
As for the US economy this past week, there were lots of reports from government and the private sector, most of them continuing to show a bit of improvement.
Here are this week’s headlines from the highly regarded Econoday analysts:
• Core retail sales strengthen in January
• Industrial production weak at headline but healthy in detail
• Empire State and Philly Fed are healthy near term but raise questions further out
• Business inventories lean and may be in need of build
• Housing starts edge up but largely on multifamily starts
• CPI inflation firms but trend still moderate
• PPI inflation subdued at the headline level but hotter than forecast at the core
• Leading indicators point to growing momentum
• Fed minutes show debate increasing on direction of economy and policy
The results continue to be positive. According to Econoday, the underlying trends for consumer spending and manufacturing look good while that for housing appears marginally positive.
Let’s now look at the detailed economic data for the week that passed and the one ahead.
Global Economics Review
Equities were mostly higher last week as negotiators in the Greek crisis plodded along toward what hopefully will be some sort of resolution. Helping to lift share indexes were a plethora of better than anticipated economic data from the U.S. including continued improvement in weekly jobless claims and in the manufacturing sector…
A second bailout is now expected to proceed when the Eurozone finance ministers meet on Monday after German officials scrapped an idea to pressure Greece by withholding part of the bailout and the European Central Bank developed a plan to protect its holdings of Greek bonds from the restructuring. Uncertainty was inflamed by the last minute idea of splitting the bailout in two. The German, Dutch and Finnish governments, deeply mistrustful of the Greeks, raised the idea on concern that that giving Greece the entire bailout now would allow politicians breathing room to back step on the spending cuts already approved by the Greek Parliament… Most indexes were higher on the week. Gains ranged from 4.9%(Nikkei) to 0.2%(Shanghai Composite). The All Ordinaries, KLCI, IBEX 35 and Bolsa slid on the week. All indexes followed here are up so far in 2012.
Econoday’s Global Perspective is written by chief economist Anne Picker.
Off and on believed progress (emphasis on believed) on Greek sovereign debt has been market focus for some time. However, economic news in the U.S. has been favorable once special factors are taken into account. And this past week’s economic detail clearly points to economic gains.
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 release of the latest data on 02/14/2012 8:30:00 AM ET, Econoday reported, Headline retail sales grew less than expected but core numbers were strong in January. Notably, the auto component looks odd. Nonetheless, overall December was revised down. Retail sales in January jumped 0.4%after no change the month before. (originally up 0.1 percent). The January boost posted lower than the consensus forecast for 0.7 percent. Weakness was largely in the auto component which dropped 1.1 percent, following a 2.5%jump in December. This heavily conflicts with unit new motor vehicle sales which rose for the month. Excluding autos, retail sales surged 0.7%in January after decreasing 0.5%in December (originally down 0.2 percent). The consensus forecast was for a 0.6%rise. Gasoline sales increased 1.4%after a 2.6%drop in December… Sales excluding autos and gasoline in January rebounded 0.6 percent, following a 0.2%dip the prior month. Gains were broad based. The Econoday consensus called for a 0.5%boost for January… Net, January is actually good after discounting very odd auto numbers. Sales were healthy for most subcomponents. However, GDP for the fourth quarter is likely to be nudged down. But look forward to robust PCE spending in January. The Commerce Department will substitute industry data for the auto component (standard procedure) but it also will allocate unit new auto sales between personal sales and business sales based on registration data. But either PCEs durables will be strong or equipment investment will be strong for the month or both… On the news, equity futures dipped.
Following release of the latest data on 02/14/2012 8:30:00 AM ET, Econoday reported, A monthly swing higher in petroleum prices fed a 0.3%rise in import prices for January. But excluding a sizable 1.2%monthly jump in petroleum prices, import prices are unchanged and remain tame. Petroleum prices are up nearly 24%on a year-on-year basis but the pressure isn’t being passed through to final goods prices where capital goods are only up a year-on-year 1.6%with consumer goods up only 2.6 percent… Export prices rose 0.2%in January with a 1.1%monthly gain in agricultural prices offset by wide declines in other components. Year-on-year, export prices are up a tame 2.5 percent… Inflation isn’t the central risk right now for policy makers who continue to focus on stimulating economic growth and job creation. Today’s results point to stable core readings for Thursday’s producer price and Friday’s consumer price reports.
Following release of the latest data on 02/14/2012 10:00:00 AM ET, Econoday reported, The nation’s inventories are lean and well managed. Business inventories rose 0.4%in December, below the 0.7%rise for sales and pulling down the stock-to-sales ratio by 1 tenth to 1.26… There are three components to this series with today’s release including retail where inventories rose 0.2%while sales, which in this series exclude restaurants, were unchanged. The stock-to-sales ratio for retail is unchanged at 1.32… When including the other two components — factories and wholesalers — and looking at a quarter-to-quarter basis, the fourth quarter’s rate of inventory build is 0.9%vs a plus 1.3%rate in the third quarter. Slowing build points to the need to add to inventories and is a definite plus for jobs and for the economic outlook.
Following release of the latest data on 02/15/2012 8:30:00 AM ET, Econoday reported, Solid is a good description for this month’s Empire State report where the headline index rose more than 6 points to 19.53 for the best reading in more than a year and a half. But details show less strength with new orders down 4 points to 9.73, a level that’s comfortably above zero to indicate a month-to-month increase in orders but still lower than January to indicate a monthly slowing in the rate of increase… Other details include continued but only mild contraction in backlog orders and slightly less optimism for the general six-month outlook. Positives include a steady and strong rate of shipment growth, a slowing in delivery times, and a contraction in inventories (low inventories point to the need for replenishment). Employment readings are steady and moderately positive while price readings are steady and show mild pressure.
Following release of the latest data on 02/15/2012 9:15:00 AM ET, Econoday reported, Industrial production in January was unexpectedly soft but due to weakness in mining and utilities. The manufacturing component was robust. Overall industrial production was unchanged in January after a 1.0%jump the month before (originally up 0.4 percent). The January figure was well below the consensus forecast for a 0.7%gain. By major components, manufacturing jumped 0.7 percent, following a 1.5%comeback in December. Analysts projected a 1.0%spike for the manufacturing component in the latest month. In January, utilities dropped 2.5%while mining output declined 1.8 percent… Within manufacturing, durable goods advanced 1.8%in January. The output of motor vehicles and parts surged 6.8%following an upwardly revised increase of 3.8%in December. In January, gains of more than 1.0%were recorded for fabricated metal products; machinery; computer and electronic products; electrical equipment, appliances, and components; furniture and related products; and miscellaneous manufacturing… Nondurable manufacturing declined 0.2%in January after having advanced 1.5%in December… Manufacturing excluding motor vehicles advanced 0.3 percent, following a 1.3%boost in December… Overall capacity utilization nudged down to 78.5%from 78.6%in December. The consensus forecast called for 78.6 percent… With today’s strong Empire State report and healthy manufacturing component in industrial production, it looks like manufacturing is supporting first quarter overall growth in the economy.
Following release of the latest data on 02/15/2012 10:00:00 AM ET, Econoday reported, The pace of improvement is picking up very quickly for the nation’s home builders whose housing market index is up 4 points this month to 29. This is the second straight 4-point gain and the fifth gain in a row. Gains are evenly split between the three components — current sales, future sales, buyer traffic — and are evenly distributed by region… The report calls the improvement that’s underway the strongest yet of the recovery though the eye-catching gains in this report, which is a sentiment report, have yet to appear to the same degree in hard data. Competition from foreclosed properties as well as tight credit standards remain obstacles for the housing sector. Housing starts, where trends are improving, will be posted tomorrow while new home sales, which really haven’t been gaining any steam, will be posted a week from Friday.
Following release of the latest data on 02/16/2012 8:30:00 AM ET, Econoday reported, Housing appears to be oscillating upward as starts rebounded 1.5%in January after a 1.9 dip the month before. January’s 0.699 million unit pace topped expectations for 0.675 million and is up 9.9%on a year-ago basis. For the latest month, the rebound was led by the multifamily component… By region, the gain in starts was led by an 18.3%boost in the South with the West rising 11.9%and the Northeast rebounding 7.9 percent. The Midwest saw a 40.7%drop… Housing permits also are oscillating slowly upward with a 0.7%rise, following a 1.3%dip in December. The latest number of 0.676 million units was a little under the consensus projection of 0.684 million… While the latest numbers are positive, it should be remembered that seasonal factors are strong this time of year and it is difficult to know the true trend a given month.
Following release of the latest data on 02/16/2012 8:30:00 AM ET, Econoday reported, The weeks are normal and there’s nothing special skewing the data — data that increasingly point to pivotal improvement underway in the nation’s jobs market. Initial claims fell 13,000 in the February 11 week to 348,000 (prior week revised to 361,000). And for the 10th time in 11 weeks, the 4-week average is down, falling 1,750 to 365,250 (prior revised to 367,000). A month-to-month comparison shows an improvement of not quite 10,000 which points to rising gains for monthly payroll growth… Continuing claims are also lower, down a very sizable 100,000 in data for the February 4 week to 3.426 million. The 4-week average is down 8,000 to 3.493 million. The unemployment rate for insured employees is down 1 tenth to 2.7 percent… Europe may or may not be sliding into recession but there’s no evidence of it in the US jobs market which appears to be recovering at an accelerating rate. Today’s report is certain to be a plus for the stock market. Also look for economists, based on today’s data, to begin issuing preliminary forecasts for February payroll growth.
Following release of the latest data on 02/16/2012 8:30:00 AM ET, Econoday reported, Producer price inflation was subdued at the headline level but hotter than forecast at the core. The PPI rebounded 0.1%in January, following a 0.1%dip the prior month. Analysts had called for a 0.4%jump for the latest month. The core PPI jumped 0.4 percent, following a 0.3%rise in December. The market consensus called for a 0.2%rise… By major components, energy declined 0.5%in January, following a 0.4%decrease. January weakness in energy was led by a 1.7%drop in residential electric power with natural gas also dipping. Gasoline was up 2.0%in January after decreasing 1.4 percent. Food decreased 0.3%in the latest month… Upward pressure in the core came from pharmaceuticals (up 2.0 percent), light trucks (up 0.9 percent), and tobacco products (up 0.6 percent)… For the overall PPI, the year-ago rate in January was 4.1 percent, compared to 4.8 in December (seasonally adjusted). The core rate in January held steady at 3.0 percent. On a not seasonally adjusted basis for January, the year-ago headline PPI was up 4.1%while the core was up 3.0%on an NSA year-ago basis.
Following release of the latest data on 02/16/2012 10:00:00 AM ET, Econoday reported, Today’s Philly Fed index, up nearly 3 points to 10.2, together with yesterday’s Empire State index, up more than 6 points to 19.5, point to brisk activity this month in the Northeast manufacturing sector. But readings on expectations in both reports point to a European effect with Philly’s 6-month outlook taking a particularly steep dive of nearly 16 points… But most details in the Philly report are positive including acceleration for new orders, a build in backlog orders, acceleration in shipments, and a draw in inventories that points to the need for replenishment. A negative is a flat reading on employment which indicates no substantial change in the sample’s workforce… Markets today are once again being driven by up and down reports out of Greece, but today’s Philly report is the latest to confirm that economic growth in this nation, at least for now, is picking up steam.
Following release of the latest data on 02/17/2012 8:30:00 AM ET, Econoday reported, In January, CPI inflation picked up at both the headline and core levels. The consumer price index rose 0.2 percent, following no change in each of the prior two months. January’s pace, however, was lower than consensus expectations for a 0.3%boost. Excluding food and energy, the CPI firmed to a 0.2%increase from December’s 0.1%increase. Analysts called for a 0.2%rise… Turning to major components, energy rose only 0.2 percent, following a 1.3%decrease in December. Gasoline rebounded 0.9%in January after falling 2.1%the month before. But household energy fell 0.6%(largely natural gas) for the latest month. Food price inflation held steady at 0.2 percent… Within the core, upward pressure came from apparel (up 0.9 percent), recreation (up 0.6 percent), tobacco (up 0.5 percent), and medical care (up 0.3 percent). In contrast to these increases, the index for used cars and trucks declined for the fifth month in a row, falling 1.0 percent, and the index for airline fares fell 0.9 percent. The new vehicles index was unchanged in January after declining in each of the prior four months… Year-on-year, overall CPI inflation came in at 2.9 percent, compared to 3.0%in December (seasonally adjusted). The core rate firmed to 2.3%from 2.2%on a year-ago basis. On an unadjusted year-ago basis, the headline number was up 2.9%in January, compared to 3.0%in December. The core was up 2.3%versus 2.2%in December… The January CPI report overall came in marginally better than expected-but only marginally. The bottom line is that there is no sign of deflation. Today’s report gives no ammunition to those hoping for QE3 from the Fed. For Fed officials, the numbers overall fall in between the worries of the inflation hawks and the hoped for numbers of the doves. The January CPI report leaves Fed policy on hold.
Following release of the latest data on 02/17/2012 10:00:00 AM ET, Econoday reported, Stimulative monetary policy, momentum in the manufacturing sector and a bullish stock market are three central strengths for the economic outlook. These factors led the index of leading economic indicators to a solid 0.4%gain in January following upwardly revised gains of 0.5 and 0.3%in the prior two months. Other areas showing strength in January include credit activity and building permits, gains that underscore the improving outlook for the housing and construction sectors. Interestingly, jobless claims pulled the index down in January but, given significant declines so far this month, look to return to the positive column in this report for next month. This report offers a summation of economic news which has been convincingly positive for this economy, especially striking at a time when Europe is stumbling.
Prior to release of the latest data on 02/22/2012 10:00:00 AM ET, Econoday reported, Existing home sales in December rose 5.0%to a 4.610 million unit rate in December, a third straight month of improvement that has drawn down supply on the market to 6.2 months. This is the lowest reading on supply since 2006. Still, sales activity was soft compared to prior to the recent recession as the expansion peak was 7.250 million annualized for September 2005.
Prior to release of the latest data on 02/23/2012 8:30:00 AM ET, Econoday reported, Initial jobless claims fell 13,000 in the February 11 week to 348,000. And for the 10th time in 11 weeks, the 4-week average was down, falling 1,750 to 365,250. Continuing claims were also lower, down a very sizable 100,000 in data for the February 4 week to 3.426 million. The 4-week average was down 8,000 to 3.493 million.
Prior to release of the latest data on 02/23/2012 10:00:00 AM ET, Econoday reported, The FHFA purchase only house price index in November rebounded 1.0%after declining 0.7%in October. Eight of the 9 Census Divisions posted gains in November, led by a 2.1%rise for the West South Central region. On the downside, the only decrease was for a 0.2%dip in the Middle Atlantic region. On a year-on-year basis, the FHFA HPI was down 1.8%versus down 3.3%in October. Compared to the peak for this house price index in April 2007, prices are still down 14.5%nationally.
Prior to release of the latest data on 02/24/2012 9:55:00 AM ET, Econoday reported, The Reuters/University of Michigan’s consumer sentiment index for early February unexpectedly slipped 2.5 points to 72.5. The current conditions component fell 4.6 points in the mid-February reading to 79.6, down 5.5%to completely reverse January’s gain and take the level back to December. Yet the December level was not so bad compared to softer readings in November and October of 77.6 and 75.1.
Prior to release of the latest data on 02/24/2012 10:00:00 AM ET, Econoday reported, New home sales in December fell 2.2%to a disappointingly soft annual rate of 307,000. While the number fell short of expectations, the dip did follow three consecutive gains-4.1%in September, 1.7%in October, and 2.3%in November. Sales are not particularly strong but the trend may still be up.
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.
Also, here is the Daily, Weekly, Monthly RSI-7 and EMA-8 data at Friday’s close for the Cara 100:
The data in this section will likely conclude this week as we will be switching to a new format.
International Equity Markets Review
The international equity markets continued to lift this week for the most part and the YTD is looking very good. Japan’s Nikkei 225 index, with a gain of +4.9% W/W, was up the most. Australia and Mexico were a bit soft this week however.
The leading performers YTD are India (Sensex 30 +18.3%), Hong Kong (Hang Seng +16.6%) and Germany (DAX +16.1%). But, not all the numbers are so deeply green: The Toronto Composite is up +4.2% and the Dow 30 up +6.0% YTD.
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, the markets take on the appearance of a death plunge.
This week for the country ETF’s was almost a complete reversal from a week ago when all 11 of the major ones I follow were down, mostly because they were all very weak on that Friday after the Greek riots became the focus of trader attention.
I wrote in the WIR: “Maybe Friday ruined the party, but at this point I think not.”
This week, after Germany relented on some of the pressure they had put on Greece, equity markets were mostly in the green. The party continues. Only Australia (EWA -0.34% W/W) took a loss, and it was small.
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 in America, heading into the Presidents’ Day holiday, investors returned to the risk-on trade.
Econoday has summed up the US equity market this week as follows:
Here is the list of the ten highest-weighted non-financial stocks in the NASDAQ Composite. I recommend you put them in a watchlist (e.g., Google Finance Portfolio or as I have next using Investertech) and watch them like a hawk:
AAPL MSFT GOOG QCOM RIMM CSCO INTC ORCL GILD EBAY
Add two of AMZN, DELL, JAVA or YHOO to get a Cara Dozen.
Or while you are at Investertech.com, input up to 30 tickers in the window above “Summaries” – say AAPL MSFT GOOG QCOM RIMM CSCO INTC ORCL GILD EBAY AMZN DELL JAVA YHOO plus up to 16 more – and click on Tech Chart, Basic View, Daily Watch, Performance or Fundamentals and you’ll get a lot of information to compare one against the others.
Here is the Monthly data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Weekly data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Daily data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Value Line Dow 30 Stocks Review
This week [cycle 8, 21, 34 and 47], Value Line reported on four DJIA components: three banks plus a 4th, the one company that always manages to have a superior cash flow through thick and thin, and the only one I feel like writing about.
These are American Express (AXP), Bank of America (BAC), JP Morgan (JPM), and Microsoft (MSFT).
Until this past quarter, none were in the new Cara 100. But recently we added Microsoft to the Cara 100, and because the company pays a relatively high dividend, and one we believe investors can count on for a good total return over the years, MSFT is also in the Cara Value 50 (where we split the Cara 100 into 50 for Growth and 50 for Value, given that to us moderate capital appreciation plus a solid high dividend represents value).
As you know, I under-weight the bank stocks because I don’t understand their balance sheets, and I think that the regulators have been giving them free passes every time they get into trouble, usually of their own making, which only encourages weak breeding group dynamics, where the weakest banks then threaten the whole system.
American Express [GICS 40, Dow 30]
(AXP: Google Finance file)
(AXP: Yahoo Finance file)
(AXP: StockChart chart)
(AXP: Billcara2 chart)
(AXP: ADVFN Financial Data)
(AXP: Value Line Report 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: Billcara2 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: Billcara2 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: Billcara2 chart)
(MSFT: ADVFN Financial Data)
(MSFT: Value Line Report Nov 18: next one is due Feb 17)
Here is what I have written about these four companies in earlier WIR’s:
Here is the blog entry for WIR#21-2010 (May 23, 2010):
To study these companies; after re-reading my previous notes along with the recent Value Line studies, I review the charts.
Due to the equity market loss between the date of the Value Line report (AXP @$43.33 vs May 21 close at $39.82) the Value Line display of metrics and their projections are now more favorable. No wonder after the stock dropped from an intra-day high of $46.19 to a low on May 6 of $40.16. Since then the stock hit a low this Friday of $37.36, closing at $39.82.
There is not likely to be a share buy-back or dividend increase any time soon, which may be perceived as negatives, and on May 7 the VL analyst lowered the six-month technical outlook. But the positive is that VL has increased 2010 earnings projections from $2.45 to $2.95, and 2011 earnings are likely to lift further, possibly to $3.40/share, in spite of negative legislation involving credit card issuers.
Writing the October 35 puts would bring in some income (roughly $3.30/share) and if exercised would drop your cost base to a rather low $31.70, which is a price I’d feel comfortable with given its recent high of $49.20.
Bank of America:
Due to the equity market loss between the date of the Value Line report (BAC @$17.16 vs May 21 close at $15.99) the Value Line display of metrics and their projections are now more favorable.
The VL analyst raised the Technical outlook for 6 months (from 4 to 3 on 5/14) and also for 12 months (from 4 to 3 on 4/16). The analyst also increased 2010 earnings projections from $0.65 to $0.90, and 2011 earnings are likely to lift further, possibly to $1.80/share, in spite of negative legislation involving overdraft fees charged at banks.
The charts show me the stock is likely to rally soon, along with any equity market bump, even for a short time. I’d write the June 15 puts for $0.50 or better, taking my cost base to $14.50 if exercised. The stock recently traded as high as $19.90, so a $14.50 cost would be attractive, especially if the 2011 earnings scenario plays out as forecasted by VL.
Alternatively I might even write the June 16 puts for about $0.80-85, expecting the stock to pop further here, with a quick buy in of the short put, probably for about $0.25. This could also backfire as the stock did hit a low of $14,95 on Friday before closing at $15.99, and your cost base if exercised would be about $15.20.
The financial summaries are so complex, especially with the recent addition of Countrywide and Merrill Lynch, that I doubt there is anybody in the world who truly understands the numbers. That in itself tells you why I don’t trade BAC.
Due to the equity market loss between the date of the Value Line report (JPM @$41.55 vs May 21 close at $40.05) the Value Line display of metrics and their projections are now even more favorable.
In the VL report dated May 21, prepared using May 11 data, the VL analyst raised the Technical outlook for 6 months (from 4 to 3 on 3/19) and also for 12 months (from 4 to 3 on 4/23). The analyst also increased 2010 earnings projections from $2.75 to $3.50, and 2011 earnings are likely to lift further, possibly to $4.70/share, in spite of negative legislation involving overdraft fees charged at banks.
This chart says to me that JPM is ready for scaling into. The stock did hit a low on Friday of $37.02, which is way less than the “fat-finger” May 6 intra-day low of $39.29, and the close on Friday ($40.05) is less than the May 6 close ($40.81).
The $37.02 Friday low looks to me like a foundation level, so I’d probably write the June 37 puts for about $1.13 ($35.87 cost base if exercised)or the June 38’s for $1.40 ($36.60 cost base if exercised) with a view to buying them back in two weeks at a fraction of that price.
JP Morgan may be the superior bank stock right now (given that Goldman Sachs truly is an investment bank, and the best of those). But books will be written about the Wamu acquisition, which was probably done by Jamie Dimon’s really fast fingers! I’m not a fan; but I do happen to believe the franchise is an outstanding one. Very powerful people here.
Due to the equity market loss between the date of the Value Line report (MSFT @$28.88 vs May 21 close at $26.84) the Value Line display of metrics and their projections are now more favorable.
The VL analyst recently increased the 2010 earnings projections from $2.00/share to $2.05. Very large share buy-backs and dividend increases, a 2011 earnings growth to probably $2.30/share, plus continuously improving financial and operating metrics, and a solid CEO in Steve Ballmer, all work to make MSFT an attractive stock to hold in a conservative portfolio.
I’d consider writing a lot of the July 26 puts at about $0.87, putting a potential cost base at $25.13. I think there is fairly good technical support at 24, and if next year’s earnings come in at $2.30, that is a no-brainer.
On extreme weakness, I might even buy the Jan 2011 27.50 calls, but I’d like to get filled at a low price.
Here is the blog entry for WIR#34-2010 (Aug. 21, 2010):
At the time of the May WIR, AXP traded at $39.82. My recommendation was that writing the Oct 35 puts would take in $3.30 premium at that point, bringing a cost base of $31.70 if subsequently exercised. The interim low so far has been ~$37.54, so there was no exercise. As the interim high was $45.43, those Oct 35p’s would have dropped so low in price, you would have bought them in, earning a very significant percentage gain.
AXP closed Friday at $40.76.
At this point the Daily RSI-7 is an attractive 22.2, but the Weekly RSI-7 is 43.3 and falling, so I’m not interested in the stock. Because I feel that broad market rallies should be sold, I’d only be interested in a particular stock – whether to buy it or to write puts – if the RSI-7’s for Weekly, Daily, and Hourly were all down in the Accumulation Zone (i.e., probably below 30). Then again, I have a fairly short-term trading perspective because I still feel the equity market is too unstable to buy and hold for more than a few weeks at a time.
For longer-term decisions, I will seek independent and objective info from sources like Value Line.
The VL analyst is not too positive about the prospects for AXP although the annualized high-low Total Return (TR) projection is 8%-19% for 3-5 years. I’m not that positive. I am suspicious that the June Quarter earnings of $0.84 came about by knocking down the provision for loan losses too much. I believe the continuing unemployment and high jobless claims, the weak economic data, the floundering housing market and continued credit quality tightening by banks will make for larger credit card loan losses going forward. So, as I see it, AXP could be hit with disappointments more than positive surprises. The corporate balance sheet is nothing to write home about either. Even if I’m wrong, I think the stock is at best fairly priced and likely going nowhere fast.
Avoid if you are a long-term investor. I think you’ll see prices eventually come to you from even this low level.
Bank of America:
Here is a good example of how you can profit from a falling stock. At the May WIR, BAC traded at $15.99, and it closed this Friday at $12.87. I recommended writing the June 15 puts at $0.50, which would have taken your cost base to $14.50. But these June puts expired worthless because the price was still over $15. The price collapsed shortly after the options expiry.
But was this a lucky move on my part? I think not because I advised a one-month option (June) for the highest risk BAC and JPM as well, and July for the lesser risk Microsoft (MSFT) and all the way out to October for the least risk (as I saw it then) with American Express (AXP).
So, you have to size up the risk when buying risk as you do when writing naked puts, especially if you are interested in the premium more than the possibility of being exercised at a lower (and acceptable) price. There are other factors involved, but this is a key one.
As to the Value Line report on BAC, there are a negatives that most traders already see and have been the reason for selling the stock from a high of about ~$19.47 in mid-April to its present price in the low teens ($12.87).
The Daily RSI-7 is 24.4. The Weekly is 25.96. The Monthly is 34.66 and falling. The chart looks so ugly, I even set it up on my daily monitor to give me first indication of buyers returning to the broad market. Ergo, we are close to considering a Buy. One more decline, and I’d be ready to write puts.
But CEO Brian Moynihan has a lot of work to do here. I’m sure he attends Mass every Sunday, hoping for some improvement in housing prices as well as mortgage applications.
At the time of the May WIR, JPM traded at $40.05, and it closed this Friday at $37.14. I recommended writing the June 37 puts at $1.13, giving me a cost base of $35.87 if exercised. Your 37 puts would have been exercised as the interim low was $35.83. But just think what that $35.87 acquisition cost would have done for you. In a few weeks, the stock traded as high as $41.64. In my case I would have been a seller before or after that point, earning a substantial profit. So even though JPM dropped this quarter from $40.05 to $37.14, I would have been a happy trader.
As for the VL report, there is frankly, like for BAC, too much going on in the company for any analyst to do it justice. Too big (and complex) to analyze.
My overall sense is that, like these are the dog days of summer for the rest of us, CEO Jamie Dimon is going through the Dog Years of his career. There has been talk that he’d move to the White House to replace Tim Geithner, and I can see why. Bigger limo, bigger plane. Unsophisticated subordinates and directors. Easier to lie about how well the business is going. And one heck of a Paulson Tax Write-off now that Jamie’s got the stock flying high again.
Don’t do it Mr. President. You’ll hate yourself in the morning. Think back to your expectations for Geithner: “Timmy will be terrific”. The one good thing about Dimon is that the world would never accept any twaddle about him being a Turbo Tax user. Not in a million years would that pig fly. And, would he be superior to Paulson? Yes, I think, by miles. He wouldn’t beat people up. He wouldn’t stammer when lying. Moreover, I think he’s a value buyer, and might even help Treasury sell bonds to Martians or whomever now that China has pulled back. Thinking about it; if he could get a 6-year contract from both Democrats and Republicans, I think he’d serve the White House well. After all, he now runs the Fed via his influence at the Federal Bank of New York, and I’m sure he could get a good deal for Obama’s alt energy program from his pal and fellow Fed director Jeff Immelt whose GE makes those massive wind turbines. Oh, come to think of it, maybe it’s Immelt who’ll be looking for a job next. I see the GE stock is down to $15.03 from a high of about ~$16.52 a couple weeks ago.
I think you get the message that I’m not interested in JPM at this time – even though the RSI-7 is looking fairly good.
As for my recommendations in the previous WIR, MSFT didn’t turn out so well. You go into every trade knowing a large percentage will be failures. That ability to accept failure is one quality that separates the good from the bad traders. It’s never easy; but you treat losses like water off the duck’s back. It’s inevitable.
In this case the loss would be minimal anyway. At the time of the May WIR, MSFT traded at $26.84, and it closed on Friday at $24.23. That’s a big loss in 13 weeks. But I recommended writing the July 26 puts for $0.87 premium, putting my cost base at $25.13 if exercised. With the interim low at $22.89, and the high only in the 26’s, the put was exercised and the $25.13 position is probably sitting there today underwater at $24.23. But that’s clearly a superior position to traders who bought MSFT 13 weeks ago for a hold. Even short-term traders would have sold at a loss because the interim highs were below the May WIR price of $26.84.
In all cases, I write up these strategies and tactics without using any options trading software support or referring to one of my associates who has been a CBOE market maker for over 20 years, and who knows the business as well as anyone. I’m just writing this blog for educational purposes, so if you read something you like, be sure to follow up with DD.
As for Microsoft, I’m a bit jaded these days, and ready to try Apple again. Then again, my computer problems, now seemingly sorted out, may have been a problem with Google Chrome…
VL just (8/20) lowered the six-month Technical rating on MSFT from ‘3’, being average market performance expected to ‘4’, which means under-performance expected. In the 15-seconds I gave myself to review the VL report, I didn’t see any reason to downgrade the stock. Maybe we have to read between the lines.
From everything I can see in the data, there will be ongoing increases in per share revenues, cash flow, earnings, dividends and book value. This company is a cash cow and they are buying back stock. Their balance sheet is A++ with $37 billion in cash and total current liabilities of $26 billion and long-term debt of $5 billion. The United States of America should be so fortunate.
Going forward, the dividend payout is just 24%, so something very positive could happen there. Earnings too are likely to grow in the next 5 years as fast on average as over the past 10 to 15 years. Windows 7 is hugely popular.
What’s wrong with this picture? Nothing I can see.
But, somehow Value Line doesn’t like it.
The Daily, Weekly and Monthly RSI-7 is presently 32.1, 35.3, and 43.50, which is low but not quite low enough to get me in for a long time hoping it will be a good time.
I think I’d wait until the broad market sells off. If we do have one of those days or weeks when the news headlines scream the world is ending, I’ll be ready, willing and able to buy the MSFT. I’d buy the stock, write the long puts and buy the long calls.
There’d still be risk of course. There always is.
Here is the blog entry for WIR#47-2010 (Nov. 21, 2010):
American Express: Nov 19 at $42.75
You could have made money with AXP since the Aug 21 WIR#34, but I said I wasn’t interested even though the Daily RSI-7 was just 22.2 at the time. Am I interested today, no, but mainly because it’s still one of the financials I avoid on account of risk. Going forward, the Daily and Weekly charts do show me a slightly bullish bias.
As to the Value Line report, I noted American Express enjoyed a big increase in earnings in 2010 off a relatively small increase in revenues. A similar increase in 2011 revenues will add a much smaller increase in earnings. The VL analyst notes a much smaller provision for loan losses in 2010 over 2009, which is the reason for the increased profitability. In other words, pretty much an accounting rationale, which is one of the reasons I don’t want this company in the Cara 100 despite its fairly good fundamentals.
The VL analyst lowered the Technical (up to 6 months price anticipation) rating from ‘2’ (Good) to ‘3’ (Average).
Bank of America: Nov 19 at $11.66
At $12.87 on Aug 19, I wrote in the WIR#34: “The Daily RSI-7 is 24.4. The Weekly is 25.96. The Monthly is 34.66 and falling. The chart looks so ugly, I even set it up on my daily monitor to give me first indication of buyers returning to the broad market. Ergo, we are close to considering a Buy. One more decline, and I’d be ready to write puts… But CEO Brian Moynihan has a lot of work to do here. I’m sure he attends Mass every Sunday, hoping for some improvement in housing prices as well as mortgage applications.”
In other words, this is the classic Dog of the Dow and traders are watching it as a ‘tell’ on a possible housing market turnaround.
But that next cycle bottom happened in the 3rd week of October, with the Daily RSI-7 falling to about 12 and the price to about $11.16 before a tiny bounce and slide. It’s on the way down now again at $11.66 with a Daily RSI-7 at 37.25 and weekly RSI-7 at 32.91. Would I touch it, no. I want to see buyers first.
In the top left of the VL report, you will see a very high expectation of the analyst for Annualized Total Return (i.e., dividends and share price increases). The numbers are +35%pa on the high side and +15%pa on the low side. I think these shares are too speculative to give credence to these estimates.
The VL analyst has lowered the 6-month Technical rating and the 12-month Timeliness rating for BAC from ‘2’ (good) to ‘3’ (average) for Technical on Oct 8, and ‘3’ to ‘4’ (Below Average) on July 2.
I don’t find comfort in this VL write-up. Too many question marks. The share price is also very weak.
JP Morgan: Nov 19 at $39.36
During the previous WIR#34 write-up, I noted the low Daily RSI-7, but said I wasn’t keen. These are banksters after all even if powerful Morgan under Jamie Dee would have been the Meyer Lansky of the 1930’s.
JPM has been up and down like a teeter-totter for many months now, biding time. Recently there was a short-term cycle ‘sell’ on the chart, but the Weekly is still not bad. I’m neutral if I’m thinking long-term, but a bit bearish in the near-term.
The VL analyst has lowered the 6-month Technical rating for JPM from ‘2’ (good) to ‘3’ (average) for Technical on Oct 15, and raised the 12-month Timeliness rating from ‘4’ (Below Average) to ‘3’ (Average) on July 2.
I think there is little credence in estimating the earnings of JP Morgan going forward. There are a lot of issues. As for forecasting the share price, that too is a dubious matter in that the company could increase dividends soon.
Microsoft: Nov 19 at $25.69
A week or so after writing the Aug 21 WIR#34, there was a buying opportunity based on the RSI-7 on the Daily but not the weekly. Buying the stock under $24, that trade would have worked out very well. Again on a short-term signal, a week ago, I would have sold at $26.65, although the stock did trade north of $27.22 at the beginning of the month.
At this point, the Daily and Weekly RSI-7 is showing me there could be a bounce coming up, so I’d be watching closely. Still, I’m neutral on the trade.
This VL report is so positive in so many areas, I’m surprised the VL analyst has lowered the 6-month Technical rating for MSFT from ‘2’ (good) to ‘3’ (average) for Technical on Nov 12, and lowered the 12-month Timeliness rating from ‘2’ to ‘3’ on May 7.
I have read good things about the Kinect product, but I thought their phone product was canned. Don’t know for sure. That’s a tough market. Even the business and personal computer market is seeing in-roads by OpenOffice and other platforms like Apple. But the entertainment market seems to be holding up and Windows 7 is a positive.
If IT spending continues to ramp higher, the company continue to buy back stock at a rapid pace, and company earnings can lift from $1.62 in 2009 and $2.10 in 2010 to $2.45 in 2011 (the current year), then MSFT ought to perform well.
Taken into consideration with the company share buy-backs, I dismiss the personal sales of MSFT by CEO Steve Ballmer as having much long-term impact on the market. Ballmer is not walking away from the company because he is unhappy with operations, etc. That would be a different matter.
All told, I see a bounce ahead for the stock, but will not be recommending it.
Here is the blog entry for WIR#8-2011 (Feb 20, 2011):
To study these companies; after re-reading my previous notes along with the recent Value Line studies, I review the up-to-date charts:
American Express: Feb 18 at $45.53
The Daily RSI-7 recently signaled a Sell, and the Weekly would confirm it on a close this coming Friday below $45.00.
There are so many holes in the data that I have to conclude the Value Line analyst is out to lunch. There is no explanation at all given to the almost 85% drop in share price in 2008-2009 from the high to the low while revenues maybe dipped 20% and earnings about 50% over just a few quarters only. There is no explanation as to why the company’s revenues per share are flatlined or why total assets have zoomed in the past two years and liabilities have grown even faster. Could this be off balance sheet items being recorded now? Frankly I don’t know, I don’t think the VL analyst knows, and I don’t care. When the biggest items on the balance sheet – both assets and liabilities – are listed as “Other” – I cannot get interested. Show me the money Buffett.
Show me the financial strength. Despite record earnings, the company’s financial strength is only rated so-so.
Sorry; too many questions. No interest.
Bank of America: Feb 18 at $14.75
BAC shares are still in a bullish phase, but here too I could care less. With Countrywide and MBNA acquisitions, the new CEO, Brian Moynihan, probably a good leader, has the job of a kennel manager, a shelter for dogs, thanks to the previous CEO.
Even Value Line rates the 12-month price outlook at ‘5’ (pathetic). But then, with a 1 cent quarterly dividend, the analyst projects an annualized Total Return (price growth plus dividends) of between +9% and +20%. Hence, she is engaging in pure speculation. Moreover, she couldn’t begin to understand the Bank of America balance sheet and I very much doubt if Moynihan does either. As for the Fed’s understanding? Don’t even ask.
I’d like to have the opportunity of seeing the Merrill Lynch business split out. But, what would be left?
VL estimates the Bank of America net earnings this year to be $12.4 billion. Is that really a VL estimate or merely the Moynihan guidance?
Sorry; too many questions. No interest.
JP Morgan: Feb 18 at $48.00
The first thing you have to notice on the Value Line report is that the analyst on Jan 28 raised the JPM 12-month Timeliness rating from ‘3’ (average) to ‘2’ (outperform) and then on Feb 11 raised the 6-month rating from ‘4’ (poor) to a ‘3’. So, presumably there are still some market concerns for the next few months.
Despite all the hue and cry that the global financial system had collapsed in 2008, JP Morgan managed to earn $4.0 billion, net of 32.6% corporate income tax. And think about all those personal bonuses that were expensed against the shareholders’ interests.
If you happen to be friends and family of CEO Jamie Dimon, you possibly get first dibs on buying shares ahead of the dividend raise, which could be substantial. That dividend must be approved by the Fed and Dimon also happens to be the most important Fed board member. No conflicts here? Ha!
Stochastics show an unnatural flow to trading in JPM shares, for the past three months or so as the price has soared. The price looks good, which is probably the point that some people in Washington have wanted made.
Again, since I don’t understand the balance sheet or trust it, I have no interest.
Microsoft: Feb 18 at $27.06
My simple little system gave a Sell on MSFT in early January, and, although I decided to stay long because of a low cost base, the price may take a while to work into bigger profits. I was surprised at Friday’s sell-off – 3rd worst of the Dow 30 on Friday, and it was the 2nd worst Dow 30 performer W/W. Over the past three months, about 2/3 of the Dow 30 have outperformed MSFT, which is strange given that the net earnings were a strong $0.77 for the quarter.
The Value Line report shows that the MSFT Timeliness rating was raised from ‘3’ (average) to ‘2’ (outperform) on Dec 31, and then on Jan 14 the 6-month rating was also raised from ‘3’ to ‘2’.
The VL analyst seems to have missed the fact, however, that the balance sheet’s current ratio has really strengthened in the past year or so. I say it’s a positive that the company’s cash flow is soaring and Working Capital – this term applied to Microsoft, which is a royalty company, is a joke, right? – has grown to over $35 billion.
The big question everybody has to ask about MSFT is why the price is going nowhere when the company makes so much money, buys back so much stock and pays out so much in dividends. Look at the annual high-low for the stock, which you can find across the top of the VL report. Same old, same old – for some reason.
Could the routine insider selling (and absence of buying) have anything to do with it? I mean, these people are fat cats, so why make them wealthier? Maybe traders are content to buy the dips and sell the cycle tops. I don’t get it.
I ask the question because when I started to blog in 2004, writing frequently about Microsoft, the dividends were 16 cents a year and now they pay that quarterly. There were 11.3 billion shares back then, and just 8.3 billion now. And even eliminating the impact of fewer shares, the cash flow has doubled.
I also don’t understand the VL analyst’s comment in the last report about maybe the growing dividend and share buy-backs might not be enough to compensate for having to wait for price growth. The analyst did, after all, increase the 6-month and 12-month rating to out-perform.
Maybe the analyst is saying that too many sophisticated traders on Wall Street are milking the MSFT cash cow for you to make much of a return holding it long-term.
Maybe it’s just the holiday today and the baby-sitting that makes me conclude that I’m not much interested in this one either.
Here is the blog entry for WIR#21-2011 (May 22, 2011):
My entries for the three banks in my Feb 20 WIR#8 were summed up as: “Sorry; too many questions. No interest”, and for MSFT, it was: “I’m not much interested in this one either”.
So, let’s see what happened. Hint: had you taken the opposite view to me 13 weeks ago and bought an equal amount of stock in these four companies, your portfolio would be down -7.2%, and to get back to par, you’d need a gain of +7.8%.
American Express: May 20 at $51.19, up +12.4% vs Feb 18 at $45.53
Anybody who buys AXP at this price would be making a very high risk Buy. If I held it today, which I wouldn’t, I’d sell it.
This week, the Value Line analyst lowered the intermediate-term (6-month) outlook for the shares from a ‘2’ (good) to a ‘3’ (average). I’m sure the recent share price rally has put valuation into question.
But the long-term (1-year+) outlook was raised from ‘3’ to ‘2’, which I’m sure has to do with improving credit quality.
Value Line also upped the ranking for Safety (balance sheet strength) from ‘3’ to ‘2’, which, looking at the financials, I don’t really understand other than to note that the company is now providing much smaller loan loss provisions. Ok, so that’s helping earnings and raising earnings estimates, but frankly, I don’t know what that has to do with ‘Safety’. There are many companies that were earning gazoodles right before failing. And, a look at American Express’s current assets vs current liabilities over the past couple years only tells me that cash is down and liabilities are up.
In 3- to 5-years, I do believe AXP will be a winner, but I won’t be holding it except for maybe a trade that can be measured in days, including put writes after extreme sell-off periods.
Bank of America: May 20 at $11.58, down -21.5% vs Feb 18 at $14.75
Does anybody, including the CEO, really understand the balance sheet of this company?
BAC is certainly not for the risk averse long-term oriented trader, as the Value Line analyst points out (VL has BAC rated a worst ‘5’), but there may (stress the word ‘may’) be a good short-term trade in it for the ‘risk-on’ crowd, particularly if you believe the US housing/mortgage market is on the rebound (I don’t think so) and the broad market today is a Buy (I don’t think so).
But the Weekly and Daily RSI-7 are below 20, which some traders might find attractive.
I would point you to the Monthly RSI-7, which is 36.3 and falling.
All in all, I think the charts are saying this one has a year or more to work out its issues, which are well known.
At the end of the day, I think the company will survive and thrive, however, so at some point BAC purchases in the sub-teens (note: I edited a typo) will be recommended. I wouldn’t hazard a guess when that is though.
JP Morgan: May 20 at $43.13, down -10.1% vs Feb 18 at $48.00
As happens when the stock is falling for a few months, JPM’s Weekly and Daily RSI-7 are 35.1 and 32.7 respectively, and both are falling. The Monthly RSI-7 is 53.9 and falling and the share price ($43.13) has just dropped below the 8-month EMA, which may be a further sign of more problems ahead.
XLE, the financial industry ETF showed a bit of strength this week (stress on the word ‘bit’), but JPM remained flat. I don’t like it; I think there will be further losses to come with JPM.
Value Line lowered the short- to intermediate-term rating from ‘2’ to a ‘3’, but say “the issue is timely and has good 3- to 5-year total return potential”. When it comes to major banks like JP Morgan, I can’t see 3- to 5-years out. Even VL rates the Earnings Predictability at a very low 35 out of 100, and a low 45 for Price Stability and Price Growth Persistence, so how can anybody be confident enough to make anything buy pure guesses on this one.
VL also estimates $5.00 earnings for JPM in 2011, but they widely misjudged the 1st quarter, so I think they could be plus/minus 10- to 15% on their $5.00 “guess”.
I don’t even know how long Jamie D is to remain Chairman/CEO, and I certainly don’t understand the balance sheet, so count me out.
Microsoft: May 20 at $24.49, down -9.5% vs Feb 18 at $27.06
I don’t know how the MSFT Bulls could be happy when the stock is presently selling below the 8-EMA for Daily, Weekly and Monthly price series, and the RSI-7 is falling for each, even reversing this week on the Daily which is below 30 (24.5) as soon as it hit the 50 line. So, no rally is in sight.
A week ago, Value Line lowered the short- to intermediate-term outlook from ‘2’ to ‘3’.
Meanwhile, as the share price falters, the cash position has been lifting nicely to over $50 billion (vs $3.8 billion in payables and short-term debt due and total ‘real’ current liabilities of $20 billion. So, when the company decided to pay $8.5 billion for Skype, it was chump change.
Was Skype a good deal? Clearly, there are experts on both sides of this one. I’m not an expert in business valuation, but compared to LinkedIn, which is trading at a ridiculous $9.0 billion valuation, I’d say Skype is worth upwards of $15 billion. Obviously it isn’t, and neither is LinkedIn worth even $4 billion. What is in that technology that Google, Microsoft and others couldn’t re-engineer in a brief time? So, I don’t get it other than to say that a few venture funds have been helped by their Wall Street friends.
Skype, however, is another layer in Microsoft’s mobile computer/communications platform. I do think the technology will soon become fully integrated with their others, and play a major role, and the $8.5 billion cash was burning a hole in the company’s pocket (i.e., shareholders were placing no value on it), so I think it was a very good deal with a strong long-term potential.
The MSFT PE is now just 9.7 and the Forward PE is just 8.8. The stock is trading at about 10x cash flow. So, with that metric plus the operational and balance sheet strength of the company, I don’t think the price drops too much further.
But, if, as and when the broad market falls, as I believe it will, so too will MSFT. Hence, during days or weeks of extreme weakness, I think long-term put writes will work out here.
Here is the blog entry for WIR#34-2011 (Aug. 21, 2011):
American Express: Aug 19 at $44.47, down -13.1% from May 20 at $51.19, which had been up +12.4% from Feb 18 at $45.53
Having put in a high volume bottom from Aug 8 through Aug 19, AXP looks ready to be bought by short-term traders.
Bank of America: Aug 19 at $6.97, down -39.8% from May 20 at $11.58, which had been down -21.5% from Feb 18 at $14.75
Having put in a high volume bottom from Aug 8 through Aug 19, BAC looks ready to be bought by short-term traders. The Weekly chart shows that prices are approaching Bear market lows of 1Q2009, with all buyers since mid-March 2009 having paid higher prices.
JP Morgan: Aug 19 at $34.35, down -20.4% from May 20 at $43.13, which had been down -10.1% from Feb 18 at $48.00
Having put in a high volume bottom from Aug 8 through Aug 19, JPM looks ready to be bought by short-term traders.
Microsoft: Aug 19 at $24.05, down -1.80% from May 20 at $24.49, which had been down -9.5% from Feb 18 at $27.06
Having put in what may be a double bottom Aug 8-11 and again on Aug 19, MSFT looks ready to be bought by short-term traders.
If you bought and/or held the bank stocks this year, and you accepted the recommendations of their peer group analysts (rather than my simple reports in the WIR), your portfolio has been damaged. As you can read above, for the past couple years I have been saying Avoid or Sell the banks. The results of this past quarter in particular have been what I call Proof of Concept.
Now I am changing my tune.
What I really like about the equity market is that what’s happened is water under the bridge. We start each new day not knowing what will happen. For this reason, I seek to make decisions on the basis of (i) quality growth or value, and (ii) my trend and cycle based assessment of risk (hence probability of future profitability), which I do quickest from a look at the RSI-7 technical indicator.
Although Microsoft is close to making the Cara 100 value 50 group, it doesn’t. So, I don’t watch it too carefully. These financial services companies will not be in the Cara 100 for any reason any time soon. Hence I don’t trade these stocks.
But, if this were war and I were a sniper on the guerilla side, there might be good targets to be found at times. Now, for example! After all, the G-20 Generals seem to be rolling out their liquidity programs this week, so, hunkered down, locked and loaded, I’m ready to aim and fire off a couple rounds. Most likely. First, the target has to appear in the form of a “Buy Alert” on the Daily RSI-7. The current prices have to pop up above the 8-period Exponential Moving Averages – in the hourly, Daily or Weekly price series if my time horizons are Daily, Weekly and Monthly respectively. But, except for MSFT, the other decisions would be speculative in nature as I know the banking industry is facing significant hurdles with a couple years at least to get over, and with balance sheets I don’t think very many people, no matter how financially sophisticated, understand.
One final broad comment. This week a leading candidate called out the Fed Chairman for “acts of treason”. No matter what any of us thinks of the people who lead these giant corporations, the worst that can be said is that they are bankers first and Americans second. It is wrong to demonize them.
In fact, the system being as competitive as it is, if any one of them was involved in treason, the others would be whistle-blowers. What’s happened here, in the banks at least, is a bankers’ Code Red, their actions intended to protect their capital beyond anything else. That may involve lying and cover-ups and other acts of deceit often practiced in the business world, but it is not treason. Some of it, however, is I believe criminal, and I continue to ask why the public regulators and committees on Capitol Hill are not doing more to out the perpetrators and prosecute the worst of them.
Having said that, it is my experience that most of the people who work anywhere near the tops of these companies are good people, experienced professionals who the American public and business people need as the leaders of wealth creation in the country. In fact, the world needs them, and because they are so shaky at the moment, the world is concerned.
Now let’s see what I think of the Value Line studies.
American Express (AXP)
With a projected 2011 earnings of $4.05, and a 2012 earnings of $4.30, the forward PE is close to 10x at a current price of $44.47. For AXP, that is outstanding. I believe that within 18 months, AXP will trade at a 16x PE, which with a $4.30 E would put the P up to about $69. I like the upside.
On 8/19, VL raised the 6-month outlook for the stock from a ‘2’ (above average) to a ‘1’ (outstanding). Only 100 of 1700 well-known stocks have a ‘1’ rating.
Earnings are on the rise. Net margins are back to past high levels, and in fact are higher.
Dividends are now likely to be raised.
Cash flow will also go into share buy-backs.
Return on shareholder equity is still well above 20%, but may drop a bit below that in the 2014-16 period.
The balance sheet is rated A+.
All in all, this is a very positive review from VL.
Bank of America (BAC)
The company is selling all non-core business units in order to strengthen the balance sheet, which is rated B+.
So far this year, there have been losses, but profits are expected for this quarter and next and for 2012. However, VL says that “prospects are hazy”.
When the US mortgage business improves, so too will the prospects at BAC.
The one-year outlook for the stock (‘Timeliness’) was lowered on 7/29 to a ‘5’ (worst 100 out of 1700 stocks). On 7/29 BAC closed at $9.71, and it’s now $6.97, so that was a good call.
Then on 8/19 VL raised the six-month price outlook to a ‘2’, which is very good. I think that was another good call because if the Fed is starting up QE3, then BAC will be a beneficiary.
JP Morgan (JPM)
VL has a favorable view re JPM.
Earnings for 2010 lifted to $3.96 from $2.24. For 2011 and 2012, the earnings are forecast to be $4.90 and $5.20. With the stock priced at $34.35, the forward PE is below 10.
VL notes the concerns that JPM has with respect to its significant European debt exposure, but that seems to be manageable.
There are obvious pros and cons. The help to come from the Fed will likely prove to be a big help.
On 7/15, VL raised the 12-month outlook for MSFT to a ‘1’ (best 100 of 1700 stocks), so clearly they like it. Then on 7/29, they dropped the six-month outlook from a ‘2’ to a ‘3’.
2012 earnings are projected at $2.80. At a reasonably conservative 14 multiple, the upside could take the stock to $39 from $24.05. Also, the forward PE is below 10, which is unheard of. Net Profit Margin and ROE will remain excellent. I like the potential.
Is the company safe? It’s much safer than Uncle Sam. They have some $53 billion in cash and maybe $40 billion in total liabilities (which includes about $16 billion in unearned revenue).
A lot of the cash is going into huge share buy-backs and significant dividend increases.
Obviously, I ought to be adding Microsoft to the Cara 50 value stocks. Maybe I will.
Here is the blog entry for WIR#47-2011 (Nov. 20, 2011):
For some inexplicable reason, I put a lot of time and effort into discussing these four stocks in the WIR #34. I don’t have the time or inclination to do the same this WIR, sorry.
Before starting today, it is important to relate the price performance following my previous WIR opinions on these four stocks. I don’t want you to think I made, on balance, poor decisions back on Aug 21, when in fact I stated these shares were all “ready to be bought by short-term traders”. Check the subsequent highs, all made within a month of my WIR#34 and you will see the performance was outstanding in every case.
The problem for investors, which I was alluding to in my notes, is that the market action has forced us to think very short term. Volatility is causing many capital managers with superb long-term track records to quit the business this year. Some retire; but many are vocal about how the banks have so messed up the capital market in recent years that they no longer want to be exposed to the potential (and actual) losses.
At this point, it is a fair question to ask of regulators like the SEC, whose mandate is to serve and protect investors, why they have never acknowledged the wrong-doing by Humungous Bank & Broker (HB&B), and when they catch them red-handed in fraud why they allow them to get away with penalties that amount to a typical tax on earnings? This is not right and we all know it. As the expression goes, a rotting fish stinks from the head. In the courtroom of the people, at least in mine, these regulators are as guilty as the HB&B crime family.
In any case, for these four stocks under review, here is the recent price performance and my previous notes:
American Express (AXP) Nov 18 at $46.88 up +4.5% over 13 weeks, but had a high of $52.35 (+17.7%) since my last review.
Aug 19 at $44.47, down -13.1% from May 20 at $51.19, which had been up +12.4% from Feb 18 at $45.53: Having put in a high volume bottom from Aug 8 through Aug 19, AXP looks ready to be bought by short-term traders.
Bank of America (BAC) Nov 18 at $5.78 down -17.1% over 13 weeks, but had a high of $8.80 (+26.3%) since my last review.
Bank of America: Aug 19 at $6.97, down -39.8% from May 20 at $11.58, which had been down -21.5% from Feb 18 at $14.75: Having put in a high volume bottom from Aug 8 through Aug 19, BAC looks ready to be bought by short-term traders. The Weekly chart shows that prices are approaching Bear market lows of 1Q2009, with all buyers since mid-March 2009 having paid higher prices.
JP Morgan (JPM) Nov 18 at $30.62 down -10.9% over 13 weeks, but had a high of $38.57 (+12.3%) since my last review.
JP Morgan: Aug 19 at $34.35, down -20.4% from May 20 at $43.13, which had been down -10.1% from Feb 18 at $48.00” Having put in a high volume bottom from Aug 8 through Aug 19, JPM looks ready to be bought by short-term traders.
Microsoft (MSFT) Nov 18 at $25.30 up +5.2% over 13 weeks, but had a high of $27.50 (+14.3%) since my last review.
Microsoft: Aug 19 at $24.05, down -1.80% from May 20 at $24.49, which had been down -9.5% from Feb 18 at $27.06: Having put in what may be a double bottom Aug 8-11 and again on Aug 19, MSFT looks ready to be bought by short-term traders.
As noted, Microsoft is now a Cara 100 company.
I won’t add much to my previous write-ups except to say I like it. MSFT on a price to cash flow basis presents a superb buying opportunity. Cash flow for 2011 was $3.09/share and will likely be +5.2% higher at $3.25 for 2012. At a current price of $25.30, that’s a P/CF multiple of just 8.19x for 2011 and 7.69x for 2012.
If you are buying stock with a 12-24 month total return objective, take it to the bank.
This company is cash rich. At 9/30, the cash is ~$57.4 billion and total liabilities are just ~$37.4 billion, and that figure includes unearned cash of $14.3 billion.
If this company was allowed to join the fractional reserve system as a bank, it would be the world’s strongest bank.
When I started blogging in 2004, earnings were $0.16/sh on 10.862 billion shares. This year the earnings were $0.64 on 8.410 billion shares. The PE multiple has fallen from ~26x to under 10x. Value investors are not going to care why. Dividends per share will only keep rising, from $0.41 (2007), $0.46 (2008), to $0.52 (2009), $0.58 (2010), $0.72 (2011), and $0.84e (2012).
Yield for the next four quarters then would be 3.32x, which is better than a 30-year US Treasury, and probably safer. But in 30 years, that US treasury, if you were to buy it today, and held til maturity, would still be yielding 2.99%, while one look at the progression of dividend increases shows that the MSFT yield to cost basis will just get bigger and bigger and bigger.
What I like a lot about Microsoft today is the diversification of their revenue: 31.7% from Business solutions, 27.2% from Windows, 24.4% from Server and Server Tools, 12.7% from Entertainment & Devices and 4.0% from Online Services and Other. I really like their Xbox/Kinect and Skype businesses and their push into emerging markets.
Value Line lowered their Timeliness (6-12 month outlook) and Technical (3-6 month outlook) relative ranking from 1 to 2 and from 2 to 3 near the end of October. But even with the market smashing this week, I am reasonably satisfied with the +3.14% capital growth in MSFT since I selected it as a Value portfolio recommendation on Oct 3.
Here is the five-month Daily data chart of MSFT (solid black line with the 8-day EMA in dashed blue line) along with the S&P 500 in the dashed orange line. Note how the Daily RSI-7 is close to a risk cycle bottom at 31.88. This bears watching as the price cycle low is likely to be in the 23-25 range, supported by earnings, cash flow, dividend yield, and share buy-backs. On extreme sell-off days, it would make sense to write puts and buy calls and stock.
There is not much I want to say about these Banks. I don’t think their balance sheet is understandable and their operating P&L makes no sense to a trader. For instance I can show you the data for several big name European banks where the share prices have crashed and continue to fall – in some cases by 90+% in recent years – but their current earnings look terrific. It’s all nonsense to make you think they are attractive. The only way they become attractive is if the government takes control and the ECB/EU pumps in mega billions into each one.
For continuity sake, here are the five-month Daily data charts of AXP, BAC and JPM (solid black line with the 8-day EMA in dashed blue line) along with the S&P 500 in the dashed orange line. Go for it if you wish, but I have zero interest.
The one important reason to look at these charts is to note the high degree of correlation in the stock price patterns. But just because these charts are showing commonality in terms of a potential short-term price cycle bottoming, I really have no interest in buying the Banks, and supporting people like David Rockefeller’s man Jamie Dimon.
Here is the blog entry for WIR#8-2012 (Feb. 19, 2012):
To study these companies; after re-reading my previous notes along with the recent Value Line studies, I put the following up-to-date charts on my screen:
For these four stocks under review, here is the recent price performance and my notes:
American Express (AXP) Feb 17 at $52.86 up +13.2% over 13 weeks since my last review Nov 18 at $46.88. Earlier I opined: “Having put in a high volume bottom from Aug 8 through Aug 19, AXP looks ready to be bought by short-term traders.”
Bank of America (BAC) Feb 17 at $8.02 up +38.3% over 13 weeks since my last review Nov 18 at $5.78. Earlier I opined: “Having put in a high volume bottom from Aug 8 through Aug 19, BAC looks ready to be bought by short-term traders. The Weekly chart shows that prices are approaching Bear market lows of 1Q2009, with all buyers since mid-March 2009 having paid higher prices.”
JP Morgan (JPM) Feb 17 at $38.47 up +26.3% over 13 weeks since my last review Nov 18 at $30.62. down -10.9% over 13 weeks, but had a high of $38.57 (+12.3%) since my last review. Earlier I opined: “Having put in a high volume bottom from Aug 8 through Aug 19, JPM looks ready to be bought by short-term traders.”
Microsoft (MSFT) Feb 17 at $31.25 up +22.4% over 13 weeks since my last review Nov 18 at $25.30. up +5.2% over 13 weeks, but had a high of $27.50 (+14.3%) since my last review. Earlier I opined: “Having put in what may be a double bottom Aug 8-11 and again on Aug 19, MSFT looks ready to be bought by short-term traders.”
As noted, Microsoft is now a Cara 100 company, and the only one of these four. Therefore I would only be able to buy MSFT. Presently the All-Weather and Growth portfolios are long MSFT. Also MSFT was a 12-24 month selection at the Cara Whistler 2011 Conference for a sound Total Return portfolio. In the four and a half months since then, MSFT is up +27.40%.
Again, I won’t add much to my previous write-ups except to say I did like MSFT on a price to cash flow basis. Cash flow for 2011 was $3.09/share and was forecast by Value Line 13 weeks ago to be +5.2% higher at $3.25 for 2012. But now VL is forecasting a small decline in cash flow going forward, so we must be cautious.
At a price of $25.30 13 weeks ago, that was a P/CF multiple of just 8.19x for 2011 and 7.69x for 2012. Now, at $31.25, with a $3.05 cash flow, the P/CF multiple is now estimated to be 10.25x for 2012, which is not bad historically, but certainly not as attractive as was the case 13 weeks ago. I’m not surprised that VL dropped their 3-6 month Technical rating from a superior ‘2’ to a market average ‘3’.
If you are buying stock with a superior 12-24 month total return objective, you need to buy the dips.
This company is cash rich. At 9/30, the cash was ~$57.4 billion and current liabilities ~$37.4 billion, and that figure included unearned cash of $14.3 billion. Now at 12/31, the cash was ~$51.7 billion and current liabilities ~$25.4 billion, and that figure included unearned cash of $14.0 billion.
Here is the five-month Daily data chart of MSFT (solid blue line with the 8-day EMA in dashed blue line) along with the S&P 500 in the solid orange line. Thirteen weeks ago I stated: “Note how the Daily RSI-7 is close to a risk cycle bottom at 31.88. This bears watching as the price cycle low is likely to be in the 23-25 range, supported by earnings, cash flow, dividend yield, and share buy-backs. On extreme sell-off days, it would make sense to write puts and buy calls and stock.”
Well, MSFT traded consistently below 25 for five days in late November following my last review, hitting a low/close at $24.30 on Nov 25. Bingo. If you had followed my lead, the stock then traded over $31 in the weeks following that.
As I stated here, the MSFT will now likely be an average market performer. The Buy opportunity has come and gone. Now active traders like me are looking ahead to exit tactics, although that’s not a bearish statement.
About these Banks, there is still not much I want to say. Maybe we’ll find in 2012 that JP Morgan’s shining star has lost its luster over the MF Global fraud matter. On the other hand, an expression that I do find acceptable when it comes to HB&B bankers and political leaders, maybe Dimon will end up as head of Treasury, following two other crooks.
But with these banks, I continue to say I don’t think their balance sheet is understandable and their operating P&L makes no sense to a trader. For instance I can show you the data for several big name European banks where the share prices have crashed and continue to fall – in some cases by 90+% in recent years – but their current earnings look terrific. Look at Bank of America and compare its loan loss provisions, its write-downs, and its non-performing loans as a percentage of total loans. Then compare that to JP Morgan. I cannot believe that Bank of America is presenting a truthful case.
For continuity sake, here are the five-month Daily data charts of AXP, BAC and JPM (solid blue line with the 8-day EMA in dashed blue line) along with the S&P 500 in the solid orange line. Go for it if you wish, and I did opine earlier that these banks were likely to have a great quarter and they did, but I still have zero interest in investing real money in a balloon. I told you that before.
[From WIR-47-2011 Nov 18] The one important reason to look at these charts is to note the high degree of correlation in the stock price patterns. But just because these charts are showing commonality in terms of a potential short-term price cycle bottoming, I really have no interest in buying the Banks, and supporting people like David Rockefeller’s man Jamie Dimon.
BAC: $8.02 is a long way from $4.99 in two months.
JPM: How many lives does Jamie Dimon have?
The Dow 30 Company links in chronological order of the upcoming reports.
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)
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 Feb 3: next one is due Apr 4)
Disney [GICS 25, Dow 30, Cara 100]
(DIS: Google Finance file)
(DIS: Yahoo Finance file)
(DIS: StockChart chart)
(DIS: Billcara2 chart)
(DIS: ADVFN Financial Data)
(DIS: Value Line Report Feb. 10: next one is due Apr. 11)
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 Feb 17: next one is due Apr 18)
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 Feb 17: next one is due Apr 18)
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 Feb 17: next one is due Apr 18)
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 Feb 17: next one is due Apr 18)
I pointed out earlier that Value Line seems to be raising and lowering their Timeliness Ranking (6 to 12 month relative price outlook for 1700 stocks in its universe) and their Technical (3 to 6 month outlook) more than usual. It’s another sign of market instability.
To help me get a grasp on what’s happening I decided to pursue a bit of Billy Ball. If you have watched the movie Moneyball, or know the storyline, which is that the Oakland Athletics baseball team, unable to compete with the budgets of big market teams like New York and Boston, decided to improve their line-up with ball players who had superior statistical records relative to their compensation demands. In other words, the Oakland management relied on empirical evidence of past performance on which to base their decisions for future results.
Unable to compete with the budget of Wall Street, I decided to do the same. I now have a Daily review of all technical indicators for all Cara 100 stocks that is presented in chart form.
Charts? You haven’t seen so many charts. Fifteen hundred of them a day. Meaningful data too. Stuff like SMA 5, 10 and 20; EMA 6, 8, 12 and 26; RSI 7, 14 and 21; MFI, DMI, MACD, Stochastics %K, D1 and D2; and CCI, ROC, W%R, DPO and OBV, in various forms, by Cara 100 stock. I also have each metric graphed for all Cara 100 stocks. Further, I have overlaid the series data for each metric for all stocks by sector or peer group.
The mountain of data is now information. It’s so sensitive; I can almost hear the sound of one hand clapping. For certain, I can visually spot reversals and anomalies that otherwise would have been impossible to see.
I’m proud I was able to accomplish this information system myself; fully automated straight-through processing from server to server to my monitor. One-click, no-scroll presentations.
At this point, I’m having three pages of rules built into an app that will help me rank the Cara 100 from 1 to 100 in terms of (i) risk of holding, and (ii) buying opportunity. My system; my rules.
Of course, there’s a bit of rocket science at this point, so there will be lots of testing and tweaking before I’m satisfied I have it working well.
At the end of the day, however, trading, like baseball, still comes down to human decisions. Human error still destroys the finest technology ever built, and I can’t say that what I’m building is anything close to the finest. But it is helping me, and will help me even more in the future as I develop it.
The joy of working at stuff like this is what keeps me going. Basically, it’s all about the search for freedom – the power to make decisions without limits being imposed by others.
It’s why we learn to be a successful trader, isn’t it?
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.
Try to understand what Value Line can do for you: For 1700 stocks in its universe, VL offers a Timeliness Ranking (6 to 12 month relative price outlook) and a Technical Ranking (3 to 6 month outlook) from 1 to 5.
But VL is much more than a ranking system. It’s a discipline. Every quarter year, the empirical data is laid out in a consistent presentation along with notes from the covering analyst. Together with services like StockCharts, Finviz and ADVFN, you will find that VL gives you the tools you need for successful trading and wealth management.
It may take years, but it really is worth the time and effort to get to know the companies you trade. After a while, you’ll appreciate the price motion of each stock and, with more confidence, you’ll be able to go with the flow, selling when the market is chasing the price, and then letting the price come to you when they are trying to sell it, and you may want it.
In other words, do the homework to find the companies with very high quality and then put yourself into selling in a seller’s market and being a buyer in a buyer’s market, as the real estate people like to say. To seize the opportunities without undue risk, you need to be prepared, and this is how to go about it.
Sector ETF Summary for the US equity market
The price performance tables that I show every day are for eleven GICS Sector Index Funds (ETF’s), including two for Technology (XLK and SMH), for a total of ten GICS sectors. They cover the full spectrum of the US equity market.
Table 1: Cara ETF List is sorted by price performance Week over Week (W/W), i.e. 1W%N.
You can do a table like Table 1 (below) by entering the following string into the Summary window at Investertech.com and then clicking on the link for Performance. You can also add more ETFs – up to 30 in total. For a list of components to many ETFs, go to the AMEX.com and NYSE.com web sites, and click on ETFs.
You can use this tool to set up personal watchlist charts by industry group and sub-groups.
Another chart you ought to be reviewing every week is the candleglance view from StockCharts.com:
Sector rotation is one study I spend hours doing every week.
For a summary chart view, this presentation from StockCharts will save you lots of time.
Once involved, you’ll drill down into the nuances of this next chart (link), looking at the cyclical reversals and trying to see the drivers.
The principles of sector rotation have been studied and written about for hundreds of years by many people. My work is based on the individual who mentored me in this subject and taught me more about investing and trading than any other, the late Ian Notley, my former associate. Notley is considered perhaps the finest trend and cycles analyst of the past 50 years. He was recruited to North America in the 1970’s by another friend of mine, Ian McAvity, editor of Deliberations, himself one of the world’s great trend and cycle analysts.
The technical analysis work of both Ian’s was inspired by E.S. Coppock.
Here’s the SPY Monthly, Weekly and Daily data charts:
SPY Monthly data:
SPY Weekly data:
SPY Daily data:
10 (energy: XLE)
15 (basic materials: XLB)
20 (industrial: XLI)
25 (consumer discretionary: XLY)
30 (consumer staples: XLP)
35 (healthcare: IYH)
40 (financial: XLF)
45 (technology, semiconductor: SMH)
50 (telecom: IYZ)
55 (utilities: XLU)
Individual US Sector ETFs and Stocks Review
Table 1 shows that for the past 12 months, the S&P 500 (SPY) has gained +1.61%. If your portfolio has out-performed over the past 52 weeks, you should be thankful.
Over the past year, five sectors have beat the S&P 500 benchmark, led by Consumer Staples (XLP +11.24%), Healthcare (IYH +10.83%), and Utilities (XLU +10.01%). But, over the past three months as well as YTD, the XLU and XLP are the worst performers. The worst performers over the past year, Financials (XLF -13.71%) and Basic Materials (-8.18%) are 1st and 4th best over the past three months.
So, you have to learn to trade.
This week all ten sectors lifted and so did 27 of the 30 Dow 30 stocks.
A week ago in this space, I noted that 24 of the Dow 30 stocks and five of the ten sectors were losers on the week and that Friday that week was particularly bearish. But I opined: “However, as I see it, 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.”
And that’s what happened this week.
Here’s the XLE Monthly, Weekly and Daily data charts:
XLE Monthly data:
XLE Weekly data:
XLE Daily data:
Table 2: Senior oil & gas equities
The ETF for Oiler stocks is XLE. This week, XLE was up +2.51% W/W to close at 74.87. This gain propelled XLE to the best performing sector. Of course, Crude Oil ($WTIC) soared +5.16% W/W to $104.20/bbl, and that doesn’t include the cost of the barrel
Notable among the winners this week were mid-cap oilers Talisman Energy (TLM +11.0% W/W) and Newfield Explorations (NFX +10.0%).
We added some TLM this week in one portfolio grouping. The company recently reported a smaller quarterly loss, and we think the stock may be on the upswing.
Newfield will report soon, but some analysts are starting to like what they see.
Others are not so positive.
Over the past three months, XLE is up +9.20%, which is the #8 sector performer, underperforming the S&P 500, which has been up +11.71%.
Here is the Hourly chart of XLE (in solid blue with the 8-hour EMA in dashed blue) and the S&P in solid orange.
The XLE Weekly chart continues to show bullishness. But the Daily chart shows the price is a bit over-bought. I’m still thinking the sector chart is showing a topping process, which could unfold over a month or two. The jury is still out. Global reflation by central banks and the Iran “threat” could provide more lift. But it’s hard to believe that the $WTIC could rise much higher than the present level ($104.20) without bearish implications for the North American economy.
FD: We continue to be significantly underweighted in this sector. For Growth accounts we added CNQ and TLM to our APA, CVX, PBR, PDS, and XOM positions, and now with about a 90% S&P portfolio weighting (vs a two-thirds S&P portfolio percentage weighting a week ago). For All-Weather portfolios in this sector, we added CNQ to APA, CVX and XOM, and now have a ~33% S&P portfolio percentage weighting, up from ~25% relative to the S&P. Of course, in A-W, we hold a lot of Bonds, Precious Metals and Cash in order to balance the portfolio and reduce the overall risk.
Note that our equity positions are, by company policy, restricted to Cara 100 companies in the broad based portfolios.
This week I added all the Cara 100 to the price tables in the daily blog and for the WIR.
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 +0.86% W/W. The close was 37.37. This week XLB was the 2nd worst sector performer, after being the worst a week ago.
Over the past three months, XLB is up +12.97%, which is the #4 sector performer, slightly out-performing the S&P 500, which has been up +11.71%.
Brazilian forestry (wood, pulp and paper) giant Fibria Celulose (FBR +7.1% W/W) was a leader again this week. One week ago, FBR reported beating expectations on revenue but missed on earnings (compared to estimates) and on the comparable year-earlier quarter on revenue. Margins also dropped. We have a small position in Growth.
Among the losers this week were Teck (TCK -4.4%), Freeport-McMoRan (FCX -4.2%) and ArcelorMittal (MT -3.5%).
Here is the Hourly chart of XLB (in solid blue with the 8-hour EMA in dashed blue) and the S&P in solid orange.
FD: Other than the CEF, which is by far our biggest All-Weather position (along with Physical Silver Trust PHYS), and several other goldminers, plus copperminer FCX, we presently hold TS, POT and DOW in the All-Weather portfolios and hold BHP, CCJ, FBR, POT, TCK, and TS in the Growth portfolios in this sector. Overall, we are significantly over-weighted the S&P sector weighting because we see that central bank QE is the plan.
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, particularly the big metals like VALE. 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]
MUX McEwen Mining [GICS 15, Cara 100 G50]
NGD New Gold Inc [GICS 15, Cara 100 G50]
NUE Nucor Corp [GICS 15, Cara 100 V50]
POT Potash Cp of Saskatchewan [GICS 15, Cara 100 G50]
SLW Silver Wheaton Corp [GICS 15, Cara 100 G50]
SVM Silvercorp Metals [GICS 15, Cara 100 G50]
TCK Teck-Cominco Ltd [GICS 15, Cara 100 G50]
TS Tenaris SA [GICS 15, Cara 100 G50]
Here is the current candleglance chart of 10 important Sector 15 components:
Here’s the XLI Monthly, Weekly and Daily data charts:
XLI Monthly data:
XLI Weekly data:
XLI Daily data:
Table 4: Senior capital goods makers and transportation:
The ETF for Industrial and Transportation stocks is XLI. These are the users of commodities and related products as well as the freight transportation systems that move commodities and business packages to markets around the world.
This week, XLI was up +0.95% W/W to close at 37.28, which was the 3rd worst sector performance out of 10.
Over the past three months, XLI is up +13.6%, which is the #2 sector performer, outperforming the S&P 500, which has been up +11.7%.
This week’s leadership has come from Embraer (ERJ +7.1% W/W). On the downside, Fedex (FDX -2.4%) was most bearish.
As you know from last week’s WIR, we added ERJ, so that +7.1% W/W move was good for us.
Here is the Hourly chart of XLI (in solid blue with the 8-hour EMA in dashed blue) and the S&P in solid orange.
The XLI technical indicators are bullish long-term, but a bit shaky short-term. XLI needs a weaker $USD and a bit of QE to get me excited again. Otherwise, while consolidating recent gains, traders have to be aware the price might be a tad soft.
As noted previously, my picks for the next 12-24 months are Cummins (CMI) for Growth and ABB (ABB) for All-Weather.
FD: After adding ERJ a week ago, we presently hold ABB, CMI, ERJ and UTX in this sector in the Growth and All-Weather portfolios, and also some PAYX in the All-Weather, but we are a bit 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 +1.58% W/W to close at 42.98. Like a week ago, that was 4th best sector performance.
The big winners here this week were Tata Motors (TTM +7.6% W/W and +53.3% YTD), Brunswick Corp (BC +6.7%), Toyota Motor (TM +6.3%) and Ebay (EBAY +6.2%). Amazon (AMZN -1.6%) was a small loser on the week.
TM also gained +2.5% a week ago. You see; the Yen plunged -2.44% this week, which launched TM. A week ago Friday however, with the Bears taking control on the day due to riots in Greece, the Yen lifted strongly that one day and TM dropped -3.1%. So, when trading TM, or any of the major Japanese exporters, you have to be conscious of the trends and cycles of the Yen.
Here is the Hourly chart of XLY (in solid blue with the 8-hour EMA in dashed blue) and the S&P in solid orange.
FD: After adding BC, we presently hold BC, MCD and NKE in the All-Weather portfolios, and BC, COST, MCD, NKE and TM in the Growth.
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]
SNA Snap-On Inc [GICS 25, Cara 100 G50]
TGT Target Corp [GICS 25, Cara 100 V50]
TTM Tata Motors [GICS 25, Cara 100 G50]
TM Toyota Motor Corp [GICS 25, Cara 100 V50]
WHR Whirlpool Corp [GICS 25, Cara 100 V50]
Here is the current candleglance chart of 10 important Sector 25 components:
Here’s the XLP Monthly, Weekly and Daily data charts:
XLP Monthly data:
XLP Weekly data:
XLP Daily data:
Table 6: Senior consumer staples equities
The ETF for Consumer Staples stocks is XLP. As the purchases of consumer staples are considered must-have, the normal swings in economic growth and contraction do not affect these companies as much as say the Consumer Discretionary stocks.
This week, XLP was up +1.38% W/W to close at 33.06, which was a weaker performing sector this week after being 2nd best a week ago.
There was nothing notable (to me) happening here this week.
XLP out-performed the S&P 500 over 12 months but has under-performed for 6 months, 3 months and YTD as traders have swung to ‘risk-on’ – especially since mid-December.
Here is the Hourly chart of XLP (in solid blue with the 8-hour EMA in dashed blue) and the S&P in solid orange.
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 by about 50%.
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 +1.15% W/W to close at 75.44, the 4th worst performing sector, but enough to give it another all-time high close.
There was more happening here this week.
Celgene was best on my list, gaining +4.1%. As reported here a week ago, we added CELG to both the All-Weather and Growth portfolios in this sector.
Bristol Myers Squibb (BMY) popped +3.4% on Friday to go up +3.8% W/W. Is there some unannounced M&A in the works?
Gilead Sciences (GILD) was hammered -14.3% on Friday to close down -12.6% W/W. The company reported a negative result of a study on one of their drugs.
Here is the Hourly chart of IYH (in solid blue with the 8-hour EMA in dashed blue) and the S&P in solid orange.
FD: We presently hold AET, CELG, JNJ, MRK, NVS and PFE 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 $BKX Banking industry Index is what you want.
This week XLF was up +1.51% W/W to close at 14.79.
Over the past 12 months the XLF has lost -13.7% while the S&P 500 ($SPX) gained +1.6%. No other sector comes close to the under-performance.
This problem with the banks is all about negotiating the roll-overs of European sovereign debt, and in particular the bankers’ strong desire to not have to take massive write-offs, and to get hand-outs to replace the losses they are forced to take.
Bankers don’t like to lose. None of us do. But in the case of bankers, they hold all the cards.
This is the week in the quarterly cycle that Value Line reviews the Financials in the Dow 30: American Express, Bank of America and JP Morgan.
Schwab (SCHW) continues to be volatile. Two weeks ago there was a gain of +9.8%. One week ago SCHW was down -4.9%. This week SCHW was up +5.7%.
With the good news coming on the Greek debt situation on Thursday, Credit Suisse (CS) gained +4.2% W/W after having dropped -7.7% a week earlier. HSBC (HDB) gained +4.3%.
With the Sensex 30 stocks of India being very strong this week, it’s not a surprise that ICICI Nank (IBN) and HDFC Bank (HDB) were up +6.7% and +4.3% respectively.
Here is the Hourly chart of XLF (in solid blue with the 8-hour EMA in dashed blue) and the S&P in solid orange.
A week ago I opined in this space: “Although it’s touch and go, I do think the support level of the EMA-8 will hold up here, so I’ll repeat my note from a week ago: “…along with my ongoing enthusiasm for higher prices among US equities, I do look for the Financials to be a leader.””
I have commented on this issue repeatedly:
As before, we are very much under-weighted the Financial sector compared to the S&P sector weighting, but before making a long-term commitment here, I say that 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 banker crowd that is supposed to be risk averse. But, you know, that would require a return to Glass-Steagall and I don’t see them giving back a huge part of their current franchise.
That’s a shame because I like the people in this industry and I happen to think that most of them would prefer to work for firms that are either banks/trust/mortgage companies or dealers or brokers or asset managers or insurance companies, but not all under the same umbrella. I fail to see how one-stop shopping helps anybody except for the hidden string-pullers at the top of HB&B – and that’s what got the financial world into the crisis to start with. What we need is competition and free markets.
As at Dec. 9, 2011, the total market cap of the seven Cara 100 stocks in this sector was $307.2 billion. Of these, the smallest three are SCHW, and the two Indian banks IBN and HDB.
Cara 100 Sector 40 (Financials) list:
BBD Banco Bradesco SA (ADR) [GICS 40, Cara 100 V50]
BNS Bank of Nova Scotia (USA) [GICS 40, Cara 100 V50]
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 general 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 four US banks could not be replaced by a top 24, and the top two Dealers be replaced by a top twelve, each much more specialized and streamlined. Unfortunately, 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.
I’d like to add that I have always considered that allowing severely conflicted broker-dealers and asset managers to be directly in the securities lending business to be a preposterous situation. As I presented to the Canadian Securities Administrators (Canada’s SEC) in a formal hearing on electronic trading in 1997, I believe an independent third party company should hold all client assets, which protects the client from losses due to broker-dealer bankruptcy and also stops the funny business that goes on when “friends” on the Street discuss anomalies in the data and conspire to personally take advantage of it. The SEC has to know this fraud is prevalent and ongoing and yet they do nothing to stop it.
I wish I had the time and energy to write a book called Ubiquitous Fraud, a new name for Wall Street best practices.
Btw, you know how much I dislike the Bank of Nova Scotia advertising slogan “You’re richer than you think” – I detest it – I’d like to say that CIBC (CM) has a new national brand advertising promotion that is, in my view, excellent, something about “For What’s Important in Life”. I cannot recall it exactly, but I immediately liked it.
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.
Over the past 12 months the XLK has gained +5.5% while the SMH has dropped -4.0%. Meanwhile, the S&P 500 ($SPX) gained +1.6%.
Over the past four weeks, however, XLK is up +6.4%, which is #1 best performer of 10 sectors. SMH is up +4.3% over four weeks. Over 4 weeks, the S&P 500 is up +3.7%.
This week XLK closed at 28.52, up +1.75% W/W and SMH was up +2.81% W/W to close at 35.13.
XLK is at the highest weekly closing price level since 2001, about eleven years. I noted the same for the past two weeks.
Trading the solar stocks has been a super-volatile experience. Suntech Power (STP) went from being up +17.2% a week ago to being down -9.4% this week, and this week on Friday the stock was up +8.3%.
First Solar (FSLR) dropped -3.0% this week but was up +7.3% on Friday.
Industry cost factors are at work here. http://www.bloomberg.com/news/2012-02-16/china-solar-silicon-production-…
Earnings will be reported soon.
Here are the Hourly charts of XLK and SMH (in solid blue with the 8-hour EMA in dashed blue) and the S&P in solid orange.
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. The opposite condition would lead me to think the Tech sector is either coming down or about to take a rest.
The SMH:XLK ratio has been rising since early Sept 2011, and we have over-weighted our portfolios with tech and semi stocks.
FD: We presently hold ATVI, CSCO, CTSH, IBM, INTC, JNPR, MSFT, ORCL and SNDK in the All-Weather and ATVI, CSCO, CTSH, EA, GOOG, IBM, INFY, INTC, MSFT, ORCL and SNDK in Growth portfolios, in this sector. This week we dropped AAPL and added ORCL. GOOG in the Growth portfolio is our biggest position there. We continue to be 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]
EA 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 (+2.0%) over six months (26 weeks), and the third worst over the past year (-5.3%). But recently, following my opinion that IYZ was about to turn Bullish, IYZ is up +4.1% over four weeks.
This week, IYZ gained +2.14% W/W. The close on Friday was 22.47.
This week, Nokia (NOK +10.7% W/W) was the big winner. There was a gain of +5.4% on Friday and another big gain on Thursday. I don’t see any news but I do smell promotion by so-called independent financial analyst services springing up all over, right under the nose of the SEC, who apparently can’t smell much. Regrettably, these services often serve as cover for illegal insider trading networks.
Mobile TeleSystems (MBT) was up +4.9% W/W and is now up +17.3% YTD. We’ll have to watch it though because there may be a dispute underway: http://www.4-traders.com/MOBIL-NYE-TELESISTEMY-OAO-6499741/news/MOBIL-NY…
FD: MBT is the only Telco we own, and we hold it in both All-Weather and Growth portfolios.
Verizon (VZ +2.0%) and AT&T (T +0.6%) were higher.
Here is the Hourly chart of IYZ (in solid blue with the 8-hour EMA in dashed blue) and the S&P in solid orange.
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.
XLU has been a major under-performer to the S&P 500 since the start of 2012. Over that time, it’s the only major sector that is down (-0.82% YTD) while the S&P 500 (+6.99% YTD) has been very strong.
Call it a laggard if the broad market continues to lift.
This week, XLU gained +0.72% W/W, and closed the week at 35.05. XLU was the worst performing sector on the week.
Here is the Hourly chart of XLU (in solid blue with the 8-hour EMA in dashed blue) and the S&P in solid orange.
FD: For our portfolios, we hold EXC and TRP in this sector. We hold EXC but dropped TRP from the Growth portfolio a few 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, in our view, get the green light right after the Presidential election in November regardless who wins.
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
Interesting week as bond yields were up a tad, but so too were bond prices.
Yields on the 2-, 5-, 10- year US Treasuries gained +2, +4, and +2 basis points (bp) to 0.29%, 0.86%, and 2.00%, respectively. The yield on the 30-year stayed at 3.14%.
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.
This week, the TLT dropped -0.35% W/W to close at 116.58, whereas a week ago it had gained +0.36% W/W from 116.57 to close at 116.99. So there had been a pop because of the Greek riots, and now the TLT is back to where it was two weeks ago.
Here is the Daily chart of TLT (in solid blue with the 8-day EMA in dashed blue) with the inversely correlated S&P 500 ($SPX) in solid orange.
Should the TLT fall in price over the next month, as I anticipate, the equity market will get a pump from the capital flow out of bonds. The reason could be the ‘risk on’ trade bias based on expectations for central bank quantitative easing programs. Some people even think the Fed will keep the pedal to the metal until the Presidential election campaign appears to be decided.
In any case, TLT peaked in mid-December.
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 higher +1.68% W/W to close at 317.39.
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.
A few weeks ago in this space I opined: “The Weekly data chart reflects the beginning of a turn-around.”
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. They cannot afford to love the government sovereign 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.
But short-term you need to be watching the trends and cycles of the $USD.
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) gained +$5.11/bbl (+5.16% W/W) to 104.20 this week.
The high-low was 104.50 and 102.55, which is a substantial lift from a week ago. The Daily RSI-7 is elevated, meaning the price is probably close to a short-term cycle high. But it certainly could go higher from here. Longer-term (later this year) I believe it will. Blame it on the quantitative easing of the international central banks and the increasing anxieties being run up in Washington about Iran.
Econoday summed up this week in the oil market:
Here’s the Monthly 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.
However, a new conflict with Iran could have altogether different consequences for a year or two. Oil is a key instrument in an international politician’s toolkit I’m afraid. Sad, but true.
Inflation effects on extraction, processing and delivery will maintain a floor to the price, so in this regard I think the average trading range is likely to move a bit higher this year, possibly into the 85-115 range. 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.
$GOLD was quiet again this week. I have previously noted that the recent monster gains had to be digested. That’s pretty much happened by now. If the equity market continues to lift here, I think the Gold market will start to out-perform, but that will take a lower $USD.
The closing price on Friday was $1726.20, up +$0.90/oz (+0.05% W/W). $GOLD is now up +$161.00 in the past seven weeks. The high-low for the week was 1739.20 (much lower than the previous week’s high of 1755) and 1706.70 (almost bang on the previous week’s low of 1706.40).
Here is the Daily data chart of $GOLD 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.
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 +23.1% for the year to date, and up +2.5% W/W, which is good because the GDX and GDXJ were down -0.61@ and -0.41% on the week.
Here is the current candleglance chart of 10 important precious metals and copper market components:
The silver market
After some phenomenal gains a couple weeks back, $SILVER then dropped -$0.10 a week ago and a further -$0.30 (-0.91%) this week to close at 33.29.
The high-low was 34.03 and 32.64, down from 34.52 and 32.99 a week ago.
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 chart for $GOLD.
The Daily RSI-7 has fallen from a very elevated 85.5 three weeks ago, to 65.0, to 55.9, and now down to 45.5. But the Weekly RSI-7 is still at 57.4, so I’m anticipating a continuation to the present Bull phase following this pause. At the same time I alerted you three weeks ago to the added risk.
As an active trader, I usually watch the Sydney and London miners overnight to give me a heads-up as to where prices will be at 9:30am ET in the US and Cdn market.
I also watch the action of all the major precious metals and metals, and the related stocks, before I come to a conclusion on any one of them.
Here is the current candleglance chart of 10 important precious metals and copper market components:
The platinum market
Platinum had a loss of -$33.40/oz (-2.01% W/W) to close at $1632.40. But the price is still up +$220.40/oz in six weeks.
The palladium market
This week $PALL had a loss of -$15.90 (-2.25% W/W) to close at 690.00.
A week ago, following a big run up, I said, “Now you have to watch it closely.”
$PALL is a key indicator for the whole precious metals group as is the $SILVER:$GOLD ratio chart.
Right now, everything is in stall mode awaiting the trend direction of the US Dollar to be determined. I think the Dollar is headed south, but we’ll have to wait to see.
The (base metal) copper market
For years I have joked about the copper penny. Today I discovered the US penny is 97% zinc. The zinc price btw is on the upswing I have read.
This week $COPPER dropped -$0.14 (-3.66% W/W) to close at 3.72.
The high-low was 3.908 (vs a high of 3.99 a week ago) and 3.694 (vs a low of 3.79 a week ago).
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 an almost completed consolidation of recent gains, while the Weekly and Monthly charts show room for $COPPER to grow on the upside beyond this brief interlude.
Table 12: Senior gold equities
Given the Fed policy to keep interest rates at current levels for the next couple years, and their inclination to QE, 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.
This week GDX dropped -0.62% W/W to close at 54.15. GDXJ dropped –0.41% W/W to close at 27.84.
Here is the Daily data chart of GDXJ 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.
Any day soon, I anticipate the renewal of “a new long-term Bull phase for the Junior miners happening. Some of the recent moves have got the promoters back on the phones.”
The Goldminers clearly trade inversely to the US Dollar, and the Dollar was up large a week ago Friday and over the past two weeks. I anticipate a reversal.
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.
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: “(Seven) 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.”
A small lift here and I think the GDXJ will take the lead and these miners will turn bullish again.
My Junior Gold portfolio is up +23.1% YTD. It was up +2.5% this week while GDXJ was down -0.41%.
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.
Finally, we are rapidly approaching PDAC. There will be close to 30,000 people attending from pretty much every part of the world. There will be people to meet, deals to be done, drinks to be had, and you name it. Already several of you have told me you are coming. I look forward to seeing you.
To rest up, I’ll be in south Florida from Feb 21 through March 1. PDAC starts March 4.
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 reproduce any of the Econoday studies of international central bank meetings for the current week.
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 lifted a tad again this week. The price is now 79.33, up +0.27% W/W. The weekly high-low was 80.12 and 78.61, from 79.52 and 79.11 a week ago, which is a much wider spread.
Many countries are now fighting the “hot” Dollar, which has been jeopardizing their economies. This week it was Japan.
The current price of $USD (79.33) is below the 8-week EMA (79.46), which is a bearish indicator.
Here is the Daily data chart of the $USD (solid blue line along with 8-day EMA in thin dashed blue) vs S&P 500 solid thin orange line, showing counter-cyclicality.
A week ago in this space, I wrote: “This week the Dollar was down until Friday when the gain was +0.70% on the day. If the Greek issues are still in the news forefront early next week, then the Dollar will probably continue to strengthen, but I don’t think by much.”
There was not much of a gain. I think the Dollar is ready to come down a bit now.
The Euro was down this week -0.40% W/W. There was also a loss of -0.65% on the prior Friday. This week, the close was at 131.45.
Here is the Daily data chart of the Euro ($XEU) in US Dollar terms (in the solid blue line with the 8-day EMA in thin dashed blue) vs the S&P 500 (in the thin solid orange line).
If the Dollar falls here, then the Euro is likely to start lifting.
At this point, commodity, precious metals and broad equity market prices will continue to be favored to lift.
This week, the Pound sterling future gained +0.44% W/W to close at 158.25 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 Daily data charts of the Pound (solid blue line) and the S&P 500 (in the solid thin orange line).
This week, the chart is still bullish.
Weekly British Pound Index:
Daily British Pound Index:
Weekly Japanese Yen Index:
A week ago, the Yen contract (in Dollar terms) plunged -1.29% W/W to close at 128.87. This week, the Yen plunged even more, down -2.44% W/W to close at 125.73.
Here is the Daily 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.
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-on trade in global markets, it is usually accompanied with a weaker Yen, as well as a weaker US Dollar.
The Yen plunged the past two weeks, so equities have been favored. As expected, Energy boomed. XLE was up +2.51% W/W as the #1 performing sector.
Daily Japanese Yen Index:
The Canadian Dollar aka Loonie gained +0.46% W/W to close at 100.34, back close to 100.62 where it had been two weeks ago.
The Daily 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.
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.
I continue to look forward to a brief break in Florida, returning for the PDAC mining convention March 4-7. Already a number of you have contacted me and I will be pleased to meet you all there. If you want you can e-mail me to get my mobile number. It’s a 30,000 person convention so you will not likely see me unless we manage to talk.
Enjoy your holiday weekend and your shortened week. You know, when I was younger, I never liked these extended breaks unless they happened at Christmas, Easter and Thanksgiving when the whole family was around. The rest of the year, I figured, was for working.
To my surprise, but with age and volatile markets taking its toll, I now look ahead to these breaks and to multiple vacations a year.
If only these markets would lift on their own without me having to get a hernia working at it!
Dream on Bill. We are all just tiny grains of sand on the beach, not even pebbles or rocks. We get walked on, rained on, and treated like dirt, and nobody even notices. In the amazing universe, we are insignificant.
But, we are traders, and we do, like the sand, need to lay on the beach, at times.