Saturday, 23 November 2013

Nov 23 2013 – Weekend Market comment

Nov 23 2013 – Well things are pretty much the same as last week. The market is strong and money continues to flow into equities based on the TINA effect. The Dow Jones industrial average closed above 16,000 points for the first time and the Standard & Poor’s 500 index closed over 1,800 points.

There is a rotation in to smaller cap stocks, and regional banking is doing better. In other words it is a bull market and this coming week looks to continue the party.

The problem with investing in the stock market is that most amateurs don't feel safe until the market has already gone up. The safer you want to feel, the further it has already gone up, and the later you are to the party. Most investors are starting to buy right now and are starting to make a little money. But in the not-too-distant future, the market will start to come back down because this increase in prices is not sustainable. In short the little guy buys at the top.

So remember the market is a game of musical chairs and in the next 20 days the music should stop, and we will finally get a healthy 5% - 10% pull back. I hope you have a chair picked out in the form of a trailing stop.

On reason I think the pull back is not right away is this graph:
It shows a ratio of SPY and IWM. as the graph turns up the market moves form big cap stocks to smaller equities. That is a very bullish sign.

However the same graphs I pointed out last week, NYSE over 50 day average and the VIX bumping into giddy territory are even worse this week and so clearly we are overbought.

So this is a good time check your stop loss and hold your nose as we see if “trees will grow high enough to touch the sky”.

Refine Your Portfolio

Refineries in the US are running at full capacity and there are no new ones being built for a long time. That means refiners are getting crude for cheaper but they can still screw the consumer. Take a look at Phillips 66:

Canadian refiner Parkland runs fast gas stations and is on a recent upturn.

Charge It
If you like stocks that make a nice smooth diagonal line from left to right (who doesn't) you will love MasterCard.

Well since the equity markets are not doing anything interesting except rising, lets look at gold. Well gold bugs just look at this graph. 

Not a lot of happy stories here. Clearly the message we dodged a bullet and no inflation have hit home as people dump these hunks of worthless metal. Gold is almost intrinsically worthless, as any object's value is only assigned by the collective value put on something by its consumers (otherwise known as "the market"), and that the use of gold as reserve currency is more a tradition than anything else. There are a few practical industrial uses for gold, such as gold-plating electrical contacts to resist corrosion, but the demand for gold in such uses is tiny when compared with the current world gold supply.

In other words gold’s long-term value is purely a matter of the cost of production and speculation. In my post called “After the Gold Rush” I was concerned that as panic set in to sell gold the situation would be exasperated by over production and huge vaults of physical gold in London. So far that has not come true, and due to few reasons.
  1. One is that HSBC has put huge resources in to propping up the value of gold
  2. India and China have been hording the stuff and
  3. Speculators have held to the belief that 1,200 an oz is the cost of production and that level cannot be violated.
  4. Some possibility of inflation born out by high oil prices.
  5. There are a few gold bugs hanging on to the idea of economic collapse if the fed taper program end. 

But this last week has been a real gold game changer. HSBC’s influence in the market has greatly diminished since it got caught a while ago and fined for market manipulation. This week in India a 1.9 million dollar shipment of gold was seized entering the country in an aircraft bathroom. That has got to get someone’s turban in a knot. China’s leaders are going to make more avenues for investing available besides housing and hording commodities. China’s leaders pledged reforms that include allowing more private investment in state-controlled industries. There are other new markets like futures -- the Shanghai International Energy Exchange will allow the listing of crude-oil futures as new investment market open up for China’s cash rich billionaires.

The gold price on Monday gave up some of last week's gains, sliding more than $16 to a day low of $1,269.20. As the market flirt for the second time this quarter with $1,200  fear that gold miners are "dead men walking" builds. The miners are not very well hedged and if the hedge now it will drive a spike in the price of gold. The situation is very tenuous.

Inflation looks less likely as the price of crude plummets due to over production in the US and a real possibility of Iranian oil returning to global markets. The supply report for the week ended Oct. 11 was released Monday after being delayed due to the government shutdown. It showed crude supplies up by 4 million barrels. That expectation of 3 million barrels increase was too low. The actual number this morning was 5.2 million, as inventories continue to build.

In lunch time trade December gold futures were changing hands for $1,372.80, retreating from highs of $1,294 set Thursday last week following Fed chair nominee Janet Yelen's comments on the bank's stimulus program. Taper talk so far is just that talk.

As I said the miners are getting the worst of this sell off, just look at Barrick Gold head for the abyss. Barrick Gold Corp. has launched a monster US$3-billion equity offering in an effort to repair its debt-laden balance sheet. It also suspending construction of the troubled Pascua-Lama project. The company is carrying US$15.4-billion of debt, much of it tied to the disastrous $7.3-billion takeover of Equinox Minerals Ltd. in 2011.

It is not just one miner. Newcrest, Australia's biggest gold miner, said it would write down the value of mines in Australia, Papua New Guinea and Africa.

The idea that the cost of production is tied firmly to a cost based on overpaying for acquisitions -- not the real cost of men going in to a mine and pulling out gold. The real cost of normal production is $400 and if gold goes that way, there is no saving the miners who bet to big on endless gold price rises. 

"Over the next three months, we will see a substantial amount of the gold equities sector getting rid of high-cost ounces," said Gordon Galt, a former managing director at Newcrest.

At the start I said that in a few weeks the market should correct a bit, and when that happens gold may bump up a bit but no one is going to go rushing in to gold miner stocks and I expect they will follow the market downturn like all equities. 

That is why I have a VERY small position in DUST. This is an ETF of Gold miner stocks leveraged 3:1.  Now let me tell you this is not a place to go put your nest egg, this thing is 3X leveraged and bounces like mad, my trailing stop on this is out about 15% because it is so volatile. Still in just November I am up over 25%

I have always dreamed or renting a Supercar and going to a place with no speed limits like the Isle of Mann. Think of it driving in England in an James Bond like Aston Martin or a car for an evil genius like a Mercedes SLR McLaren.  I guess I am not the only one to think of this, and perhaps it is not my best idea

A woman drove her car at speed over a cliff edge before plummeting 200 feet onto rocks at a National Trust beauty spot. The motorist, in her 40s, drove her red Fiat across 20-ft of grass before plunging over the cliff. Police were scrambled to the scene in Brook, near Freshwater, on the Isle of Wight.

The woman, from Dorset, died at the scene from her injuries. Her body was recovered and taken to hospital where a post-mortem is due to take place. Her car, which is worth £12,000, could today be seen lying on the jagged rocks. The bodywork, painted with a white stripe, had been badly damaged by the impact. All that seemed to be left intact were the alloy wheels.

I am not sure who she was but I hope there is some comfort in that she must have felt fully alive in those final moments. Not everyone get to go out on a high. Ok well the exhilarating moments before she left the road and plummeted inevitably to her death.

This incident happened just a week after a 20-year-old man drove his van off 300 ft high cliffs on the east side of the Island. The vehicle was discovered under water at the bottom of Culver Cliffs, near Sandown.

Yes I know it is not my best idea -- but still it would be kinda cool . . . varooom!

Sunday, 17 November 2013

November 17 2013 Weekend Market comment

November 17 2013 – Honestly I am not very confident writing this comment this week and I am not going to give an firm advise because I am not really sure how this will end. The stock market, which has been melting up most of this record-breaking year, is on the cusp of achieving a troika of major milestones. Dow 16,000 is within easy reach for the first time. The Standard & Poor's 500 is fast approaching 1,800. And the Nasdaq composite is nearing 4,000 for the first time since the dot-com bubble burst in 2000.

But milestones do attract the attention of mom and pop investors, including many who might feel pressured to get in the market after missing out on the gains because they've been on the sidelines. They also put fear in many fund managers. I think in the coming few days we hit those numbers and rest for a while. This is not the time to put new money to work.

Keeping up with the market has been tough. The S&P 500 is up 26.1% in 2013 and notched 36 record closes as of Friday, the most since 1998. The path of least resistance for stocks is up, with continued improvement in the U.S. and global economies. The Federal Reserve's investor-friendly bond-buying program, which stimulates the economy by keeping borrowing costs low, is likely to continue under Janet Yellen I don't think you can deny there's a “Yellen Effect,”  

The S&P 500 is trading at 16 times its earnings over the past four quarters, putting valuations in line with historical averages. The market is not cheap. But it's not super overvalued. I think the S&P 500 hits a year-end target of 1,850 — up almost 3% from Friday.

The indicators are at full power, and that makes it clear that we are in a frothy market, increase frenzy often ends badly, but there is no denying we are nearly ready to draw a green arrow. But as you can see off a very funny pattern, the market has been so strong we did not complete a pull back. 

All forces are up. Look at the Nasdaq summation index, clearly turning up

The Primary Sell lines shows the pros are still confident buy way more calls than puts.  

The NYSE percent over 50 is rebounding but it could just be a blip in part of a big retreat.

So as you can see the party is on, who wants to be left behind? But there is this nagging problem and it is my VIX overconfidence graph, on the one hand the VIX does break into new zones so nothing says this must be the bottom, but look what happened in the past when the VIX hit the high end of 11s it at least means you must be aware.  

I said before one sign we need to be sure this bounce was real was U.S. banking is doing well, and it is not. Yes a few big names picked up this week including Citibank and my favorite Bank of New York Mellon. But look at KBR an ETF of small US banks and plot it in relation to the S & P 500 and the trend is clear, banks are weak. 

Some of my past picks are still doing very well. Here is Mathanex 

and Trip Advisor 

If you are convinced the market goes higher from here you might look at Japan is got a rising market and falling currency, that could boost DXJ.  It not just schools that have Christmas plays, you might hold  M and MHK, KORS for a few weeks. New favorites of mine under consideration are CVLT, HLS, PCLN. but keep your stops tight, it is late in the game to be putting new money to work. 

As for me I am still mostly in safe steady pipelines. 

Wednesday, 13 November 2013


Nov 13 2013 - Ok so why did I buy TBT a few weeks ago and now I am on the sidelines, but planning ot return, what is the point? Well the short answer is bonds go down in value when they are replaced by newer bonds that have a higher interest rate. So bonds are a good thing to own when rates drop (like the last few years) and are to be avoided in a rising rate environment. (the next few years).

It you are still confused read this.

I started to talk about bonds in my May 11 2013 Market comment, where I spoke of the death of Mr. Bond. Now is the next leg in that story. OK so who cares about bonds? Well not me, at least not for years. To me bonds were boring, I like stocks that pop and make a fortune, overnight riches! But as I get older I see why "Gentlemen prefer bonds". Bonds move in stable long-term directions and so they are often easier to predict than equities.

So how do I know that interest rates will be going up? you might ask. Well the answer is there are not a lot of options for them to go lower than zero, and the economy is picking up so it would be dangerous to leave them too low, too long. The danger is that this is a bit like a coiled spring, up until now banks in the U.S. did not want to lend because as rates are falling they can make more money buying the 20 year U.S. treasury note. However in a rising rate environment consumer and business loans are more profitable. All that pent up capital is about to be unleashed in a flood of credit.

Remember most money is not printed on printing presses it is invented by lending it. So we are headed toward a potentially inflationary environment, more reason to raise rates.

Now we are finally seeing a rise in rates as investors consider the reversal of Fed policy. It is the potential end of QE, or at least a slowdown in the program, that is pushing rates up. This has led to a very strong rally in TBT, which delivers 2X the inverse daily return of the Barclays U.S. 20+ Year Treasury Bond Index. The long fund that tracks that index is iShares Barclays 20+ Year Treasury (TLT). In the past month, TLT is down 6 percent and TBT is up 12 percent.

Big Picture
So from a big picture TBT will be the best play for a long time to come. Look at the bottoming process over the last 5 years. It is not hard to imagine a three year double on this ETF.

Dennis Says:
Here is a bit by Dennis Gartman that sums it up. Dennis Gartman of the Gartman Letter, sees a bear market ahead and is shorting bonds ahead of Janet Yellen's testimony in front of the Senate Banking Committee.

What am I Yellen About
I respect Dennis Gartman but for now I think he is looking at this thing through a telescope. The new fed chairwoman is Janet Yellen and she has made nothing but “dovish” comments about the QE program. In short she has no fear of inflation and great fear of deflation. I think rates will drop slightly as everyone sees the fed is going to be doing QE well in to 2014.

The Economist Magazine has been talking in the last issue about how Inflation is not a big a fear as negative inflation, a funny term that I think means deflation. Mr. Carney in London and Ms. Yellen in Washington are clearly not interested in ending QE now. 

All in the Charts
As usual all the talk can be ignored. You can see what is happening in the charts, a short term pullback in a long term uptrend.

Small Picture
The TBT has had a great run but if you look at the same graph from and RSI or a slow stochastic view, it looks overdone here. 

The time to buy TBT is the next retrace of the stochastic under 20.

Caution Juiced ETF
TBT is not a fund for investors to buy and forget. As noted earlier, investors holding TBT would have lost more than 75 percent of their value. Furthermore, TBT suffers from tracking error because it resets daily. If TLT were to fall 10 percent and then rise 10 percent, it would be down 1 percent, but TBT would be down 4 percent, or 4 times the move in TLT over two days. TBT is for traders and sophisticated investors who use market timing, and not for buy-and-hold investors.
Risks aside, TBT is a solid trading vehicle for a period of rising interest rates that we are in. Conservative investors will do best by reducing their exposure to long-dated bonds during rising interest rates, but aggressive investors and traders can try to capture some of the downside move with ETFs such as TBT that move double or even TMV the triple short 20 Year US Treasury.

Here are ETF your choices
TLT - 1X 20 Year US Treasury
UBT - 2X 20 Year US Treasury
TMF - 3X 20 Year US Treasury

TBF - Short 1X 20 Year US Treasury
TBT - Short 2X 20 Year US Treasury
TMV - Short 3X 20 Year US Treasury

How to Play
The way you play this is wait for a chance to buy TBT, which provides a double-short position on long-dated Treasurys. Now all you do is buy TBT when it is generally pointing up, sell (or buy TLT (dangerous)) when TBT points down. If that is not simple enough,  I have drawn a graph for you and I have added two indicators, TSI and Aroon. As you can see the obvious on both indicators, when the "good line" is above the "bad line" it is time to buy and pretty predictably. On TSI the good is black and on the Aroon Green is good and in both cases red is bad. (click any graphics to enlarge)

As you can see this is a simple game, unlike trying to figure out if Apple will beat Amazon this Bond fund moves in nice stable patterns. Those trends can go on for years. So wait for the next cross, use Aroon or TSI to pick your long term view, and the stochastics or RSI to time your entry.

Saturday, 9 November 2013

Nov 9 2013 Weekend Market Comment

Nov 9 2013 – Thursday night I shut off my monitor a smugly grinned, the market sold off, just as my last weekend market comment said it would, I was in cash, short gold miners and short long dated treasuries and even a little long bet on TripAdvisor. A tiny bit of “would-a could-a should-a” lurked in the back of my mind, perhaps last week if I was bold I could be riding the double short NASDAQ -- QID for a nice bounce today. Ah but that would be against a rule of mine. No equity shorts while we are in a strong bull market.

Come Friday I was reminded why I had that rule, oh baby what a surprise! The market rudely rallied without so much of hint of notice to me. The U.S. jobs report was better than expected and unlike the past good news was hailed as good and the buy the dip crowd hit the buy button. Well it should not be a complete surprised many fund managers are swimming in cash and look foolish for not cashing in on this near record rally. 

This is November and funds buy in November. Also there was the NEWS of the Twitter IPO doing very well. I was wrong, but still I did not get burned, my gold short worked on Friday, TBT did very well, and even TripAvisor  made an up swing. The lesson is that you don’t need to be in equities all the time. Yeah I was in a lot of cash and missed a hot day, but one day does not make a market for a swing trader like me. Frankly Tuesday next week will be far more interesting, we will see if our green arrow graph perks up. Despite all the good news, it does not look all that good.

 Also the NYSE % above 50 day graph is still looking bad . . .

and that is a problem because lately the big stocks are out performing the little ones so this graph would be worse if it was say the NASDAQ. So lets look at the NASDAQ summation index. As I often say -- this thing is far from perfect but it is not to be ignored either, it can be a very early warning system, clearly the market is not a strong as many think. 

The VIX or “fear gauge” show that once again hubris is back in the markets. You know I like to play safe when this thing get near recent lows . . . and it is not only at recent lows but starting to climb. That means the real smart money is buying puts and selling calls. Never a good sign.  

In honor of Twitter I began looking at Social media stocks. Here is SOCL the ETF that tracks Social media stocks like FaceBook and Twitter. The first thing you will notice is that lately this is not going too well.

There is a reason for that most of these stocks are a load of crap. No earnings and not all that much proprietary technology. As these service flood their content with ads and as the spying on users gets creepy, the users are turning off or switching brands. There is one Social Media stock I like, not because it is any more profitable or has a huge user base. I like this one because it has a real use, and I can see a pass product that this fading out to be replaced by this. The site is LinkedIn and the reason LinkedIn works is that people want to get jobs and employers get more from linked in than a paper resume gives.

Counter to the never-ending selfies on Instagram, food porn on Pinterest, silly GIFs on Tumblr, messy drama and rants on Facebook, the tone and presentation of LinkedIn maintains a rare social media decorum and professionalism. No annoying memes, cheesy inspirational quotes, or photo album creepers. No bashing, bigotry, racism, sexism, slurs or personal insults. Unlike the vitriol of YouTube comments or the one-upmanship of Reddit, LinkedIn commenters are civil, provide constructive criticism, and encourage open discussion.

LinkedIn replaces HR sites like Monster Worldwide and traditional classified ads, so the good news is we see a technology based on a certain need, human resources. LinkedIn is also unique, no one is going to use FaceBook as a way to get hired, not when your friends can post pics of your drunk naked butt on your news feed. Sure the management at LinkedIn can screw things up but if they don’t the thing could be a long run money printing machine. Consider stashing this away in your long term playbook with RenRen, Tripadvisor, Tata Motors and Iron Mountain as a company with a great future and worth a small bet on buy and hold.

The bottom line, Friday was impressive and I might be missing the next up swing, but I will decide next week, and then at first no all out bets. the pros are getting off the field.  Perhaps I will play some more conservative plays.

November 11 is Remembrance Day -- Thank a soldier

“A hero is someone who has given his or her life to something bigger than oneself. ”
- Joseph Campbell


Saturday, 2 November 2013

Nov 2 2013 Weekend Market Comment

Nov 2 2013 – Have you heard about TINA? Well you should TINA is driving the markets. TINA is a lot of what I was talking about in my article The New Momentum. TINA is short for There Is No Alternative and traders are talking about TINA. Right now if you are running a pension, a hedge fund, a mutual fund or a sovereign wealth fund you really don’t have a choice, the only thing that is paying a return is equities. The market is overbought, the market is tired and the market will pull back but for now money continues to flow in. The problem is that the money does not trust the market so it continues to pile in to the same 100 top trade on the street. So you have the TINA imbalance, it makes the index rise but most of the market is falling apart. 

One of the strangest place money continues to flow in, is a big bet on of all things Air Canada. Air Canada's class B shares closed at a new 52-week high Wednesday, extending an upward trend that has seen the airline's stock value more than triple in the past year. The shares (AC.B on the TSE) ended the day, up 22 cents or four per cent, at $5.72, surpassing its 52-week high of $5.52. It had climbed as much as $5.80 during the session, a level not seen since August 2008 — just weeks before the 
economy slipped into a deep recession. That is a monster move, a year ago, the stock closed at $1.80 on Oct. 30, 2012. Since then, the company has launched "Air Canada Rouge", a so called new discount carrier that began flying in July. Think of it as Westjet's union-busting business plan, executed by the same old incompetent idiots in Air Canad's management team. Well not all the same idiots, Westjet hired some of them and Westjet service has slipped a lot lately. Especially with a lot of eastern routes like Jamaica and Cozumel now hubbing in Toronto and baggage Nazi tactics replacing friendly service. As Westjet fails to differentiate, Air Canada's stock, which had already been rising slowly for months, jumped sharply in August when the airline's second-quarter results beat analyst estimates. For the busier third quarter ended Sept. 30, analysts are estimating that Air Canada had about $3.4 billion of revenue, up about three per cent from $3.3 billion a year earlier.

Some of the stocks not in favour are mid and small caps, and US financials.
Even with the S & P 500 hitting a 52 week high, the broad market Russell 2000 has had a sharp 3 day sell off.
(as always click any graphic to enlarge)

Of course the scary part is as breadth falls apart we see more stocks fall below their 50day average, we guessed this was coming last week and here it is.

I sold my position in DVY this week and made over 4% in under a month.

It is true we just hit a 52 week high on most indexes a bullish sign for sure. Also in the last hours of trading Friday there was some bizarre call buying and upward market movement. Many of our indicators are still looking positive. For example the VIX is in "over confident territory" but has not bottomed yet. 

Still you can feel the steam come out of the markets. I would not put much new money to work here, and take profits on your big gainers.

Speaking of big gainers shares of solar-panel maker First Solar Inc. FSLR +0.20% rallied 16% on Friday, leading gainers in the S&P 500 Index. Prior to 2007 Solar stocks moved with energy prices but now we have oil prices dropping and Solar hitting it out of the park.

Gold fell about 1 percent on Friday, posting its biggest weekly loss in seven weeks, as better-than-expected manufacturing data renewed anxiety that the Federal Reserve could scale back its bond-buying stimulus for the U.S. economy. The CRB index, closed down 1.04 percent to 274.9596, weighed by losses in 16 of the 19 commodities it tracks. That was its lowest reading since the end of June last year as the U.S. dollar has resurged on growing optimism about the
recovery of the world's biggest economy.

This chart shows the price of gold, but on the bottom is the dance between the U.S. dollars and Gold, right on cue, Gold sells off as the U.S. dollar becomes stronger.

Barrick Gold Corp. shares fell more than 6% to about $19 in early trading Friday after the miner launched a monster US$3-billion equity offering in an effort to repair its debt-laden balance sheet. The move was announced late Thursday afternoon, just hours after the miner said it is suspending construction of the troubled Pascua-Lama project. It is the third largest bought deal in Canadian history and follows months of speculation that Barrick would tackle its debt load. The company is carrying US$15.4-billion of debt, much of it tied to the disastrous $7.3-billion takeover of Equinox Minerals Ltd. in 2011.

Barrick is not alone, many other miners have unstable balance sheets as they rushed to re-open old mines and acquire junior miners in the 11 year gold rush. The true cost of product for an ounce of gold in a modern efficient mine is about $400 an ounce. Thought crazy takeovers and bad management some big conglomerates have a production cost near $1,200 an ounce.  As Gold prices drop there is a real concern that the big miners will not be able to stay afloat.

In mid October the price of gold bounced right at that $1,200 level and we look like we want to test that again. Even if the price of gold stays flat, the miners are not exactly having a stellar year and it does look like all stocks may pull back here. So I put a small amount of money in a very high risk trade. Please don't bet money you can't lose on this, but again I bought some DUST and just on Friday I made 2%. Of course the goal here is to re-live the run up of last July. I suggest at least an 11% trailing stop on this puppy, she moves both ways VERY fast. 

Ok so what if you want to invest in something more stable, well times are getting good for Enbridge these days.  Suncor Energy Inc., France’s Total SA and Teck Resources Ltd. gave the go-ahead to the long-delayed Fort Hills mining project, with a price tag of some $13.5-billion. Enbridge Inc. said it will spend $3-billion on pipelines for the project, where eventual output is expected to reach 180,000 barrels a day of steady income. I am enjoying about 20% growth and a sweet dividend at just under 3% yield. 

Bottom line, markets are in a secular bull run -- but short term overbought -- unless US financials bounce back -- raise cash and be ready for the next bounce.


There’s a new kind of safety dance making rounds on the Web.
Virgin America capitalized on the popularity of its older hand-drawn flight safety video by bringing in the big guns—a top Hollywood director, famous choreographers, former Olympians and a dancing nun. 

The pricey high-end production, created by Sir Richard Branson’s Virgin Produced entertainment company, made a big debut on a Times Square billboard and at the Ellen DeGeneres show this week.

But just two days after the video was released, the Federal Aviation Administration started singing a new tune. The organization announced that passengers will now be able to use cellphones from gate-to-gate. While passengers can't make cell phone calls, they will soon be allowed to play games and watch movies on their cellphones. OK gang -- once more from the top.

On another matter, don't worry about Asia overtaking the west, at least not until they master translating to English. See example (click to enlarge):