Asia weak over night.. no great moves just continued worries on a slowing China, inflation and the US and European weakness and poor data. No panic though, yet.
http://www.stocktiming.com/Shanghai_Daily_Stock_Market_Updates/shanghai-index-update-friday.htm
This has all the appearances of a chart you want to short doesn’t it. The HSI is little better. The hongkong markets is liquid and carries some very good issues. If we do get a sell i have list of cos i want to add. Nikkei technically is no where in particular, imo. The Brazilian Bovespa is within striking distance of her may 2010 major support. The Sensex of India has a major sequence of lower highs and lower lows from last November. The overall uptrend is still in tact but price is struggling here and given the major trend down now the sensex has warning signs of more significant fall. (A technical breakout of this trend would potentially be a good entry if it occurs).
FX wise the dx (dollar index) continues to look technically better and she adds weight.. this is a squeeze on those doing the usd carry trade.. borrowing usds and investing in overseas assets.. deleveraging will occur as this squeeze continues.. the assets purchased with the borrowed usds are declining in nominal and usd terms as it becomes more expensive to repay the usds.. As the trend gathers pace it will start to bite and this is the ‘force’ those with leverage in equity longs need to exist their positions and pull this market downwards.
US Indexes. As was but increasingly choppy in this 200 tick range from 12350 to 12500 or so. Price is ping ponging around but without real urgency. Some of the moves look impressive in terms of a 100 tick or so straight line decline or rise but this visual impressiveness masks the lack of volume through these moves.
There is still no battle between longs and shorts. Ping pong moves of 100 ticks or more don’t tell me much as such. Patterns are useless in these ranges (aside from short term trading). I maintain hedges of around 60% of the long portfolio. There is no urgency to sell but the data is rolling over. Only when participants are forced from their positions will they move.. what will force them? Imo, when one of the big boys moves in earnest it will provide the signal. We will see his actions. He will suddenly be unconcerned about covering his tracks. He will want out and sell ignoring indicators and tactical opportunities to reverse price patterns etc. These are the very best times to be a short term trader when such moves occur. They also provide direction to the market as markets like to follow leads.
Dow Industrials (cash with sp500 52wkhighs and 20dma)
and sp500 over 50dma..
What are these two charts showing? Imo, they are showing that issues are swinging (in a very broad based way between new highs and selling off). When the 52 wk highs spikes around like this rather than producing a nice trend it signifies things are heating up on a broad based basis. Broad based rallies or falls are signs of pension fund or large player moves and concerns typically on macro issues. It is no longer about copper or consumer cyclical etc. Participants are engaging in block selling or buying across multiple sectors hence the very spiky nature of the 52 wk high chart and the wild swings in the 5o and 20 dma. Where from here..? Given we have had a spike up on all indicators from the early july spike we ideally need a rejoin of that momentum to see how she fairs. A failure of this next move should give us the direction we need. Imo. Patience. I am personally keeping 60% or so hedges on these indexes. I would like to make money from any sell off so this would mean going 120 or 150% short etc. This is expensive if you get it wrong so i have to be patient and move on evidence not on hunches.
Fixed income wise.. Ms Whitney’s comments re the muni debt implosion in 2011 look to have dispelled for now. Many articles have commented on her wrong call on this.. (2011 is the year of market gurus being proved wrong, at least in the short term. Paulson, Einhorn, Faber, Gross, Whitney, etc all have had poor 2011 thus far). Muni debt is back to her near all time low yields even as most of them struggle with close to insolvency issues. Go figure that puzzle out!
US Tbill wise, here the 30yr.. The 30 yr bull run pushing down yields to historic lows is firmly in place, for now..
10 yr tbonds.. An even stronger chart than the 30yr.. unsurprisingly as the Fed has been monetizing up to the 10 yr point.
CRB (commodity index) long term bullish chart but a break of the multi year uptrend from april may this year, medium term bear pattern, short term strength but top of range. Cross currents but with the emphasis to test to the south in line with the medium term pattern as the long term pattern has broken down. Industrial metals and energy.. Strong long term charts particularly oil, mixed medium and weakening short term. Oil in particular relative strength to industrials but wants to test 88 or so which may provide a wonderful long dated option call entry. Copx (copper miners) still looks strong but the failed breakout from april remains. A failure now to rejoin the attempt at the res would signify a retest of the support at 16.8 and the copper miners taking a nasty fall.
Precious Metals – i know a great many private investors have large relative positions on the small miners and explorers. Imo the long patient wait on the pm miners is about to start to pay their reward to the patient. (I am personally also very long this sector as I perceive immense relative value in these cos). The three best long term trades/investments, imo, are nikkie long on borrowed jpy, long precious metals and particularly pm miners, and long energy related equity and oil itself. Imo, the first to break out and yield significant returns will be the pm miners.
Gold this morning broke out yet again to 1600 in usds as the usd index gains weight.
Many currencies fell vs the usd (JPY aside) therefore golds breakout was even more impressive in euros and gbps etc. Silver is over 40 and has broken out of her prior range. Gold is the only asset class in the market at present to be breaking out to new all time highs. I have looked and i cant find one other instrument consistently making her all time highs. This is interesting and should be noted by all. If gold stays strong here at around these levels silver will have to have one of those market making moments. Silver has to decide at this point whether she is an industrial metal or a monetary metal. As i’ve outlined it is likely copper and oil and the crb in general will decline here as equity comes off. The BRIC and DM world together slow down is likely here and now. This does not necessarily mean gold and silver will decline. I would expect some selling for liquidity reasons but i also expect strong cash buying as governments and central bankers start making increasingly urgent gestures to their printing machines. Participants are no long naive in monetary matters.
The 2008 pm collapse is history. Central bank printing machine puts across the world from the US to Japan to China to London are firmly in place. They will print soon enough. PMs will not sell off in the same way as 2008. They will/should see significant relative price strength. (ie perhaps gold and silver stay the same nominally as indexes etc lose 15%. This is what i mean by relative strength). The silver market with her higher margin requirements is in the process of becoming a cash market. A cash market will very very limited stores of supply i note. The silver market can explode to the upside inc 100 usds an ounce before the end of 2011 possible. I realize this sounds implausible but the dynamics of the situation strongly point to this occurring from my own extensive research of the matter. As always, timing is very difficult in these matters. The ducks are lined up the test is coming, soon. IMO.
The pm miners q2 earnings are in the process of being released and they are stella once more.. Money flows to where the earnings are and cash flow generation are strongest. As many companies related to the consumer struggle the pm miners relatively and nominally continue to shine. Earnings should be 15% higher or thereabouts between q2 and q1 given the moves in the underlying metal prices. The pm miners qoq, yoy get stronger and stronger. Some of their pes are eye wateringly low. They have been depressed on silver pull back concerns. As these concerns evaporate they should be a warrant on both silver and gold. Option calls on some with historically low volatility are a great play, imo.I do hold myself, at volume. It is my single biggest bet in this market at present to dec 2012. If you examine the sil vs the slv you will see sil has historically oscillated between 120% of slv’s price and 60% or so.
This is a wide range. Currently sil is 70% of slv. There is plenty of upside both relatively and nominally.
I’ll save more comment for forums.. Excuse the long post, we are getting close to an inflection point on all sorts of assets, imo. But patience, patience. Rich
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