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OBSERVATORY 019: BAX USMO (Bearish Doji Star)
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David's Weekly Market Chartmentary June 19, 2005
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NOTICE: I'm sorry about the missing images on some of my previous Weekly Chartmentaries. I had to do some house cleaning on my website folders. Too bad we can't re-edit the post after the initial 15 minutes. Please visit my website for these Weekly Chartmentaries. Thank you.
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The Dollar Just Happened To Be There
A week ago when gold spot price was still trading below $425, a large fund manager bought 12,000 August $445 gold calls for $200 each. For an "out of the money" strike, this is a large trade. A day later, he bought another 3,000 of the same options for $210 each. He is making a $30 million bet on gold.
Unless something like this surfaced as a reminder, I normally don't pay much attention to the price of the gold bullions. I just accumulate them and put them away as part of the capital preservation and as an insurance policy. I also don't look at the direction of the Dollar as the primary force in gold bullions. Gold moves when smart investors sensed instability in the global financial system. The Dollar just happened to be there. It could've been any paper currency, and it wouldn't have made the slightest difference.
This Wilshire 5000 chart with the overlay of gold and the USD (the U.S. Dollar Index) shows that gold was already on the move during the 2001 recession. That's before the USD topped out in January 2002 (red circle on green curve). The stock market continued with its downtrend after a brief pickup from the 9/11 aftermath. Again, I use Wilshire 5000 to represent the broader market than the other indices. The US Dollar Index topped out at about the same time Euro Dollar was introduced to the world as the then 12-country European Union's official currency in January 2002.
Gold was ready to make its move after it completed its bottom consolidation almost a year before the Dollar made its top. Gold's uptrend was subsequently confirmed when it hit $275 and made that 2nd higher low (blue numeral 2).
"O.K. the price of gold has gone up, but it's only gone up in Dollar term."
While this is a correct statement that we heard all the time from the gold bears (and sadly from some gold bulls), this is not a complete statement. And, an incomplete statement that only mentions part of the fact could become a misleading statement. This kind of statement gives the false impression that gold has gone down in other currency terms.
Here's gold and the Euro 4-year chart.
And here's gold and the Swiss Franc 4-year chart.
And, so we see from these charts that the complete statement should've incorporated the fact that not only gold has gone up in Dollar term, but it also hasn't lost any value against other major currencies. In fact, as we're well aware of now, gold recently has gone up in other currency terms as well.
One simple question comes to mind after looking at these 2 charts. Why would anyone bother buying other paper currencies or bonds as hedge bets against the USD when you could own the real money, gold, instead?
In any case, I'd like to conclude this Sunday's Chartmentary by examining the correlation between the Dollar and Gold since they're on a collision course. Here's a chart that I posted on the Internet trade group forum on May 10. I noted that the gaps between Gold and the USD had been narrowing. Since this gap narrowing pattern could not continue indefinitely (Yes, I know, mathematically it can), something has to give eventually. And, back in May I was very curious to see what's going to happen next.
Something different did happen this time. Let's check out this updated chart below.
In the past, whenever the USD moved up, it seemed only natural for gold to back down. Not this time. This time, gold refused to submit to the Dollar. As soon as the USD started to break higher, Gold started to move upward just as swiftly. And, gold continued to rise even after the Dollar's recent retreat.
From the interaction of them two, it would seem very likely that gold is looking to cross above the USD soon. And that "may" take gold bullion price right over the $440-$445 range. Had that fund manager seen the same thing when he put the $30 million bet on gold? Or, did he know something about China's currency revaluation timeline that none of us know yet?
Finally, a chart of caution.
USD may have lost some momentum last week, particularly after the record current account deficit report came out on Friday, but its uptrend is still technically sound. For one thing, it hadn't dropped below its 20-day simple moving average (SMA) yet. The 20-day SMA is also the centerline of the Bollinger Band. Next, the 14-day RSI is still above 50, and the Aroon DOWN (red line in the center pane of the chart below) is still trending lower highs. This means there's no technical sign of Aroon DOWN gaining any reversal momentum yet. Aroon DOWN would have to rise above 30 to be considered momentum building. And, Aroon UP is still staying above 70. Before Aroon UP breaks down below 70, the uptrend is considered intact.
It's also quite likely for the USD to move back up to the target of 90.49 as a result of the Double Bottom bullish reversal pattern. The breakout of that center peak between the two bottoms was done with three days of strong up moves. Those moves could've formed a strong Candlestick pattern called "3 White Soldiers" if this chart were prepared in Candlestick format.
Nevertheless, the fact that the USD is still technically sound doesn't mean that Gold would have to just roll over. I've always believed that any correlation, inverse or not, between the USD and gold was simply incidental. Gold is destined to continue its move up because of the loss of confidence in the global financial system. It doesn't have to be against the Dollar. It would rise against whatever fiat currency gets in its way.
The Dollar just happened to be there.
billkat- Your conscientious effort of using the Happy Hour to post your thought here is very much appreciated. You’ve taken up a warm spot in my heart.
Thank you so much.
odiemutt- If being real is being a pessimist, then so be it. I’d rather be a pessimist who’s pro-active than an optimist who eventually has to react to the truth. It’s more fun playing offense than defense.
And you’re wrong about market doesn’t care about the econ report. Market does care and so do I because it’s imperative to understand the Big Picture. It’s not just for trading. It has to do with everything we do in life - from planning your kids' college to yoru retirement and everything else in between.
1st Quarter Current Account Deficit
This is not good, but it's expected. The U.S. current account deficit increased to $195.1 billion in the first quarter of 2005, up 3.6% from the fourth quarter of 2004.
This is what's troublesome.
Financial Account
Net recorded financial inflows—net acquisitions by foreign residents of assets in the United States less net acquisitions by U.S. residents of assets abroad—were $165.4 billion in the first quarter, down from $169.0 billion in the fourth.
U.S.-owned assets abroad increased $60.7 billion in the first quarter after they had increased $289.0 billion in the fourth. Among these assets, U.S. claims reported by U.S. banks decreased $62.3 billion in the first quarter, in contrast to an increase of $97.3 billion in the fourth. Net financial outflows for U.S. direct investment abroad increased $32.2 billion in the first quarter, down from a $100.0 billion increase in the fourth. Net U.S. purchases of foreign securities increased.
Foreign-owned assets in the United States increased $226.1 billion in the first quarter after they had increased $457.9 billion in the fourth. Among these assets, U.S. liabilities to foreigners reported by U.S. banks decreased $78.3 billion in the first quarter, in contrast to an increase of $91.5 billion in the fourth. Net foreign purchases of U.S. securities other than U.S. Treasury securities were $88.2 billion in the first quarter, down sharply from $158.2 billion in the fourth. Net foreign purchases of U.S. Treasury securities were $75.5 billion in the first quarter, up from $15.7 billion in the fourth. Net financial inflows for foreign direct investment in the United States decreased slightly.
Interpretation of Recession & Language of the Market
Ed- I’ve re-read the Conference Board’s press release again, and I couldn’t find any mentioning of the Briefing.com’s “Big Picture” text in its press release. I believe it’s Briefing.com’s own interpretation of The Conference Board’s data.
I wouldn’t give it too much weight when it comes to Briefing.com. It’s just one of the spin doctors. The most simplistic definition of a recession, per Econ 101, is having 2 consecutive quarters of GDP decline. But, even that is quite controversial. Some would use NBER (National Bureau of Economic Research) method. In any case, it’s not up to Briefing.com to decide. And, frankly, it's not up to the economists to decide either. We, as true students of the market, already known what's going on in our economy. We don't need any linguistic definition from anyone but from the Language of the Market.
Nonetheless, I think the most important thing is NOT to get sidetracked by the “old” news even if it’s not released yet. I believe (and I know you do too) anything known and unknown up to this point in time has already been reflected in the price movement. Any news known is already the news not worth knowing. I too have to constantly remind myself that the market’s always, and I mean always, forward looking.
News and special events may disturb the price movement temporarily, but they don’t and they can’t stop the market trend. This has been proven throughout the financial market history. For an example, this chart shows the market action during Sep. 11, 2001.
Market declined 13.52% within 5 trading days, from the intraday high of 1092.54 on 9/11/2001 to the intraday low of 944.75 on 9/21/2001. But, after 5 market sessions, S&P picked itself back up and moved on.
As you can see, even though 9/11 had enhanced the market plunge, the market had been in decline way before 9/11. So, in fact that 13.52% fall was not entirely caused by the 9/11 catastrophe.
On this next chart we can see the market was declining prior to the 9/11 attack. In fact, the drop of 14.51% in March was a much steeper decline than in September. The market was going down anyway.
Let’s continue to remind each other to stay focused on the technical ( the language of the market) and the fundamental understanding of the economy.
Chart Talk: Newmont Mining Corp (NEM)
NEM's recent action intrigued me. In case some of you didn't see my technical analysis on "Your Economy" board, here's the link. After reading that 1st post, then just click on "Replies(1)" to get to today's technical note follow-up that's based on this chart below.
http://www.investorshub.com/boards/read_msg.asp?message_id=6685898
Chart Talk: NEWMONT (NEM) TECHNICAL Update
First of all, Mr. Ed (xe2dy), thanks for the email. I didn't have time to check on any of the boards on iHub today. I barely made it posting a couple of important thoughts on my Journal. It's been a busy day. Sorry I didn't even know you had posted questions for me here.
I'll get back with you on the Conference Board's Leading Indicator question later tonight. But, today NEM had made some pretty impressive technical improvements, and I'd like to share with everyone here before I have to run off again.
By confirming the first buy signal, NEM had also crossed above the 50-day moving average convincingly on above average volume. The BB Width that was somehow flat yesterday had just clearly turned upward. We want BB Width (volatility) to increase while in an uptrend.
And today's gap-up action had also made a white Marubozu candlestick pattern (see blue circle). Marubozu has long white body without lower shadow, which means the price went up all day without comeing back down below the opening price. And, that's, of course, a bullish candlestick pattern.
The only thing that's still catching up is the red line (the 9-day trigger line) of the MACD. It's coming close to the positive territory, but is currently in the negative still.
It would be great to fill that gap next. That's a huge overhead resistance. We'll see. For convenience, I'll repost yesterday's chart right below this new chart.
From yesterday...
All the indicators that were relevant in order to trigger the first buy signal were all in place today. I hope some of you had established long position in NEM today. I did. On the confirmation of the buy signal #2, I'd consider adding mroe shares.
After the Bell: 6/16/2005 THE WICKED GRIN
I posted this 1-minute intraday chart last night to show yesterday's intraday action (6/15/2005). Looking at this chart, the very first thought came to my mind instinctively was a smiling face. Now we know what's up with the grinning.
It's grinning because the market knows you could never have it figured out. It keeps us guessing and second guessing.
I've written about how that yesterday's price swing could've trapped some traders, so I won't repeat it here. But, there's something else up its sleeve.
This 5-minute intraday chart shows yesterday's round bottom was actually the formation of a bullish reversal "Cup and Handle" pattern. The "Cup" was completed yesterday, and the "Handle" was just completed today with the breakout took place towards the end of the day. The breakout was backed by larger than average volume.
So, you've been bullish, and you thought you got it all figured out way ahead of this latest technical development. What's with all the smile and the drama?
Today wasn't the first time this "Cup and Handle" formation occurred. This 6-day intraday 5-minute chart shows there was another Cup and Handle formation started as recently as Friday, 6/10/2005, and the formation was completed on Monday. But, what happened after that was intriguing. The price dropped about 1.70% two days after the breakout. That breakout was also backed by above average volume. The bullish reversal didn't happen.
As much as I would like to agree with some "experts" bullish take on this so-called "summer rally", I'm not so sure that's what's going to happen. Tomorrow or next week's action may just surprise a few people. We shall find out. One thing we do know now. Whether you're long or short, it just never feels right in this market.
And, it's all about that conniving grin.
BUILDING PERMITS
May 2005 Housing Start report released this morning by HUD is considered "old" news as far as the market's concerned, but it does provide some confirmation of the weakness of our economy. Probably the best way to look at this report is to look at the "Permits Issued" rather than the construction that had already started. That statistics, to me, is "newer" than the housing start statistics. After all, permits would have to be obtained before the construction could begin.
Privately owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 2,050,000. This is 4.6% below the revised April rate of 2,148,000 and 3.7% below the May 2004 estimate of 2,129,000.
In addition, I'd like to also take a look at the Not Seasonally Adjusted statistic since it's not mentioned in the press release.
This chart below shows that the Not Seasonally Adjusted permits issued in May had also experienced a decline of 1.90%, from the rate of 192,248,000 in April to the rate of 188,600,000 in May.
I'm very concerned about where our economy's headed. And, I'm not even convinced this is just going to be a "soft" patch.
After the Bell: 6/15/2005 NASDAQ QQQQ
A strange market action day today... All the excitement and the swing of 1.66% between the intraday high of $37.87 and the intraday low of $37.25 for almost nothing.
I couldn't think of anything better than putting on a smiling face along the curve of this intraday QQQQ price action. Since NASDAQ Composite doesn't show the intraday volume, I'm using QQQQ for better illustration.
But, all kidding aside, this is where it could get "dangerous" for traders. If one had bought, for an example, Jul $38 Put at $1.05 at the intraday bottom, thinking that Naz was going down for sure. And from the way it's sliding, I wouldn't be surprised that many had bought in at that time. The final Put price for that same option at the end of the day was $0.75. That's a 40% loss - on paper if the position is still open.
Just by looking at this 3-day 5-minute intraday chart below with the remainder of today's action blacked out, it's understandable that some traders could've been led to believe that once QQQQ broke through the support (red trendline) of the price channel, QQQQ was doomed. Hence, it's time to go short.
So, that exemplifies even shorting the market could be hazardous. That's what happened with low market participation and with program trading.
Yesterday's end of day (6/14/2005) chart below shows the 20-day SMA (Simple Moving Average) was at $37.84 and the closing price was $37.58. Today's opening price was $37.83. Within minutes, it hit the intraday high of $37.87 and began its convincing descend.
Now with program trading accounted for 60%-70% of the total trading volume, I wouldn't rule out the fact that the buy and sell signals were pre-set at the 20-day SMA. Program trading is the simultaneous purchase or sale of at least 15 different stocks with a total value of $1 million or more.
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The combination of low overall volume and high program trading volume could be disastrous for day trading. Perhaps during this period, it'd be prudent to set up longer term trading strategies, from a week to a month or maybe even longer.
Trade Journal: Verizon Communications (VZ) Position Closed
Almost forgot to make the Journal entry for closing VZ position. Sold it at $35.16 for a measly 1.09% gain - lunch money.
I'm just very disappointed with how these big MCI shareholders would care more about squeezing a few extra dollars now than the long-term prospect of the company and its employess. And because of this, it looks like Qwest could get back into the bidding war. That's why VZ has been going nowhere but sideways.
Well, way too much drama for my taste. The little rally today is as good a time to unload it.
I've tried...
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The Truth about Building Material Inventory-to-Sales Ratio
This morning’s release of the Manufacturing and Trade Inventories and Sales Report is one of my favorites because of its relevancy. It measures business sales and manufacturing inventory activities. And, having these 2 sets of data enables me to calculate the Inventory/Sales Ratio. The Inventory-to-Sales ratio and the Sales-to-Inventory ratio are mirror images of each other. We only have to look at one of them. The category I’m particularly interested in is the “Building Materials”. That’s one indicator of the well beings of our housing market.
From this Inventory/Sales Ratio chart, it would appear that the inventory is not keeping up with the sales as this ratio had been declining for two consecutive months. In fact, it has fallen to the lowest level since July last year. When this ratio’s declining it generally means sales are moving faster than inventory build-up. At least, that’s what some “economists” said on this latest report. And, according to their interpretation of this ratio, it’s a sign of a growing economy where businesses were not burdened with as much cost of inventory while sales were moving ahead of the inventory build-up.
However, mathematically, it doesn’t have to mean the increase of the sales activity. It could also be that the sales are declining but just not as quickly as the decline of the inventory. If us average Joe’s would just take a moment of our time and eyeball the detailed numbers in this report, we could’ve easily spotted that’s exactly what took place.
The decrease of the sales of the building materials between December 04 and January 05 was really shocking. And, yes, I had to go back a couple of times to check on the figures just to make sure I didn’t make any mistake.
That’s a $5.5 billion differential!!! And, that's the real reason this Inventory-to-Sales ratio had improved. The sales were declining except that the inventory was declining even more quickly. Of course, we all know what the slow sales and the lower business investment in the inventory would do to our GDP.
Yes, the market participants get confused by all the news and the institutions program trading, but at the end, the fundamentals will not be denied. All is not well with our economy, fundamentally speaking.
Chart Talk: Newmont Mining Corp (NEM)
Bullwinkle- Thanks for the word of wisdom. Initially those hate mails did upset me, but I’m used to them now. I know you had sold your gold shares. I probably should’ve said that you didn’t load up on gold shares anymore. Speaking of which, Newmont’s looking quite palatable to me.
The most significant aspect of this chart is the volume. I believe the recent drop to below $35 should’ve been the bottom. The volume was only half of the previous gap down. That tells me the selling pressure was no where near as intense as the gap down in late April. The recent advances were on higher volumes above the 21-day moving average.
I also liked the fact that the RSI’s trending higher and had already crossed above 50. MACD looks promising as well. MACD (the thick black line) is the differential between the 12-day EMA (Exponential Moving Average) and the 26-day EMA, which had crossed above the 9-day EMA trigger line (red line) and had just barely crossed over to the positive territory (at 0.046). And, the histogram, which is the difference between the MACD and the 9-day EMA trigger line is in the positive territory (at 0.280).
Consideration could be given to initiate long position on the first buy signal if the above technical signs stay intact while price moved convincingly above $39 with above average volume and continued uptick of BB Width.
Additional shares may be purchased if the price moves above $40, which would then fill the gap and turn this gap into its new support. This should solidify its $40 price level. Before buying more shares at this price level, make sure that BB Width continues to rise and all other above referenced technical aspects stay intact.
DISCLOSURE: I currently don’t own NEM shares. I sold all my shares at the price just a tad over $44 in March, prior to the beginning of this downtrend.
After The Bell: 6/14/2005 McClellan Oscillator
This is probably one of the most peculiar technical pattern that I’ve seen in a while.
McClellan Oscillator is a market breadth and momentum indicator. It’s basically a ratio of the daily advance issues to the total advance/decline issues on the big board. The 0 line is where the 19-day EMA (Exponential Moving Average) crossed above or below the 39-day EMA, and hence the buy or sell signals.
McClellan recent uptrend started on March 24, more than 2.5 months ago. It had just broken this uptrend last week (yellow highlight). This is the longest lasting McClellan uptrend that I’ve seen in a long while, yet the big board index merely advanced 0.977%. The sidetracking of the NYSE Index movement in the upper pane and the McClellan uptrend in the lower pane simply didn’t look like they belong to each other.
I believe this is a good example of how the decimal pricing system had skewed the advance/decline issue statistics. If a stock gained $0.01, it’s counted as an advance. And, the recent low trading volume affects this statistics even more profoundly.
In any case, this divergence spells “Danger”. The fact that McClellan had just broken the recent uptrend makes it even more so. Let’s all proceed with extreme caution.
BARRON'S: Insiders Losing Appetite for Their Own Stocks
TUESDAY, JUNE 14, 2005 5:52 p.m. ED
Does the S in Summer Stand for Selling?
By WENDY ALLARD
INSIDERS SEEM TO BE LOSING their appetite for their own stocks.
Just three weeks ago, Barron's Online wrote that the ratio of insider sellers to buyers was falling, as more insiders purchased shares of their companies' stock.
But it seems insiders are once again heading for the hills.
In the week ended May 21, there were 1.7 sellers for every buyer. That ratio has increased to 5 sellers for every buyer in the first week of June.
Mark LoPresti, senior quantitative analyst with Thomson Financial, says that the summer period, which unofficially starts after Memorial Day, is generally a slow insider buying time.
"The market was up nearly 4% last month, and we had a big buying month," says LoPresti. "We'll see if [the selling] is sustained."
"If it is, it may be the highest selling month in a while," he adds, referring to June.
Jonathan Moreland, director of research at InsiderInsights.com, also thinks that insiders may be less confident in the market than they were a few weeks ago. According to Moreland's data, a few weeks ago, 56% more companies had insider selling than buying -- that number is now 121%.
"I think the easy money for this rally has been made," says Moreland.
Inverse Correlation Using the Quotient Against the Divisor
Bullwinkle- I have a lot of respect for what you do here, and this kind of compliment from you means a lot to me. I thank you for that.
I’m glad you didn’t load up on gold shares yet. I’m long-term bullish on gold and silver, but I don’t really think the time has come yet for us to get back in. I’m always reluctant to express this view. I got a few hate mails when I published my gold analysis on 321gold site. In that article I projected the Dollar Index to go to 90 and the gold and silver shares to stay in consolidation mode till later this year. Gold bullion is a different matter. Any time is the good time to buy them but ONLY for capital preservation and insurance purposes.
Onto your correlation charts, they’re nice charts, but there are logistic issues. Before we proceed, please understand that we’re all learning together. So, please don’t take this the wrong way. Please also refer to my critique on John Murphy’s “inter-market” analysis of S&P and XLV (Healthcare SPDR).
http://www.investorshub.com/boards/read_msg.asp?Message_id=6288084&txt2find=murphy
Using your chart of $GOLD and $HUI as an example. The ratio is the quotient of the dividend ($GOLD) and the divisor ($HUI). When you compare the quotient of these 2 against the divisor ($HUI), it has the propensity to create an inverse correlation because the larger the divisor, the smaller the quotient. The dynamics of this divergence is already built in by default. The correlation is then skewed.
This is one of those common mistakes committed by chartists. As experienced and as great as John Murphy is, he too was not exempt from committing this error.
As a side note, I really have a feeling that Mr. Murphy’s checking on iHub charts. Since I brought this up on my board and the Seasonality board, I’ve not seen him providing this type of skewed inverse correlation again.
AnderL- Having read ALL of my posts on my Trade Journal is no small feat. That’s very impressive. I thank you dearly for letting me know that. It really makes all the work worthwhile.
You brought up a couple of interesting points. The chart did show HUI is a better investment than USD, Yen, and Euro, but only after the weekend of May 22. So, to me, the significance is not what but why. That’s the point of the chart. It’s where the significant technical and fundamental developments met.
As far as the liquidity goes, intuitively it would seem that gold mining stocks are more liquid. But here’s the scoop. I’m just going by my memories, but I believe the numbers should be quite accurate.
The daily turnover of Forex fluctuates between $1.5 trillion and $2 trillion while the daily turnover of the entire global equity market is about $200 billions. Now, the estimated daily turnover rate of the entire gold mining stocks is not even $2 billion. So, gold mining stocks is actually the least liquid of them all. And, the physical gold bullion trading is even less liquid than the gold mining stocks. So, that’s the first problem using the price of physical gold for the comparison.
In addition, the price of physical gold doesn’t always move with gold stocks. As you can see on this chart, there have been quite a few divergences just within the past 3 months.
Generally speaking, gold stocks react to the financial market condition ahead of the physical gold price because gold stocks are after all financial instruments. And, as you’ve mentioned, whenever there’s a major change of financial market condition, it’s physically and financially more feasible for buyers to start purchasing gold mining company stocks than gold bullions at $425 a pot.
I hope this answers your question satisfactorily.
Gold Against Major Currencies
Good observation, Bullwinkle, and thanks for posting the link to my Dow Transports article.
John Murphy provided a very good analysis today on this, but here’s a summary of what’s happening with gold.
This Amex Gold Index to USD, Japanese Yen, and Euro Ratios chart with their respective 20-day moving averages shows that on Monday, May 23, all of their 20-day moving averages downtrend were broken, and all three ratios advanced above the 20-day MA’s.
What happened on May 23?
What happened on May 23 was the result of what happened on that Sunday, May 22, when France voted NO on the new EU constitution. Now, everyone suddenly realized that be it Euro, Yen, or what not, they’re all just paper. Gold is the real money. And gold’s value never changes throughout the human history.
I’m thinking all these “legendary” investors putting their bets on Euro rather than gold. Warren Buffett came right to mind. Oh, and, Berkshire Hathaway (BRK/A) and White Mountains (WTM) don’t look too good either.
Thanks, Mariner- Macro+Micro connection is the most important aspect of my investment philosophy. Everything has to do with everything else in life and in our universe. And, investing is part of what we do in life. When I see the Dollar goes down, I’d like to know what happens to the construction boom in Indonesia, for an example.
To me, trading without the understanding of the Big Picture is like crossing the street blindfold. With the narrow market ranges, traders are doing more work for less money, and it takes more time for a trade to complete nowadays. I wouldn’t have the confidence and the conviction in my trade strategies if I didn’t have a thorough understanding of what’s going on in the world.
I’m so glad you could see the value of connecting the dots.
And, you’ve just got my mark too. And, Mariner, I hope you love ocean as much as I do.
nlightn- Your comment really hit home for me because one of my primary goals is to share my observations with other students of the market on all levels.
I truly believe that learning financial skills in this financial economy is as important as learning how to operate machineries in the manufacturing economy of the past. Unfortunately, schools don’t teach these types of real life skills.
There’s no better way to learn than to experience real life in person. I’m hoping, through my market analysis and my real documented trades, rather than baseless claims of fame, I could achieve my ideal level of financial skills by way of the journey through self-discipline and self-discovery. And, while I’m out here making a fool of myself, I’m hoping that other students of the market, who are willing to travel the same path, could also learn through my experiences.
And, the poignancy of your comment meant a lot to me because I now know that I did reach out to the various levels of audience that I’ve intended. I’ll continue to fine tune my writing so that both the experienced and the not-so-experienced traders can all find some value in my analysis. This is just as much for me as it is for you.
Financial Sense Online 6-12-2005
http://www.financialsense.com/index.html
Thanks again to Mary Puplava for taking interest in my writing.
For those of you that haven't checked out the Financial Sense Online site yet, I would strongly recommend that you do it as soon as you have a moment.
The Saturday Radio show that you can download it to your MP3 players was outstanding.
Mariner- Thanks for the reminder. I agree. Sometimes we just take Bullwinkle's effort for granted.
Keep up the voice of reason and the good work, Bullwinkle. It's much appreciated.
David's Weekly Market Chartmentary June 12, 2005
Check Up on The Trannies
Dow Jones Transportation Average is probably the most important index as far as our economy's concerned. This average represents the movement of goods and services. Instead of getting confused by all the government statistics, the best way to take the pulse of the economy is to check up on the Transports.
This weekly Dow Transports chart shows a very strong uptrend that started in March 2003, about 51 months ago. It’s such a strong uptrend that, prior to May this year, the Aroon UP (green line in lower pane) only touched the bottom twice (yellow highlights). It didn’t even touch the bottom on the 2 recent declines that fell below 30 (blue circles). Throughout this uptrend, the Aroon UP spent most of the time staying above 70.
There's something different this time. This was the first time Aroon UP had not only fallen below 30, but had been staying at 0 since the beginning of May (black circle). It all began with the crossover (red circle) of Aroon UP & Aroon DOWN in the beginning of April (see dotted black vertical line). It's technically significant because the crossover occurred at about the same time the Average broke below the blue trendline and the -D (Negative Directional Indicator - red line) crossed above the thick black ADX (Average Directional Index) line. That was only the third time (pink circles), the –D moved above ADX while the +D (Positive Directional Indicator – green line) stayed below ADX. Each time resulted in a decline of the Transports Average.
Now, the Transports seems to be at an important juncture with –D looking to cross above ADX. This could mean the resumption of the down trend after the brief pause in May. Let’s zoom it in and see if we could get a better view on the daily chart.
This daily Transports chart below shows that the –D had already crossed above both the ADX and the +D. The ADX had also leveled off and shown a small uptick. This means the momentum of the recent downtrend had started to pick up the steam. Meanwhile, the 50-day and the 200-day moving averages had just run into each other while the Transports had dropped below both moving averages (yellow highlight). If the 50-day MA crossed below the 200-day MA, that could mean further deterioration of the Trannies.
Another sign of further deterioration is for the Aroon UP to cross below 50 while Aroon DOWN stays above 70. As of Friday, Aroon UP did fall below 70 (blue circle); it stood at 66.67. Aroon UP also had previously spent almost 1.5 months under 30 in March and April when the Trannies declined more than 8%. So, it's not unprecedented for the Aroon UP to fall below 30 and stay down there for a while. Anyway you look at it, the Transportation Average just doesn't look too healthy at this time. But, I'd like to check one more thing for confirmation.
Federal Express (FDX) is the current number 1 weighted component of the Transports Average. This daily chart of FDX with the overlay of the Transports indicates exactly that leadership - as the FedEx goes, so goes the Transports. Recently, the FedEx had fallen faster than the rest of the Trannies on extreme volume. In addition, the RSI had just broken the uptrend trendline and fallen below 50. MACD histogram had just turn negative while MACD crossed below the faster “trigger” line or the red line.
The only positive that I can see from this deteriorating technical picture is that the extreme selloff volume (more than 3 times the 21-day average) on Thursday could also signal the bottoming of its decline. That could be the final blowoff. We should take note of that technical possibility.
In any regard, based on the above technical view of the long-term, short-term, and the intra-market comparative analysis, the Dow Transport Average appears to be in trouble. If the Transports failed to rally from here, it should be self-evident that our economy is headed for a slowdown. And, a global economic slowdown should then ensue, that is, if it’s not already taking place.
Here’s one sign of a possible global economic slowdown. The Baltic Dry Index (see right column in the table below) is a measure of freight rates for bulk cargo of raw materials that are shipped to industrial users. It’s fallen more than 37% this year, to 2.889.
And, finally, for those of you who inquired, here’s the follow-up on last Sunday’s Fibonacci Arc analysis of the NASDAQ.
As I mentioned last week, on its way down, the inner layers become the supports. This past week, Nasdaq had fallen through both layers of supports and finally stopped at a tad above the 23.60% Fibonacci Retracement. The gap-up occurred on 5/25 had been filled, and is now served as the final support. We’ll revisit Nasdaq later. That's it for now.
OBSERVATORY 018: White Mountains Insurance (WTM)
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Patriot Act - Anti Money Laundering Program
"One bank initially flagged 20,000 customers, according to Breton, because they all lived in a city called Binfield -- which was just a little too close for comfort to Osama bin Laden." --- Katharine Mieszkowski
I would hate to be a resident of Laden, OK or Laden, KY, especially with a Muslim name and regular donation to charities.
Chart Talk: Shorting FDX for Personal Reasons
I didn’t think it was appropriate to document this trade on my Trade Journal. As I’ve mentioned before, I don’t like to document short sales in the public Although I personally couldn’t care less if someone shorted the stocks I own, it’s such an emotional issue for most share holders. In addition to that this is really a personal issue. Therefore, I will not speak of how well I did or did not do with this trade. Instead, I’d like to share what I see technically on FDX. Let’s take a look at this chart I prepared.
When FDX was really on the move, it’s moving ahead of the Dow Transport Index (green line). This was what happened in January and February. It topped out in early March. Subsequently, FDX dropped below both the 50-day and the 200-day simple moving averages (red circles) within a month.
Then, on May 16, its 50-day SMA crossed below the 200-day SMA. Technically this was called the “Death Cross”, which signals a major shift of momentum and direction. Coincidentally, this happened to be the time when FDX started moving back up again. But, the move up was below the overall uptrend of the Dow Transports Index.
By the way, for investors who didn’t heed the crossover of the 50-day and the 200-day SMA’s, this small up move turned out to be a bear trap. They thought that FDX had already bottomed and started buying. However, from the low positive buying volume, we can tell these buyers were mostly retail investors.
I drew a rectangular box that helps identify the price movement in the 2 days following the WSJ report about FDX’s management turning this company into their own private FBI. Both were down days. Bullwinkle, this tells us that we’re not the only 2 nutcases feeling this way about FDX.
And now, we’ve had 4 big selloff sessions in a row this week with tremendous rising volume. The only question is whether the huge surge of volume on the selloff on Thursday was the final blowoff. If it were, then the price should start to move upward soon.
For me, this is going to be a long term “Sell” and hold. So, we’ll see....
Here’s that original post of mine again incase you missed it.
http://www.investorshub.com/boards/read_msg.asp?message_id=6492720
After the Bell: 6/9/05
This is one of the reasons that I advised in the Sunday Chartmentary not to "go overboard shorting the market".
This simple yet effective 200-day Exponential Moving Average of the Wilshire 5000 index provides a pretty good idea of the market directions. It faithfully signals a change of market direction whenever the trendline (thin red line) was broken. Incidentally, Wilshire 5000 index consists of over 6000 publicly traded companies headquartered in the U.S.
You can see the change of directions in the market (upper pane) and the MACD (lower pane) at every break of the trendline. The thin red line rose almost parallel along side the 200-day EMA until the beginning of March. That signaled that uptrend was coming to an end. And, that's exactly what happened. Wilshire 5000 dropped from over 12,000 to below 11,200.
The recent rise from around May 16 was almost at a 45 degree angle. And as of today, I've not seen a slight hint of a change of direction anytime soon. And, that's amazing considering the lack of volume while the MACD has been turning downward.
Unless the volume picks up, this recent uptrend that lasts almost 4 weeks now should merely be a reaction to the preceding period (March-April) of selloff. In addition, my previous analysis pointed out that, as much as Wilshire 5000 had dropped approx. 7.5% during the March-April selloff, the market had not shown technical sign of oversold. Therefore, a market uptrend that's not supported by volume and was not a result of an oversold condition will not last. And, it's certainly not a rally.
Whether you hold short or long position, a market without volume is a market without full participation. And, a market without participation could turn on a dime at any moment. Set your stops and Be careful!
Poverty Rate Rising 3 Consecutive Years
This is something that’s not often talked about. We just swept it under the carpet pretending that it does not exist in our country.
The latest statistics made available was for 2003. According to Census Bureau’s latest report, the official poverty rate rose, from 12.1 percent in 2002 to 12.5 percent in 2003. The number in poverty increased also, by 1.3 million people, to 35.9 million in 2003. The poverty rates for people 18 to 64 and those 65 and older remained unchanged, but the poverty rate for children rose from 16.7 percent in 2002 to 17.6 percent in 2003.
I’m very very very very concerned about our future generation. A society can not be a great society without taking care of its own children first. That's the foundation of our future.
And, shorting FDX in addition to boycotting, as per your suggestion.
I don't trade on emotion, but this one was an exception. I'm willing to take a loss just for doing what I thought was the right thing to do. Money was never an issue in my trading anyway.
Here's my original post. http://www.investorshub.com/boards/read_msg.asp?message_id=6492720
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Trade Journal: Apple Computer (AAPL) w/Full Tech Note
I don’t want to get into the full debate about Apple and Microsoft PC. I’m merely offering a little fundamental understanding as I did with most of my trades.
According to WSJ online survey chart below, majority (46%) of voters thought the reason Apple has had a small share of the PC market was due to buyer’s reluctance to change system. This isn’t anything new. It’s the same reason since the 80’s, and, unless something drastically changed, it’s going to be the same reason going forward.
Steve Jobs didn’t believe market shares matter at all. Last year and the year before, Apple computer accounted for just about 2% of the global PC sales. It’s not the computer sales that led Apple’s financial comeback, it’s the iPod. iPod now brings in 1/3 of Apple’s revenue. So, the question is whether the market is in favor of this business model moving forward.
From this chart below, market didn’t seem optimistic about Apple’s outlook. There’s the usual on this chart. The ADX (thick black line) was trending down while the –D (red) had just crossed above both the +D (green) and the ADX. MACD had also just turned negative with the histogram in the negative (below 0) territory.
And, it’s never a good sign that while MACD starts to trend down, PVO (Percentage Volume Oscillator) begins to pick up. PVO, while still under 0, just broke above the recent downtrend last week (red trendline).
The most noteworthy technical development is probably the formation of the “ISLAND” reversal pattern. It started with a gap up (there were actually 2 gaps) in mid February (blue boxes), and it completed the formation with a gap down in mid April (red box marked No. 1). Island formation is a critical market top indicator.
The first down gap (#1) happened around the time the 20-day moving average crossed below the 50-day MA, and the down gap 2 broke down right after the same 20-day MA crossed below the 100-day MA. The down gap 1 was accompanied by huge volume, which indicates huge selling pressure. The second gap down (2) was also accompanied by huge selling volume.
Both gap 1 & 2 were then filled when the up gap 3 occurred in mid May with largest positive volume since April 18. This tells me that $34-$35 support is a tough one to crack. I don’t expect it to drop below $34 without putting up a good fight. That’s why I went with the $35 call and not anything lower.
The $40 level where the down gap # 1 occurred also appeared to be a strong overhead resistance. The price gapped down from there (see # 4 gap) just last week with largest selling volume since May 12. And, this gap #4 still didn’t get filled yet. It would seem unlikely to have this gap #4 filled any time soon because this gap took the price down below all moving averages, except for the 200-day. 200-day MA is nearing $32.50 area.
My entry point is to make sure that the price didn’t shoot back up to fill gap #4 right away. This also means for the price to stay below $37.50, which happens to be below all 3 of the moving averages.
And, that’s what this 4-day, 10-min intraday chart told me today. It dropped below the 23.60% Fibonacci Retracement, which was at around $37, and stayed there for the rest of the session.
I bought Jan 2006 $35 PUT @ $3.60 as per my first Trade Journal post. I deleted that post just to remove the redundancy.
So, now we’ve got the play in place, and we’ll sit back and enjoy the game.
Incidentally, if you're wondering why the term "Island", here's why...
dk- MOT Divident
Hello dk,
Thanks for bringing this to my attention. That's so kind of you. You're correct that MOT regular dividend had been $0.04 per quarter. However, there was a $2.056 special cash dividend last year. This made the total dividend distribution $2.216, which is approx. 12.25%, based on today's closing price.
If you're interested, I'm going to post Apple Computer trade next on the Journal. It's based on a rarely talked about topping pattern called "Island Reversal".
Have a great day! Here's a preview. I'll write it up on my Journal as soon as I have a free moment.
Trade Journal: Korn Ferry International (KFY) Update
I don’t know how to stress the significance of this trade on both the technical and the fundamental fronts other than the fact that I could’ve closed my short position yesterday for a nice 4% gain, but I didn’t ($17.57/$16.88=104.09%). Money is not the issue although I was tempted to take the profit yesterday. The issue is to get first hand experience on this experiment.
In any case, so, the earning was announced this morning. KFY earned $0.27/share, which was $0.02 better than the analysts estimate of $0.25. The “Surprise%” was then 8%. This was the chart I posted yesterday that shows the declining “Surprise%” (red bars).
As I mentioned that the analysts seem to have caught up with KFY’s earnings. This 8% “surprise” for the recent quarter was making another lower low. It’s lower than the 9.5% in the pervious quarter.
I also mentioned that I would give KFY the benefit of the doubt of having a better than estimated earnings due to its concentration on recruiting executives and managerial positions. However, I believe that this “better than” estimated earnings had already been factored in the price when it recently moved above the centerline of the Bollinger Band.
I firmly believe that anything known at any point in time has already been factored into the price action. The market’s always forward looking. It does not look back. It doesn’t even look at the present. As a side note, this is why trading or investing is so hard for us. Humans tend to live in the past. And the older we get, the more time we spend living in the past.
Notwithstanding, the only way to verify this theory once again is to keep this short position open until KFY price moves back to the equilibrium point. The point where it belongs should be right at $16. This was where the market had already given it the benefit of having a better than estimated earnings.
So, we shall see...
OBSERVATORY 017: Coffee (September)
OBSERVATORY 016: Motorola (MOT)
12.37% Dividend Yield. CNT (Carbon Nano Tube) Technology.
Korn Ferry International (KFY) Trade Journal II
I’m always reluctant to post short sales in the public, but this one is different. This one is an intriguing experiment; an experiment of the paradox. It’s paradoxical because of all the contradictions.
I’ve been posting Conference Board’s Help Wanted Advertising Volume Index, which shows a slowdown in hiring across the nation. Job growth in the temporary help sector also slowed to 6.3 percent from the 8 percent average over the last year. This is in addition to the now widely known Labor Department’s latest data about the lower than expected number of the non-farm payroll job creation in April. Yet, KFY experienced a double-digit intraday gain just a day prior to its earnings call. The earnings call is scheduled for tomorrow morning at 10:00am.
And these are the reasons for the experiments.
REASON # 1
2 analysts upgrades today, just prior to the earnings call.
--- Upgraded to Buy from Neutral by UBS
--- Upgraded to Outperform from Neutral by Robert Baird
Note:This is one of the most widely held stocks by institutionals and mutual funds.
REASON # 2
The red bars are the last 4 quarters’ earnings surprise %. It was a big surprise last April when the actual earnings were 61.50% higher than analysts’ estimates. But, then the “surprises” factor started to dwindle in every subsequent quarter. In addition, the differential between the heights of the aqua bars (Estimated Earnings) and the green bars (Actual Earnings) were shrinking.
Both indicate analysts’ estimates had pretty much caught up with the actual earnings. Unless there is a BIG surprise waiting in the wings tomorrow morning, a big surge of price movement like today would be illogical. But then, how could it be possible for staffing agencies to have a big earnings surprise under the current slowing economic environment? What a paradox!
What if KFY did better than other staffing agencies due to its concentration on executive and managerial positions? Fine. Then, I believe the better than expected earnings had already been factored in the price. Its share price had recently moved above the centerline of the Bollinger Band - see yellow highlighted area.
In order for that big surge to happen today, there had to be a bigger than just the better earnings announcement tomorrow morning. But, no one in the public should’ve known that till tomorrow, right? Maybe not. Who knows?
REASON # 3
Gary Burnison, chief financial and operating officer of executive recruiter Korn/Ferry International, called the payroll numbers "a blessing in disguise," as higher interest rates could be worse news for recruiters if it inspired companies to pull back on capital spending. Burnison said "To the extent that companies are growing and interest rates are favorable, companies are going to continue to invest in their businesses and they're going to need people".
Should I use the four-letter word to describe this type of bull?
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So, we shall find out tomorrow morning. I’m willing to take a loss on this trade just for all the intrigue, mystery, and paradox.
Korn Ferry International (KFY) Trade Journal
Shorted KFY, one of the top 3 percentage gainers on NYSE @ $17.57... Trade details to follow.
POSTING CHARTS (goosemeister & shazzam)
I took one look at the URL of one of your charts that didn’t display, and this is what you had. Let’s resolve this once and for all so that you can get to enjoy one of the best features of iHub, which is to post the charts and pictures.
I’m using images here instead of text because text that contains URL info would mess up iHub’s program.
Basically, when you post a chart or a picture, you’re posting the URL that points to where that chart or that picture located on the Internet. By the way, URL is a Uniform Resource Locator, or a pointer to a “resource” on the Net.
Let’s go over the problems with your URL first. The first thing I noticed was that the http: //// should only have 2 // instead of 4. If you would copy that URL and paste it onto your web browser’s address space, it would tell you that this page could not be displayed. It’s because there’s no such address for the web browser to point to. In any regard, this is not important for iHub. On iHub you’d have to remove the http: // from the URL anyway.
There’s also that “[“ at the end of the URL that shouldn’t be there. Let’s remove your http: //// and [ from that URL. Now it’s all cleaned up and ready to go. It looks like this.
Next, we’re going to complete it by putting this URL right in between the 2 brackets. I use bold type for emphasis. You don’t have to bold type it when you post charts.
And now, here’s your chart!!!
wang- I’m intrigued by your dream.
I think one of the exchanges I had with PieSky was that “what is death is the beginning.” Deaths in dreams may symbolize a doorway to a new way of living. Although I’ve not had dreams of this sort personally, my understanding is that behaving like a criminal in dreams is actually quite common. This happens to non-violent people quite often.
The intriguing aspect is that you killed both a stranger and yourself in your dream. Usually, if the murdered figure was a stranger or someone who’s distant from you, that indicate the old way of living or habit that’s being “killed” was not part of your main personality. However, killing oneself symbolizes the need to make major changes in your life or your attitude. This conflicting symbolism makes your dream quite intriguing to me.
I wonder if you had taken something a little too seriously than you should have. Things may not be as serious or as bad as you’re led to believe. In any regard, the important thing is not to take this type of dreams literally. They’re metaphors.
Good night now... Oh, and sweet dreams.
Hello Ken, It's an honor to be here too.
Thank you for your kind word. Long time no talk. Businesses have been quite busy lately. I need a vacation. All I can do was “mental” vacationing.
Yes, I’ve talked with flota about the market and about his newsletter. He’s got pretty cool charts and fundamental takes on the energy sector. It should be a good newsletter to stay in touch with your subscribers once it’s done.
When I set up my Trade Journal board, I inadvertently set it up for premium iHub members only. It’s too late to change now. That prevented some readers from communicating with me. Your board here sometimes serves as a surrogate for that purpose. Sorry about that, but it’s much appreciated.
Incidentally, we have got to get you sign up for the premium membership.
Speaking of vacation…. I miss Kona.
This is probably one of the most beautiful places to stay - Hilton Waikoloa Village Resort in Kona, Hi.
And this waterway is right on the resort premise… It’s a huge facility. I took the boat ride, and it was a real treat.