Here Comes the Summer Rally Friday, Jun 10 2011 

Here Comes the Summer Rally

Advertisements

Technical Commentary – September 13th Monday, Sep 13 2010 

Dow Jones Industrial Average – We have had a nice move up over the past two weeks bouncing off support and now we find ourselves in a virtual no mans land between the 50 and 200 day moving averages. Technicals are positive but inconclusive as we wander in this trading range between 10400 and 9800.

Traders and fund managers return this week and there are some items which should dominate headlines namely concerns out of Europe, 3rd Quarter corporate profits, important economic reports namely CPI, PPI, Capacity Utilization, Industrial Production, and the upcoming mid-term elections.

Caution is warranted here unless we can break above the 200 day moving average and clear the 10500 level. It is possible that we start the week with a rally but have it lose strength as the week goes on.

Longer-term we need to move above the 50 week moving average to move back to the 200 week moving average.

I would be hesitant to put any new capital to work on the long side until we have a confirmed breakout above resistance and the trend establishes itself.

Dow Jones Utility Average (UTIL) – The Utilities were added because there is something interesting on the daily chart relative to the Industrials. Check the RSI and MACD as they seem to be in the process of rolling over while Friday’s down volume was heavier than normal.

This bears watching as the week goes on as the Utilities may be leading the market and flashing a sign.

Canada (TSX) – The TSX is in a long basing pattern. Economic reports over the past week gave investors some pause with the possibility of 3rd Quarter growth coming in weaker than expected due to a slowdown in the US. Technical indicators look overbought and investors would be well served to hold off on any buying in the event the TSX pulls back in the coming weeks.

A move above 12250 would signal a breakout and move higher.

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

Technical Commentary (Europe) – September 7th Tuesday, Sep 7 2010 

Greece (Athens) General Share – After the crisis this spring ran its course the ATG put in a nice double bottom in early June and July, which also confirmed the early 2009 bottom, and has moved up through the 50 day moving average. The short-term charts are mildly bullish with this week being key to see if the rally can continue and/or the 50 day moving average begins to provide support for the market. If so, there is a nice rally here up to the 1850 area.

The longer-term charts, while ugly, show a triple bottom around the 1500 level which provided a nice base in 2003, 2009, and 2010.

The Greek market looks to be a very nice contrarian play if the government continues to accept the bitter medicine it was prescribed this spring.

Unfortunately, there is no Greek ETF for small investors to play this rally.

Germany (DAX) – The short-term charts are bullish for Germany as it appears we are moving back to the top of the channel. Strong German economic performance is driving the DAX and we may see a breakout to new yearly highs later this year. The interesting part of the short-term charts are the higher lows on each selloff even if the high on the subsequent rally does not make a higher high.

The longer-term charts continue to rattle around between the 50 and 200 week moving averages making a strong base. An interesting note is the 50 month and 200 week moving averages are in the 6189 area providing serious resistance. A solid move above these levels on strong volume would likely see a move back up to the 8000 level.

US Commentary – We had a nice rally last week which was long overdue. This week will be slow due to the Labor Day holiday and Rosh Hashanah so trading volume is likely to be lighter than expected.

One thing that worries me about last week’s rally is how everyone seems to be tripping over themselves trying to call a bottom. That is typically not a good sign despite the bullish signals.

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

Bullish or Bearish? Wednesday, Sep 1 2010 

The market this year has had some rough times. The rally which started in March of 2009 topped out in April of 2010 and caused the market to trend lower for the last 5 months. But as mentioned in my last article the market is approaching a moment in time when a solid buying opportunity will emerge.

On the bearish side of the equation we have weak economic growth, stubbornly high unemployment, massive budget deficits, and a weak banking sector. There is also the issue with the Hindenburg Omen, for which a downside move of just a few more percent would make the signal a success.

On the bullish side we have an equities market that seems overvalued from a PE perspective is undervalued based on dividend yield when compared with similar yields on US Treasuries, AAII surveys showing that small investors are bearish, and favorable profit growth in the large cap sector.

The stock market has in many way mirrored the returns of the market in the 70’s where we had whipsawing action sideways for many years until inflation was dealt with by Paul Volker and set the stage for the great bull market in equities that ran until 2000.

Intel’s announcement guiding revenues and gross margins lower in the third quarter may be the harbinger of earnings warnings in the tech sector as companies move to get the bad news out early.

September is a month where earnings and economic worries are likely to provide some stormy weather for the markets but once we move into the fourth quarter the skies should clear for a nice rally into 2011 although we are likely to end the year on the downside.

As mentioned before, there are a number of high quality blue chip stocks with attractive dividend yields that can provided comfort to investors with a steady income stream. Once the weather clears these stocks should lead the market higher as investors look to dividends for safety in these turbulent times.

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

Four year Presidential Cycle and the Equities market Tuesday, Aug 31 2010 

US equities have had a difficult time since April of this year as fears over a double dip recession, a stubbornly high unemployment rate, and the possibility of slowing corporate profit growth have weighed on the markets. In addition, small investors are pouring money into bond funds sending yields crashing through the floor while equities are being labeled as risky investments.

But one of the great trading cycles is getting ready to flash a contrarian buy signal to the markets.

The four year Presidential Cycle looks for higher returns during the last two years of a Presidential term than the first years. The expectation is that as a President takes office he begins to implement his proposals and investors, hunker down waiting to see the results. During the final two years the President becomes more concerned with his re-election and will ‘prime the pump’ in order to secure re-election.

As we move through the second year of the Presidential Cycle a low is put into place which often leads to a solid rally into the third year.

I would like to bring to everyone’s attention an important article written by Bill Hester of the Hussman Funds entitled Business Cycles, Election Cycles and Potential Risks.

The chart on Election Cycle Returns shows that during year 2 of the Presidential Cycle the first quarter is up on average while the second and third are down leading to a rally in the fourth quarter which lasts into 2011.

So far in 2010 the stock market is following the chart perfect with a move up in the first quarter followed by pullbacks in the second and third quarters of the year.

We may be near a bottom in the equity markets as September is the worst month on average for equities. We are likely to see some continual downside pressure to equities during the September time frame as continued weak economic reports and concerns over third quarter profits will dominate the news flow.

The AAII Investor Sentiment Index last week reached levels which foreshadow the beginning of an upcoming rally in the equity markets.

Yields on corporate bonds and Treasury securities are at extremely low levels on an historical basis while dividend yields on high quality blue chip equities are at very attractive levels. Small investors would do well to begin preparing for the next big rally by having some cash on hand ready to allocate when the next buying opportunity approaches in the coming months.

While the news flow for equities may be negative small investors should look ahead to the light at the end of the tunnel signaling an upcoming rally, one which may catch many market watchers by surprise.

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

Technical Commentary (Asia Edition)– August 30th Monday, Aug 30 2010 

Nikkei – The Nikkei is in trouble across the board. The 9000 level did not hold and the short and long-term charts are all showing bearish signals.

The market is looking for the government to do something regarding the appreciation of the Yen to help exporters.

If something does not happen soon we may see a test of the 2003 lows around 7800 and if that level does not hold 7000. Should economic numbers come in weaker than expected do we see another round of quantitative easing by the government and the Bank of Japan?

South Korea (KOSPI) – The KOSPI has had a very volatile year with prices whipsawing between 1800 and 1525.

In early August the KOSPI broke through an ascending wedge and pulled back to the 1720 area where it appears as though a triple bottom is being formed. The question this week is will the 1720 level hold and if so is this a springboard to new highs on the year or does it become a trading range?

The weekly charts show strong support at the 50 and 200 week moving averages with an uptrending pattern.

If support holds and we see a strong rally then 1900 and 2100 are distinct possibilities.

Bombay Sensex (BSE) – The BSE just broke through an ascending wedge to the downside on Friday. The short-term charts indicate a pullback to the 17500 area which will make the Sensex flat for the year.

The longer-term charts are overbought but have a bullish slant to them. This coming pullback may just be a pause that refreshes the market.

On the weekly chart there is a clear W formation and this pullback may just be the springboard to set the stage for a rally back to the old high in the 21000 area.

India has been one of the better markets this year with strong economic growth and a proactive central bank already into a rate tightening cycle in an attempt to cool off the economy before inflation gets out of control.

US Comment: Friday’s rally was well overdue in this pullback. Since the sell off following the Federal Reserve meeting rallies have been weak and met with selling. This week we need to a follow through with respect to Friday’s move up and get in position to take out resistance at the 50 day moving average and 1100 on the S&P 500.

AAII sentiment numbers are extremely bearish which points to a possible contrarian rally, one that may just catch people off guard.

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

Week in Review – August 27, 2010 Saturday, Aug 28 2010 

Weakness in the US continued this week as economic reports continued to show that the slowdown in the United States continued into July. US markets rebounded off of oversold levels earlier in the week to stage a nice rally into the weekend. The 10,000 level on the Dow is providing significant support to the market along with 2100 on the NASDAQ.

AAII released very negative Investor Sentiment numbers which portend a contrarian rally.

Existing home sales plummeted to record lows and inventories surged to new highs. The second wave of defaults are now starting. It is going to be interesting to see if the additional houses coming to market are from banks, the gray market, or new foreclosures.

If the bulk of the new supply is coming from banks it is a good sign as bad loans are being dealt with in a constructive manner. The gray market would be bad for the economy in the short term but good in the long term. As gray market properties come to market it would be a signal that investors who were attempting to ride out the cycle have become exasperated and thrown in the towel. Investors

2nd Quarter GDP was revised lower to 1.6% but still came in above estimates. The primary cause was a jump in imports as Chinese firms took advantage of an export subsidy that expired in July by pushing product out the door to the United States and elsewhere around the world.

German 2nd Quarter GDP showed that Europe’s largest economy is beginning to pick up steam as exports, housing, and consumption all showed solid growth despite the weak conditions across Europe.

I mentioned a week or so ago that the inclusion of the statement by Hoenig at the end of the FOMC meeting would make the minutes of the August 10th meeting an interesting read. The Wall Street Journal reported that 7 of the 17 top Federal Reserve officials had reservations about purchasing US Treasuries making the upcoming minutes a must read.

Next week:

Monday – European Economic, Business, and Consumer confidence for August
Tuesday – Canadian 2nd Quarter GDP, Chicago PMI, and minutes from FOMC meeting
Wednesday – China manufacturing PMI, US ISM
Thursday – Europe 2nd Quarter GDP, US Factory Orders
Friday – US August Unemployment rate

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

The Hindenburg Omen – A Potential Fat Tail Event on the Horizon? (revised) Tuesday, Aug 24 2010 

The S&P 500 has been flashing a number of technical signals to the market over the month of August. Amongst the various signal we had an inverse head and shoulders and an ascending wedge giving investors bullish and bearish signals. August 11th provided a resolution with the ascending wedge breaking down and the market moving significantly lower. More troublesome was the market’s action the next three trading days. After large moves in one direction the market typically consolidates in the opposite direction as short term traders look to book profits and others buy on dips/sell into strength. What we had was the opposite, a market that could not move higher and instead drifted lower.

On August 12th, a Hindenburg Omen signal was triggered. A Hindenburg Omen is a statistical sign made up of market indicators which foreshadows a move to the downside. Just one Hindenburg Omen is not enough as there needs to be confirmation of the first signal within 36 days. If this signal is not confirmed then the signal is not valid.

The Hindenburg Omen has 5 criteria which must be met.

1. The NYSE 10 Week moving average is rising.
2. The McClellan Oscillator is negative on that same day.
3. The new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for 52 Week Lows to be more than double new 52 Week Highs.) This is a mandatory condition.
4. The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day with
5. The smaller of the two numbers being greater than or equal to 69.

Delving into these criteria what we find is an indicator which attempts to signal the possible occurrence of a fat tail event.

First, we have a rising NYSE 10 Week moving average which suggests a market trending upward followed up by a fair portion of stocks making new highs.

But underneath the surface there is trouble. The McClellan Oscillator, used by traders to gauge market breadth, is negative signaling that more stocks are falling than rising. This is a sign that a correction may be approaching.

Next we have the 52 Week Highs and Lows. In an rising market one would expect significantly more new 52 Week Highs than new 52 Week Lows. But here the number of new 52 Week Lows are close to the number of 52 Week Highs, relatively speaking.

The number of 52 Week Lows are also more than 2.2% of the total NYSE issues traded that day. This sends a signal that the 52 Week Lows tail is getting fatter, a sign of underlying weakness.

What we find is that while the market appears calm, there is significant turmoil and weakness underneath the surface.

While a Hindenburg Omen does not mean the market will crash it is a signal that a fat tail event may be approaching in terms of a market pullback.

Thursday and Friday of last week provided a confirmation of the original signal. According to the Hindenburg Omen there should be a move to the downside in the next 40 days.

This does not mean there will be a crash. The downside move could only be as small as 5.5% for the signal to be accurate.

It is not my belief that we are heading for a second stock market crash but investors should tighten stops on long positions and/or hedge long positions until the danger passes.

The underlying market weakness following the markets drop on August 11th combined with weak economic reports should give investors pause. The inability of the market to move higher indicates a lack of buyers as investors seem to be waiting on the sidelines.

Now there is good news to report. This drop, should it occur, would put in a major low for the four year Presidential cycle leading to a solid rally into 2011. In other words, protect your long positions and get your cash ready to allocate so you can buy at the bottom.

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

The Week in Review, August 20, 2010 Saturday, Aug 21 2010 

The week was filled with disappointing economic reports from the advanced figure for seasonally adjusted initial unemployment claims jumping up to 500k and the Philly Fed Survey showing negative growth. If the ISM Manufacturing PMI confirms the Philly Fed Survey we are looking at a contraction in the manufacturing sector as it appears the underlying economy is much weaker than expected and the idea of a V shaped recovery might be put to rest.

On Monday, an article appeared on Bloomberg where Yu Yongding, part of a foreign-policy advisory committee and former adviser to the People’s Bank of China, stated that China has been a buyer of European bonds. Japan’s Ministry of Finance also stated that China was a buyer of Japanese debt during the first half of 2010. The US Treasury announced that China’s holdings of US debt were cut by $100 billion from June of last year. There was no word if the cuts were sales or maturation of debt with the proceeds being reallocated to Japan and Europe. 1

HP’s drop also weighed on the Dow as traders and managers weighed the future of the company.

The VIX traded flat for the week and is pushing up against a resistance level around 27. A move above this level would signal a coming correction in the markets. The weekly charts have a bearish tilt with the possibility that the we may see a move up but this is a difficult chart to read and the VIX is often oversold here for long stretches of time.

North American markets acted accordingly with the S&P selling off after putting in a possible short-term top at 1100. The S&P 500 seems range bound between 1070 and 1100 after last weeks shock. The 50 day moving average is at 1089 and we seem so be yo-yoing around this area looking for a resolution.

Canadian markets showed a bit more strength closing above its 200 day moving average but traders are fearful of what weakness in the US would mean for its largest trading partner. The BHP offer for Potash has everyone excited over more large M&A transactions coming on the heels of the Kinross-Red Bank merger.

Over in Asia markets were mixed with Japan showing signs of a slowdown while Taiwan is steaming ahead. GDP from Taiwan grew 12.53% in the second quarter, beating estimates of 10.15%, and only slightly down from 13.71% during the first quarter.

Hong Kong government took further steps at tightening as they extended the 40% downpayment requirement to apartments costing HK$12 million in an attempt to stabilize price appreciation. The prefectures government is under pressure to cool the market as the Hong Kong Dollar is pegged to the US Dollar and the ZIRP policy in the US is causing a real estate boom. Mortgage rates in Hong Kong are as low as 70 basis points above the Hong Kong interbank offered rate (0.22%) or just under 1%.

The Baltic Dry Index has fallen by more than 50% during the June 1 to July 15th period signaling concerns that the global economy may be slowing down. One factor to consider is that China ended export tax subsidies in July which more than likely push a lot of export shipments into June.

Next week:

Monday: German Manufacturing PMI
Tuesday: Existing home sales in the US
Wednesday: Durable Goods in the US and Trade Balance in Japan
Friday: 2nd Quarter US GDP Estimate, U of Michigan Confidence, Household Spending in Japan
All Week: Speeches by Federal Reserve Governors

1.

2010 Mid year commentary – Investment Thoughts Thursday, Jul 22 2010 

It was my mantra at the beginning of the year that long-term investors should stay in cash and wait for attractive buying opportunities to come along.

Price-earnings ratios are once again becoming attractive. While they may seem high and nowhere near lows that sparked past bull markets investors would be wise to begin putting together lists of favorite stocks and begin monitoring prices in anticipation of putting cash to work.

We may take 6 months to a year to find a bottom but for investors it is better to well prepared in the event a buying opportunity comes along.

At this moment, we are in a stock pickers market and you should act accordingly.

Globally, markets will likely take their cues from the US and investors should proceed with caution.

Until the US government makes a serious effort to reign in spending investors should have money in Gold and Silver as a hedge against currency debasement and loss of purchasing power relative to the world.

Gold should move to new highs later this year but will likely see some sideways to lower trading action in the near term as we move through the historically weak summer period.

Gold stocks are less attractive to me. They should be trading higher based on a higher gold price but there are some factors restraining stock prices.

First, you have rising costs at mines partly related to the depreciation of the dollar. While we point to the USD Index, the truth is over 50% of the Index is made up of the Euro and I believe approximately 90% is European currencies with little or no exposure to Asia and South America.

Second, gold stocks are aggressively acquiring the remaining low hanging fruit in the exploration area, in many cases with stock. The problem with these transactions is the effect of dilution since the acquired assets have zero revenues.

Personally, I am waiting for a bit of a pullback to the 1175-1150 area with an absolute floor at 1065.

Investors in gold equities should slide down the exploration curve, as there appears to be value at the far low end in the prospecting and drilling areas.

Silver is attractive at the current price but given its volatility relative to Gold and the chance for Gold to pull back, Silver may trade lower over the short-term.

In fact, Silver is completing a very rough and ugly head and shoulders pattern leading me to believe that we may see some weakness in the coming weeks and months.

If commodities in general pull back over fears of a slowing economy both Gold and Silver will find any potential gains limited.

Canadian banks are showing value but again prices may get cheaper over the next six months. The TSX looks oversold as do most Canadian banks.

Asian economies look to continue their recovery and growth. A slowdown in the Chinese economy will defuse talk of a large currency appreciation. Non-correlated Asian markets should do well over the second half of the year but I expect problems in the US to overshadow the growth story and mute any potential large gains.

Stock prices in China and Hong Kong should continue to struggle as IPO’s and bond sales are absorbed.

Avoid South American equity markets over the near term as the difficulties facing individual countries may spill over into neighboring countries causing problems. Some of the problems include the reconstruction efforts in Chile, government and trade problems coming out of Argentina, and a Brazilian economy firing on all cylinders.

While the oil spill in the Gulf continues to provide tremendous amounts of speculation on the ultimate size of liability for BP there are some factors to consider.

Did Exxon go out of business after the Valdez spill? No.

Did any of the cigarette companies go out of business after the government settlement? No.

Does BP have attractive assets worldwide? Yes.

Will they survive? Yes.

No doubt, there will be additional regulation, massive fines, and increased scrutiny over oil and gas operations in the Gulf, Alaska, and all over the lower 48 states but the industry will survive and move forward for the future. As a high-risk investment, BP does look attractive under $30 but remember that this is a high-risk investment. The stock could trade lower if the broader market moves lower over the second half of the year.

***Disclosure note: I own BP stock in my personal account. This is not an endorsement to buy or sell nor should it be taken as such.***

The recent decline was due to portfolio window dressing as I noticed that Gold and certain Asian markets where I trade (which are up for the year) held up and saw buying as the US market (which is down) fell as portfolio managers rushed to tweak portfolios ahead of the mid-year reports.

The rally last week in the US was not met with a similar rally in the markets I follow which, in addition to weak volume, leads me to be very cautious.

It is my opinion that we are still in a topping formation and look to see lower markets through the end of the year with the major indices ending up down for the year.

Personally, I am putting together a buy list of stocks with good dividend yields and earning bases and plan on waiting for the right moment to allocate capital.

In the coming weeks and months I will expand more upon the themes touched on during the first and second parts of my commentary.

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

Next Page »