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TTT--23 Dec 05
Minor Upturn Underway?
Most stock price indexes rose moderately on Thursday. Bearish short-term momentum appears to be lifting at a time when historical tabulations indicate that a Seasonal Santa Clause Rally is due. Such a seasonal upturn need not be large in order to technically qualify as a Santa Clause Rally.
Prices of F Fund (notes and bonds) also appear to be turning upward. The price trends of notes and bonds often lead or coincide with price trends in stocks.
The most popular stock market momentum oscillators appear to be losing downside momentum. Breadth has been Bullish for the past 2 sessions, with more Advances than Declines on the NYSE. Also, New Highs outnumbered New Lows on Thursday, reversing the Bearish relationship over the previous 3 sessions. Volume was relatively light, which is typical for the holiday season. Relative performance since 19 Dec has S Fund in the lead.
Longer-term negative divergences in volume, breadth, price momentum indicators, and the price indexes themselves remain as stubborn technical problems for the wildly popular but overly crowed Bullish side. These troubles may continue to limit upside potential for the major price indexes, just as they have done for the past 2 years, during which time the major stock price indexes have made little upside progress.
Current Action Limits & Allocation Percentages for 23 Dec 05:
F Fund (Long-term Treasury Bond Index) No buy possible. Current portfolio allocation is nil.
C Fund (S&P 500 Index) No buy possible. Current portfolio allocation is nil.
I Fund (EAFE Index) No buy possible. Current portfolio allocation is nil.
S Fund (Wilshire 4500 Index) If $EMW or DWCP > $550.96, move to 100% position in S Fund. Current portfolio allocation is 50%.
G Fund (Money Market) Current portfolio allocation is 50%.
You should be served well by your allocations.
I'm 50% into S Fund as of COB yesterday. Plan to provide a TTT update later this evening.
IWC and VXF Moving Again...
You seem to be in good company...
Buy when blood runs in the streets
By Mark Hulbert, MarketWatch
Last Update: 12:02 AM ET Dec. 21, 2005
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ANNANDALE, Va. (MarketWatch) -- OK, all of you who claim to be contrarian investors: It's time to see if you walk the walk, not just talk the talk.
How many of you have stepped up to the plate recently and bought shares of General Motors?
You say that you don't follow the crowd. You say that your favorite quotation is Nathan Rothschild's famous phrase that the time to buy is when the blood is running in the streets.
Well, now is that time.
GM is struggling to avoid going into bankruptcy. Its shares on Monday traded for their lowest price since October 1987, nearly twenty years ago. (Read full story.)
That's devastating, considering that the Dow Jones Wilshire 5000 Total Return Index is up nearly 700 percent over this same period.
If it turns out that you don't have the stomach for buying GM, you perhaps can take some solace from the fact that very few of the so-called contrarian newsletters have been buying GM either.
I know because I queried the Hulbert Financial Digest's database for newsletters that currently are recommending GM. Only three emerged from my search, out of a total of 190 newsletters that the HFD tracks.
Interestingly, however, all three have excellent long-term track records.
The first is the Prudent Speculator, which is at or near the top of the HFD's performance scoreboards for performance over the last several decades. To be sure, the position in GM that the newsletter's model portfolio currently owns was purchased in June 1985. But editor John Buckingham continues to hold that original position.
The most recent comment about GM from Buckingham that I had on file was made in November, when he wrote: "Despite all of the bad news surrounding GM, we retain our belief that the company will survive the current turmoil with sizable share price gains awaiting those who maintain their current positions."
The second newsletter currently holding GM in its model portfolios is the Buyback Letter, edited by David Fried. This newsletter hasn't existed for as long as the Prudent Speculator, but its track record is long enough and good enough to justify paying attention to it. Since the beginning of 1997 (when the HFD began tracking this newsletter), its model portfolios have produced a 16.4% annualized return (through this past November 30), in contrast to a 7.9% annualized return for the Dow Jones Wilshire 5000.
As was the case for the Prudent Speculator, however, the GM position that the Buyback Letter currently owns was established many years ago - in April 1999, in this case. And I couldn't find any comments about GM in any of Fried's recent communications with subscribers.
The third newsletter that emerged from my search of the HFD database is recommending GM at current prices. It is the Turnaround Letter, edited by George Putnam. Its track record also is good. According to the HFD's calculations, it is in second place for performance over the last 15 years among all monitored newsletters, with a 20.5% annualized return, vs. 12% annualized for the Dow Jones Wilshire 5000 index.
While acknowledging the company's difficulties, Putnam said that he believes that GM has the "resources to prevail." For example, Putnam writes, GM "still has $19 billion in cash. It also plans to sell its GMAC finance business, which could be worth another $35 billion. That's not bad for a company with a market capitalization of only $13 billion."
Note that Putnam penned this comment in early December; GM's market cap has fallen since then, and is now just $11.2 billion.
The bottom line? It takes guts to buy or hold GM these days. But three newsletters with some of the best long-term records are exhibiting that quality, and are at least sticking with the stock, if not outright recommending it for purchase.
Thanks Bob!
Thanks and ditto to you and yours...
TTT--21 Dec 05
Time for the Santa Clause Rally?
Bearish momentum slowed somewhat on Tuesday, but negative divergences in volume, breadth, price momentum indicators, and the price indexes are technical problems for the wildly popular but overly crowed Bullish side. If the Santa Clause Rally is going to appear at all this year, it is time now. As a result, if the action limit is tripped for 21 Dec I'll be moving in the small and mid-cap area (S Fund).
F Fund (notes and bonds) sagged somewhat lower, influenced by the recovery in the price of oil. The note and bond price trends remain choppy and contained within their November price range.
The ISE Sentiment Index is Call/Put Volume Ratio. It hit 247 on Tuesday, two and a third standard deviations above a half-year average of 169. Interpretation of this ratio is according to the Art of Contrary Opinion: high and rising Call/Put Volume Ratios show speculative optimism and are generally recorded at or near market price highs, while low and falling Call/Put Volume Ratios show speculative pessimism and are generally recorded at or near market price lows. Makes me so nervous for considering going long when the speculations are big-time Bullish...
Current Action Limits & Allocation Percentages for 21 Dec 05:
F Fund (Long-term Treasury Bond Index) No buy possible. Current portfolio allocation is nil.
C Fund (S&P 500 Index) No buy possible. Current portfolio allocation is nil.
I Fund (EAFE Index) No buy possible. Current portfolio allocation is nil.
S Fund (Wilshire 4500 Index) If $EMW or DWCP >= 543.48, move 50% into S Fund. Current portfolio allocation is nil.
G Fund (Money Market) Current portfolio allocation is 100%.
Hello Bob,
FYI--Got the following message using the link you provided...
Content Server Request Failed
Unable to get dynamic conversion. Unable to find csGetFileRevMethodLabel_latestReleased revision of P03695...
Not too late for a short-term short?
Gotta get by this week first! STL not a dependable choice...
Covered QQQQ short today and went long @ 40.91 in the afterhour session. Expecting a short-term relief rally to 21-day SMA. RSI--don't fail me now!
W@G2 QQQQ 12/21/05 for a 12/23/05 close
41.68 frenchee
Thanks for the comprehensive answer AnderL. I'm going to leave it alone for now.
John,
I'm not for splitting the spoils. All or nothing is fine with me.
Hello John,
Could you please elaborate on the rules if there is a tiebreaker needed at the end of the regular season.
TIA
Anyone Speculating on GM?
Trading at 18-year low today...
swingman,
Hope you set your stop on GM. With the 18-year low being traded today, there's no chart support unless we close today above 20.60.
I like your odds next week as I've used up my consistent teams!
Thanks positiontrader
Hello cannabis,
What's a VTO buy signal? Please explain.
TIA
Thanks AnderL--nice to have the weekly and daily perspectives together.
Time to change your screen name Bliss?
TTT--20 Dec 05
Technical Problems…Anticipating the Anticipators?
Negative divergences in volume, breadth, price momentum indicators, and the price indexes are technical problems for the wildly popular but overly crowed Bullish side. It is possible that Bullish historical seasonal tendencies were already fully anticipated in advance—the Santa Clause Rally shifted to November. As the market becomes increasingly dominated by aggressive professional traders, such as hedge funds, the game may speed up. I might have to anticipate the anticipators...
On Monday, stock prices tried to rally early but soon reversed. All the major indexes closed lower, and very near the lows of the day, with the broadest-based Wilshire 5000 falling 0.73%. The C Fund broke the lows of the previous 3 trading days, thereby violating minor support. The C Fund also closed below its trailing 10 and 20 day simple moving averages, thereby confirming a short-term correction. F Fund rose slightly, helped by the decline in commodities and oil. The note and bond price trends remain choppy and contained within their November price range.
The ISE Sentiment Index is Call/Put Volume Ratio. It hit 233 on Monday, two standard deviations above a two-year average of 167 and its highest level in 3 weeks. Interpretation of this ratio is according to the Art of Contrary Opinion: high and rising Call/Put Volume Ratios show speculative optimism and are generally recorded at or near market price highs, while low and falling Call/Put Volume Ratios show speculative pessimism and are generally recorded at or near market price lows.
Current Action Limits & Allocation Percentages:
F Fund (Long-term Treasury Bond Index) No buy possible on 19 Dec 05. Current portfolio allocation is nil.
C Fund (S&P 500 Index) No buy possible on 19 Dec 05. Current portfolio allocation is nil.
I Fund (EAFE Index) No buy possible on 19 Dec 05. Current portfolio allocation is nil.
S Fund (Wilshire 4500 Index) No buy possible on 19 Dec 05. Current portfolio allocation is nil.
G Fund (Money Market) Current portfolio allocation is 100%.
We are on the same wavelength today...
Week 16: STL to win
OT: US Govt. Energy Forecast
Adam Hamilton
December 18th, 2005
Wall Street seems to have a pathological aversion to acknowledging the long-term secular bull market in commodities unfolding today. This is unfortunate since big Wall Street firms have such great influence over the information that ultimately reaches mainstream investors.
The primary facet of this Great Commodities Bull is energy, the crucial fuels that make all global commerce possible. Rising energy prices herald wondrous opportunities for investors, but Wall Street has largely chosen the head-in-the-sand approach. It wants to ignore rising energy prices since their bull markets will ultimately weigh on the market-darling sectors like technology.
The higher energy prices rise, the more consumer disposable income is diverted to paying for energy. When consumers have less to spend, they buy fewer products made by the big American publicly traded corporations. Lower sales mean lower corporate profits. And lower profits make current valuations far too high so stock prices must correct to reflect the new fundamental realities. Thus, Wall Street is no friend of energy.
But as investors, our mission is to seek to maximize our returns while minimizing our risks. Today there are probably no other sectors on the planet that better reflect this higher-potential lower-risk ideal than the various energy sectors. Today energy stocks generally have low valuations, they are cheap relative to their profits, and the energy prices that drive these profits are likely to rise for many years to come, driving profits even higher.
Investors owe it to themselves to bypass the de facto Wall Street embargo on energy information and learn why the opportunities in energy today are so awesome. A fascinating report just released by the US government this week, its new 25-year forecast for the energy industry, does a wonderful job explaining why energy fundamentals remain so phenomenally bullish. Everyone who manages money, from individual investors to professional fund managers, needs to read this report.
It is called the Annual Energy Outlook 2006 (Early Release), henceforth AEO. It is available at www.eia.doe.gov/oiaf/aeo/index.html. As this web address indicates, the AEO is published by the Energy Information Administration (EIA), the statistical branch of the US Department of Energy (DoE) that compiles all of the official energy statistics for the US federal government. This is the official position of the government of the United States of America on energy trends.
I think you will agree with me that rising energy prices are politically incorrect. Remember Congress having hearings about gasoline and oil prices in recent months? Americans hate paying more for energy, so they whine whenever prices rise, and Congress responds by parading CEOs in front of cameras and hammering them with ridiculously naïve questions. Thus, the EIA has every incentive to lowball its estimates to keep its political masters happy. So we can probably safely assume that information out of the AEO is conservative.
This latest AEO captured my attention this week because the EIA radically departed from its previous energy stance. Prior to a few days ago, the official DoE oil price projection was around $33 per barrel in 2025 in today's dollars. This week its projections were raised by 2/3rds to $54 in 2025 in today's dollars. If the 2.7% average annual CPI inflation rate of the last 5 years is applied to the next 25 years, the DoE is officially forecasting $112 oil in 2030!
This is a financial bombshell. I cannot count the number of times I have heard or read Wall Street analysts justifying their belief that $30 oil was right around the corner by citing official US government predictions. With these very predictions now forecasting oil to conservatively rise to $112 nominal in the next 25 years, much of the intellectual foundation under the $30 oil fantasy has been shattered. Investors and money managers have to realize that we have entered a new fundamental energy paradigm.
The US government now believes oil supplies will remain tight for decades to come. The AEO says, "The United States and emerging Asia - notably, China - are expected to lead the increase in demand for world oil supplies, keeping pressure on prices through 2030." The US government now expects that world oil demand is going to rise from 82m barrels per day in 2004 to 111m bpd in 2025, a 35% increase.
This is a staggering amount of additional global demand, equivalent to the output of 29 new Alaska oil pipelines coming online (assuming current Alaska pipeline throughput)! The US will account for about 1/5th of this global demand growth. In the US alone the DoE predicts domestic demand growth of 25%, from 20.8m bpd to 26.1m bpd.
Where will all this oil come from? The US expects OPEC nations to grow their production by 42%, from 31m bpd today to 44m bpd in 2025. The rest of the world will have to grow its production from 52m bpd today to 67m bpd in 2025, a 29% increase. Actual US oil production is expected to grow modestly from 5.4m bpd today to 5.9m bpd in 2014 at its next interim peak, and then taper off to 4.6m bpd by 2030.
60% of US oil is still expected to be imported in 2025, and OPEC will shoulder much of the burden. This is interesting in light of the growing number of analysts who believe Saudi Arabia has already or will soon hit its peak production. If Saudi production peaks soon, it's unlikely that OPEC will be able to grow its production by 42%.
If these new DoE forecasts prove even remotely correct, the opportunities these secular trends present to investors today are staggering. Globally most of the easy oil to find has already been found. It is getting more and more difficult to find new oilfields, and giant elephant field discoveries have become extinct. Even the elite oil companies of the XOI only have sufficient reserves today to cover 11 more years of production. The best of the companies that own oil reserves and sell oil are going to become immensely valuable.
In the current issue of our Zeal Intelligence newsletter I did a study on oil-stock valuations. The elite XOI oil stocks are trading under 11x earnings on average. Compare this to 31x average earnings for the market-darling NASDAQ 100 tech stocks. Why pay $31 for a dollar of tech-stock profits when you can pay $11 for an identical dollar of oil-stock profits?
Oil stocks are cheap today fundamentally, their product is getting more scarce by the day, and it is extraordinarily difficult for new companies to enter the industry since so much capital is necessary. What a phenomenal investment opportunity!
Wall Street's irrational fear of a secular bull market in oil and antipathy towards companies that produce it as reflected in their low valuations is just plain dumb. The best investors are sector-neutral, they don't care in which industry they invest as long as it is going to be wildly profitable. The new AEO offers a great deal of fundamental predictions suggesting oil-stock investors are likely to reap fortunes in the years ahead. We are currently deploying into the most promising oil stocks in our newsletters to ride this wave.
High oil prices create interesting peripheral investing opportunities as well. For example, global peak production of light-sweet crude has probably already been reached, so the proportion of world oil that has high sulfur content (sour) will only grow. Sour crude is less expensive since it can't command light-sweet's premium price. Refineries that specialize in this difficult-to-refine sour crude are likely to soar. We are researching sour-crude refining and have already started layering in trades in our Zeal Speculator alert service.
The AEO also addressed natural gas, probably the second most-important source of energy today after crude oil. It expects real natural gas prices to decline gradually from today's high levels but it is still forecasting $12 nominal natural gas prices in 2030. The DoE is forecasting gas consumption to grow 21% to 27t cubic feet in 2025. But domestic US production is only expected to run 21t cf then leaving a massive 6t cf shortfall that must be made up by other means.
Part of this core 21t cf of US gas production in 2025 will come from a new Alaska natural gas pipeline that the US government expects to be completed and online by 2015. It will help Alaska expand its gas production an awesome 450% from current levels, but total Alaskan production will still only run at 2.2t cf. Thus the DoE already accounted for a surge in natural gas from Alaska when forecasting its 6t cf domestic gas shortfall in 2025.
The only way to close this structural gas deficit is via natural gas imports. The AEO only expects 1.2t cf of natural gas to be imported from Canada and Mexico by 2030, less than a quarter of the projected US domestic shortfall. On an interesting sidenote, the report even mentions the decline in gas production in Alberta. The little known fact that Albertan natural gas reserves are being depleted has huge implications for the oil sands industry there. Without natural gas to fuel the difficult extraction of oil from oil sands, the entire oil sands industry would grind to a halt. Natural gas may prove to be the key to the future of the oil sands.
So where will America get its gas that we so desperately need to heat our homes and generate 20% of our electricity? The DoE says, "Growth in LNG imports is projected to meet much of the increased demand for natural gas." LNG is liquefied natural gas. The gas is supercooled to -260°F to shrink its volume by 600x so it can be loaded in LNG tankers to be shipped across the world's seas. The LNG industry is going to explode.
The US government now expects US LNG imports to soar a staggering 583% to 4.1t cf in 2025. It will make up over 2/3rds of the shortfall between US gas demand and domestic production. Amazingly the US only has four existing onshore LNG terminals today. The DoE only expects another eight or so to be built. In the current issue of Zeal Intelligence we just purchased a company that is building four of these desperately needed new LNG terminals. LNG has to be offloaded into the US somewhere and investors can profit from it by investing in the handful of companies that are involved in this LNG buildout.
It is not just the LNG industry that will thrive though. Domestic US gas producers are finding and pumping a scarce product already in high demand that is only going to grow. We've been researching trading natural-gas stocks and are now layering in a campaign of the best of the elite US gas producers. Like oil, barriers to entry in the gas industry are very high so new gas companies cannot just be wished into existence with no capital like the dot-coms of yore.
Natural gas offers little-known peripheral opportunities too. For example, gas is often found with oil. When oil is pumped out of the deep sea or in remote locations where no gas pipelines exist, the gas is considered stranded. Oil companies have no alternative today other than burning off this valuable gas in great flares, wasting it. Today there are companies working on converting stranded gas into synthetic oil on site at remote wellhead locations so it can be pumped out with the rest of the oil. We just bought one of these companies in our alert service.
The DoE's AEO report goes on to discuss coal, a commodity that flies much lower on investors' radars than oil or even gas. US coal prices are expected to gradually decline in real terms and total US coal production is expected to grow 36% by 2025. Interestingly the DoE believes nearly 2/3rds of US coal in 2030 will originate from Western states. It even singles out the low-cost coal from Wyoming's Powder River Basin as an example. Investors can certainly ride this shift to cheaper coal from the west.
But the greatest coal opportunities may lie in coal-to-liquids (CTL) technologies. The AEO expects coal use in CTL plants to soar to 190m tons by 2030, 1/9th of US coal production. CTL heats coal into a gas in a contained reaction that requires no external energy. This coal gas is then cleaned of sulfur, mercury, arsenic, and other toxins. It is then distilled into a synthetic form of crude oil that can be refined on site to produce gasoline, diesel, and jet fuel. These ultra-clean synthetic fuels burn in conventional engines with no modifications.
While this sounds like science fiction, it is not. In the 1940s Germany powered most of its war effort using coal-based synthetic diesel. The US government started exploring synfuels in 1925 and Congress passed an act in the 1940s funding synfuel research and production. But as cheap oil was later discovered in the US, synfuels fell out of favor. It costs about $35 a barrel to produce synthetic oil so high oil prices are essential for this innovative industry.
Obviously in light of the DoE's projection of continuing high real oil prices in the coming decades, synfuels are once again attractive. While they can be produced from coal or natural gas, the coal angle is much more attractive due to the price differential between coal and gas. And the US is believed to have over a quarter of the world's recoverable coal reserves, it is known as the Saudi Arabia of coal. Wide-scale CTL to use this coal and reduce crude oil imports is a match made in heaven. Has your Wall Street broker talked with you about CTL yet?
The AEO also addressed nuclear power. The US government believes US nuclear generating capacity is going to grow to 109gw in 2019, up 9% from today. Nuclear power is expected to produce 10% of the electricity consumed in the US by then. What is "burned" to generate nuclear power? Uranium! Investors can profit tremendously here too. Back in August we took a long-term stake in the world's largest uranium miner and we are already up 28%.
While this multi-decade bull market in energy is great for prudent investors who understand this new paradigm of energy demand growth outstripping supply growth globally, it is not as exciting for consumers. Some folks think higher energy prices will sink the economy and destroy general growth. Interestingly the DoE addressed this very point and does not share this opinion.
The AEO says, "Despite the higher forecast for energy prices, gross domestic product (GDP) is projected to grow at an average annual rate of 3.0 percent from 2004 to 2030 ... The ratio of final energy expenditures to GDP has generally fallen over time and was only about 0.07 in 2004, down from a high of 0.14 during the 1970s. It is projected to fall to about 0.05 in 2030 as a result of continued declines in energy use per unit of output and growth in other areas of the economy."
Thus, even though energy prices are expected to be high for decades, the total energy costs as a percentage of the US economy are still expected to decline in these coming decades. High energy prices today are very different from the high energy prices of the 1970s in the sense that it doesn't take anywhere near as much energy today to produce a given output. The DoE calls this energy intensity and says it is projected to decline 1.8% per year to 2030.
This suggests high energy prices will not come close to triggering economic Armageddon. Investors can buy elite energy stocks, potentially earn fortunes, but the very products the companies they own produce are not going to sink the economy. Energy prices are simply rising up to a new higher norm reflecting global demand growth exceeding supply growth. This is the normal and expected free-market response to a structural deficit.
While I really feel strongly that you investors and money managers ought to go read the DoE report for yourselves, I want to share a few charts copied directly out of the report. There are additional interesting charts in the AEO, but these really capture the gist of the DoE's research. The horizontal axes all run from 1980, to 2004 at the center lines, to 2030 on the right. The upper-left price chart is in constant real 2004 dollars.
These charts summarize the DoE's latest official US government energy forecast rather nicely. In the upper left real oil and gas prices are expected to rise in the coming decades. Interestingly these are conservative long-term average prices, filtering out any potential geopolitical crises or other events that drive the tremendous oil and gas volatility that we have grown accustomed to in 2005.
In the upper right US energy consumption is expected to grow at a faster rate than domestic energy production, pushing up imports of energy in an absolute sense although as a percentage of consumption imports will remain fairly constant. Companies that can produce energy or facilitate its import from overseas are going to thrive in such a bullish fundamental environment.
In the lower left US fossil-fuel consumption is expected to grow at far faster rates than alternative energy including hydroelectric, non-hydroelectric renewables, and nuclear. While everyone wants the science-fiction future of unlimited clean energy, the reality of the coming decades will be the continuing dominance of oil, gas, and coal. The realm of exotic energies like hydrogen fusion remains decades away so investors should concentrate on the existing dominant energies today.
In the lower right US oil production is expected to decline, US gas production is expected to remain stable, and only coal production will grow dramatically. Nuclear and hydroelectric are largely expected to remain flat although non-hydroelectric renewables should grow. But even if the latter doubles, it will still only make up a small fraction of total US energy production by 2030. Once again the big money will be made in conventional energy in the next two decades.
As investors, we need to evaluate potential opportunities and deploy our capital accordingly. The official acknowledgement by the US government this week for the first time that $30 oil is nothing but a memory is very important as it signals the dawn of a new fundamental energy paradigm. Regardless of what Wall Street wants mainstream investors to believe, enormous fortunes should be won by energy investors in the coming years.
At Zeal we are now layering in elite oil, gas, and other energy trades in response to the recent oil correction. Our first round of Zeal Intelligence picks layered in a couple weeks ago is already thriving. Our new December ZI stock trades are up an average of 12% already while our energy-stock options trades have averaged 58% gains just this month alone. We are continuing to pour our time into researching the best oil and gas producer opportunities as well as peripheral areas like LNG and CTL.
Most investors do much reflecting this time of year, wondering what the most promising sectors will be in 2006 and beyond. If you are interested in learning about commodities-bull-related stock trades with tremendous potential on an ongoing basis, please subscribe today. If you are already honoring us with a subscription, consider gifting a friend with one. The energy journey in 2006 and beyond should be awesome.
The bottom line is this week's release of the US government's latest official forecast of secular energy trends is extremely important. It deftly guts the long-standing Wall Street fantasy that the return to a cheap-energy world is right around the corner. Love it or hate it, the new reality is higher energy prices while global production struggles to keep up with world demand growth.
Prudent investors and speculators who understand the times and deploy their capital accordingly ought to reap fortunes in this still very young energy bull. But the time to seize this rare opportunity is now. By the time Wall Street finally adores energy stocks more than techs or financials the greatest gains will have already been won.
December 16, 2005
Adam Hamilton, CPA
TTT--19 Dec 05
Momentum Indicators Rolling Over: “An Obvious Failure of Demand.”
Stock prices have stalled out over the past three weeks. The C Fund made a marginally higher new 2005 high last Wednesday, recovering 70% of its 50% loss from 2000 to 2002. But the S&P 100 (a subset of the 100 biggest capitalization stocks) failed to confirm the new 2005 high in the S&P 500, for another non-confirmation and divergence. Prices of the F Fund, fixed-income instruments (notes and bonds) have been choppy and contained within their November price range. With the economy so strong, some are reexamining hopes that the Fed may be near the end of its campaign to raise interest rates. Also, some still say incoming Fed Chairman Ben Bernanke may be more accommodative of economic growth and less concerned about inflation than Alan Greenspan, whose term ends next month. If so, this change in leadership might lead to an earlier end of short-term rate hikes but possible higher long-term interest rates as the markets anticipate greater inflation. Technically, the trend of long-term rates has been choppy but trending mostly higher since June 2005.
The CBOE Equity Put/Call Ratio is the daily trading volume of puts divided by the daily trading volume of calls for all individual stock options traded on the CBOE. This Put/Call Ratio hit an extremely low reading of only 42 last Thursday, down dramatically from a two-year average of 64 and more than 2 standard deviations below the norm. Interpretation of this ratio is according to the Art of Contrary Opinion: high and rising Put/Call Ratios are generally recorded at or near market price lows, while low and falling Put/Call Ratios are generally recorded at or near market price highs. Likewise, the ISE Sentiment Index is Call/Put Volume Ratio. It hit 227 on Wednesday, nearly two standard deviations above a two-year average of 167. Interpretation of this ratio also is according to the Art of Contrary Opinion: high and rising Call/Put Volume Ratios show speculative optimism and are generally recorded at or near market price highs, while low and falling Call/Put Volume Ratios show speculative pessimism and are generally recorded at or near market price lows.
Investors Intelligence reports 58.8% Bulls, up from 44.8% on 10/26/05. Bears are 21.6%, down from 29.5% on 10/19/05. Sentiment is approaching extremes of optimism. There can be little doubt that the majority remains firmly rooted in a Bullish bias that also has been eager to interpret all the news in a favorable light. In the big picture, however, the old age of the recent Bull Cyclic Upswing casts doubts on the wisdom of such overwhelming optimism. The Bullish majority is projecting forward recent past data that indicate a strong economy, low inflation, and robust corporate profit growth. But the problem with this is that history shows straight line projections don’t work, because the economy and the markets are cyclical. Ebb and flow, up and down, are the very nature of markets. The pendulum swings too far one way, and then it has to correct the excess by swinging in the opposite direction—usually too far—setting up a reaction in the opposite direction again.
Volatility also is cyclical, and recent low volatility and low risk premiums in the financial markets eventually must give way to a swing in the opposite direction. Sooner or later, it always happens. Precise timing of trend reversals is not easy to pinpoint, however, so many savvy traders try to get out before the majority. Such anticipatory liquidation by the smart money minority could explain relatively sluggish stock prices even in the face of what seems like all good news. Negative divergences in volume, breadth, price momentum indicators, and the price indexes are technical problems for the Bullish side. These could be early signs of distribution. But still, lacking large and well-defined price topping patterns, and with seasonal tendencies Bullish until year-end, the precise timing of a substantial downside correction remains uncertain.
Current Action Limits & Allocation Percentages:
F Fund (Long-term Treasury Bond Index) No buy possible on 18 Dec 05. Current portfolio allocation is nil.
C Fund (S&P 500 Index) No buy possible on 18 Dec 05. Current portfolio allocation is nil.
I Fund (EAFE Index) No buy possible on 18 Dec 05. Current portfolio allocation is nil.
S Fund (Wilshire 4500 Index) No buy possible on 18 Dec 05. Current portfolio allocation is nil.
G Fund (Money Market) Current portfolio allocation is 100%.
W@G1 QQQQ 12/19/05 for a 12/21/05 close
41.23 frenchee
Thank you Bull...
Merry Christmas
OT:F-22 joins U.S. fleet as top fighter
BY: Jim Wolf, Reuters News Service
12/16/2005
WASHINGTON (Reuters) - The futuristic F-22A "Raptor" fighter jet, designed to dominate the skies well into the 21st century, joined the U.S. combat fleet on Thursday, 20 years after it was conceived to fight Soviet MiGs over Europe.
The Air Force said "initial operational capability" had been achieved by 16 of the aircraft at the 1st Fighter Wing's 27th Fighter Squadron at Langley Air Force Base, Virginia.
Pilots in the squadron, the Air Force's oldest in continuous operation, have been training on the F-22 for about a year. "When asked to go to war, they're ready," said the 1st Fighter Wing's Sgt. Thomas Doscher of the status change.
The aircraft's role is to "kick the doors down" in a conflict, as Pentagon officials put it, knocking out defenses on the ground and in the air to clear the way for other warplanes and forces.
The radar-evading Raptor is twice as reliable and three times more effective than the F-15C Eagle it is replacing as the top U.S. air-to-air fighter, according to Lockheed Martin Corp., its developer.
Lockheed described the fighter as the world's most advanced and said it was "relevant for the next 40 years."
Boeing Co. and Northrop Grumman Corp. are top F-22 subcontractors. United Technologies Corp.'s Pratt & Whitney unit makes the aircraft's two engines.
STEALTHY AND SUPERSONIC
The Raptor combines low-observability, or stealth, with supersonic speed, agility and cockpit displays designed to boost greatly pilots' awareness of the situation around them.
At a "fly-away" cost of about $130 million each for the most recent batch, not including research and development, it is also one of the most controversial U.S. warplanes ever.
Critics have termed it unaffordable overkill in a world without the potential threat of a Soviet Union able to send swarms of MiGs into a dogfight, which prompted its inception in 1986.
The Air Force is planning to stretch F-22 production until 2010 to keep Lockheed's production line open pending arrival of its more affordable F-35 Joint Strike Fighter family of aircraft that will also go to the Navy, the Marines and co-developing nations that include Britain, Italy and Turkey.
The F-22 also has a ground attack capability to drop 250-pound, small-diameter bombs or 1,000-pound Joint Direct Attack Munitions while flying at supersonic speeds.
Gen. Michael Moseley, the Air Force chief of staff, has said the F-22 is needed against threats such as Russian-built surface-to-air missiles sold overseas.
Moseley said on Tuesday he hoped to buy 183 F-22s, four more than currently in the budget and enough for seven combat-ready squadrons, down from the 750 F-22s once planned.
Others have cast it as the weapon of choice for any future U.S. conflict with China, for instance over Taiwan.
"There is a clear role for F-22 here," said Daniel Goure, a former Pentagon strategist now at the Lexington Institute, an Arlington, Virginia, research group with close ties to the U.S. defense establishment.
As of last month, 53 F-22s had been delivered to the Air Force. Eventually, a squadron is expected to be based on the Pacific island of Guam, a U.S. territory within striking distance of China
Great news Strassenheim. Thanks for sharing.
You must be board AJ...
Merry Christmas on this gain swingman!
GLD Starting to Turn This A.M.
OT: Lockheed Martin F-22A Raptor ready for combat, Air Force says
BY: Tony Capaccio, Bloomberg News*
12/15/2005
Lockheed Martin Corp's F-22A Raptor stealth fighter, the most expensive fighter plane ever built, is ready for wartime operations, the Air Force's top combat commander said today.
“If we go to war tomorrow, the Raptor will be with us,” Air Combat Command General Ronald Keys wrote of a plane that's weathered congressional and public debate on its relevance post-Cold War. The Air Force says it needs at least 381 Raptors but the Pentagon plans to buy only about 180 though 2010. Lockheed already has delivered 56. Boeing Co. is the top subcontractor.
Keys announced the plane's readiness in a memo to Air Force Secretary Michael Wynne. The aircraft will initially be based with the 1st Fighter Wing at Langley Air Force Base, Virginia.
The combat declaration comes 19 years after the Air Force started early development and 14 years after Lockheed Martin, the world's largest defense contractor, won the competition to take the plane into full-scale development and production.
The Air Force once envisioned buying 750 fighters at about $125 million apiece. The number was repeatedly cut and the inflation-adjusted unit cost is now $338 million -- a price that includes research and production dollars.
The F-22A is designed to handle threats in the air and on the ground and to have more speed and range than the fighter it's replacing, the F-15.
New Air Force Chief of Staff General Ted Moseley this week changed the aircraft's formal designation to F-22A from its longtime F/A-22 designation to be consistent with Air Force heritage that keeps only an “F” in front of the number.
The F-22A is capable of dropping two satellite-guided Boeing Joint Direct Attack Munitions as well as destroy enemy aircraft well beyond visual range with air-to-air missiles.
About $46 billion has been approved by Congress for F-22A spending since the 1980s. The program's total cost is $61 billion
Thanks for your comments teknobucks and your analysis as well. My computer at home has been down and my posting ability is somewhat constrainted. Hope to be fully operational sometime tonight.
Hello FinancialAdvisor,
What's your read on EWJ? TIA
Hello BULL,
Your WAG is where I expect to short at. Small world isn't it...
I suspect PFE will find some legs if the market corrects. A close past 22.61 implies a minimum run to 24-25 area where there is price congestion.
Guys--Don't forget to WAG the QQQQ at BULL's board
http://www.investorshub.com/boards/board.asp?board_id=1744