Category: Stocks

Opportunities

Posted on Posted in Bonds, Commodities, Currencies, Macro, Solar Cycles, Stocks11 Comments

More selling yesterday, but then intraday reversals that produced hammer candles (stocks, oil). Hammer candles often mark bottoms, but capitulative breadth still didn’t trigger. Ryan Puplava compiles some oversold indicators and divergences that are suggestive of an imminent rally, but he also notes that market breadth has weakened.

This is how the SP500 stands. There is a trio of supports coming together around 1341, if we head lower, and that would potentially put us sub RSI 30.

The Russell 2000 has either made a triple bottom or is playing out a large head and shoulders to a considerably lower target.

Source: StockSage

Stocks are reaching towards overbearish but sentiment could drop lower yet before a reversal.

Source: Stockcharts

Stocks are heading towards oversold, but could also drop further yet to reach extreme.

Source: Indexindicators

The Chinese stock index needed to make a higher high to confirm a new bull trend since the start of 2012 but has pulled back at a double top, shown. If it can break out, it will be suggestive of China growth and associations with commodities.

Source: Bloomberg

10 year treasury yields are back to all time lows.

Source: Stockcharts

30 year treasuries back to all time highs.

Source: Stockcharts

I have added to short treasury positions. Doug Kass is bearish on treasuries here (hat tip Juan), calling it the trade of the decade.

The US dollar remains in a range, despite the Euroland troubles. As yet this is not resolved.

Source: Stockcharts

Spanish CDSs have nudged back up, but other than Greece CDSs, Euro debt hasn’t catapulted up again in this fresh round of fear.

Source: Bloomberg

Right now, it looks like 2010 and 2011 again – mid year pro-risk retreat with Euro debt back to the fore and slowing growth. I find it hard to believe we will see the same again, as the market always likes to surprise. So what if not that? Well, the run up into the solar peak is typically one of growthflation. The mid year should be lower geomagnetism, by seasonality, which is supportive. Sunspots should continue upwards, which is supportive. And stocks generally fair well mid year in US election years. I suggest therefore that we need either a natural pick up in growth here (economic surprises ticked up for all regions yesterday but we need to break the downward trend; China and emerging markets could take over as the driver) or we need central bank assistance, such as ECB action to deflate Euroland issues again, and the Fed to replace Twist in June. But either way, I rather expect we will see a more pro-risk friendly mid-year.

Gold miners’ cheapness relative to the gold price, overbearish sentiment and oversold RSI sub 30 make them still a great opportunity here, I believe. I added to long gold miners.

Source: Stockcharts

Source: Andrew Nyquist

Silver is sub RSI 30 and overbearish sentiment. I added to silver longs.

Crude oil is also oversold. I added to oil longs.

Orange juice has halved in price since the turn of the year due to ample supplies, but is now oversold and extreme overbearish. I opened a long OJ position.

Source: TradingCharts

Nothing (so far) has shifted me from my view of how things will play out into 2013, namely a commodities surge, and even if I were wrong, oversold AND overbearish assets eventually mean-revert. If we move further to extremes in commodities, treasuries pricing and sentiment in the sessions ahead I will add again. These are great opportunities, in my view. The picture for equities is more in the balance, with some indicators of a bottom but some reasons to expect further selling. Developments in the macro picture need close monitoring, as evidence of a pick up in data or government intervention could cause a surge, or equally, continued deterioration could cause a big sell-off.

Sunday Update

Posted on Posted in Bonds, Commodities, Macro, Stocks19 Comments

Quite strong selling on Friday, but Rob Hanna’s Capitulative Breadth indicator stayed at zero, suggesting the selling in stocks is not likely over.

Source: Andrew Nyquist

Commodities took a hit as well, particularly oil, as attention turns to slowing growth. The economic surprises for the developed economies continue to tumble at an alarming rate.

Source: Bloomberg

Compensating to some degree we see China is overall looking positive ahead (though still tentative in some areas).

Source: Yardeni

US earnings finished last week with 3 bad days of results, taking the overall beat rate from 69% down to 61%, quite a drop. No longer a very impressive beat rate. ECRI US leading indicators came in at zero this last week, a further drop back and now threatening to turn negative again.

Money has poured back into US treasuries, taking the yield back down towards the previous lows. But Spain and Europe CDSs have paused, not contuning their climb for now.

In Zeal LLC’s latest essay they suggest stocks will make another push up before rolling over properly, and this echoes the lack of major topping indicators at the 2012 highs to date. My own historical comparisons suggest an overall sideways range for stocks into next year’s solar peak, so I’m on the look out for opportunities short or long, when indicators align one way or the other. Short term then, I am expecting some more selling to take out the April low, in the early part of this coming week, and will be looking for bottoming indicators to reveal themselves. Upward pressure should emerge again as we move towards 21 May, around the new moon. If we do make another push up to highs in stocks, perhaps after that, then I will be looking for negative divergences and topping indicators.

Gold did its best to defy the selling on Friday. We still have those contrarian buy signals in precious metals, miners and certain agricultural commodities. It’s possible that we could see commodities outperfom stocks here if China data continues to improve whilst Western economic data languishes. However, if selling gains momentum it is more likely all will fall together. Gold could potentially rise alone as a safe haven, particularly if participants become more expectant of QE based on poorer data. The next FOMC is June 20. That gives them 6-7 weeks to assess further trending in data. It is also when Twist expires. If data continues to decline, and the Fed does deliver a stimulus programme of some kind, then maybe that would set up the final commodities launch that I am expecting into 2013. Well, let’s see how data trends develop into June.

Extremes

Posted on Posted in Commodities, Currencies, Stocks10 Comments

The Spanish stock index is back at its 2009 low, and out of its lower bollinger band.

Source: StockSage

Gold miners are out of their lower bollinger, at an extreme of pessimistic sentiment, and gold miners to gold ratio is at a major extreme.

Source: EC De Groot

And two from Tiho: investors extreme bullish positions on US dollar and public opinion on silver extreme pessimism.

Source both: Shortsideoflong 

Extremes typically mean opportunities, especially when they ‘fit’ together. There are several contrarian opportunities to choose from here. But patience is often required (the market can stay irrational longer than you can stay solvent).

The downside that I was expecting into this coming weekend’s full moon eventually materialised. Once we are through that, I will consider new trades from these areas. Regardless of the outlook, a period of mean reversion eventually comes to pass.

In Charts

Posted on Posted in Macro, Stocks2 Comments

US equities sentiment is not at an overbullish or overbearish extreme.

Source: Shaeffer Research / Investors Intelligence

US equities are also neutral by intermediate overbought / oversold indicators.

Source: Index Indicators

We need to look elsewhere therefore for clues about direction.

US earnings this quarter have a beat rate of 69%. That makes it one of the best of the last decade, if applied on this historical chart.

Source: Bespoke 

Forward guidance has been good too, so that’s all positive for equities.

Yet, economic surprises continue to plunge.

Source both:  Bloomberg

The last time we saw such a plunge from the high extreme swiftly into negative territory, equities range-traded for a couple of months and then dropped sharply (July 2011). It was a time when Euro debt came to the fore, and Spanish debt has done so again.

Source: Bloomberg

Euroland economic data is currently bad. Asia is looking brighter, although there is some mixed data out of China. Nevertheless, the Shanghai Composite has made a higher low, broken above the down sloping resistance and now needs to make a higher high above the horizontal resistance to make a compelling new bull trend.

Source: Bloomberg

The Australian ASX is at a key point, the merging of both long term down sloping resistance and horizontal resistance.

The Hang Seng made a bullish breakout, as shown yesterday. Plus as also previously noted, commodities display some technical and sentiment reasons for bull moves ahead.

All together that makes a mixed picture. Some key bullish / pro-risk developments, and some important bearish / safehaven developments. Recall that historic parallels (solar cycle secular commodity conclusions) showed overall sideways action in equities with volatility whilst commodities broke away to their bullish conclusion. The current mixed picture would support that overall sideways action in equities, but we perhaps need some other development to give commodities acceleration. That could be through further central bank intervention, in response to persistent Euro debt trouble, continued falling economic data or to replace Twist with something when it ends in June.

For now then, I continue to watch leading indicators and developments in the key areas noted above, and await assets moving to extremes in sentiment or overbought/oversold readings.

Update

Posted on Posted in Commodities, Currencies, Macro, Solar Cycles, Stocks1 Comment

The Dow made a new high yesterday but closed beneath it. The other indices did not yet see new highs.

The Hang Seng has made a pretty compelling breakout – a successful backtest of a bull flag and then a pop today with China data good again and the Shanghai Composite performing well.

The threats of declining and negative Economic Surprises, weakening US leading indicators, and Spanish CDSs close to record highs, all remain. But for now, equities look technically bullish. I continue to expect some weakness to occur into this coming weekend, so let’s see how today unfolds.

The latest POMO schedule was released here and shows a programme of both buys and sales, not making much of a push or pull either way.

Commodities look to have potentially made an important trend break here.

Source: Chris Ciovacco

Certain commodities are still at extremes of pessimism or bearishness. However, yesterday’s positive US data and hawkish Fed tones have pushed up the dollar and pulled back gold. The commodities complex may struggle if that holds. Euro PMIs today may affect sentiment one way or the other.

In short, good reasons to fancy commodities here (China growth signals, excess pessimism), but as always patience may be required.

The latest solar maximum prediction from Nasa was released and continues to forecast a solar maximum in Spring 2013.

Source: NASA

In The Balance

Posted on Posted in Commodities, Macro, Solar Cycles, Stocks24 Comments

The US dollar appears to be on the verge of breaking down, but it isn’t a done deal yet.

Source: Andrew Nyquist

The Chinese stock index is on the cusp of a breakout. A Shangai breakout and a dollar breakdown would really give commodities some acceleration. However, no China break out either as yet, and a reversal into the triangle is possible.

Source: Bloomberg

AAII bullish sentiment has really washed out, which is supportive for US stocks.

Source: Bespoke

European stocks are underperforming, and Euro debt continues to weigh. Spanish CDSs have eased a little, but only to just below record highs. I expect them to come again.

Source: Bloomberg

Economic Surprises continue to collapse.

Source: Bloomberg

Geomagnetism appears to have ebbed today, but 4 days of disturbance has tipped the model projection over to a slightly downwards bias, with particular downward pressure into next weekend’s full moon.

We have US earnings exceeding, a washout in bullish sentiment, and a double bottom on the S&P500 at the backtest of the 2011 old highs, together with a lack of major topping indicators at the 2012 highs, all supportive of further upside for stocks. Then we have collapsing economic surprises, Euro debt, and geomagnetism all exerting downward pressure. And we have the US dollar index and Chinese stock index both at crunch points.

The combination of excessive pessimism in multiple commodities, higher sunspots which should encourage commodity speculation, and lagging in both Euro and Shanghai correlations as shown below, makes it likely commodities are about to perform.

Source: PFS Group / Stockcharts

If commodities are about to perform, then a breakdown in the US dollar and a breakup in China stocks would make sense, and those developments should in turn pull up equities too. But as yet we remain in the balance, and if we get movement the other way in the dollar/China, due to Economic Surprises, Euro debt, and/or geomagnetism/full moon then it may mean a little more time is needed. But to reiterate my expectations drawing together previous solar maximum / secular commodity conclusions, commodities should start to outfperform whilst stocks track overall sideways with volatility. I remain lightly long stocks and heavily long commodities.

On a personal note, Spring is here in the UK, and the outdoor pursuits are calling. I have a list of research threads to look into related to trading and the markets, some provided by readers, some of my own sourcing, but I expect to address them in the next off-season, towards the end of 2012. I fully intend to maintain posting and analysis several times a week, but additional deeper, original pieces of research are on hold for now, so if you put a suggestion my way, it’s on my off-season to-do list. The UK good weather season isn’t as long as some others, so time to make the most of it.

 

WP Model

Posted on Posted in Stocks8 Comments

Here is Will Preston’s updated SP500 model chart.

Apple jumped 7% in afterhours last night, so looks likely to be bullish for the markets today, now let’s see what the FOMC outputs are and how they are received. Sunspots continue to climb, but geomagnetic disturbances continue. Dutch CDSs are at joint record highs, following the fall of their government, joining Spain debt in reaching accute again. Yet the Euro is edging up against the dollar despite these troubles.

Update

Posted on Posted in Commodities, Currencies, Macro, Solar Cycles, Stocks3 Comments

The sun has woken up. Current sunspots are more in line with a rising trend.

A geomagnetic storm is in progress, so caution. But the extended geomagnetism forecast continues to show a flat to upwards trend ahead, which should provide support for risk assets.

I have updated all the short term and medium models, on their relevant pages.

Economic Surprises for major economies finally went negative yesterday – a bearish development.

Source: Bloomberg

European PMIs were weaker than expected, suggesting Europe is not out of recession yet. Leading indicators for Germany and China came in positive.

The US dollar remains undecided in the nose of its triangle, but running out of room. I maintain the expectation that the FOMC outputs may push it one way or the other.

Source: Stockcharts

Spain, Italy and France CDSs continue to rise. Portgual CDSs have fallen away and out of the limelight. But the bigger trio have the potential to overwhelm the markets if this continues.

Apple earnings today after the bell.

Solar Peak Secular Asset Conclusion

Posted on Posted in Commodities, Macro, Solar Cycles, Stocks20 Comments

Here is a table showing just the last 3 secular commodities bulls and associated solar maximums. I have created a forecast along the top row for the current cycle, based on them.

I found it help clarify what could come to pass. Gold could potentially not peak until late 2013. But peak inflation should occur fairly close to the solar peak, suggesting oil/food, at least, should surge ahead of that, and gold should be performing well by association. Real equities valuations could potentially not bottom for another few years, if a recession begins later or a double recession occurs. It doesn’t alter my strategy or positions. It perhaps implies a little more patience is required in seeing it all play out.

The chart below shows the current Dow chart overlaid on the 1980-82 Dow chart. 1980 was the US election year like now, and it was also a parallel secular commodities and solar maximum. A similar unfolding would see equities track sideways to upwards into the elections later this year, before down into their final low in 2014. I would note though that the solar maximum takes place after the elections this time, not before like back then.

Source: Charles Githler (Hat tip Juan)

Turning to the current markets, Tiho did another great summary yesterday at his Shortsideoflong blog, and my thinking is very much aligned with that. I will just add that I continue to expect a bit more pro-risk upside into this weekend’s new moon, so that means today, but I expect to keep my bounce longs as the upside hasn’t been decisive. As my equities longs are fairly small, I would happily add lower if this turned out to be an extended B wave in an ABC down. Sunspots continue to increase. Economic Surprises continue to flounder. Asia continues to outperform currently.