Stocks & Equities

Large Cap Miners Underperforming the Juniors and Silver Stocks

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Posted by Jordan Roy-Byrne

on Friday, 27 April 2012 09:27

Jordan Roy-Byrne
While the precious metals sector has consolidated and struggled to find a bottom, an important development has taken place. First, lets harken back to 2007-2008. Large cap mining stocks peaked in March 2008, yet the speculative sides of the sector "gave out" far earlier. The juniors and silver stocks actually peaked in April 2007. That was about a full year ahead of the large gold stocks. As the 2007-2008 crisis unfolded, juniors and silver stocks led the way down and displayed extreme relative weakness even as metals prices were firm.

Today, we have an entirely different and bullish development. As you can see in the chart below, the speculative areas of the sector have been outperforming the large gold producers (GDX). If this were really an end to the bull market or another collapse, the juniors and silver stocks would not be showing this kind of relative strength. In fact, the silver stocks have actually managed to hold near their 2010-2011 lows even as gold stocks have broken to new lows. We also see that the CDNX has been outperforming GDX since October while GDXJ has been outperforming since December.

GDX (Market Vectors Gold Miners) NYSE


Given the recovery of the past few days, we are likely witnessing the start of the next cyclical bull market for the gold and silver stocks which have essentially been in a cyclical bear or correction since December 2010. The above analysis implies that the more speculative areas of the sector, the juniors and silver stocks will be the leaders.


Stocks & Equities

Are The Markets At A Logical Bottom?

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on Thursday, 26 April 2012 16:40


As we mentioned Tuesday, the reaction to Wednesday’s Fed statement is important to the market’s intermediate-term direction. However, Apple’s (AAPL) strong earnings have provided investors with a reason to step up to the buyer’s plate. From Bloomberg:

    Apple Inc. (AAPL) profit almost doubled last quarter, reflecting robust demand for the iPhone in China and purchases of a new version of the iPad, allaying the growth concerns that sliced shares 12 percent in two weeks.

Since Europe continues to be the possible “fun sponge” for the bullish party, and Germany tends to pay the uncomfortable European clean-up tabs, the German DAX Index has served as a good proxy for the tolerance for risk assets. Germany has had a strong start to trading on Wednesday. Later in this article, we review the longer-term technical backdrop for the German stock market.

Picking market tops and bottoms is difficult at best. It is better to think in terms of a probabilistic bottom or top. One way to help discern if it is probable for a market to move higher is to look at long-, intermediate-, and short-term trendlines on both an absolute and relative basis.

When reviewing the charts below ask yourself, “Does this market seem to be at a logical point where a reversal could take place?” If the answer is “yes”, then we become more open to a possible buying opportunity. A few weeks ago we identified 1,363 as a possible point of inflection for stocks. The S&P 500 has been testing 1,363 for two weeks. On April 10, the S&P 500 closed at 1,358, which thus far has represented the lowest close during the current pullback. While we want to see some real conviction from buyers, the chart below seems to have a reasonable probability of producing a reversal to the upside.



Stocks & Equities

It is passed time for a MAJOR disappointment!

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Posted by Jack Crooks

on Wednesday, 25 April 2012 08:06

Jack Crooks

 “I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said.”

- Alan Greenspan

Are there no limits whatsoever to monetary policy?  It is beyond pathetic that a rising stock market seems the only substitute for real policy from our “best and brightest.”  Why doesn’t it matter to them that it isn’t working?  Are they that intellectually bankrupt and corrupt?  Is it odd that very smart people outside the government continue to bet on QE 3,4,5,6…?  Or is it the only bet?  What in the world is going on here?   

Orders for U.S. durable goods fell in March by the most in three years, indicating manufacturing will contribute less to growth this year.  

Bookings for goods meant to last at least three years dropped 4.2 percent, the biggest decrease since January 2009, after a revised 1.9 percent gain the prior month, data from the Commerce Department showed today in Washington. Economists forecast a 1.7 percent decline, according to the median estimate in a Bloomberg News survey.  

Now, would throwing more money into the banking system “help” this problem of slowing US growth momentum? 


042512 fed reserves-resized-600.jpg

Stocks & Equities

Stocks Cannot Levitate On Twist Alone

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Posted by Eric Parnell

on Tuesday, 24 April 2012 07:40

All eyes are on the Federal Reserve this week as they convene their latest Open Market Committee meeting on Tuesday and Wednesday to discuss monetary policy. A primary focus of investors is whether the Fed will hint about any future policy action.

Such news is important, as the stock market has proven keenly sensitive to the influences of monetary stimulus since the outbreak of the financial crisis several years ago. But while another round of policy support may help stabilize the stock market at current levels, Fed stimulus alone may no longer be enough to drive stocks to new highs. Moreover, it may now be insufficient to offset the forces of a major downside shock.

403065-13352422577635548-Eric-Parnell origin

A reflection on the movements of the stock market since October 2011 is informative in this regard. The U.S. stock market as measured by the S&P 500 Index (SPY) initially exploded higher at the launch of Operation Twist. Having touched a fresh cycle low at 1075, the stock market suddenly reversed and didn't look back for the entire month. From the second day to the second to last day of October, the stock market advanced roughly +17%. But what is surprising is that since the end of October, the net impact of Operation Twist by itself has actually been fading lower from its peak.

The first sign of breakability associated with Operation Twist came on Halloween, as the market became spooked by the collapse of MF Global. By Thanksgiving, the U.S. stock market had bled nearly -10% and was only +5% above the early October lows. The market response to the MF Global bankruptcy was notable, for stocks prior that point had shown the resilience to continue rising during periods of Fed stimulus regardless of the risk. Such was not the case in November 2011.

Stocks thrashed back and forth into December until the week before Christmas. It was at this point on December 21 that the European Central Bank executed the first of its two planned Long-Term Refinancing Operations (LTRO) to support the at risk banking system across the continent.

It was upon the launch of LTRO that the stock market propelled itself into another euphoric melt up phase. This continued until the second planned LTRO on February 29. Along the way, the stock market advanced +14% in a virtually uninterrupted rally that included stocks rising on nearly 70% of trading days over this time period. This is well above the historical average of 52% and is exceptionally rare to occur over any sustained period of market history.


Stocks & Equities

Rosenberg Roasts The Roundtable Of Groupthink

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Posted by Zerohedge.com

on Monday, 23 April 2012 14:51

It appears that when it comes to mocking consensus groupthink emanating from lazy career 'financiers' who seek protection from their lack of imagination and original thought, 'creation' of negative alpha and general underperformance (not to mention reliance on rating agencies, only to jump at the first opportunity to demonize the clueless raters), in the sheer herds of other D-grade asset "managers" (for much more read Jeremy Grantham explaining this and much more here), David Rosenberg enjoys even more linguistic flexibility than even us. Case in point, his just released trashing of the latest Barron's permabull groupthink effort titled "Outlook: Mostly Sunny." And just as it so often happens, no sooner did those words hit the cover of that particular rag, that it started raining, generously providing material for the latest "Roasting with Rosie."

From Gluskin Sheff:

Consensus Creates A Contrary Call

    When the experts and forecasts agree, something else is going to happen."

    Bob Farrell's investment rule #9.

Did the folks at Barron's intentionally lob a ball right into my wheelhouse? The front cover says it all — Outlook: Mostly Sunny. Check it out. Any perma-bull out there right now should be trembling by the front cover effect. This is no different than the fabled Death of Equities in the 1979 Businessweek, the Economist front cover calling for oil prices to basically head towards zero circa 1998, and the front cover of Barron's a decade ago saying That's All, Folks when it came to interest rates supposedly bottoming out. Come to think of it, Barron's ran with Dow 15,000 on its front cover back on February 13, 2012, and last we saw, at the nearby peak in early April, the blue-chip index closed 1,700 points below that threshold (and has been roughly flat since the date of that article).

What Barron's is referring to here is the latest Big Money poll that it conducts semi-annually. The actual title of the article (on page 25) is Reason to Cheer. Reason to cheer? About what? Margins being squeezed? Profit growth practically evaporating? Earnings downgrades still significantly outpacing upgrades? The recovery so excruciatingly slow that senior members of the Fed are contemplating QE3? Insolvency of Spanish banks? Hard landing risks in China? The 2013 fiscal cliff? The fact that over 60% of the data in the past two months have surprised to the downside?

The results of the Big Money Poll were startling:

    55% of the portfolio managers are either bullish or very bullish. Only 14% are bearish or very bearish.
    Financials and technology are the favourites, with 31% citing both as being the top performers in the next six to 12 months.
    Favourite stock ... Apple (surprised?).
    Utilities are seen as the worst performer — by 30% of those polled.
    With respect to Treasuries, 81% are bears, just 2% are bulls. How can yields rise in such a lopsided environment? I mean, who is there left to sell? This is a classic bullish contrary signpost.
    Bonds of all types are detested — 33% bearish on corporates while 14% are bullish; 35% are bearish on munis while only 12% are bullish.
    But ... 41% are bulls on real estate; only 10% bears are left.
    For gold, 39% bears and 30% are bulls. That is great— the one asset class that has been in a secular bear market for 12 years is adored (equities), and the two that have actually made you money over this time span (the bond- bullion barbell) is to be avoided. Go figure!


david rosenberg2

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