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Timing & trends

Investor Sentiment: A Sell Signal is Upon Us

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Posted by Guy Lerner

on Sunday, 15 April 2012 11:28

By: Guy Lerner 

For weeks now, I have been using phrases in these weekly articles on sentiment like "the best, most accelerated gains are behind us" and "we are closer to the end then the beginning". When we look at the charts, the SP500 has been essentially flat for the past 8 weeks, so every now and then, I guess I can get it right. If you have been a buyer over this time period, you most likely will find your investment underwater. In other words, there are a lot of investors who have bought high with the expectation of selling higher and who have bought the Wall Street nonsense that this is an investing opportunity of a lifetime. NOT! The "dumb money" indicator has dropped below the upper trading band (see figure 1, green arrow), and the best time to sell is usually 1 week after this signal. There are other scenarios that could develop, such as the emergence of the dip buyers leading to excessive speculation, but the most likely scenario and until further notice, I would be a seller at higher prices. The gas appears to be coming out of this market.

As the current market environment has been compared to 2011, it is noteworthy that last year's sell signal occurred on March 11. 7 weeks later the market made a marginal new high in another flurry of speculation. It took the market another quarter before it actually cratered sustaining a 20% loss over 4 weeks. In general, the next best buy signal will occur when investor sentiment turns bearish.

The "Dumb Money" indicator (see figure 1) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. This indicator is now neutral. The data shows that the optimal sign to sell is 1 week after the indicator crosses below the upper trading band. But these are optimal scenarios, and I should caution that optimal and stock market are rarely spoken of in the same sentence. The market is just too unpredictable. Who saw the May, 2010 "flash crash" or the 20% drop over 3 weeks in 2011 coming? If you hang around too long, you could be one of those casualties. Alas, there are no right answers or guarantees. These are just signposts that help us better understand the price action.

To Read More CLICK HERE

Figure 1. "Dumb Money"/ weekly

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Timing & trends

Boom Sayer: Bob Hoye's Perspective On Markets

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Posted by Bob Hoye - Institutional Advisors

on Thursday, 12 April 2012 00:00

"Boom Sayers"

Some of them are still singing, but technically markets seem to have finished the hymns of praise.

Signs Of The Times

This Year:

"Dollar Turns Bearish amid Disappointing Housing Data"

– Forex, March 26

"Heavy hitters such as Goldman Sachs and J.P. Morgan are now actively adding equity exposure."

– Financial Post, March 27

"Betting On U.S. Homes Comeback"

– Financial Post, March 30

"The overall technical backdrop remains bullish so buy-on-dips is still the most profitable strategy."

– Technical letter, March 30

 *   *   *   *   *

Last Year:

"Stocks climbed as the better-than-expected data on confidence and manufacturing bolstered optimism on the economy."

– Bloomberg, April 15, 2011

"Flight From U.S. Dollar"

– Financial Post, April 21, 2011

"Don't Like a Weak Dollar? Might as Well Get Used to It."

– Breitbart, April 26, 2011

Concerns about the dollar were so wide-spread that Geithner stated "We will never embrace a strategy to weaken the dollar".

Our notes from then included someone else's description of the Geithner Bond. "No principle, no yield and no maturity".

The DX dropped to 72.70 as the good times ended on May 3rd and rallied to the 80 level as the panic about sovereign debt ended last fall.

On the recent surge to good times, the DX declined (accompanied by the usual bad press) to only the 78 level. The low as the bubble completed in 2008 was 71.33. The low on the speculative surge to March 2011 was 72.70 and the recent low at 78 sets a rising trend of important lows.

Against these, commodities (CRB) set a sequence of speculative spikes at 474, 371 and at 326 in February. Clearly, commodity speculators are not accommodating the Fed's implicit policy of dollar depreciation.

It is worth noting a plea for help during the troubles of September, only six months ago:

"Investors just want to know, even if it is a Band-Aid, that there is some cure that's going to be announced."

*   *   *   *   *

Perspective


Our list of "Boom Sayer" exclamations has been accompanied by technical readings of momentum and sentiment usually found at important tops. Last week, Market Vane's Bullish Consensus reached the highest reading since 2007. Also, as we have been discussing insider selling has reached significant levels.

We have been looking for a rolling top whereby not all sectors peak at the same time. This seems to be working out with cyclicals such as base metal miners and S&P Energy setting their highs in late February. Of Dow Theory importance, the Transports set their high in early February and the bounce seems like a failed test.

Overseas, the DAX, FTSE, Shanghai and Hong Kong set highs earlier in March and have recorded downtrends.

More recently, technical work such as yesterday's "Bearish Divergences" provides confirmation of a topping stock market from an unusual point of view.

Under such conditions it has been prudent to sell the rallies.

Currencies


The U.S. Dollar is in a technical pattern leading to an outstanding rally.  Historically, one of the features of the post-bubble condition has been a chronically firm senior currency. That's against most currencies and most commodities, for most of the time.

 

Commodities


In momentum and enthusiasm, the CRB has been replicating the action in 1Q2011, but at lower levels on the index and in excitement. This year's high was 326 set in the third week of February.  At 306 today, taking out 305 would extend the downtrend.

This would confirm that last year's high of 371 was, indeed, a cyclical peak.

Credit Markets


The action in longer maturities stopped favourable trends in mid-February.  Over the past two weeks, a turn for the worse has started. The price on the sub-prime mortgage bond has broken down.

This has serious implications, as does the action in sovereign debt. As an example, yields for the Spanish bond has been rising since early March, taking out technical resistance. Taking out 5.75% will be a serious event.  The chart follows.

Since the middle of March, yields and spreads for junk and high-yield have been moderately adverse.

Representing shorter maturities, the Ted-spread stopped narrowing in late February and the chart seems to be "bottoming" since.

And it is worth keeping in mind that after there has been joyous action in spread markets in the first part of the year, the seasonal reversal in May can lead to disaster in the fall.

INSTITUTIONAL ADVISORS

WEDNESDAY, APRIL 11, 2012

BOB HOYE

PUBLISHED BY INSTITUTIONAL ADVISORS

The following is part of Pivotal Events that was

published for our subscribers April 5, 2012.

 

Link to April 5, 2012 ‘Bob and Phil Show’ on TalkDigitalNetwork.com:

http://talkdigitalnetwork.com/2012/04/holiday-job-shocker/

 

 BOB HOYE,   INSTITUTIONAL ADVISORS

E-MAIL  bhoye.institutionaladvisors@telus.net">bhoye.institutionaladvisors@telus.net

WEBSITE:   www.institutionaladvisors.com



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Timing & trends

Rogers: Farmers will make 'huge' amounts of money…

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Posted by JIm Rogers via Porter Stansberry & The S&A Digest

on Tuesday, 10 April 2012 00:00

Food-1990
Jim Rogers: Farmers will make 'huge' amounts of money… An aging workforce… China pushes agriculture… 
  •  In an interview with China's national English-language newspaper China Daily, legendary investor and commodities bull Jim Rogers sang the praises of farming. Rogers said you'll "make a huge amount of money" if you buy a farm and become a farmer today… "The price of your products is going to go up. You're going to make more and more money every year… The price of your land is going to become more and more valuable."
  • Rogers, ever the contrarian, believes farmers will be some of the most successful people in the world over the next 20 to 30 years. (He noted how terrible the business has been for the past 20 or 30 years.) 
  • Today, farmers are dying out. The average age of a farmer in America is 58. It's 66 in Japan. But the world still needs food (more and more, in fact). Still, farming will have to become more profitable in order to attract labor and capital.
  • We expect the situation in farming will develop a lot like the mining sector… We discussed the global shortage of mining employees in the November 16, 2011 Digest. As demand and prices for metals increased, the normally low-margin business of mining improved. But the workers weren't there:


According to Sigurd Mareels, director of global mining for McKinsey & Co., there's a "historical shortage" of mine workers around the world. Australia, the world's largest source of iron ore and the second-largest gold producer, needs an additional 86,000 workers by 2020, according to the Minerals Council of Australia. That's on top of the current work force of 216,000. Miners in Australia – some of whom commute from the Philippines and New Zealand – make between $100,000 and $200,000 a year.

"It's a tight labor market and difficult cost environment," said Ian Ashby, president of the iron-ore division at BHP Billiton, the world's largest miner. To attract workers, BHP and other miners are building recreation centers, sports facilities, and art galleries in mining towns. Costs to attract and pay new talent decreased earnings by $1.2 billion in the first half of 2011. (BHP Billiton still earned $11.2 billion over that period.)

In farming (as with mining), we expect capital will be pulled into the sector as the products become more attractively priced and the return on that capital gets better.

  • If you don't want to become a farmer, don't worry… There are still ways to profit from the boom. For example… Rogers suggests you can sell seeds, fertilizer, and tractors.
  •  The biggest driver of food demand is China. Food is one of the first things people spend their money on as they get a little bit wealthier. As China's economy modernizes, its gigantic population is growing wealthier and will spend some of that money on eating better.

The Chinese government knows the country needs food… It's already giving incentives to farmers. As we noted during our time in Hong Kong…

Jing Ulrich, the JPMorgan managing director who spoke at the Hong Kong conference, said the Chinese central bank cut the reserve ratio by two percentage points (in addition to the two previous cuts) for several hundred branches of the Agricultural Bank of China earlier this month. Lower reserve ratios mean the bank may hold less of its deposits in reserve, freeing capital for lending.

"It's March," she said. "Planting season is coming." The move will allow the Agricultural Bank to lend more money to the Chinese agricultural sector. The central bank wants to specifically support local agriculture with its latest stimulus efforts.

Jim Rogers also just gave an interview to our own Frank Curzio, editor of Phase 1 Investor and Small Stock Specialist. On the latest installment of Frank's S&A Investor Radio podcast (now available), Rogers – whose bullish view of gold is well-known – explains why he expects a pullback in the precious metal… and what might lead him to short it. To listen for free to all of Frank's podcasts, click HERE.


 
 


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Timing & trends

The Bottom Line: Buy When it Snows, Sell When it Goes

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Posted by Don Vialoux - Timing the Market

on Monday, 09 April 2012 02:10

The transition stage for equity markets (Buy when it snows, sell when it goes) has started earlier than usual this year. Protective strategies and profit taking for investors with a 3-6 month time horizon is appropriate given the current fundamental, technical and seasonal influences.

The S&P 500 Index fell 10.39 points (0.74%) last week and another 15 points following release of the job report on Friday. Intermediate trend is up. However, the Index broke below its uptrend line on Thursday and its 20 day moving average on Wednesday to complete a bearish rising wedge pattern. The Index likely will test its 50 day moving average at 1,370.05 shortly. Short term momentum indicators have rolled over from overbought levels.

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The TSX Composite Index plunged 289.07 points (2.33%) last week. Intermediate trend is down. The Index has completed a modified head and shoulders pattern. The Index remains below its 20 and 50 day moving average and fell below its 200 day moving average last week. Short term momentum indicators are trending down, but have yet to show signs of bottoming. Strength relative to the S&P 500 Index remains negative. A loss of another 130 points or more is likely at the opening today.

image thumb8

View more Equity Trends, Currencies, Gold/Commodities, Interest Rates, 50 charts and other factors HERE



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Timing & trends

ETF's: Time to take profits in the industrial sector

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Posted by Don Vialoux - Timing the Market

on Wednesday, 04 April 2012 08:22

This column recommended accumulation of Exchange Traded Funds in the Industrial sector on October 11th for a seasonal trade lasting until Spring. Since then, the S&P Industrial Index has gained 23.9 per cent. What should holders of Exchange Traded Funds and related equities in the sector do now?

The industrial sector includes a wide variety of subsectors including industrial conglomerates, aerospace & defense, machinery, air freight & airlines, road & rail, electrical equipment, construction and engineering and building products. Investors can choose between 24 ETFs that track the sector or its subsectors. Largest holdings in the S&P Industrial Index are General Electric, United Parcel Services, United Technologies, Caterpillar, MMM, Boeing, Union Pacific, Honeywell, Cummins and Emerson Electric.

The industrials sector has a period of seasonal strength from October 9th to May 31st. Average return per period during the past 20 periods was 15.0 per cent. The current period has recorded significantly higher than average returns through actively traded Exchange Traded Funds. Excluding dividend distributions, the Industrial Select Sector SPDR Fund (XLI $37.42) has gained 21.0 per cent, the Vanguard Industrial Index Fund (VIS $69.54) has advanced 20.0 per cent, iShares on the Dow Jones Transportation Average (IYT $93.69) gained 15.5 per cent, the Dow Jones US Aerospace & Defense Fund (ITA $67.13) gained 17.4 per cent and Market Vectors Environmental Services ETF added 14.7 per cent.

On the charts, the S&P Industrials Index has a positive, but deteriorating technical profile. Intermediate trend is up. The Index trades above its 50 and 200 day moving averages. However, strength relative to the S&P 500 turned negative at the end of January and short term momentum indicators started to roll over from overbought levels last week. The Index at 323.52 currently has resistance at 329.29. In addition, several key stocks in the sector including United Technologies, Caterpillar and Boeing broke below technical support levels last week.

The sector is vulnerable to news from first quarter earnings report when they begin to appear next week. General Electric, United Parcel Services, United Technologies and Caterpillar are scheduled to report modest earnings gains on a year-over-year basis while MMM, Boeing and Honeywell are expected to report modest declines. Of greater concern, second quarter earnings guidance released with first quarter reports could be revised lower by several key companies in the sector. Most companies in the sector realize more than half to their earnings from operations outside of the United States. Currency translation into U.S. Dollars at a time when the U.S. Dollar Index is high relative to the same period last year will significantly dampen earnings expectations in the second quarter.

Preferred strategy is to take seasonal profits on Industrial sector Exchange Traded Funds and related equities at current or higher prices.

clip image008_thumb1

 Don Vialoux is the author of free daily reports on equity markets, sectors, 
commodities and Exchange Traded Funds. . Daily reports are 
available at 
http://www.timingthemarket.ca/. He is also a research analyst for 
Horizons Investment Management Inc. All of the views expressed herein are his 
personal views although they may be reflected in positions or transactions 
in the various client portfolios managed by Horizons Investment Management.



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