Friday, April 30, 2010

Gold to $1350

I've been talking about gold going to 1350 since it peaked last December. At the time, I said a correction was in the offing, as follows:

A similar retracement now would bring the yellow metal down to $1,000 an ounce where very strong support lies. Personally, I don't think it will get that low.

Here is the link to the full December 7 column. And below is the current chart.

Gold is on the verge of breaking out again within the overall pattern.

Thursday, April 29, 2010

Copper/Gold ratio

This is taken from this morning's Quick Takes Pro newsletter:

Copper is industrial. Gold is a hedge. When this ratio is rising it suggests the economy is getting better. We had a breakdown from a trendline in February but the Chile earthquake took over the technicals.

Fan lines are a set of three trendlines that are broken and tested to indicate a gradual rolling over. We have an arguable set of four lines but even the last one is broken. We'll look for a move to the bottom of the range and then see if support holds.

Tuesday, April 27, 2010

Quote of the day

Wizard to Dorothy...
"Pay no attention to those Greek 2-yr notes yielding 17%!!"

- Chris Carolan

Monday, April 26, 2010

Where are the bears?

Everyone says the bears are getting crushed but where are they? From Alan Newman's CrossCurrents newsletter:

The Investors Intelligence survey of newsletter writers is once again showing the kind of one-sided sentiment often seen at times of major reversals. The combination of a rapidly growing bullish contingent and the evaporation of bearish sentiment is again, at least as significant as occurred when stocks peaked in mid-January.

Friday, April 23, 2010

From an investment bank insider

I have been in touch with a former insider of one of the embattled Wall Street firms and he/she really knows the score. Here is what he/she told me:

"I have not bought Goldman Sachs yet. But I think the case stinks to the high heavens. I can not figure out why Deutsche Bank is acting so badly. They have not been charged. I am wondering if Morgan Stanley is going to benefit. I have not bought because I am worried about financial reform."

How much this benefits you and your portfolio I cannot say. But the market's performance Friday was sure interesting. As the market rallied into the close, so did the VIX. Makes me think some smart people are selling into strength.

Thursday, April 22, 2010

Follow the Junk

Treasuries may have reversed to the downside today but junk bonds have not cared what Treasuries do lately. But weak junk tells me the stock market is not doing one of its famous #$@$^ you reversals. Somebody just wants it to do it.

Wednesday, April 21, 2010

Jealous of China

A source in Australia told me that everyone's personal vantage points skew their perceptions of China. He said analysts routinely underestimate growth rates there thanks to thoughts that the currency is being held too weak and constant upside surprises. If true, then commodities should continue to be quite strong, weak fiat currencies or not.

I have a problem with that as the market told us in no uncertain terms that something is not quite right. The Shanghai composite and its giant-sized baby brother the Hang Seng in Hong Kong have ery shaky stock charts.

Still, it is a thought. At least we need to apply Chinese standards, not our own standards, when we look into what is going on over there.

Tuesday, April 20, 2010

Quiz on Technicals

Dovetailing with Monday's Shanghai chart in the newsletter, check out the Hong Kong ETF. Are you a buyer or seller and why?

I cannot dispense actual trading advice right here but let's list the evidence:
  1. Resistance breakout failure
  2. Divergence in On-balance volume
  3. Broken trend line
  4. Downside breakaway gap
Look at RSI (divergence), relative performance (lagging) and MACD (crossover), too.

Monday, April 19, 2010

Fee Fi Foe Financials

Funny how I've been complaining about fees and calling financials foes over the years. Thank you Jack and the Beanstalk.

Goldman got b-smacked Friday by the SEC, who suddenly grew a spine. The talk is that Goldman will slither out of this one with a fee or something silly. But as some have written, there is never just one cockroach.

I am not trading Goldman. But I am looking at the sector as being grossly overvalued once the free money pump is shut. And don't you think that shutting will happen sooner rather than later when the public breaks out the torches and pitchforks to get Wall Street?

We always talk about complacency in the market and as long as times are good nobody cares. But when the tide goes out, we will see plenty of naked bankers swimming for their lives. (Ooh, the visual is both enticing and creepy).

"We are doing G-d's work" they crowed. Yes, and now the Satan that is govenment is coming after you.

I hope they all are exposed and taxpayer money gets put to better use than the foolishness of giving banks free money and expecting them to lend to the public.

Should you trade financials? There may be a bounce back but I think the party is over.

Friday, April 16, 2010

Letters to the Editor

After getting trashed in the comments section this week on both Barron's Online and the American Association of Individual Investors website (waiting for the same from an upcoming Forbes excerpt) I looked back on some of the more intelligent comments of the past. The "you stink" comments are not worth much.

Anyway, on August 10, 2009, I wrote a piece for Barron's Online called, "The Next Real Estate Shoe is not Dropping" and the point was that the market for REITs was looking rather strong.

What do you know? Not only did REITs keep rising but they actually outperformed the S&P 500 since that time!

Look, I am not pretending to be perfect here and I admit that there were many stretches in the bull market from March 2009 where I blew it. Not the whole thing: I was bullish March-April, late July through maybe October and grudingly since late March but with a finger on the eject button. Let me rephrase - there were many stretches when I was plain wrong.

In looking back on my foibles, I see where I erred - not believing the charts and what I saw. Justifying price action against secondary factors such as volume was against what I espoused just a year earlier. I also neglected the liquidity factor of zero interest rates and stimulus.

In the real estate chart, I saw strength despite the in-vogue idea that commercial real estate was a ticking time bomb and ready to follow residential housing into the toilet. It might be now - as an evening star candle (see home page) and bearish RSI divergence suggest - but not back then.

Here is a letter I got last summer:

Mr. Kahn's article is a perfect example of a market analyst using meaningless market statistics to formulate a trending opinion. Unfortunately, Mr. Kahn failed to consider that: commercial
foreclosures in the state of California alone are up 585% between years 2008 and 2009; most loans made on commercial properties during the most recent buying frenzy occurred between December 2004 and March 2008; these loans were packaged and securitized as CMBS investments; many of those loans are starting to mature and the debt cannot be replaced; most CMBS investments have been downgraded from AAA to BB, which are not available for TALF funding; and, commercial real estate vacancy factors are at double digit levels, nationally. Therefore, I would suggest that Mr. Kahn's supposition is at best wrong, and at worst, flagrantly wreckless and irresponsible.

Mr. (name withheld)
Real Estate development company in California

As you can see, he made a solid fundamental case (without resorting to name calling). The market, which is all I am about, said otherwise.

Please continue to send in comments telling me I am an idiot. Sometimes I am but please consider first what my mission is - making my clients money in the stock and other markets. Being "right" is secondary (thank you Barry Goldwater).

Believe me, I think the economy is heading for another bout of problems before it is all over. But if the REITs keep going up (the technicals now say otherwise), who am I to argue with the market?

Thursday, April 15, 2010

Chinese Fire Drill

Chart of Shanghai Composite. Nice triangle. Can go either way.

Guess which way the FXI China/Xinhua ETF (FXI) is trading in the premarket today after a hot Chinese headline like this: China's quarterly GDP expands more-than-expected 11.9%? Hint - down.

Wednesday, April 14, 2010

Dismal Dollar

Today's column was about the breakdown in the US dollar index and how that means more than just euro strength. After all, the dollar index is 57% euro so dollar weakness vs. the rest of the world is far from guaranteed. That is, until you look at these charts.

Perhaps retail fleeing money market funds is smart? Well, only if they put the proceeds into gold and oil.

Tuesday, April 13, 2010

Cover story AAII

Why Technical Analysis Matters
by yours truly

Subscription required. This is also available at a bootlegged source but I am not going to reveal it. For pennies, you can be an AAII member (no affiliation)

Copper topper

Check out this chart of copper. Remember that the dollar was smashed yesterday and although it closed well off its worst levels it was down big. Commodities "should" have had a better day.

Gold and oil were also down significantly. Copper and oil declines seem to tell us that investors are worried about the economy despite the rhetoric from Wall St and Pennsy Ave. The gold thing looks like a nice little correction to me. Actually, so does the oil thing.

Basically, those traditional relationships people assume always work are flakey right now. Churn before the burn?

Friday, April 9, 2010

They left PALM for dead

I could not find anyone who liked Palm after its latest collapse. Everyone thought it had no chance as the competition ate its lunch - and dinner. But take a look at this chart:

Sure looks like a selling climax and buying surge. Think 90% downside day followed by a 90-% upside day as applied to the market as a whole. The tsunami tide pulled back and then rushed back in.

It is still way early to say that this is going to be a winner but for those of us who speculated on the final washout (I did) there may be a nice little payday here.

Thursday, April 8, 2010

I feel the Earth move

Not rapture but more like Carol King:

I feel the earth move under my feet
I feel the sky tumbling down, tumbling down

This is not what the song is about but the news is full of two things lately - earthquakes and airline mergers (not to mention yesterday's knucklehead who was not a shoe bomber but was just lighting up a smoke in the airplane lavatory - while in flight!).

The major earthquake tally over the past few months - Haiti, Chile, Turkey, Mexico/California and Indonesia.

Airline mergers - USAir/United (possible) and the newly announced British Air/ Iberia. Delta is already a Goliath after its 2008 Northwest acquisition. USAir itself has as storied past of mergers, too.

The latter explains why airline stocks are holding firm as crude oil breaks out (oil is correcting but its a major breakout). The former is scary and not just because we cannot make any money off that one. Where is Al Gore when we need him!

Wednesday, April 7, 2010

Oil's Well

The oil ETF is on track for an evening star candle. But with light volume so far today on the decline and good momentum in the MACD, I say you are going to get a second chance to get into this market. As I wrote in Barron's Online March 8, crude oil is going to $100.
Oil Can Top $100 a Barrel Soon Enough

Spirit Airlines at it again

Just got back from my (theoretical) vacation and although I have sworn off ever flying Spirit Airlines I have to laugh at Tuesday's news. Spirit announced they will charge $25-$40 for carry on bags that go in the overhead bin.

Cajones. Do they expect people to sit there like cargo? After all, no movie, no food, no assigned seat, no baggage and now no carry ons unless you pay a fee. And their base prices are no better than anyone else's.

I guess their overhead bins were stuffed because everyone was trying to avoid the baggage fee.

If only we could sell them short.

BTW, I flew American Airlines - really smooth, terminal at JFK was a breeze, first bag flies free, pleasant flight attendants, more room in the seats, free first run movies (Blindside was awesome).

Monday, April 5, 2010

Organically Growing?

I like the term organically as it means true, internally nurtured and sustainable recovery in the market. Do we have that? Do banks play the risk-free spread or loan to the public? There is part of the answer.

The recovery seems real enough but it is not organic. Nothing seems to have changed since the financial crisis and the next bubble is blowing somewhere.

I am still on the road so posts here are short and infrequent. I'll try to comment on my column after it is written later today.