[1:12pm ET Monday MLK Holiday] It’s not so easy to write about capital markets after being immersed for a week in a radically different culture as far removed from capitalism as one can imagine in this day and age. However, they say that when you fall off the horse, it’s best to quickly remount. So, here I am, back in the saddle.
As for the markets this week, let’s see what happened regarding the Economy, Currencies, Bonds, Equities, Commodities and Precious Metals. I cannot sum it up in advance as in my study I will be looking at the latest data for the first time myself.
From the published reports, here are this week’s headlines from the highly regarded Econoday analysts:
• December retail sales advanced but less than expected
• Consumers are more upbeat about the current economy and future conditions.
• Consumer credit spikes—good or bad?
• International trade balance worsens on oil and other factors
• inventory build is steady, moderate and in line with growth in final demand
• Beige Book shows improvement overall.
The results continue to be mildly positive, as they have been for six months.
Let’s now look at the detailed economic data for the week that passed and the one ahead.
Global Economics Review
International Report from Econoday.
What had been essentially a good week for equities on Friday turned sour in Europe, the UK and North America after Eurozone downgrade talk sent investors fleeing from risky assets. The euro dropped quickly as did equities. However, while most indexes were lower for the day, they managed for the most part to retain at least a part of earlier advances. For the week, gains ranged from 3.8% (Shanghai Composite) to 0.6% (KLCI). Losses were incurred by the FTSE (down 0.2%), the SMI (down 0.3%) and the Bolsa (down 0.7%)… European government debt auctions continue to get heightened attention from equity market participants who are quick to sell/withdraw from the market if the auctions do not meet or exceed expectations. For example, Italy successfully sold about €4.75 billion of bonds on Friday, capping a relatively strong week for European government short dated debt auctions as investor sentiment towards the Eurozone shows signs of improvement. Spain and Italy have benefited from the ECB’s three year loan facility offered to banks in the region that were facing liquidity problems at the end of last year… After markets in the U.S. had closed for the week, S&P confirmed what had been previously expected — it had downgraded France and Austria from AAA to AA+. Germany, the Netherlands, Finland and Luxembourg kept their triple A ratings. S&P also downgraded Italy to BBB+ from A. Spain was downgraded to A from AA-. Portugal’s rating was lowered to BB from BBB-. All had their outlooks lowered to negative. At the same time, S&P confirmed Germany’s AAA rating but changed the country’s outlook to stable. Ireland’s BBB+ rating was confirmed but the outlook was revised to negative. S&P criticized recent EU policy initiatives saying that they might be insufficient. They also said that reforms based only on austerity risk being self-defeating.
Econoday’s International Perspective is written by chief economist Anne Picker.
Forward momentum in the U.S. is outweighing renewed worries over European sovereign debt. Even though European issues are important, traders and investors have been moving toward the position that European problems deserve less weight than they have been given in recent months. This may or may not be realistic.
Econoday’s US report is written by Mark Rogers. He is the author of The Complete Idiot’s Guide to Economic Indicators, Penguin Books, 2009. I recommend it.
The reason I devote much time to the reporting and analysis of economic data is for us to gain an understanding of the reasons behind the ebb and flow of capital market prices and the sector rotation within markets. After you follow these reports from month to month you will get a sense of the interrelationships between the business or economic cycle and the market cycle.
Here are the key US economic reports from last week’s calendar.
US Consumer Credit for November.
Not since 10 years ago, since the aftermath of 9/11, have consumers taken on debt like they did in November. Consumer credit jumped $20.4 billion in the month led by non-revolving credit, up $14.8 billion, and including a very large gain for revolving credit, up $5.6 billion. The non-revolving gain largely reflects strength in car sales with the gain on the revolving side reflecting credit card use… Confidence to take on debt points to confidence in the jobs market and is a significant plus for the outlook on consumer spending. This report is a positive signpost for the economic recovery itself, and the market is reacting to it with the Dow moving toward session highs.
After the release of the latest data on 1/11/2012 2:00:00 PM ET, Econoday reported, Today's Beige Book reports that in general the economy is showing improvement with national economic activity expanding at a "modest to moderate pace." Overall, this is better than the description of "slow to moderate" improvement cited in the November 30 Beige Book. Seven Districts described growth as modest. Two stated that growth was accelerating (New York and Chicago), two indicated growth is moderate (Dallas and San Francisco), and one described activity as flattened or improved slightly (Richmond). Most Districts highlighted more favorable conditions than identified in reports from the late spring through early fall… Probably the best news is that consumer spending picked up in most Districts, with significant gains in holiday sales. Retail inventories are reported to be near desired levels, consistent with retailers' sales expectations. Internet sales for selected items were strong in some Districts. Sales of new automobiles continued to pick up in most Districts… Manufacturing continued to expand although the pace of growth has slowed for selected subsectors such as technology products. For the manufacturing sector as a whole, further growth or improved conditions were reported by almost all Districts, except for Cleveland, Richmond, and Dallas, which reported that activity was largely stable or mixed, and Kansas City, which noted a slight decline… Residential real estate activity largely held steady at very low levels, with the exception of further increases in the construction of multifamily residences. The pace of single-family home sales remained quite sluggish throughout the country… Credit markets are improving as financial institutions generally indicated a slight uptick in loan demand by businesses, along with improvements in overall credit quality… Inflation pressures remain "quite limited." Wage pressures were "modest" except for some workers with specialized skills… Overall, the Beige Book shows the economy about where most expected. The recovery is improving but slowly. Today's report probably does not change the views of FOMC members and earlier individual inclinations to ease or caution likely remain.
US International Trade for Nov.
After the release of the latest report on 1/13/2012 8:30:00 AM ET, Econoday reported, In November, the U.S. trade deficit widened sharply due largely to a jump in oil imports but also due to a dip in exports. The trade gap grew to $47.8 billion from $43.3 billion in October (originally $43.5 billion). The latest shortfall was much more negative than the consensus forecast for $45.0 billion. Exports declined 0.9% after dipping 0.7% in October. Imports rebounded 1.3% in November, following a 1.0% decline the prior month… The worsening in the trade gap was led by the petroleum gap which expanded to $27.6 billion from $24.2 billion in October. The nonpetroleum goods deficit widened to $34.8 billion from $33.2 billion the month before. Several factors were behind this, including a drop in exports of nonmonetary gold and a boost in automotive imports. The services surplus was slightly improved at $15.4 billion from $15.3 billion in October… On a not seasonally adjusted basis, the November figures show surpluses, in billions of dollars, in part with Hong Kong $3.2 ($3.0 for October), Australia $1.5 ($2.1), and Singapore $1.0 ($1.0). Deficits were recorded, in billions of dollars, in part with China $26.9 ($28.1), the European Union $9.7 ($8.0),OPEC $9.1 ($8.3), Japan $6.2 ($6.2), Mexico $5.5 ($5.3), Germany $4.7 ($4.3), and Canada $3.0 ($2.2)… Today's report is moderately complex. You cannot attribute the huge worsening to any one fact. Due to special factors, it is very likely that the November number will be partially reversed soon and significantly. Exports of nonmonetary gold have been volatile recently. The surge in oil imports cannot continue at that pace. And the jump in auto imports probably was just American auto companies taking delivery of production in Canadian facilities outside of Detroit. So, economists will be shaving their forecasts for fourth quarter GDP but underlying trends appear to be changed only very slightly with weakness in exports to Europe likely real but not that significant.
After the release of the latest data on 1/13/2012 8:30:00 AM ET, Econoday reported,
A monthly dip in petroleum prices helped pull down import prices by 0.1% in December. Excluding petroleum which helps smooth out monthly distortions, import prices rose a very mild 0.1% following 0.2% declines in the prior two months. Price pressures of imported finished goods rose but only slightly to still subdued monthly rates of 0.2% for both imported capital and imported consumer goods. Prices for imported vehicles rose only 0.1%… There's also no trouble on the export where prices fell a steep 0.5% in the month following a 0.1% gain in November and a 2.0% fall in October. Prices of agricultural exports swung lower in December after swinging higher in November and lower in October… The strengthening dollar, strength tied to investor demand for safety, is helping to subdue import price inflation. Today's report points to mild readings for next week's producer and consumer price reports.
US Consumer Sentiment for January.
After the release of the latest data on 1/13/2012 9:55:00 AM ET, Econoday reported,
The consumer sentiment index extends its move higher, to 74.0 at mid-month vs 69.9 in December. The index has been moving straight up since the August low of 55.7. Composite components both show solid gains with expectations up nearly 5 points to 68.4 and current conditions up 3 points to 82.6. Gas prices have been inching up so far this month and so are inflation expectations, up 1 tenth for the one-year view to 3.2% and up 1 tenth for the five-year view to 2.8%… Sentiment has been climbing fast but it's been climbing from a deep hole, that of the budget standoff and rating cut shock of August. A year ago, the index closed January at 74.2, two tenths higher than the current mid-month reading.
Here are the key US economic reports from next week’s calendar.
US ISM Manufacturing Index for Dec.
Prior to release of the report on 01/17/2012 8:30:00 AM ET, Econoday reported, The Empire State manufacturing index in December jumped to 9.53 from November's 0.61-both topping breakeven of zero. Prior to November, there had been a run of negative numbers through June. The new orders index was up to 5.10 versus minus 2.07 in November with shipments especially strong at 20.87.
US Producer Price Index for Dec.
Prior to release of the latest data on 01/18/2012 8:30:00 AM ET, Econoday reported, The producer price index picked up in November but it was due to food, not energy. Producer prices rebounded 0.3% after falling 0.3% in October. Energy rose 0.1%, following a 1.4% drop in October. Leading this increase was a 9.4-percent advance in home heating oil prices. Gasoline actually dipped 0.1%. Food cost inflation spiked to a 1.0% gain after decelerating to a 0.1% rise in October. At the core level, the PPI gained a modest 0.1%, following no change in October.
US Industrial Production data for Dec.
Prior to release of the latest report on 01/18/2012, Econoday reported, Industrial production in November declined 0.2% after surging 0.7% in October. By major components, manufacturing dropped 0.4% after gaining 0.5% the prior month. For November, utilities output advanced 0.2% while mining edged up 0.1%. Manufacturing was pulled down largely by a 3.4% drop in output for motor vehicles and parts, following a 3.4% jump in October. Excluding autos, manufacturing still slipped 0.2%, following a 0.3% rise the prior month. Overall capacity utilization eased to 77.8% from the recovery's high of 78.0% in October.
US Housing Market Index for Jan.
Prior to release of the latest data on 01/18/2012 10:00:00 AM ET, Econoday reported, NAHB housing market index rose two points in December to 21 for its best reading since May last year when government efforts were stimulating buying (November revised to 19). And for the first time since mid-2009, the index has posted three consecutive gains. Home builders are reporting more interest from potential buyers, reflected in a big three point jump in the traffic component to 18. This component was at 11 as recently as September.
US Jobless Claims data for week ending 1/14.
Prior to release of the latest data on 01/19/2012 8:30:00 AM ET, Econoday reported, Initial jobless claims in the January 7 week rose a very steep 24,000 to 399,000. The good news was that claims were still under 400,000 for a ninth time in 10 weeks. Continuing claims also rose, up 19,000 in data for the December 31 week to 3.629 million.
US Consumer Price Index for Dec.
Prior to release of the latest data on 01/19/2012 8:30:00 AM ET, Econoday reported, The consumer price index in November was unchanged after declining 0.1% in October. Excluding food and energy, the CPI increased 0.2% after a 0.1% advance in October. By major components, energy fell 1.6% after declining 2.0% in October. Food price inflation increased 0.1% after rising 0.1% the prior month. Within the core, the indexes for shelter, medical care, apparel, and personal care all rose. On the down side for November, indexes for new vehicles and for used cars and trucks declined.
Prior to release of the latest data on 01/19/2012 8:30:00 AM ET, Econoday reported, Housing starts in November rebounded 9.3% after slipping 2.9% in October. The November annualized pace of 0.685 million was up 24.3% on a year-ago basis. The gain in November was led by a 25.3% jump in the multifamily component, following a 15.2% decrease in October. The single-family component improved 2.3% after a 3.6% rise the month before. Housing permits advanced 5.7% after jumping 9.3% in October. The November rate of 0.681 million units annualized was up 20.7% on a year-ago basis.
US Philadelphia Fed Survey for Jan.
Prior to release of the latest data on 01/19/2012 10:00:00 AM ET, Econoday reported, The general business conditions index of the Philadelphia Fed's Business Outlook Survey for December rose to 6.8 from November's 3.1 to signal monthly expansion at an accelerating rate. Forward momentum picked up as the new orders index jumped to 10.7 from 3.5 in the prior month.
US Existing Home Sales for Dec.
Prior to release of the latest data on 01/20/2012 10:00:00 AM ET, Econoday reported, Existing home sales in November rose 4.0% to 4.42 million units annualized. However, the report incorporated recent annual revisions which sharply lowered five years of existing home sales data including October which was sharply revised to a 4.25 million annual rate from an initial reading of 4.97 million. Details through most of the report were solidly positive. Prices firmed, up 2.1% on the median to $164,200, and supply went down, to 7.0 months at the current sales versus 7.6 months in the October report.
International Equity Markets Review
The international equity markets were mostly strong this week, particularly those of the Asia-Pacific region. For the YTD, only Italy, Spain, Mexico and Malaysia are down. The leaders so far are Singapore, Philippines, India, Hong Kong, and Germany (tied with NASDAQ).
Here is this week’s international equity re-cap from Econoday:
Below are 16 country index chart links from StockCharts.com (with their formal approval btw). Global equity markets do not trade in a vacuum. It is important to be watching these markets move through a trend juncture together, pushed and pulled by global currency and commodity strength or weakness as well as local and regional economic forces.
Here is the latest session data for the exchanges of the Americas.
Here is the latest chart for the Brazilian Bovespa stock exchange in Sao Paulo.
Brazilian Bovespa stockcharts.com chart
Here is the latest session data for the Toronto Stock Exchange composite index.
Toronto 300 stockcharts.com chart
Toronto CDNX stockcharts.com chart
Europe
Here is the latest session data for the bourses of Europe.
Here is the latest session data for the London stock exchange FTSE.
FTSE 100 stockcharts.com chart
Here is the latest session data for the German DAX.
Here is the latest session data for the French CAC 40.
Here is the latest session data for the Swiss market index. Swiss Market Index stockcharts.com chart
Asia-Pacific
Here is the latest session data for the Asia-Pacific stock exchanges.
Here is the latest chart for the Japanese Nikkei 225 index.
Tokyo Nikkei 225 Index stockcharts.com chart
Here is the latest chart for the Singapore index .
Singapore Straits Times Index stockcharts.com chart
Here is the latest chart for the Shanghai Composite index .
Shanghai Composite Index stockcharts.com chart
Here is the latest chart for the Hong Kong Hang Seng index .
Hong Kong Hang Seng stockcharts.com chart
Here is the latest chart for the India BSE 30 index .
Mumbai BSE 30 Sensex Index stockcharts.com chart
Here is the latest chart for the Australian All Ordinaries index .
Sydney All Ordinaries Index stockcharts.com chart
Russia (RTS) stockcharts.com chart
Review of the ETFs for the International equity market
As you know, the country Exchange Traded Funds (ETF) are not the same as the domestic exchange indexes, but are (i) denominated in US Dollars, (ii) traded in NY, mostly by Americans, (iii) traded for several hours each day after Asia-Pacific and European markets have been closed, and (iv) a reflection of the most up-to-date news stories and investment analysis.
Also, depending on extreme currency fluctuations, the USD denominated ETFs may widely differ in performance from the results of the domestic exchanges.
When the world is worried and goes risk-off, it’s the international equities that get hammered the most, and that feeds the US Dollar market, which further lifts the Dollar and worsens the crisis. If Dollar buying gets out of hand as appeared to happen this week, the markets take on the appearance of a death plunge.
This week of the top 11 country ETF’s, only the UK (EWU -0.98% W/W including -1.23% on Friday) was a loser. It’s possible that traders in FTSE stocks were tipped that there would be a major ratings downgrade of France on Friday after the US close.
There were ten winners, which were led by Brazil’s EWZ (+4.84% W/W), a considerable gain considering the Bovespa index was up just +0.9% on the week. However, the Real was quite strong against the US Dollar this week, and also the previous week.
The second best country ETF performer this week was India (IFN +4.80% W/W), which should not be too surprising given the heads-up I gave everybody two weeks ago in my last Week In Review, when I stated:
India is facing crime and corruption issues, but at the end of the week the government stated their intention of permitting foreign investors to buy portfolio investments on the Bombay and National stock exchanges. This ought to help support the rupee, and stem the losses of the plunging market.
This week, ICICI Bank of India (a Cara 100 Global Best company) gained +9.8% W/W and +16.6% over two weeks.
Table 14: International equities via an ETF perspective (in $USD)
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Japanese equity market ETF: EWJ
Here is the Japanese (EWJ) equity market ETF Monthly, Weekly and Daily data charts:
U.K. equity market ETF
Here is the United Kingdom (EWU) equity market ETF Monthly, Weekly and Daily data charts:
EWU Daily data: 
Canada’s equity market
Here is the Canadian (EWC) equity market ETF Monthly, Weekly and Daily data charts:
Taiwan’s equity market
Here is the Republic of China/Taiwan (EWT) equity market ETF Monthly, Weekly and Daily data charts:
Indonesia equity market ETF
Here is the Indonesia Fund (IF) equity market ETF Monthly, Weekly and Daily data charts:
IF Summary from Yahoo Finance:
http://finance.yahoo.com/q/pr?s=IF
IF Summary from Google Finance:
http://www.google.com/finance?q=AMEX:IF
IF chart from StockCharts.com:
http://stockcharts.com/charts/gallery.html?IF
Here are the links to interactive charts from Investertech.com for the key country ETFs, which you can add technical indicators for as well.
Group 1:
(list one)
(list two)
Group 2:
(list one)
(list two)
US Equity Markets Review
This week was a winner for the equity Bulls. Friday was a big loser, but Monday through Thursday had gains. By the close Friday, eight of ten sectors and 21 of the Dow 30 stocks were up W/W.
Econoday has summed up the US equity market as follows:
NASDAQ Composite ino.com chart
NASDAQ Composite stockcharts.com chart
Here is the list of the ten highest-weighted non-financial stocks in the NASDAQ Composite. Put them in a watchlist (see Google Finance Portfolio) and watch them like a hawk:
AAPL MSFT GOOG QCOM RIMM CSCO INTC ORCL GILD EBAY
Daily RSI-7 for the Nasdaq 100 Big-10
Weekly RSI-7 for the Nasdaq 100 Big-10
Monthly RSI-7 for the Nasdaq 100 Big-10
Add two of AMZN, DELL, JAVA or YHOO to get a Cara Dozen.
Or while you are at Investertech.com, input up to 30 tickers in the window above “Summaries” – say AAPL MSFT GOOG QCOM RIMM CSCO INTC ORCL GILD EBAY AMZN DELL JAVA YHOO plus up to 16 more – and click on Tech Chart, Basic View, Daily Watch, Performance or Fundamentals and you’ll get a lot of information to compare one against the others.
Here is the Monthly data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Weekly data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Daily data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Value Line Dow 30 Stocks Review
This week in the WIR 3- 16-29-42 series, Value Line reported on four DJIA components: Alcoa (AA), DuPont (DD), Merck (MRK) and Pfizer (PFE).
Merck and Pfizer are once again Cara 100 companies that I rank high quality based on solid management, financial strength and positive growth in operating metrics like revenues, cash flow, earnings, and (although not in some cases) dividends.
Over the years going back to the early 1980’s I have included Merck and Pfizer in my Favorites List off and on. Of the other two, DuPont (DD) would come closest to making the Cara 100 list.
Alcoa [GICS 15, Dow 30]
(AA: Google Finance file)
(AA: Yahoo Finance file)
(AA: StockChart chart)
(AA: Investertech chart)
(AA: ADVFN Financial Data)
(AA: Value Line Report Jan. 13: next one is due Apr. 13)
Dupont [GICS 15, Dow 30]
(DD: Google Finance file)
(DD: Yahoo Finance file)
(DD: StockChart chart)
(DD: Investertech chart)
(DD: ADVFN Financial Data)
(DD: Value Line Report Jan. 13: next one is due Apr. 13)
Merck [GICS 35, Dow 30, Cara 100]
(MRK: Google Finance file)
(MRK: Yahoo Finance file)
(MRK: StockChart chart)
(MRK: Investertech chart)
(MRK: ADVFN Financial Data)
(MRK: Value Line Report Jan. 13: next one is due Apr. 13)
Pfizer [GICS 35, Dow 30, Cara 100]
(PFE: Google Finance file)
(PFE: Yahoo Finance file)
(PFE: StockChart chart)
(PFE: Investertech chart)
(PFE: ADVFN Financial Data)
(PFE: Value Line Report Jan. 13: next one is due Apr. 13)
What did I last write about these companies in the past year or two?
Notes for WIR#29 July 18, 2010Sometimes, it’s best to compare groups of stocks in charts over the same time periods, comparing them to the Dow 30 index, as I did above; and sometimes it’s best to look at a single stock over various time periods, as I do below.
These charts show that MRK has enjoyed a rally from $31 in late May, while DD has side-tracked since early May, and AA and PFE have been selling off since mid-January, and especially for the past three to four months.
The analyst reports of these four companies are nothing to get excited about. The ratings are neutral to below average.
All in all, for the stocks of these four companies, I best like the short- and intermediate-term upside at PFE, which I’ll explain later. For the long-run, I like Merck (MRK). Alcoa (AA) may look best on paper from a long-term perspective, but who’s to say the Chinese over-capacity in the aluminum industry doesn’t undercut Alcoa.
If you go to the Value Line analyst reports and look near the top left corner, you will see the VL Annual Total Return (ATR) projection, as a high and low. The hi/lo for each: AA is +32%/+20%; DD is +25%/+19%; MRK is +25%/+17%; and PFE is +25%/+20%. VL likes the upside here for all of them, particularly AA.
I’d be extra cautious in the short-term for all but maybe PFE of these four stocks, but with the help of some put writes on days of extreme weakness, and some call writes after strong bullish phases look to be topping, I think a 3-year ATR of +26% is possible for all of them.
Let’s look at each company separately.
First up is Pfizer (PFE), a company that at $14.56 (7/16 close) is up just +4.0% from its 52-week low on July 1, and down -28.5% from its 52-week high on Jan. 20. The stock is down -13.3% over 3 months and -23.1% YTD.
I particularly like the fact that PFE has already had a significant Bear phase and investor confidence is very low at this point. Those concerns are due to set-backs regarding certain of its drugs plus large expense write-offs due to the Wyeth acquisition. I’m thinking that most of the bad news is out of the way and the company, which has a strong balance sheet, will see its earnings bottom out this year at maybe $1.05/share and then trend higher. Earnings of $1.25/share for 2011 are anticipated by VL.
With stronger prices for the S&P 500 index sometime in 2011, I could see PFE trading at a 15 multiple of higher, which factored with $1.25 earnings, plus the solid base of this company, would take the stock back to its 52-week high of $20+. On weakness or with put write premium income, you could buy this stock at $14 or less, which would, with a $0.72 dividend (or more factored in) give a return of say $7 on a $14 investment. That’s a 50% return in 12-18 months. Nothing is bad about that.
Besides, I figure the VL Timeliness rating of ‘4’ (below average) will soon be bumped to a ‘3’ and, if so, the investor confidence will start to lift. And if bond yields drop any further, that 5.4% yield on PFE would look good.
Next is MRK ($35.91 7/16 close; up +0.6% over 3 months and -3.0% YTD):
If you would consider Pfizer stock, you might want to look at Merck (MRK). The yield is high, but not quite as good as Pfizer’s. But the 1Q2010 earnings were solid and the company should have its second best earnings year ever and next year ought to be a record high.
The Schering-Plough acquisition appears to be adding much value as is a recent partnership with Sanofi-Aventis. With a broader base around the globe now, this company is on the upswing.
With an 18 PE multiple in a Bull market environment and 2011 earnings of $3.80 as projected by VL, the price could hit $68 in the next 12-18 months. A 12-month dividend of $1.52, plus some put writes that would take your cost to say $34, would yield you over +4.5%. The price potential would be a double.
In the very short run, the MRK has had a two-month run up from its $31 low on May 21 to a current $35.91, countering the difficulties of most other stocks in the Dow 30 recently. Over the past 52-weeks, MRK is second best performer (+28.9%) of the 18 stocks in my healthcare monitor. PFE btw is down -3.4%. Of all 30 stocks in the DJIA index, there were only five better performers over 12 months.
I look for value pricing in a quality company stock, and for long-term MRK fits the bill. Unfortunately comparing it to the presently out-of-favor situation with PFE, I’d go with PFE at this point if I had to decide from the two. After PFE has its Bull run, I’d probably switch to MRK for the longer haul.
For AA ($10.41 7/16 close) the stock is down -25.2% over 3 months and -37.5% YTD:
In the short run, you cannot overlook the -25.2% dip this past 13-weeks as a buying opportunity. If your objective is to buy low and sell high, then now is a pretty good time to buy. The problem is I think there is a bit more to go. Besides for the long term, despite the US Administration’s pleas to have the Chinese monetary authorities raise the exchange rate between Yuan and USD, I still think that the over-capacity problem in China could mean that aluminum gets flooded into world markets, hurting the long-term prospects of Alcoa and the potential long-term upside in the stock.
Oh, I think there will be some price adjustments because over the past 3-months, 6-months and YTD, AA is down the most of all 30 stocks in the DJIA index. Down -37.8% YTD, you could probably short AA against the Dow 30 and end up being a big winner at some point. Not that I would recommend it.
Recently VL downgraded the timeliness rating of AA from a ‘3’ (average’ to a ‘4’ (below average), which is a 12-month perspective. So, VL would bet the DJIA against AA.
Nothing in the VL analysis makes me want to rush out and buy this stock. There are too many ‘ifs, ands or buts’ in the write-up. I kept waiting for the “on the other hand” lead to a sentence. I had the feeling the analyst was biting his lip while doing the report.
At the end of the day, all that can be said about this one is if global economic growth data starts to look positive, then buy the stock. If the company announces an acquisition, run as fast as you can.
For DD ($35.98 7/16 close) the stock is down -6.9% over 3 months and up +5.0% YTD:
DuPont (DD) has the highest six-month technical rating of these four stocks. A week ago, this rating was upgraded to a ‘2’ (above average).
There are many things I like about DD: dividend yield; industry and industry prospects; the Q/Q revenue growth over the next couple years; a powerful balance sheet that’s getting stronger; high quality CEO; and more.
The problem is that the stock hasn’t hit $55 since the year 2000 and we’re closing in on 2011 at a price of $36, midway between the 2010 hi/lo of 41.4/31.9. Besides earnings, while improving and may hit $2.70 this year and $2.95 in 2011, were as high as $3.24 and $3.61 in 1995 and 1996, and $3.28 in 2007.
So, these things considered, I don’t see how DD is likely to break-out until maybe 2013, whereas the other three stocks here have much better prospects by sometime 12 to 18 months out.
Now, if you are the risk averse type, an effective options put writing program would likely earn you a good income. Or, just buy the stock on major sell-offs and look for the high dividend yield.
Notes for WIR#42 October 17, 2010
In the previous write-up (WIR#29), I opined: “I think a 3-year ATR of +26% is possible for all of them” but I certainly did not anticipate the bullishness to come in the past quarter year for DuPont (DD +25.6%), Alcoa (AA +21.1%) and Pfizer (PFE +19.4%). Only Merck (MRK +1.3%) failed to measure up.
Here are the Monthly, Weekly and Daily charts for PFE ($17.75 10/15 up +19.4% from $14.56 7/16 close; up +0.05% over 12 months):
Here are the Monthly, Weekly and Daily charts for MRK ($36.95 10/15 up +1.3% from $35.91 7/16 close; up +11.0% over 12 months):
Here are the Monthly, Weekly and Daily charts for AA ($13.13 10/15 up +21.1% from $10.41 7/16 close; up +11.0% over 12 months):
Here are the Monthly, Weekly and Daily charts for DD ($46.67 10/15 up +25.6% from $35.98 7/16 close; up +35.0% over 12 months):
Notes for WIR#3 January 16, 2011
Obviously I had been too busy and too little enthused about these four Dow 30 stocks to do a write-up for the last cycle. Nothing really has changed, but I will give it a bit more effort this week.
Here are the Monthly, Weekly and Daily charts for PFE ($18.34 1/14, flat this week but up +3.85% over 13 weeks from $17.75 10/15, which had been up +19.4% from the $14.56 7/16 close):
Here are the Monthly, Weekly and Daily charts for MRK ($34.23, down -8.35% this week, and -7.86% over 13 weeks from $36.95 10/15, which had been up +1.3% from the $35.91 7/16 close):
Here are the Monthly, Weekly and Daily charts for AA ($15.97, down -2.74% this week, but up +21.63% over 13 weeks from the $13.13 10/15 close):
Over the past six months, AA is up +46.38%, which is the 2nd best Dow 30 performer, next to CAT.
Here are the Monthly, Weekly and Daily charts for DD ($49.80, up +0.08% this week, but up +7.12% over 13 weeks from the $46.67 10/15 close, which had been up +25.6% from the $35.98 7/16 close):
Over the past six months, DD is up +34.27%, which is the 3rd best Dow 30 performer, next to AA and CAT.
As for the four of them, Alcoa (AA) and DuPont (DD) didn’t even make my Cara 500, which is broken down 50 for large cap Value, 200 for mid cap and large cap Growth, 175 for small cap Advanced (i.e., Developed) Market (mostly US), and 75 for Emerging Market (a large number in China).
For the Dow 30 studies, we know they are all large cap. The smallest of these is Alcoa (AA). As I only have 250 mid cap and large cap stocks in total in the list, and only 112 are as large or larger than AA, not all Dow 30 companies made the list. That’s not because they are not worthy to many of you, but only because I am looking for specific attributes and I also have certain biases. One bias, for example, is that I have very few utilities and financial companies in the list. There are only three utilities (all small cap) and 23 in the Financial sector (IBN, HDB, GS, V, MA, BLK and TRV are there for example).
The seven Dow 30 companies that failed to make my list of 500 are: AA, AXP, BAC, DD, HPQ, JPM and MMM. The list isn’t cast in concrete, however.
To reiterate: of this week’s Value Line studies, AA and DD did not make the list, while MRK and PFE did, both as Value stocks that have strong balance sheets and pay a solid dividend. I’m not interested in them for strictly Growth reasons, but for Total Return (growth in share price plus dividends). Intel (INTC) is also a Dow 30 stock that made the Value list of 50 stocks, so I was not surprised to see that a CNBC panel had that discussion this week.
The past six months has been marked by investor interest in stocks that benefit from economic expansion. As commodity prices have lifted, DuPont is able to sell more agricultural chemicals, and Alcoa more aluminum to the auto and airplane manufacturers. While the revenue may only now being reflective of this shift, it is clear that investors got in early.
In the case of the two drug manufacturers, they are in a state of transition following the acquisition of Wyeth by Pfizer and Schering-Plough by Merck. These monster mergers are costly and often take longer than expected to integrate due to differences in management systems and cultures.
A week ago, when the price of AA was at $16.56, Citigroup downgraded the stock, and the company’s quarterly report that followed was very good (but the stock dropped to a close this week of $15.97) so that was a good call by the analyst.
For me, I think the AA and DD stocks have had most of their run, and now will lag the MRK and PFE. But, I’m not enthused about any of them.
In my model ranking a week ago, Pfizer ranked 227 out of 500 and Merck 255 out of 500. In the Value 50, PFE was 29 and MRK 33. At this point, my model for the Value 50 ranks ConocoPhilips (COP) at 1/50 and 33/500, Chevron (CVX) at 3/50 and 67/500, Bristol Myers Squibb (BMY) at 4/50 and 68/500, and McDonalds (MCD) at 5/50 and 72/500 as four of the top five.
The other one, Vivo Participacoes SA (ADR) at 2/50 and 38/500, is not likely interesting to many of you, but it is a wireless communications company in Brazil with a market cap of $13.6 billion, a dividend of 3.11% even after the stock has run up from under $24 in the summer months to almost $36 a week ago, presently at $34.03.
But, if you are looking at a high quality Value-oriented stock for the long-run, you might look at BMY rather than MRK or PFE, although any of the three would be ok.
Value Line projects a 3-5 year annualized Total Return of between 12%-21% for MRK and 13%-17% for PFE. For their six-month Technical rating (price outlook), VL recently lowered the rating for MRK from 2 ‘good’ to 3 ‘average’ and raised it from 3 to 2 for PFE. I don’t see much difference. For both Merck and Pfizer, the annual growth rates for sales, cash flow and earnings are expected to increase substantially for the next 5 years compared to the past 5.
Pfizer has a new CEO, but this person has been with the company 32 years, so no material changes in management are anticipated. Pfizer did raise their quarterly dividend from $0.18 to $0.20 recently, which is a plus. Traders anticipate Merck to do something like that within a year. But there is no pressure today because the yields of both companies are superb: PFE at 4.36% and MRK at 4.44%.
On Thursday morning, news of a halt to studies in two of Merck’s highly anticipated drugs smashed the stock price.
http://online.wsj.com/article/SB1000142405274870358340457607948203613170...
The selling is probably over-done.
Alcoa (AA) beat earnings estimates handily this week. Q4 earnings were $258 million ($0.24 per diluted share vz a net loss of $277 million (-$0.28/sh) for the 4Q2009. Only 15 to 18 cents had been expected, so this was a considerable surprise. But some analysts down-graded the stock anyway because they feel it is too richly priced. Tightening in China by the PBC this week also hammered commodity prices, and will likely lessen demand.
http://seekingalpha.com/article/246265-alcoa-downgraded-after-earnings-b...
If Alcoa would double the dividend, I think the stock price would lift. Otherwise I’d avoid it.
Same with DuPont. Even VL down-graded the 6 month and 12 month price outlook for DD, dropping in both cases from 2 ‘good’ to 3 ‘average’.
There is a lot to like about DuPont: (i) the balance sheet is very strong, (ii) the revenue, cash flow and earnings growth metrics are expected to be better in the next 5 years than the past 5, (iii) the Return on Equity is a very high 37.7%, (iv) there could be a small dividend increase this year, and (v) the dividend yield is already a solid +3.29%.
DD is a stock I might consider for the Cara 500 Value group for these reasons.
[Note: I stopped using this model when I went on an extended vacation that began March 15. After returning to write WIR#17 on April 24, I had decided to reduce my hours and change my work routine, focusing entirely on mines and metals.
For WIR #29-2011 (Jul 17)
My comments are as follows:
From the two-month candleglance chart, you can see that AA and DD have pulled back in the past six sessions pretty much in line with the Dow 30. In recent weeks, PFE is a dog and MRK has outperformed.
PFE ($19.75) is still trading 25 cents above the 8-month Exponential Moving Average, but the trend showing on the weekly data chart looks dreadful. If I held it for a long-term position, I’d be nervous. However, based on yield and PE considerations, relative to MRK, I would be waiting to buy a new position in PFE on a day of extreme weakness.
The yield on the likely $0.80 payout for 2011 is 4.10%, but the projected 2012 dividend is $0.88, so the projected yield for 2012 is 4.46%.
The forward PE is 8.62.
MRK (35.93)is trading well above the 8-month EMA (34.83), which along with the recent price track is rising. After the dip in January 2011 down to about $31.85, which was very close to the April 2010 cycle low of $31.90, the stock is close to breaking out on the upside, and looks in pretty fair shape for a continued run to higher levels.
The yield on the $1.52 dividend is 4.23%, which is excellent, but this dividend has not been increased since 2004 and might not be increased any year soon.
The forward PE is 9.33.
There are pluses and minuses in choosing between MRK and PFE.
As for Value Line’s reports, I noted:
1. Both have a low annualized high-low range for 3-year projected average annualized Total Return (capital appreciation plus dividend) of 13% to 9% for PFE and 13% to 7% for MRK.
2. Merck’s projected Return on Equity is above 20% for both 2011 and 2012 whereas for Pfizer it is 10.5% and 15.0%. Going out three years, both are projected at 18.5%, which is a tad below what I’d want for a Cara 100 company.
3. The Merck and Pfizer balance sheets show similar strengths overall and for the current position. They are rated fairly strong. If interest rates were to soar, perhaps Pfizer would be hurt a bit more.
4. After their respective monster acquisitions, the top level revenues will be surprisingly flat for a couple more years, but earnings are likely to grow fairly quickly because of internal cost savings, some of which are in R&D cut-backs.
5. Pfizer cash flow per share is expected to grow fastest between 2011 and 2015 (based in each case on about the same number of shares outstanding).
6. On June 3, Value Line raised the 6-month price outlook from a ‘4’ (below average) to a ‘3’ (market average). On June 24, VL lowered their 6-month price outlook from ‘2’ (above average) to a ‘3’. But, since then, MRK has outperformed.
7. VL opines that some of the upside in PFE has already been taken and that patience will be needed for both stocks.Alcoa and DuPont are more interesting companies and stocks. A company and its stock are very different concepts. As you know, a very powerful company can be a lousy stock. A stock is just a price. As traders, we study the companies, but we trade prices. Those prices have to be justified on corporate fundamentals, stock technicals, peer group quantitative studies and the macro-economic background the companies and the stocks are forced to deal with. You need to know a little about a lot of the factors that put prices in motion.
As a side note, this weekend I saw that somebody (from Norway I think) rated my book (“Lessons from the Trader Wizard”) a 2.0 out of 5.0 because he thinks it is too simple and was obviously for rank amateurs, just starting to learn how to trade. I beg to differ. Successful traders understand the art and science and know it is best to keep it simple. Like a simple solution in the world of technology is referred to as being an elegant one, successful traders watch in amazement as the most sophisticated algorithmic software continually blow up capital, capital being managed by the most powerful firms on Wall Street, using the biggest computers being developed and managed by hundreds and even many thousands of brainiac employees and contractors, any one of whom this Norwegian guy would say is brilliant, sophisticated and so forth. The book was written in the summer of 2007. I had intended to write a subsequent one on more detailed topics, many of which I have covered in the blog, but as you know, I later decided to come out of retirement to go back into the trading business, which I did near the end of 2008. Ever since then, I have been seeking “elegant solutions” to the new challenges in my life. Some have worked; others not. Certainly, life is interesting. Having transformed into being an advisor to portfolio managers, and to restrict my trading to specialized accounts, my next step is to form my own merchant bank for mining and metals, which will be more paperwork and tax friendly to clients and a whole lot easier for executing the same decisions I make at present.
Speaking of metals, Alcoa (AA) is the next company and stock I want to look at.
AA ($15.48) has enjoyed a huge run-up in the past year, but that ended 13 weeks ago as and when the quarterly report was released. AA hit a high of $18.48 on Friday April 8, on 29.3 million shares. On the following Monday, on 43.7 million shares, AA dropped to a close of $17.77. The next day, on a phenomenal 81.3 million shares, AA dropped to a close of $16.70. The rest of the week was worse and the share price then fell into a down-channel trend, where it still is. This week, with the latest report that shows a top line growth, and some encouraging signs, the stock volume has doubled over the past several weeks, but the price continues to fall.
Value Line on June 10 raised the 6-month price outlook from a rating of ‘4’ to a ‘3’. VL now projects solid increases in revenue, cash flow, and book value, but are not prepared to forecast changes in earnings or dividends. That’s the problem with Alcoa. The stock is a pig-in-a-poke. Strictly guesswork. The balance sheet is not particularly strong, and who knows when the consumers will have sufficient buying power for new automobiles, or how the US Dollar strength or weakness will impact on the aluminum price market.
My big picture thinking, also noted by the VL analyst, is that within two or three years, the world economy will have a higher growth rate than at present and the BRIC emerging economies will drive that growth, demanding capital, which will pull down the $USD, which in turn, along with demand dynamics, will lift aluminum prices, and push up the share price of Alcoa.
But, unless and until there is a significant sell-off in equity markets, and in the price of AA, I would not be a buyer. The forward PE is about 10.75. If you subtract the cash per share in the treasury, that drops that effective PE to about 10. With solid cash flow per share and rising earnings, that PE is attractive. In a strong bull market, the Alcoa PE will likely be north of 17, and per share earnings of about $1.70 in 2015, Value Line finds to be a reasonable guess. That takes the stock to about $29.
If I could buy AA, with the help of some put writes on very weak days, at half that price (say $14.50), I’d be interested. If, technically, the chart showed the possible termination of the current down channel, I’d be even more interested.
Would Alcoa ever be a Cara 100 company? No. The return on equity is far too low, the balance sheet is too weak, and even VL will not forecast earnings and dividends, which really means that management can’t or won’t since Wall Street analysts basically regurgitate management guidance.
DuPont (DD $54.09) is different. This is a company I have often thought I’d put into the Cara 100. It is a well-diversified conglomerate with five fairly well balanced product groups: Agriculture & Nutrition (16.0% of revenues), Electronics (16.5%), Performance Chemicals (17.0%), Safety & Protection (14.0%), and Coatings (8.5%).
Overall revenue and earnings growth has been solid after quickly recovering from the financial system shock and economic fall-out of 2008-2009. The balance sheet is very strong. Dividends offer a good 3.03% yield and are projected to start growing again. Return on equity, which is well above 30%, is outstanding. People need food and this company’s agriculture and nutrition market products are leaders. CEO Ellen Kullman is highly regarded.
Technically, the stock has been in an up-channel trend since March of 2009, although the past week has been a loser, falling along with the Dow 30 average. Unless there is some basic change happening to the drives of the stock price, this is one you want to buy the dips as long as the PE stays well below the long-term average, which it is at present.
The trailing PE is 15.11, and the forward PE is a projected 12.46, which is on the low side, and I don’t think gives enough weight to the high net profit margins this company is getting along with its growth in revenues, cash flow and earnings.
The yield on the $1.64 dividend is 3.03%, which is very good, but, almost as bad as Merck, this dividend has not been increased since 2007 and might not be increased for another year or two for some reason. Meanwhile the strong balance sheet is getting even stronger, and the company should be in fairly good shape even if interest rates were to soar in the next couple years. Management might be inclined to buy in some of the outstanding stock
Wall St analysts have a consensus 2.0 rating out of 5.0 for DD, which is good. It’s 2.7 for AA and 2.1 for MRK and 1.9 for PFE. I’d switch the ratings between DD and PFE and maybe even drop it down to about 1.7.
Would I buy DD here? No. I’d be patient. The question should be would I buy DD if the Dow 30 had fallen into bear market or otherwise pulled back say 10%, and the answer would be yes. I would probably buy it ahead of the others, although if, as, and when you hit the buy button, you have to look at everything happening at that moment.
For WIR #42-2011 (Oct. 16)
Pfizer: PFE ($19.04, down -4.4% over 13 weeks):
Over the past year, PFE is the 12th best Dow 30 performer.
Merck: MRK ($32.98, down -9.2% over 13 weeks):
Over the past year, MRK is the 24th best Dow 30 performer.
Alcoa: AA ($10.26, down -33.6% over 13 weeks):
Over the past year, AA is the 26th best Dow 30 performer.
DuPont: DD ($45.09, down -16.2% over 13 weeks):
Over the past year, DD is the 20th best Dow 30 performer.
After I review my previous notes and the charts, I get an overall picture.
The charts show that, of these four charts, PFE is leading the rally of the S&P 500 and AA is lagging it.
On the Monthly charts, only PFE is trading above the 8-month EMA
On the Weekly data charts, there is plenty of room to run further on the up-side. Only AA is trading below its 8-week EMA, presently by some 6%. Now that earnings are out and factored in to the current price, it’s likely that AA will play catch-up in the next few weeks.
On the Daily data charts, the RSI-7 is now close to or above the 70-line for all but AA, which is lagging. All of them could continue to lift however.
Since Nov 2010, Value Line has ranked PFE a ‘3’ for market performer for a 12-month projected price outlook. For a six-month price outlook, VL now believes that PFE has made its move as it dropped the ranking on Sept 30 from ‘2’ (outperform) to a ‘3’.
As a contrast, VL lowered the six-month outlook on Sept 9 from a ‘1’ (excellent) to a ‘2’, but on Sept 30 raised the 12-month outlook from a ‘2’ to a ‘1’, which I would agree with. In fact on Oct 3, I picked MRK as the best projected Total Return portfolio candidate (Dividend and Capital Growth) for the Healthcare sector (35) for conservative investors.
Both Merck and Pfizer are in the Cara 100.
VL ranks both AA and DD a ‘2’ for 12-month price outlook and ‘3’ for six-month outlook. AA’s six-month ranking was lowered 7/15 and AA’s was lowered 9/16.For the Cara 100, AA is not there because I don’t care for the lack of balance sheet strength, low dividend yield, low margins and low Return on Equity. The company is trying to reduce its debt position, so it can strengthen the balance sheet, and doesn’t seem to care much for a higher dividend.
Longer-term, I like the economic demand prospects for aluminum. The comparable quarters for top line revenue have been very good and will likely continue on trend, so a couple years out, I think revenues and earnings will drive the share price much higher – from about the $10 level today to over $30 in 24-30 months.
Looking out to 2014-2016, VL is also projecting huge annual Total Returns of 30% (low side) to 41% (high side). So, if you are a buy-and-hold investor and don’t mind to go a bit lower in quality, I think your AA will work out. If the G-20 start printing, and the central banks manage to keep interest rates at ridiculously low levels (cheap auto loans!), then the AA ought to do real well.
DuPont has a strong management with Ellen Kullman, a very strong balance sheet, an excellent dividend yield, excellent ROE, and fairly healthy operating margins, so the company is always a candidate for Cara 100 status. I just happen to like Dow Chemical a bit more.
But the company has cranked up per share revenues, cash flow, earnings and book value, so you shouldn’t overlook this one, particularly when the share price gets hit for transitory reasons. VL projects a low of 26% and a high of 34% Annualized Total Return through 2014-2016, which is excellent, and the analyst’s conclusion in this quarterly report is highly favorable.
All in all, these four stocks can be bought for 12-24 month expectations o satisfactory returns. Two weeks ago was the best time, but you cannot second guess. As the trading days are volatile, I’d wait for a price pull-back this week and then write puts and buy calls with the proceeds, if I were interested in taking positions.
For our All-Weather Portfolios, I believe we presently have a 1.5% portfolio weighted position in MRK and 1.1% weighting in PFE. As AA and DD are not in the Cara 100, we do not invest in them.
For WIR #3-2012 (Jan. 16)
Always before I study a company, I take a quick look at the Monthly-Weekly- and Daily charts. I also look back at my previous notes in the WIR.
Pfizer: $21.84
Here are the Monthly, Weekly and Daily charts for PFE ($21.84, up +16.4% over 13 weeks):
http://investertech.com/tkchart/tkchart.asp?stkname=PFE&ind=rsi&wt=3
http://investertech.com/tkchart/tkchart.asp?stkname=PFE&ind=rsi&wt=1
http://investertech.com/tkchart/tkchart.asp?stkname=PFE&ind=rsi&wt=0
Over the past year, PFE is the 5th best Dow 30 performer.
Here is the one-year Weekly chart in solid blue line (with the 8-week EMA in dashed blue) and S&P 500 in solid brown:
PFE is back to the cycle high price peaks of 2006 and 2007.
The current chart is bullish on the Weekly data due to RSI, Stochastics, and TRIX and the price is above the 8-week EMA.
In December, Value Line dropped the Timeliness rating (6-12 month price outlook) from ‘2’ (outperform to ‘3’ (market perform) and dropped the Technical rating (3-6 month price outlook) from ‘3’ (market perform) to ‘4’ (underperform).
Strong earnings growth from $1.03 in 2010 to $1.30 e2011 and $1.60 e2012 and dividend growth from $0.72 in 2010 to $0.80 e2011 and $0.88 e2012 will protect the stock downside. For 2012, the $0.88 dividend on $21.84 current price represents a forward PE of 4.03%, which is high.
Although 2012 revenues are anticipated to fall from $68 billion to $64 billion due to loss of patent protection of top selling cholesterol fighter Lipitor, the expenses are being cut back enough to help the company boost profits.
As long as the Weekly data chart looks bullish, I see no reason for long-term oriented investors to sell. It’s too late to buy though as the Weekly RSI-7 is up to 72.8.
For the Growth portfolio accounts we hold a 1.95% weighting in PFE and for the All-Weather portfolio accounts we hold a 1.70% weighting.
Merck: $38.32
Here are the Monthly, Weekly and Daily charts for MRK ($38.32, up +17.2% over 13 weeks):
http://investertech.com/tkchart/tkchart.asp?stkname=MRK&ind=rsi&wt=3
http://investertech.com/tkchart/tkchart.asp?stkname=MRK&ind=rsi&wt=1
http://investertech.com/tkchart/tkchart.asp?stkname=MRK&ind=rsi&wt=0
Over the past year, MRK is the 9th best Dow 30 performer.
Here is the one-year Weekly chart in solid blue line (with the 8-week EMA in dashed blue) and S&P 500 in solid brown:
The current chart is bullish on the Weekly data due to RSI, Stochastics, and TRIX and the price is above the 8-week EMA.
The 6-12 month Timeliness rating is still set at a superior ‘1’ due to “strong core product demand and a leaner cost structure”.
But, in December, Value Line dropped the Technical rating (3-6 month price outlook) from ‘2’ (outperform) to ‘3’ (market perform).
As long as the Weekly data chart continues to look bullish, I see no reason for long-term oriented investors to sell. It’s too late to buy though as the Weekly RSI-7 is up to 71.2.
For the Growth portfolio accounts we hold a zero weighting in MRK and for the All-Weather portfolio accounts we hold a 1.20% weighting.
Alcoa: $9.80
Here are the Monthly, Weekly and Daily charts for AA ($9.80, down -3.0% over 13 weeks):
http://investertech.com/tkchart/tkchart.asp?stkname=AA&ind=rsi&wt=3
http://investertech.com/tkchart/tkchart.asp?stkname=AA&ind=rsi&wt=1
http://investertech.com/tkchart/tkchart.asp?stkname=AA&ind=rsi&wt=0
Over the past year, AA is the 28th best Dow 30 performer, i.e., 3rd worst.
Here is the one-year Weekly chart in solid blue line (with the 8-week EMA in dashed blue) and S&P 500 in solid brown:
In December, Value Line raised the Technical rating (3-6 month price outlook) to ‘3’ (market perform) from ‘4’ (underperform).
While prices for aluminum are still under pressure, there appears to be growing demand from the auto and airplane manufacturing industries.
As Alcoa is not a Cara 100 company, we do not invest in AA either for the Growth portfolio accounts or the All-Weather portfolio accounts.
But, I interpret the Weekly data charts as just having turned bullish based on RSI, Stochastic and TRIX indicators and the fact that the price ($9.80) is now above the 8-week EMA ($9.42), and both are rising.
So, if you are a conservative long-term oriented trader, I think continuing to hold AA would be wise, and it may be beneficial to buy on the dips. I think 2012 will be much superior to 2011 and 2010. You are not likely to hear that from a Wall Street analyst until after the good news is in, but you know how that goes!
DuPont: $48.40
Here are the Monthly, Weekly and Daily charts for DD ($48.40, up +10.6% over 13 weeks):
http://investertech.com/tkchart/tkchart.asp?stkname=DD&ind=rsi&wt=3
http://investertech.com/tkchart/tkchart.asp?stkname=DD&ind=rsi&wt=1
http://investertech.com/tkchart/tkchart.asp?stkname=DD&ind=rsi&wt=0
Over the past year, DD is the 22nd best Dow 30 performer.
Here is the one-year Weekly chart in solid blue line (with the 8-week EMA in dashed blue) and S&P 500 in solid brown:
As DuPont is not a Cara 100 company, we do not invest in DD either for the Growth portfolio accounts or the All-Weather portfolio accounts.
I interpret the Weekly data charts as just having turned bullish based on RSI, Stochastic and TRIX indicators and the fact that the price ($48.40) is now above the 8-week EMA ($46.33), and both are rising.
I think 2012 will be much superior to 2011 and 2010, and once again, you are not likely to hear that from a Wall Street analyst until after the good news is in.
If you are a conservative long-term oriented trader, I think continuing to hold AA would be wise, and it ought to be beneficial to buy on the dips, which Value Line is anticipating (for some reason).
Value Line concludes this week’s report: “We anticipate materially higher revenues and share earnings for the company by 2014-2016. This issue has good capital appreciation potential from the recent quotation. Still, investors who wait may be presented with a better entry point, should material economic weakness drive the stock price lower.”
Yes, the stock is up +12.0% over the past four weeks, which is 5th best in the Dow 30, but the RSI and Stochastics on the Weekly data show me lots of room to potentially move higher. The market is already expecting a disappointing Q4 earning’s result of about $0.34, which is down from the $0.50 comparable quarter in FY2010.
Here are the comparative charts for AA, DD, MRK and PFE, along with the DJIA:
Monthly: http://investertech.com/tkchart/tkchart.asp?stkname=AA,DD,MRK,PFE,$DJX0X&wt=3&ind=rsi
Weekly: http://investertech.com/tkchart/tkchart.asp?stkname=AA,DD,MRK,PFE,$DJX0X&wt=1&ind=rsi
Daily: http://investertech.com/tkchart/tkchart.asp?stkname=AA,DD,MRK,PFE,$DJX0X&wt=0&ind=rsi
Here are the Candleglance charts for AA, DD, MRK and PFE, along with the DJIA:
http://stockcharts.com/freecharts/candleglance.html?AA,DD,MRK,PFE,$INDU|B
The Dow 30 Company links in chronological order of the upcoming reports.
3M Company [GICS 20, Dow 30, Cara US 100 June 25-06]
(MMM: Google Finance file)
(MMM: Yahoo Finance file)
(MMM: StockChart chart)
(MMM: Investertech chart)
(MMM: ADVFN Financial Data)
(MMM: Value Line Report Oct. 21: next one is due Jan. 20)
General Electric [GICS 20, Dow 30, ex-Cara 100]
(GE: Google Finance file)
(GE: Yahoo Finance file)
(GE: StockChart chart)
(GE: Investertech chart)
(GE: ADVFN Financial Data)
(GE: Value Line Report Oct. 21: next one is due Jan. 20)
United Technologies [GICS 20, Dow 30, Cara 100]
(UTX: Google Finance file)
(UTX: Yahoo Finance file)
(UTX: StockChart chart)
(UTX: Investertech chart)
(UTX: ADVFN Financial Data)
(UTX: Value Line Report Oct. 21: next one is due Jan. 20)
Caterpillar [GICS 20, Dow 30]
(CAT: Google Finance file)
(CAT: Yahoo Finance file)
(CAT: StockChart chart)
(CAT: Investertech chart)
(CAT: ADVFN Financial Data)
(CAT: Value Line Report Oct. 21: next one is due Jan. 20)
Coca Cola [GICS 30, Dow 30, Cara 100]
(KO: Google Finance file)
(KO: Yahoo Finance file)
(KO: StockChart chart)
(KO: Investertech chart)
(KO: ADVFN Financial Data)
(KO: Value Line Report Oct. 28: next one is due Jan. 27)
Kraft Foods [GICS 30, Dow 30]
(KFT: Google Finance file)
(KFT: Yahoo Finance file)
(KFT: StockChart chart)
(KFT: Investertech chart)
(KFT: ADVFN Financial Data)
(KFT: Value Line Report Oct. 28: next one is due Jan. 27)
Wal-Mart [GICS 30, Dow 30, Cara 100]
(WMT: Google Finance file)
(WMT: Yahoo Finance file)
(WMT: StockChart chart)
(WMT: Investertech chart)
(WMT: ADVFN Financial Data)
(WMT: Value Line Report Nov 4: next one is due Feb 3)
Disney [GICS 25, Dow 30, Cara 100]
(DIS: Google Finance file)
(DIS: Yahoo Finance file)
(DIS: StockChart chart)
(DIS: Investertech chart)
(DIS: ADVFN Financial Data)
(DIS: Value Line Report Nov. 11: next one is due Feb. 10)
American Express [GICS 40, Dow 30]
(AXP: Google Finance file)
(AXP: Yahoo Finance file)
(AXP: StockChart chart)
(AXP: Investertech chart)
(AXP: ADVFN Financial Data)
(AXP: Value Line Report Nov 18: next one is due Feb 17)
Bank of America [GICS 40, Dow 30]
(BAC: Google Finance file)
(BAC: Yahoo Finance file)
(BAC: StockChart chart)
(BAC: Investertech chart)
(BAC: ADVFN Financial Data)
(BAC: Value Line Report Nov 18: next one is due Feb 17)
JP Morgan [GICS 40, Dow 30]
(JPM: Google Finance file)
(JPM: Yahoo Finance file)
(JPM: StockChart chart)
(JPM: Investertech chart)
(JPM: ADVFN Financial Data)
(JPM: Value Line Report Nov 18: next one is due Feb 17)
Microsoft [GICS 45, Dow 30]
(MSFT: Google Finance file)
(MSFT: Yahoo Finance file)
(MSFT: StockChart chart)
(MSFT: Investertech chart)
(MSFT: ADVFN Financial Data)
(MSFT: Value Line Report Nov 18: next one is due Feb 17)
Johnson & Johnson [GICS 35, Dow 30, Cara 100]
(JNJ: Google Finance file)
(JNJ: Yahoo Finance file)
(JNJ: StockChart chart)
(JNJ: Investertech chart)
(JNJ: ADVFN Financial Data)
(JNJ: Value Line Report Nov 25: next one is due Feb 24)
McDonalds [GICS 30, Dow 30, Cara 100]
(MCD: Google Finance file)
(MCD: Yahoo Finance file)
(MCD: StockChart chart)
(MCD: Investertech chart)
(MCD: ADVFN Financial Data)
(MCD: Value Line Report Dec 2: next one is due Mar 2)
Chevron Corp [GICS 10, Dow 30]
(CVX: Google Finance file)
(CVX: Yahoo Finance file)
(CVX: StockChart chart)
(CVX: Investertech chart)
(CVX: ADVFN Financial Data)
(CVX: Value Line Report Dec. 9: next one is due Mar. 9)
ExxonMobil [GICS 10, Dow 30, Cara 100]
(XOM: Google Finance file)
(XOM: Yahoo Finance file)
(XOM: StockChart chart)
(XOM: Investertech chart)
(XOM: ADVFN Financial Data)
(XOM: Value Line Report Dec. 9: next one is due Mar. 9)
Boeing Co [GICS 20, Dow 30. Cara 100]
(BA: Google Finance file)
(BA: Yahoo Finance file)
(BA: StockChart chart)
(BA: Investertech chart)
(BA: ADVFN Financial Data)
(BA: Value Line Report Dec. 16: next one is due Mar. 16)
Travelers Co [GICS 40, Dow 30]
(TRV: Google Finance file)
(TRV: Yahoo Finance file)
(TRV: StockChart chart)
(TRV: Investertech chart)
(TRV: ADVFN Financial Data)
(TRV: Value Line Report Dec. 16: next one is due Mar. 16)
AT&T [GICS 50, Dow 30]
(T: Google Finance file)
(T: Yahoo Finance file)
(T: StockChart chart)
(T: Investertech chart)
(T: ADVFN Financial Data)
(T: Value Line Report Dec. 23: next one is due Mar. 23)
Verizon [GICS 50, Dow 30]
(VZ: Google Finance file)
(VZ: Yahoo Finance file)
(VZ: StockChart chart)
(VZ: Investertech chart)
(VZ: ADVFN Financial Data)
(VZ: Value Line Report Dec. 23: next one is due Mar. 23)
Cisco Systems [GICS 45, Dow 30, Cara 100]
(CSCO: Google Finance file)
(CSCO: Yahoo Finance file)
(CSCO: StockChart chart)
(CSCO: Investertech chart)
(CSCO: ADVFN Financial Data)
(CSCO: Value Line Report Dec. 23: next one is due Mar. 23)
Procter & Gamble Co. [GICS 30, Dow 30, Cara 100]
(PG: Google Finance file)
(PG: Yahoo Finance file)
(PG: StockChart chart)
(PG: Investertech chart)
(PG: ADVFN Financial Data)
(PG: Value Line Report Dec. 30: next one is due Mar. 30)
Home Depot [GICS 25, Dow 30]
(HD: Google Finance file)
(HD: Yahoo Finance file)
(HD: StockChart chart)
(HD: Investertech chart)
(HD: ADVFN Financial Data)
(HD: Value Line Report Dec. 30: next one is due Mar. 30)
Hewlett-Packard [GICS 45, Dow 30]
(HPQ: Google Finance file)
(HPQ: Yahoo Finance file)
(HPQ: StockChart chart)
(HPQ: Investertech chart)
(HPQ: ADVFN Financial Data)
(HPQ: Value Line Report Jan. 6: next one is due Apr. 6)
IBM [GICS 45, Dow 30, Cara 100]
(IBM: Google Finance file)
(IBM: Yahoo Finance file)
(IBM: StockChart chart)
(IBM: Investertech chart)
(IBM: ADVFN Financial Data)
(IBM: Value Line Report Jan. 6: next one is due Apr. 6)
Intel [GICS 45, Dow 30, Cara 100]
(INTC: Google Finance file)
(INTC: Yahoo Finance file)
(INTC: StockChart chart)
(INTC: Investertech chart)
(INTC: ADVFN Financial Data)
(INTC: Value Line Report Jan. 6: next one is due Apr. 6)
Alcoa [GICS 15, Dow 30]
(AA: Google Finance file)
(AA: Yahoo Finance file)
(AA: StockChart chart)
(AA: Investertech chart)
(AA: ADVFN Financial Data)
(AA: Value Line Report Jan. 13: next one is due Apr. 13)
Dupont [GICS 15, Dow 30]
(DD: Google Finance file)
(DD: Yahoo Finance file)
(DD: StockChart chart)
(DD: Investertech chart)
(DD: ADVFN Financial Data)
(DD: Value Line Report Jan. 13: next one is due Apr. 13)
Merck [GICS 35, Dow 30, Cara 100]
(MRK: Google Finance file)
(MRK: Yahoo Finance file)
(MRK: StockChart chart)
(MRK: Investertech chart)
(MRK: ADVFN Financial Data)
(MRK: Value Line Report Jan. 13: next one is due Apr. 13)
Pfizer [GICS 35, Dow 30, Cara 100]
(PFE: Google Finance file)
(PFE: Yahoo Finance file)
(PFE: StockChart chart)
(PFE: Investertech chart)
(PFE: ADVFN Financial Data)
(PFE: Value Line Report Jan. 13: next one is due Apr. 13)
Recognizing how destructive a force volatility is, all investors must nevertheless study the price data as well as the corporate fundamentals. Previously I have written in this space:
Admittedly, these are really challenging times in capital markets for anybody who hopes to grow wealth. But the message I continue to give is that by studying the facts and using them to your advantage, while dissociating the excessively hyped, agenda laden, storylines from MSM and Financial Entertainment TV, you can and will succeed… You must, however, develop an investment plan and stick to it through thick and thin. In recent years, the market volatility has caused me to trade more frequently than before, using short-term technical indicators, but the essential study of corporate fundamentals, quantitative peer reviews and macroeconomic data is timeless, and the Cara 100 companies, selected for Growth or Value reasons, enables anyone to focus on quality. Over time, the combination of understanding price drivers and the quality of one’s selections is a proven winner.
There is nothing to stop the average person from chatting up the local managers of the Home Depot or Walmart (15% of Procter & Gamble sales) to see how business is going. Ask them if they are hiring or laying off staff, and if they are running into product shortages, etc.
Sometimes you’ll run into info in the strangest places. Once, several years ago, I recall striking up a conversation on the public transit with a friend who was national mortgage manager of a large trust company. When I proffered that the housing market was a disaster, he replied that he had been working overtime and the mortgage applications were falling off his desk. He couldn’t cope! I was shocked. As soon as I got to the office I looked at the charts of both the housing market and the trust company he worked for.
This week I just returned from vacationing at a 5-star business class hotel where I set up a meeting with the General Manager. Although I don’t know how many people would do this, I asked lots of questions and discovered that his occupancy was 82% for 2011 and on the rise. The next day I met the COO of the corporate owner of the hotel property and asked for their annual report and financial statements. So, even when on vacation, my wife says I am taking a bus man’s holiday. She did appreciate the bonus box of chocolates from the GM and I’m sure he will enjoy the autographed copy of Lessons from the Trader Wizard!
With respect to investing in general for most people, I think if you focus on just six to ten stocks and the reports of the same one or two analysts for each, you will be less likely to miss the nuances. The greater depth of understanding of the companies will help you better analyze the price charts. In other words, you’ll be able to gain control of your investments rather than get stuck on the road to perdition, flipping from one salesperson’s pitch to another.
With the help of the free Dow 30 quarter-yearly reports from Value Line, it’s easy to pick those 6 to 10 stocks, keep the reports and your notes in a hard-copy binder, plus carefully selected items from other analysts you can find on the Web and print out for your files.
It may take years, but it really is worth the time and effort to get to know the companies you trade. After a while, you’ll appreciate the price motion of each stock and, with more confidence, you’ll be able to go with the flow, selling when the market is chasing the price, and then letting the price come to you when they are trying to sell it, and you may want it.
In other words, do the homework to find the companies with very high quality and then put yourself into selling in a seller’s market and being a buyer in a buyer’s market, as the real estate people like to say.
For our Growth accounts we are significantly over-weighted in Technology issues presently, with high expectations for 2012. The Tech sector has been hammered lately, but the guidance of management indicates things are not that bad. The mood of investors is being set by politicians and central bankers who have their own problems. But as long as interest rates and wage rates stay low, and productivity and job growth rising, then I think the equity market will come out of its funk.
Sector ETF Summary for the US equity market
The price performance tables that I show every day are for eleven GICS Sector Index Funds (ETF’s), including two for Technology (XLK and SMH), for a total of ten GICS sectors. They cover the full spectrum of the US equity market.
Table 1: Cara ETF List is sorted by price performance Week over Week (W/W), i.e. 1W%N.
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Table 1 shows that for the past six months, the S&P 500 (SPY) has dropped about -2.3%. Four of the ten sectors have been the culprits: Telecom (IYZ -14.3%), Basic Materials (XLB -8.8%), Energy (XLE -7.8%) and Financials (XLF -7.8%).
If your portfolio has out-performed over the past 26 weeks, you should be thankful; however, XLE, XLB and XLF are on the rise and I think 2012 will be much superior to 2011.
You can do a table like Table 1 (below) by entering the following string into the Summary window at Investertech.com and then clicking on the link for Performance. You can also add more ETFs - up to 30 in total. For a list of components to many ETFs, go to the AMEX.com and NYSE.com web sites, and click on ETFs.
SPY XLE XLB XLI XLY XLP IYH XLF XLK SMH IYZ XLU .
You can use this tool to set up personal watchlist charts by industry group and sub-groups.
Another chart you ought to be reviewing every week is the candleglance view from StockCharts.com:
http://stockcharts.com/scripts/php/candleglance.php?XLE,XLB,XLI,XLY,XLP,...
http://tinyurl.com/33m3ss4
Sector rotation is one study I spend hours doing every week.
http://en.wikipedia.org/wiki/Sector_rotation
For a summary chart view, this presentation from StockCharts will save you lots of time.
http://stockcharts.com/scripts/php/candleglance.php?XLE,XLB,XLI,XLY,XLP,...
http://tinyurl.com/33m3ss4
Once involved, you’ll drill down into the nuances of this next chart (link), looking at the cyclical reversals and trying to see the drivers.
http://stockcharts.com/charts/performance/perf.html?[SECT]
http://tinyurl.com/ykk3oyc
The principles of sector rotation have been studied and written about for hundreds of years by many people. My work is based on the individual who mentored me in this subject and taught me more about investing and trading than any other, the late Ian Notley, my former associate. Notley is considered perhaps the finest trend and cycles analyst of the past 50 years. He was recruited to North America in the 1970’s by another friend of mine, Ian McAvity, editor of Deliberations, himself one of the world’s great trend and cycle analysts.
http://www.topline-charts.com/ian_mcavity.htm
The technical analysis work of both Ian’s was inspired by E.S. Coppock.
http://www.topline-charts.com/Encyclopedia/coppock_curve_interpretation.htm
Here’s the SPY Monthly, Weekly and Daily data charts:
SPY Monthly data: 
SPY Weekly data: 
SPY Daily data: 
10 (energy: XLE) 
15 (basic materials: XLB) 
20 (industrial: XLI) 
25 (consumer discretionary: XLY) 
30 (consumer staples: XLP) 
35 (healthcare: IYH) 
40 (financial: XLF) 
45 (technology, semiconductor: SMH) 
50 (telecom: IYZ) 
55 (utilities: XLU) 
Individual Sector ETF and Stocks Review
This week seven of the ten sectors and 21 of 30 Dow 30 stocks lifted, for the week. But, on Friday all ten sectors were losers. Had the day not opened with a greater than -1% loss, the results would have been much better. At least, following the first hour selling wave, the rest of the day was a bullish one.
Sector 10 (energy: XLE, IYE, VDE, OIH, PBW and IXC)
Here’s the XLE Monthly, Weekly and Daily data charts:
XLE Monthly data: 
XLE Weekly data: 
XLE Daily data:
Table 2: Senior oil & gas equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Just back this weekend from vacation, I’m not going to comment on the individual stocks here unless I see something really note-worthy.
The ETF for Oiler stocks is XLE. This week, XLE was down -1.42% W/W, losing -0.50% on Friday to close at 69.44.
Over the past three months, XLE is up +8.43%, which is the #5 sector performer, in the middle of the pack.
Here is the Weekly chart of XLE (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
Two weeks ago I wrote in this space:
Note the extremely high correlation, and the recent inability to exceed the April highs. Should the current price (69.13) not soon get back above the 8-month EMA (69.35), and the RSI-7 for the Monthly price series (51.26) not stay above the 50-line, I’m afraid the Oilers are likely to go into the tank… Without the Oilers winning, I’m afraid it’s going to be hard for the S&P 500 to avoid a sell-off. That concerns me, so the Bulls had better hope for a solid January.
Well, the Oilers were the worst performing sector this week, but the good news for those who are long is that the price closed the week at 69.44 while the 8-week EMA dropped to 69.01 and the Weekly RSI-7 is now a tad higher at 52.72. I read this as a bullish trend.
Here is the Hourly chart of XLE (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
I also read the Hourly data as being bullish.
If the central banks decide to follow through with money pumping, then the oil will flow as well, at high prices and a positive quarter year ahead for XLE. By high prices I mean prices in the $95-$100/bbl level.
FD: We have added to the Oilers, figuring there will be higher oil prices. For Growth accounts we added NE to our holdings of APA, CVX, PBR, SLB and XOM, and, for All-Weather portfolios in this sector, we hold the same stocks but with a smaller total percentage weighting.
Note that we are still under-weighted Energy to the S&P sector weighting, given the cash plus the excessive weighting we hold in Technology, but we have been adding Oilers. Note also that our equity positions are, by policy, restricted to Cara 100 companies in the broad based portfolios.
Here is the current candleglance chart of 10 important Sector 10 components:
http://stockcharts.com/scripts/php/candleglance.php?XOM,PTR,CVX,PBR,TOT,...
Here below is the list of Cara 100 companies in this sector along with their stock tickers. For the Energy (Oil & Gas industries) Sector, the market cap (Dec. 9, 2011) of the 12 Cara 100 stocks was $1.114 trillion. I’ll try to update this data once a month or so.
I won’t repeat this for every sector study we do, but there is a difference between a company and a stock. At times, you can be invested in a great company but the stock is a disappointment.
A stock is a price set in the market. It could change minute to minute or second to second depending on various price drivers, some of which have little or nothing to do with the corporation. That price might be materially different that say a consensus valuation of enterprise value of the company, which in turn might be materially different than one company or individual might be prepared to pay to acquire the whole company.
But, first and foremost I believe in investing in the shares of the highest quality companies – just like I believe that we must choose our friends wisely. Track records like price trends tend to persist. For a Cara 100 company, I select only those that trade its shares on the NYSE or NASDAQ, which requires a high level of transparency and where the information is easy to come by. Most major Canadian companies and a great many international companies are dually listed on these exchanges in the US too. I try to build the Cara 100, which is where I invest, with an international flavor, which helps me diversify risk and also observe many different operating environments simultaneously, which also helps me better interpret the macro-economic data we get.
A Cara 100 company has to have a strong balance sheet and a strong Board of directors and management team, the CEO in particular. Compared to the peer group, the operating and net profit margins must be at or near the highest, the Return on Shareholder Equity up there as well, generally close to or above 20%. I need to see acceptable growth rates in revenues, cash flow, earnings, dividends and book value.
These figures are easy to get. FINVIZ.com does a good job of that.
As for the price data charts I find best, I like StockCharts.com.
Cara 100 Sector 10 (Energy) list:
APA Apache Corporation [GICS 10, Cara 100 V50]
CNQ Canadian Natural Resources [GICS 10, Cara 100 V50]
CVX Chevron Corp [GICS 10, Cara 100 V50]
CEO CNOOC [GICS 10, Cara 100 G50]
XOM Exxon Mobil Corp [GICS 10, Cara 100 V50]
NFX Newfield Exploration [GICS 10, Cara 100 G50]
NE Noble Corp [GICS 10, Cara 100 V50]
PBR Petroleo Brasileiro SA [GICS 10, Cara 100 V50]
PDS Precision Drilling [GICS 10, Cara 100 G50]
SLB Schlumberger [GICS 10, Cara 100 V50]
SU Suncor Energy Inc [GICS 10, Cara 100 G50]
TLM Talisman Energy [GICS 10, Cara 100 G50]
Oil & Gas Exploration & Production -Canada
Sector 15 (basic materials: IYM, XLB, IGE and VAW)
Here’s the XLB Monthly, Weekly and Daily data charts:
XLB Monthly data:
XLB Weekly data:
Table 3: Senior Basic Materials:
XLB Daily data:
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
The ETF for Basic Materials stocks is XLB. These are the producers of commodities and related products.
This week, XLB was up +3.83% W/W. The close was 36.10.
XLB was the #1 sector performer this week.
Two stocks that have been leading are Gerdau Steel (GGB), which gained +7.3% W/W and is up +17.6% over two weeks, and Alcoa (AA), which gained +7.0% W/W and is up +13.6% over two weeks.
Here is the Weekly chart of XLB (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
Note the extremely high correlation with the S&P 500. Also note the recent bullishness with a rising RSI-7 off the August lows plus the current price (36.10) that has lifted well above the 8-week EMA (34.23), as well as the 8-month EMA (34.92), which are bullish signs.
Here is the Hourly chart of XLB (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
Two weeks ago in this space I gave you the heads-up:
This sector is ready to break to the upside or downside in January. I think the odds slightly favor an upside break-out.
Well, this was a very constructive two weeks as the Hourly chart shows.
FD: Other than the CEF, which is by far our biggest All-Weather position and several other goldminers, plus copperminer FCX, we presently hold POT and VALE in the All-Weather portfolios and BHP, FBR, POT, TCK and VALE in the Growth portfolios in this sector. Overall, we are over-weighted the S&P sector weighting.
Like Energy, the stocks in this Basic Materials sector are the most cyclical in nature meaning that as demand and supply changes, the prices rise and fall. They are also most susceptible to big Dollar rallies. We have been waiting for the Dollar rally to reverse, and it has not as yet, but still the stocks in this sector are rallying. The stocks are also higher beta, which means that they tend to move to a greater degree, both up and down, than does the broad market.
As at Dec. 9, 2011, the total market cap of the 17 Cara 100 stocks in this sector was $567.3 billion. Of course, 56% of the total is attributed to two stocks, BHP and VALE.
Cara 100 Sector 15 (Basic Materials) list:
BHP BHP Billiton Ltd [GICS 15, Cara 100 V50 G50]
CCJ Cameco Corp [GICS 15, Cara 100 G50]
CEF Central Fund [GICS 15, Cara 100 V50]
VALE Companhia Vale Do Rio [GICS 15, Cara 100 G50]
DOW Dow Chemical Co [GICS 15, Cara 100 V50]
FBR Fibria [Votorantim] Celulose [GICS 15, Cara 100 G50]
FCX Freeport McMoRan [GICS 15, Cara 100 G50]
GGB Gerdau SA [GICS 15, Cara 100 G50]
GG Goldcorp Inc [GICS 15, Cara 100 G50]
NGD New Gold Inc [GICS 15, Cara 100 G50]
NUE Nucor Corp [GICS 15, Cara 100 V50]
POT Potash Cp of Saskatchewan [GICS 15, Cara 100 G50]
SLW Silver Wheaton Corp [GICS 15, Cara 100 G50]
SVM Silvercorp Metals [GICS 15, Cara 100 G50]
TCK Teck-Cominco Ltd [GICS 15, Cara 100 G50]
TS Tenaris SA [GICS 15, Cara 100 G50]
UXG US Gold [GICS 15, Cara 100 G50]
Here is the current candleglance chart of 10 important Sector 15 components:
http://stockcharts.com/scripts/php/candleglance.php?BHP,VALE,RIO,MT,DOW,...
Sector 20 (industrial: IYJ, XLI, VIS, and IYT)
Here’s the XLI Monthly, Weekly and Daily data charts:
XLI Monthly data: 
XLI Weekly data: 
XLI Daily data:
Table 4: Senior capital goods makers and transportation:
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
The ETF for Industrial and Transportation stocks is XLI. These are the users of commodities and related products as well as the freight transportation systems that move commodities and business packages to markets around the world.
Two weeks ago, most analysts were crying the blues, telling all who would listen to their stories that the sky was falling. You know I don’t listen to their crapola. Instead I wrote in this space:
One of the reasons why we think the commodity price sensitive sectors (XLE, XLB and XLI) are more likely to break-out to the upside in January is because of the XLI chart… Note that this chart is more bullish than the XLE and XLB. The current price (33.75) is above the 8-month EMA (33.45) and the RSI-7 is at 52.73 and rising on the Monthly data. The Monthly Stochastic has clearly turned positive.
Now you see the proof of concept.
In the holiday shortened week before my own vacation, I reported: “XLI dropped -1.0% to 33.75.” This week, XLI was up +2.62% W/W to close at 35.50, which was the 3rd best sector performance. It’s also 3rd best over two weeks.
Leadership has come from Textron (TXT), which was up +10.8% W/W and up +15.5% over two weeks, and Caterpillar (CAT), which was up +7.0% W/W and up +13.1% over two weeks.
Just as important was the bellwether stock FDX (Fedex), which gained +5.7% W/W and +7.2% over two weeks.
Here is the Weekly chart of XLI (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
Note the extremely high correlation with the S&P 500. The current price (35.49) is above the 8-month EMA (33.95) and the Weekly and Monthly RSI-7 are at 66.2 and 60.1 respectively and all are rising. The Monthly Stochastic is now very definitely positive.
Here is the Hourly chart of XLI (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
The past two weeks have performed to or even above my expectations as the Hourly chart shows. The pull-back on Friday morning enabled the machinery to be reloaded.
My picks for the next 12-24 months are Cummins (CMI) for Growth and ABB (ABB) for All-Weather.
FD: We presently hold ABB, CMI and UTX in this sector in the Growth and All-Weather portfolios, and also some PAYX in the All-Weather.
Two weeks ago I reported, “We added (Swiss company) ABB this (past) week as the chart appears to be setting up for a break-out.” In the past two weeks, ABB is up +6.52%, and it gained some after our purchase the prior week. As a side-note, I like the fact that the Swiss central bank is keeping in check the weakness of the Euro and the harmful impact that has on Swiss companies.
As at Dec. 9, 2011, the total market cap of the 7 Cara 100 stocks in this sector was $257.5 billion. Almost 90% of the total is attributed to four stocks, UTX, MMM, BA and ABB.
Cara 100 Sector 20 (Industrials and Transports) list:
MMM 3M [GICS 20, Cara 100 V50]
ABB ABB Ltd [GICS 20, Cara 100 V50]
BA Boeing Co [GICS 20, Cara 100 V50]
CMI Cummins Inc [GICS 20, Cara 100 V50]
ERJ Embraer-Empresa Brasil [GICS 20, Cara 100 G50]
PAYX Paychex Inc [GICS 20, Cara 100 V50]
UTX United Technologies, [GICS 20, Cara 100 V50]
The Industrials, Base Materials and Energy sectors are typically the three sectors that are most inversely correlated to the US Dollar. The US, Swiss and Brazilian companies in the Industrial sector, like the others, get most of their income from abroad. They are also producers and/or transporters of commodities, which increase in price as the Dollar falls.
Here is the current candleglance chart of 10 important Sector 20 components:
http://stockcharts.com/scripts/php/candleglance.php?GE,UTX,UPS,MMM,CAT,A...
To check on general and detailed info for the Industrials group, the Thomson Reuters service is a good one:
http://www.reuters.com/sectors/industries/significant?industryCode=52442
Here is the link to all sectors and industries as classified by Reuters:
http://www.reuters.com/assets/siteindex#sectorsAndIndustries
Sector 25 (consumer discretionary: XLY, IYC and VCR)
Here’s the XLY Monthly, Weekly and Daily data charts:
XLY Monthly data: 
XLY Weekly data: 
XLY Daily data:
Table 5: Senior consumer discretionary equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Consumer stocks are organized by the S&P industry classification system as either Discretionary Spending, Staples (must have consumer purchases) and Healthcare. Most income here is from the US consumer – in US Dollars – so there is less of an inverse correlation as we saw in Energy, Basic Materials and Industrials/Transports.
The ETF for Consumer Discretionary stocks is XLY. This week XLY was up +0.82% W/W to close at 40.38. On Friday there was a very small loss of -0.12%, which was the 2nd best sector performer on the weakest day of the week.
Las Vegas Sands (LVS) gained +9.2% W/W. Brunswick Corp (BC) was up +6.7%. Tata Motors of India gained +4.0% W/W but is now up +17.4% over two weeks.
Here is the Weekly chart of XLY (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
Note the extremely high correlation with the S&P 500. As the RSI-7 for the Weekly price series data is 63.75 and rising and the current price (40.38) is above the 8-week EMA (39.18) and the 8-month EMA (38.60) and all are rising, the intermediate- and long-term charts are bullish.
Here is the Hourly chart of XLY (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
The Hourly chart shows a rising trend and a price at $40.38 that a tad higher than the 8-day EMA (40.28), which is bullish, barely. But, there has been a lot of side-tracking over 12 weeks, bumping up against long-term resistance, so XLY is in need of an upside break-out.
This weekend one of the Cara 100 companies in this sector, Carnival Corp (CCL), the world’s biggest cruiseline operator, suffered a catastrophe. BNN’s Marty Cej has written it up:
Carnival Corp. shares are plunging in European trading after one of its ships ran aground off the coast of Italy, killing at least six people. The stock has dropped as much as 23 percent as estimates of liabilities soar. Apart from the short-term hit to the company, there is the question of the cruise industry in general. This ship wasn't a leaky tub shifting vacationers from the mainland to some nearby island but a modern, elegant, luxurious giant cruising the swankiest coast in the world. The pictures from the disaster are horrific and they will have an impact on some travel plans.
Carnival has reported that the uninsured portion of the financial loss will be about $95 million, which is insignificant relative to the market cap of $26.6 billion. Early losses in London indicate a loss of $6.12 billion in market cap, which seems extreme.
http://www.ft.com/intl/cms/s/0/73fdc42c-401b-11e1-82f6-00144feab49a.html...
We will take a small temporary hit with our position in CCL.
FD: We presently hold only NKE in the All-Weather portfolios, after dropping TGT, and BC, CCL, NKE, TGT, and TM in the Growth portfolios in this sector.
Note that I could have put SBUX into this sector, but many people argue they just have to have their daily Starbucks or Tim Hortons. :) Tech stock ATVI and ERTS might also be labeled Consumer Discretionary and we hold ATVI too. We are now under-weighted to the S&P in the Growth portfolio in this sector and significantly under-weighted in the All-Weather portfolio .
As at Dec. 9, 2011, the total market cap of the 15 Cara 100 stocks in this sector was $572.6 billion. Over 50% of the total is attributed to three stocks, TM, MCD and AMZN.
Cara 100 Sector 25 (Consumer Discretionary) list:
AMZN Amazon.com [GICS 25, Cara 100 G50]
BBBY Bed Bath & Beyond [GICS 25, Cara 100 G50]
BC Brunswick Corp [GICS 25, Cara 100 G50]
CCL Carnival Corp [GICS 25, Cara 100 G50]
COST Costco [GICS 25, Cara 100 V50]
DIS Disney Co [GICS 25, Cara 100 V50]
JCP J.C. Penney Company Inc [GICS 25, Cara 100 V50]
KSS Kohl's Corp [GICS 25, Cara 100 V50]
MCD McDonalds Corp [GICS 25, Cara 100 V50]
NKE Nike Inc [GICS 25, Cara 100 G50]
RCL Royal Caribbean Cruises [GICS 25, Cara 100 G50]
TGT Target Corp [GICS 25, Cara 100 V50]
TTM Tata Motors [GICS 25, Cara 100 G50]
TM Toyota Motor Corp [GICS 25, Cara 100 V50]
WHR Whirlpool Corp [GICS 25, Cara 100 V50]
Here is the current candleglance chart of 10 important Sector 25 components:
http://stockcharts.com/scripts/php/candleglance.php?TM,DIS,NKE,TGT,EBAY,...
Sector 30 (consumer staples: XLP, VDC, RTH and IYK)
Here's the XLP Monthly, Weekly and Daily data charts:
XLP Monthly data: 
XLP Weekly data: 
XLP Daily data:
Table 6: Senior consumer staples equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
The ETF for Consumer Staples stocks is XLP. As the purchases are considered must-have, the normal swings in economic growth and contraction do not affect these companies as much as say the Consumer Discretionary stocks.
This week, XLP was down -0.06% W/W to close at 32.14.
This was the 3rd worst performing sector this week, but the loss on Friday as well as for the week was minimal.
Here is the Weekly chart of XLP (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
Note the extremely high correlation. But since March, the chart does show that XLP out-performed the S&P 500.
The current price (32.14) is above the 8-week EMA (31.85) and both are rising and the Weekly RSI-7 is 61.7, falling off the 70 line in December. The chart is bullish.
Here is the Hourly chart of XLP (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
The Hourly chart shows a rising trend and a price at $32.14 that is still above the 8-day EMA (32.11), which is bullish, but the gap has quickly narrowed.
As pointed out in the WIR of two weeks ago, “The Daily RSI-7 has fallen from almost 80 to under 65, which is bearish, but then again the price has soared since about Dec 19 and is due for a rest.” Although the Daily RSI-7 is now down to 43.94, I feel that rest time is probably over for now. I like the Daily Stochastics turning up from below 20.
FD: We presently hold SBUX, WFM and WMT in this sector in the Growth portfolios and all those plus PG in the All-Weather.
As at Dec. 9, 2011, the total market cap of the 8 Cara 100 stocks in this sector was $773.8 billion. About 80% of the total is attributed to four stocks, WMT, PG, KO and ABV.
Cara 100 Sector 30 (Consumer Staples) list:
ABV AmBev (Companhia de Bebidas) [GICS 30, Cara 100 V50]
KO Coca-Cola [GICS 30, Cara 100 V50]
DEO Diageo plc (ADR) [GICS 30, Cara 100 V50]
PG Procter & Gamble Co [GICS 30, Cara 100 V50]
SBUX Starbucks Corp [GICS 30, Cara 100 G50]
WAG Walgreen Company [GICS 30, Cara 100 V50]
WMT Wal-Mart Stores Inc , [GICS 30, Cara 100 V50]
WFM Whole Foods Market Inc [GICS 30, Cara 100 G50]
Here is the current candleglance chart of 10 important Sector 30 components:
http://stockcharts.com/scripts/php/candleglance.php?WMT,PG,KO,PEP,ABV,KF...
Sector 35 (healthcare: IYH, XLV, VHT, IXJ, and IBB)
Here’s the IYH Monthly, Weekly and Daily data charts:
IYH Monthly data: 
IYH Weekly data: 
IYH Daily data:
Table 7: Senior healthcare equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
The ETF for Healthcare stocks is IYH. At least, that is the ETF I use.
This week IYH gained +1.13% W/W to close at 73.23.
Leaders were bio-tech companies Celgene (CELG +8.1% W/W) and Gilead Sciences (GILD), which gained +4.9% W/W and is up +10.7% over two weeks.
Here is the Weekly chart of IYH (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
Note the extremely high correlation, and, as pointed out two weeks ago in this space, “the relative bullishness of this chart”. The Weekly RSI-7 is now up to 70.44 and the price (73.23) is above the 8-week EMA (70.82), with all lines rising, which is bullish.
Here is the Hourly chart of IYH (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
Caution continues to be urged here as more capital might be ready to swing into the commodity price sensitive sectors, particularly Energy.
FD: We presently hold AET, PFE, JNJ, MRK and NVS in this sector in the All-Weather portfolio, all these except MRK is not in the Growth portfolio.
As at Dec. 9, 2011, the total market cap of the nine Cara 100 stocks in this sector was $867.8 billion. Of these, the smallest two are AET, with a market cap of $14.4 Billion and Gilead Sciences at $29.3 B. Five of the nine are over $100 B in market cap.
In the equity market; like many other sector charts, the Weekly data chart of IYH shows that Healthcare has had a successful re-test in mid-Sept and mid-Nov of the early August low and an end to the mid-cycle correction that was similar to the one in May 2010.
Cara 100 Sector 35 (Healthcare) list:
ABT Abbott Laboratories [GICS 35, Cara 100 V50]
AET Aetna Inc [GICS 35, Cara 100 G50]
BMY Bristol Myers Squibb Co [GICS 35, Cara 100 V50]
GILD Gilead Sciences [GICS 35, Cara 100 G50]
GSK GlaxoSmithKline plc (ADR) [GICS 35, Cara 100 V50]
JNJ Johnson & Johnson [GICS 35, Cara 100 V50]
MRK Merck [GICS 35, Cara 100 V50]
NVS Novartis [GICS 35, Cara 100 V50]
PFE Pfizer [GICS 35, Cara 100 V50]
Here is the current candleglance chart of 10 important Sector 35 components:
http://stockcharts.com/scripts/php/candleglance.php?JNJ,PFE,NVS,MRK,GSK,...,
At the end of the day, I personally don’t care for the pharmaceutical industry’s excessive lobbying, the unfair advantage given the industry by Congress, nor the constant TV advertising of pharmaceuticals to the mass market (now joined by Pfizer), which happens to be marketing directly to people who are totally unqualified to make self-diagnosis of their ills and/or to make recommendations to their physicians. I think the whole process is itself completely sick, but it is what it is.
The worst of it all is the matter of what I call outright fraud in the industry self-serving support of known carcinogenic agents, like microwaves, so that patients must be treated by so-called Western medicine. I posted on the home page sidebar, a link to an informative documentary: www.youtube.com/magdahavas and www.magdahavas.com.
A couple years ago, I was aghast at how the general public was being terrified about a so-called pandemic called swine flu, which I saw as a money grab by the big pharmaceutical manufacturers. We also saw public monies going to pharmaceutical companies in respect of TARP, of all things.
You see, Congress is a giant country club where the sponsoring corporate members ensure they get their piece of the meal they pay dearly for after having bought the players. You want to see where America is failing; healthcare is near the top of the list. I’d rather see the US Congress give more support to the medical practitioner community and less to Big Pharma.
But as I say, it is what it is. I’m just a trader, and one who has a need to diversify, so I’m into the stocks of these companies. Personally I have never been addicted to what the law says is an approved pharmaceutical or even the unapproved ones. Fortunately, I have never been one to require them, having seldom been given a prescription.
One thing I will never do, you should know, is invest in tobacco.
Sector 40 (financial: IYG, IYF, XLF, VFH, IXG, VNQ, RWR, IYR, and ICF)
Here’s the XLF Monthly, Weekly and Daily data charts:
XLF Monthly data: 
XLF Weekly data: 
XLF Daily data:
Table 8: Senior financial company equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
The ETF for Financial stocks is XLF. If you want to check on strictly banking stocks, the $BKX Banking Index is what you want.
This week XLF gained +3.10% W/W to close at 13.82, which was the 2nd best sector performer.
As noted in this space two weeks ago, “I have been watching the European negotiations between bankers, central bankers and politicians. Nobody wants to take the hit on the dubious pricing of sovereign debt that might not be paid in full at maturity. There has been much talk of agreement around the table. Coming up though is the massive haircut the Banks will be forced to take on the Greek bonds coming due for roll-over in March, and by mid-January the Banks will likely return to the battlefield over this issue.”
This spurt in the bank stocks in the past two weeks concerns me as it precedes the time that I think Greek debt comes back into focus. Deutsche Bank (DB) for example was up +7.2% this week but is still down -3.9% over two weeks. I think DB is at risk here, but generally the Bank stocks are improving.
The Indian bank stocks have fared well. ICICI Bank (IBN) was up +9.8% W/W and +16.6% over two weeks.
Here is the Weekly chart of XLF (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
Note the extremely high correlation, and also the sector under-performance for the past couple years, particularly for 2011. For the past 12 months, XLF is down -16.1%, while the next worst performing sector over that time is Telecom (IYZ), which was down just -8.5% and Basic Materials (XLB), which was down much less at -6.7%. Over the past 12 months the S&P 500 ($SPX) gained a fractional +0.37%.
Here is the Hourly chart of XLF (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
The Hourly chart shows a bullish phase since Dec. 20.
We hold only SCHW in this sector, and have a fairly small position. We prefer to wait to see how the international Financial Stability Board is able to put Humungous Bank & Broker (HB&B) in their place, ending the extreme risk appetite of the crowd that is supposed to be risk averse.
Maybe the prosecution of Jon Corzine would be a step in the right direction. Until we see that regulators put an end to the Too Big To Fail notion, I will be radically under-weighted financial services.
As at Dec. 9, 2011, the total market cap of the 7 Cara 100 stocks in this sector was $307.2 billion. Of these, the smallest three are SCHW, and the two Indian banks IBN and HDB.
Cara 100 Sector 40 (Financials) list:
BBD Banco Bradesco SA (ADR) [GICS 40, Cara 100 V50]
BNS Bank of Nova Scotia (USA) [GICS 40, Cara 100 V50]
SCHW Charles Schwab Corp [GICS 40, Cara 100 G50]
HDB HDFC Bank [GICS 40, Cara 100 G50]
IBN ICICI Bank [GICS 40, Cara 100 G50]
RY Royal Bank of Canada (USA) [GICS 40, Cara 100 V50]
TD Toronto Dominion Bank (USA) [GICS 40, Cara 100 V50]
Here is the current candleglance chart of 10 important Sector 40 components:
http://stockcharts.com/scripts/php/candleglance.php?HBC,JPM,WFC,C,BAC,GS...
I wrote all the following previously, but it still applies:
I personally like the Canadian banks because of the more prudent way they are managed, but they a part of a global credit ring, and hence are exposed to massive risk. The Indian banks are much more reliant on domestic operations, but that too has been a problem in the past couple years with stagflation being the issue. The very high inflation has caused the central bank of India to tighten harshly in order to try to cap the rising cost of food, which if it keeps being a problem will lead to considerably more social unrest than is apparent today. Also, with the tightening, the banks have had to pull back on business lending, which has negatively impacted the country’s normally very high rate of economic growth. But now the central bank has just agreed to permit foreign investors to trade stocks right on the BSE and National exchanges, which ought to give a lift (and liquidity) to the Indian banks. So, overall I think that India is at a cross-road here, but may have seen the cycle bottom.
As far as the large US banks, the recent failure of MF Global has already pointed to many weaknesses in the US financial system, eg, the laws, rules and regulations as well as ongoing imprudent management practices, greed at the highest levels, and so forth. I think Congressional committees will discover that the MF CEO Don Corleone knew that his colleagues in the leading gangs had his client money stolen legally and that he hadn’t “intended” for that to happen. But I think he’ll get nailed on perjury, somehow.
This smear against the industry is a shame because, in my view, most of the people in financial services are honest and capable and the tools they have are second to none. US banking ought to be leading America back to its place as the strongest economy, not one that is deeply in debt and failing its people.
In a country that prides itself on competition, it’s strange that its banks have been allowed to become too large and unwieldy to manage effectively, nevertheless efficiently. There is, in my mind, no reason (other than the grab for control/power witnessed in the past 30 years) that the top 4 US banks could not be replaced by a top 40 or a top 20, each much more specialized and streamlined. Self-regulated oligopolies have seized control, and what has resulted is the decline of the once proud American way of life.
I assure you that free markets and competition is the best prescription for social equity.
Daily charts of electronic brokers and exchanges
Weekly charts of electronic brokers and exchanges
Sector 45 (technology: IGM, IGV, IGW, XLK, VGT, IYW, IGN, IXN, MTK and SMH)
The ETF for Technology stocks is XLK. Because the Semi-conductor manufacturers are a technology that is needed in the manufacture of most equipment and in most manufacturing processes today, I think it is the most important technology. So; I also focus on the Semi-conductor industry group, and the ETF for that is SMH.
This week XLK closed at 26.08, up +0.42% W/W and SMH was up +1.22% W/W to close at 31.59.
The solar companies made a surge in the past two weeks, so it’s apparent that the risk-on trade has returned. Suntech Power (STP) rallied a phenomenal +29.7% W/W and is now up +39.6% over two weeks. First Solar (FSLR) gained +13.2% W/W and is up +21.5% over two weeks. We are still not holding FLSR.
Here is the Weekly chart of XLK (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
Note the extremely high correlation, and the bullish perspective with the current price (26.08) being higher than the 8-month EMA (25.62).
Note also the common features of the four cycle peaks in 2011. The current cycle has the power to break-out to new highs.
Here is the Hourly chart of XLK (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
Two weeks ago in this space, I wrote: “The Hourly chart indicates that traders have been bearish for about six weeks but will soon make up their mind on trend direction.” Subsequently the move has been bullish, but not yet a break-out to new highs. That may soon happen, and my accounts are positioned for it.
As you know, when (i) Tech stocks and (ii) the broad market indexes begin to rally, I look for the semi-conductors to be leading. For the same reason, at the beginning of a construction boom, I expect to see (i) the activity increase in the offices of architects and engineers, and (ii) mortgage applications begin to soar.
FD: We presently hold AAPL, ATVI, CSCO, CTSH, ERTS, GOOG, IBM, INFY, INTC, MSFT and SNDK in this sector in various portfolios. We are quite over-weighted in Tech to the S&P. In our Growth portfolio, GOOG is our biggest position.
As at Dec. 9, 2011, the total market cap of the 17 Cara 100 stocks in this sector was $1.625 trillion. Of these, there are seven over $100 billion in market cap each. There are also seven under $20 billion.
Cara 100 Sector 45 (Technology) list:
AAPL Apple Inc [GICS 45, Cara 100 G50]
ADBE Adobe Systems Inc [GICS 45, Cara 100 G50]
ATML Atmel Corp [GICS 45, Cara 100 G50]
ATVI Activision Inc [GICS 45, Cara 100 G50]
BIDU Baidu [GICS 45, Cara 100 G50]
BRCM Broadcom Corp [GICS 45, Cara 100 G50]
CSCO Cisco Systems Inc [GICS 45, Cara 100 V50][added to DJIA June2009]
CTSH Cognizant Technology [GICS 45, Cara 100 G50]
ERTS Electronic Arts Inc [GICS 45, Cara 100 G50]
FSLR First Solar, Inc [GICS 45, Cara 100 G50]
GOOG Google [GICS 45, Cara 100 G50]
IBM IBM [GICS 45, Cara 100 G50]
INFY Infosys Technologies Ltd [GICS 45, Cara 100 G50]
INTC Intel Corp [GICS 45, Cara 100 V50]
JNPR Juniper Networks [GICS 45, Cara 100 G50]
MSFT Microsoft [GICS 45, Cara 100 V50]
ORCL Oracle [GICS 45, Cara 100 G50]
QCOM Qualcomm Inc [GICS 45, Cara 100 G50]
SNDK SanDisk Corp [GICS 45, Cara 100 G50]
Here is the current candleglance chart of 10 important Sector 45 components:
http://stockcharts.com/scripts/php/candleglance.php?AAPL,MSFT,GOOG,IBM,O...,
Here is the current candleglance chart of 10 important Semi-conductor stock components:
http://stockcharts.com/scripts/php/candleglance.php?INTC,TSM,TXN,BRCM,AM...
Here’s the SMH Monthly, Weekly and Daily data charts:
SMH Monthly data: 
SMH Weekly data: 
SMH Daily data:
Here’s the XLK Monthly, Weekly and Daily data charts:
XLK Monthly data: 
XLK Weekly data: 
XLK Daily data: 
Table 9: Senior technology equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Sector 50 (telecom: IYZ, VOX and IXP)
The ETF for Telecom stocks is IYZ. At least, that is the ETF I use.
IYZ has been the worst performing sector over six months (26 weeks), being down -14.3%, and 2nd worst over the past year (-8.5%).
Two weeks ago I opined in this space: “But, although the long and intermediate-term charts don’t really show it, the worst might now be over.”
This week, IYZ gained +2.20% W/W. The close on Friday was 21.34. That was the 4th best sector performance on the week.
This week, Verizon (VZ +1.5%) and AT&T (T +1.3%) were in the leader group, a bit behind Telefonica (TEF), which gained +2.3% W/W.
Here is the Weekly chart of IYZ (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
The current price (21.34) is above the 8-week EMA (20.88) and the Weekly RSI-7 is 59.0, and all lines are rising, which is bullish.
Here is the Hourly chart of IYZ (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
Two weeks ago, I opined in this space: “The Hourly chart is possibly ready to swing bullish.” I think there was definite strength this week.
FD: We hold only Mobil TeleSystems MBT in the Telecom sector – for both Growth and All-Weather accounts. Telefonica (TEF) is also a Cara 100 company, but while the stock rallied a bit this week is still a risk due to the European sovereign debt crisis.
As at Dec. 9, 2011, the total market cap of the 3 Cara 100 stocks in this sector was $147.8 billion. Of these, Telefonica (TEF) has 83.4 billion in market cap, which is smaller than Verizon and about half the size of AT&T’s market cap.
Cara 100 Sector 50 (Telecom) and Sector 55 (Utilities) list:
CHA China Telecom Corp [GICS 50, Cara 100 V50]
MBT Mobile TeleSystems (ADR) [GICS 50, Cara 100 G50]
TEF Telefonica SA [GICS 50, Cara 100 G50]EXC Exelon Corp [GICS 55, Cara 100 V50]
TRP TransCanada Corp [GICS 55, Cara 100 V50]
Here is the current candleglance chart of 10 important Sector 50 components:
http://stockcharts.com/scripts/php/candleglance.php?T,VZ,CHL,CHA,VOD,TEF...,
Table 14: Telecom
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Here’s the IYZ Monthly, Weekly and Daily data charts:
IYZ Monthly data: 
IYZ Weekly data: 
IYZ Daily data:
Sector 55 (utilities: IDU, XLU, and VPU)
The Utilities sector ETF is XLU.
This week, XLU dropped -0.37% W/W. XLU closed the week at 34.89.
Here is the Weekly chart of XLU (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
This chart shows how bullish the sector has been throughout the long-term Bull phase that began in March 2009, and has really out-performed the S&P 500 since April. I attribute the latter to the new-found interest in high quality, high dividend yield stocks this year as traders are no longer pleased with the risk-reward profile of the US Treasury Bond market.
Interestingly, the XLU current price (34.89) is now a tad below the 8-week EMA (34.91), which is not bullish. It’s not bearish either, but is clearly much less bullish than most of the higher-risk sectors. That shows me that traders might be switching to Growth stocks for 2012.
Here is the Hourly chart of XLU (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
Two weeks ago in this space I opined: “The Hourly chart indicates that the bullishness is over-done, and risks are now very high.” In the following two weeks, XLU has fallen -3.73% and only Staples (-1.53%) was also a loser, so my prognosis for Utilities was spot on. Also, not to toot my own horn, but if you recall from my report on the Consumer Staples, I also said two weeks ago that XLP was ready for a rest, and it clearly did take one.
The market Bulls want this Defensive indicator (XLU, XLP) to stay bullish but be under-performing the commodity price sensitive XLE, XLB and XLI sectors. But the Bears want the Defensive sectors to go negative as that would probably lead to a market break-down here. I don’t see it happening this month.
FD: For the All-Weather portfolio, we hold EXC and TRP in this sector. We dropped TRP from the Growth portfolio a couple weeks ago, although we still believe that the company’s Keystone XL pipeline will ultimately get to carry crude oil from the Alberta oil sands to refineries in Houston TX.
I am growing increasingly concerned with the energy industry practice of high volume hydraulic fracturing (“fracking”), however, for health reasons but also because of the linkage to earthquakes the procedure appears to be causing. The jury is certainly out on this matter!
Table 12: US Utilities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Here’s the XLU Monthly, Weekly and Daily data charts:
XLU Monthly data: 
XLU Weekly data: 
XLU Daily data:
http://investertech.com/markets/mkview.asp?qte=ss&ty=tk&qt=AEP+D+DUK+ED+...
Here is the list of North American Utilities that I follow:
AEP D DUK ED EXC FE NEE NGG PCG PEG SO TRP
For study purposes, there is a good mix of electric (AEP, D, DUK, FE, NEE and SO), gas (NGG, TRP) and diversified (ED, EXC, PCG, PEG) utilities.
Here is the current candleglance chart of 10 important Sector 55 components:
http://stockcharts.com/scripts/php/candleglance.php?SO,NGG,EXC,TRP,D,DUK...,
Bonds & Yields Review
Bond prices lifted this week but capital also flowed into equities. Something is amiss. Actually, I am speculating that there were front-runners buying US Treasuries knowing that there would be a major European sovereign debt downgrade after the close on Friday.
I suspect that US Treasury bond prices are likely to fall off as yields lift. But for that to happen this coming week, the market will have to accept the sovereign debt downgrade of France, which I think it will do just like it accepted the US downgrade.
Here is the write-up on Bonds done by Econoday this week:
One of the key US Treasury prices I follow and trade is the TLT (average 20-year Treasury fund). A long time ago, these bonds ceased being income instruments; however with a -0.28 beta, they do hedge portfolio risk, and the counter-cyclicality to the S&P 500 is obvious from the chart below.
Two weeks ago in this space I opined: “The Monthly and Daily data charts indicate that the TLT bullishness is over-done, and risks are now very high. The Daily chart shows multiple tops since mid-September.” The following week, there was a strong pull-back.
This week TLT lifted +1.81% W/W to close at 120.88, a nice gain but still below the close for 2011 at 121.25.
Here is the Weekly chart of TLT (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
This chart shows the inverse correlation of bonds to stocks.
Here is the Hourly chart of TLT (in solid blue with the 8-month EMA in dashed blue) with the correlated S&P 500 ($SPX) in solid brown.
I have remarked that traders are no longer pleased with the risk-reward profile of the US Treasury Bond market, but until the equity prices (S&P 500) start breaking to intermediate and long-term cycle highs, I don’t believe the Bond market will collapse.
Yields on the 2-, 5-, 10- and 30-year US Treasuries dropped -3, -6, -10, and -10 basis points (bp) to 0.22%, 0.79%, 1.86%, and 2.91% respectively.
Table 10: US Treasury Yields
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 3 Month | 0.00 | 0.01 | 0.00 | 0.00 |
| 6 Month | 0.04 | 0.04 | 0.03 | 0.03 |
| 2 Year | 0.22 | 0.23 | 0.25 | 0.23 |
| 3 Year | 0.33 | 0.34 | 0.37 | 0.36 |
| 5 Year | 0.79 | 0.83 | 0.85 | 0.85 |
| 10 Year | 1.86 | 1.92 | 1.96 | 1.90 |
| 30 Year | 2.91 | 2.97 | 3.01 | 2.90 |
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 2yr AA | 0.59 | 0.54 | 0.64 | 0.55 |
| 2yr AAA | 0.42 | 0.41 | 0.57 | 0.20 |
| 2yr A | 0.92 | 0.91 | 0.94 | 1.23 |
| 5yr AAA | 0.92 | 0.86 | 0.97 | 1.02 |
| 5yr AA | 1.05 | 1.02 | 1.08 | 1.19 |
| 5yr A | 1.61 | 1.79 | 1.40 | 1.90 |
| 10yr AAA | 1.68 | 1.66 | 1.68 | 2.02 |
| 10yr AA | 2.04 | 2.02 | 2.10 | 2.02 |
| 10yr A | 1.79 | 1.88 | 2.40 | 2.33 |
| 20yr AAA | 2.62 | 3.03 | 3.11 | 2.52 |
| 20yr AA | 2.93 | 3.34 | 3.78 | 3.98 |
| 20yr A | 3.81 | 3.83 | 3.87 | 4.81 |
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 2yr AA | 0.76 | 0.75 | 0.97 | 1.14 |
| 2yr A | 1.50 | 1.54 | 1.69 | 1.60 |
| 5yr AAA | 1.71 | 1.74 | 1.76 | 1.85 |
| 5yr AA | 2.05 | 2.10 | 2.06 | 2.24 |
| 5yr A | 2.23 | 2.32 | 2.23 | 3.10 |
| 10yr AAA | 2.12 | 2.21 | 2.14 | 2.35 |
| 10yr AA | 3.41 | 3.51 | 3.59 | 3.46 |
| 10yr A | 3.19 | 3.28 | 3.21 | 3.42 |
| 20yr AAA | 4.69 | 4.53 | 4.89 | 4.38 |
| 20yr AA | 5.20 | 5.19 | 5.34 | 3.81 |
| 20yr A | 4.86 | 4.69 | 5.05 | 4.55 |
http://stockcharts.com/scripts/php/candleglance.php?TLT,IGOV,$DJCBP
Here is the $USB 30-year Treasury Bond chart.
Interest rates and bond yields.
Interactive Daily data charts:
Interactive Chart of Interest rates and bond yields.
US Bond Funds -- Interactive Monthly Data Charts SHY Monthly data series chart:
IEF Monthly data series chart:
TLT Monthly data series chart:
AGG Monthly data series chart:
LQD Monthly data series chart:
TIP Monthly data series chart:
US Bond Funds -- Interactive Weekly Data Charts
SHY Weekly data series chart:
IEF Weekly data series chart:
TLT Weekly data series chart:
AGG Weekly data series chart:
LQD Weekly data series chart:
TIP Weekly data series chart:
US Bond Funds -- Interactive Daily Data Charts
SHY Daily data series chart:
IEF Daily data series chart:
TLT Daily data series chart:
AGG Daily data series chart:
LQD Daily data series chart:
TIP Daily data series chart:
Table 11: Interest-sensitive securities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Some people think this 11-minute video is a good basic explanation of the bond market:
http://www.youtube.com/watch?v=EmVrny8k6qo
Commodities Review
The commodities index I use ($CRB) was down -0.58% W/W to close at 307.70.
Here is the Weekly data chart of $CRB (solid blue line with 8-week EMA in dashed blue) vs US Dollar ($USD) (thin dashed green line) and S&P 500 (thin solid brown line).
The chart is a little busy, but worthwhile I think for analysis.
In 2011, since April, the commodity prices have been under pressure.
This chart clearly shows the inverse correlation of Commodities to the US Dollar, and a fairly close correlation to the S&P 500. If the US Dollar is down, it’s usually commodities up, and vice versa.
I have opined in this space: “Bearish for the past quarter, but we are watching to see if a reversal is underway. The co-ordinated expansionary policy of the G-20 central banks (three weeks ago) made it appear that $CRB is headed north again. But we have to watch the prices (not the headlines).”
The charts still do not reflect a turn-around.
Several weeks ago in this space I remarked, “The recent two months shows a consolidation process in an ongoing Bull phase, I believe; but a $USD that continues to fall will be needed if $CRB remains headed north.”
The Dollar since then has been much higher as many traders wonder if the Euro might survive, believing that the German people hold the cards.
Overall, I am a long-term believer in commodities, especially metals.
Although I use the $CRB (Reuters/Jeffries Index), principally because it’s the oldest, there are many commodity indexes: http://www.crbtrader.com/crbindex/ • Astmax Commodity Index(AMCI) • Commin Commodity Index • Dow Jones-AIG Commodity Index • Goldman Sachs Commodity Index • Reuters/Jefferies CRB Index • Rogers International Commodity Index • Standard & Poor's Commodity Index • NCDEX Commodity Index • Deutsche Bank Liquid Commodity Index (DBLCI) • UBS Bloomberg Constant Maturity Commodity Index (CMCI)
Here is a link to an article that discusses the major ones that have been around for a while: http://www.rogersrawmaterials.com/overviewandanalysis.PDF
Here is a current price summary of the heaviest weighted commodities contracts: http://money.cnn.com/data/commodities/
These indexes change their component weightings perhaps annually or even monthly, for example: http://www.seekingalpha.com/article/43586-the-new-generation-of-diversif... http://tinyurl.com/a5myfj
Interactive Chart of Weekly CRB Commodities Index:
Interactive Chart of Daily CRB Commodities Index:
Oil Review
West Texas Intermediate Crude Oil ($WTIC) dropped -$2.97/bbl (-2.91% W/W) to 99.03 this week. The high-low was 103.41 and 97.70.
Econoday also summed up this week in the oil market:
Here’s the Daily data chart of $WTIC in solid blue vs the $USD in thin dashed green and S&P 500 in thin solid brown:
From what I see about the massive oil finds off Brazil and Cuba, and the new technology to extract shale oil and gas, which is plentiful, and the growing alternative energy sources, including nuclear, I don’t think that peak oil stories will be much more than stories going forward. I have fallen into the camp that Big Oil has needed to diversify into natural gas (and even solar) for this reason. So that means a ceiling to the price. Inflation effects on extraction, processing and delivery will however maintain a floor. I do think the Oiler companies will sustain their profitability in 2012. I’m not too concerned about economic Armageddon.
Here is the e-miNY Dec-07 Crude Oil chart.
Interactive Chart of Weekly Crude Oil:
Interactive Chart of Daily Crude Oil:
Gold & Precious Metals Review
The gold market
Although some of you disagree, I do believe that Gold is money, which, unlike the fiat money that has debt against it, is awfully strategic because it can buy ANYTHING IT WANTS.
Yes, without being created by debt, Gold represents freedom. Gold could even buy Crude Oil at $150 or $200 a barrel.
Gold represents assets, i.e., power. Unencumbered Gold represents the ultimate power. Fiat money, on the other hand, represents liabilities, i.e., debt.
You know for that matter a debt-free corporation or an individual with earnings power is in the same position (as those who own Gold that is not burdened by debt). They can tell their banker to screw off. And, as long as they pay their taxes, they can do the same to government… That’s the biggest problem in life: government and bankers want the power so they can take our wealth. We create the wealth by using our labor and improvement to land and these bloodsuckers want it.
Interactive Chart of Weekly Gold EOD Continuous Contract Index:
There has been a bit of a rally in $GOLD in the two weeks since my last WIR. The closing price on Friday was $1640.90, up +$23.50/oz (+1.45% W/W) and up $76.10 in the past two weeks.
Here is the Daily data chart of $GOLD in the solid blue line (with the 8-day EMA in dashed thin blue), the $USD in the dashed thin green line, and the S&P 500 in the thin solid brown line.
The 8-day EMA is 1628.49, and the 8-month EMA is 1627.31, but the 8-week EMA is 1643.41, so the current price (1640.90) indicates an almost successful test of the December weakness.
In the previous WIR of two weeks ago I noted that “(the price) having broken below that important threshold (8-month EMA) for the first time since 3Q2008, is a negative.” There are still some technical indicator concerns, but a price of 1700 would soundly resolve those.
The good news for the Gold Bulls is that each month the banking system story becomes even more incredible. To me, thinking long term, physical gold seems to be the one solution… When the most important price drivers for gold and silver are taken into consideration, one of which is the absolute need by central bankers to keep interest rates artificially low during a period of average inflation, resulting in negative real interest rates, I believe that in the long term there will be much higher prices for Gold. However, maybe that’s just for the physical and not the futures contracts on the CME that can settle in Dollars. I don’t know.
In the previous WIR I reported and opined as follows:
At the end of the day the Fed, ECB and IMF control this market. The massive buying from India stopped this year in August after the Rupee collapsed against the Dollar, thereby lifting the Price of Gold in Rupee to unattractive levels… But this week the govt of India took steps to support the Rupee by allowing foreign portfolio investors to buy India stocks at cheap prices right on the BSE and National stock exchanges rather than on US or UK markets. To do so will require selling Dollars and Pounds and buying Rupee… So, Go Rupee Go!
I cheered, and finally the Rupee broke out to the upside!
http://investertech.com/tkchart/tkchart.asp?stkname=gld&cht=Tech+Chart&p...
http://investertech.com/tkchart/tkchart.asp?stkname=gld&cht=Tech+Chart&p...
http://investertech.com/tkchart/tkchart.asp?stkname=gld&cht=Tech+Chart&p...
I remain a long-term Gold Bull. We have a large and heavily over-weighted position in both the Growth and All-Weather account portfolios. In the latter we are very over-weighted in the precious metal physical (CEF and PHYS).
Here is the current candleglance chart of 10 important precious metals and copper market components:
http://stockcharts.com/freecharts/candleglance.html?$SILVER,$GOLD,$PLAT,$COPPER,GDX,GDXJ,UXG,SVM,SLW,FCX,
Interactive Chart of Weekly Gold EOD Continuous Contract Index:
Interactive Chart of Daily Gold EOD Continuous Contract Index:
Interactive chart of recent trading for the Gold Bullion index.
The silver market
Spot silver chart for the week
This week, $SILVER gained +$1.03 (+3.57% W/W) to close at 29.75. The high-low was 30.67 and 28.55.
Here is the Daily data chart of $SILVER in the solid blue line (with the 8-day EMA in dashed thin blue), the $USD in the dashed thin green line, and the S&P 500 in the thin solid brown line.
In the previous WIR done two weeks ago, I wrote:
A week ago I noted in this space that “the three-month Daily data ratio chart for $SILVER:$GOLD shows $SILVER possibly bottoming, but still not ready to lift. This is an important chart to watch as $SILVER must take the lead (rising ratio) for precious metals to rally.” … That has not happened yet, but the RSI-7 on the Daily shows the market may be set to reverse. After all, there has been almost a -50% retracement from the April high. All it will take is for some selling in the Dollar. Still, the current price (27.78) is well down from the 8-month EMA (33.17 and falling quickly), and the price would need to stay above say a $32.50 close if it’s going to happen in January.
This week, the price (29.75) is close to the 8-week EMA (30.15) and getting closer to the 8-month EMA (32.41), needed for me to call a new Bull cycle for Silver. The US Dollar remains hot, so if, as and when the Dollar breaks down, then Silver is likely to soar.
As an active trader, I usually watch the Sydney and London miners overnight to give me a heads-up as to where prices will be at 9:30am ET in the US and Cdn market.
I also watch the action of all the major precious metals and metals, and the related stocks, before I come to a conclusion on any one of them.
Here is the current candleglance chart of 10 important precious metals and copper market components:
http://stockcharts.com/freecharts/candleglance.html?$SILVER,$GOLD,$PLAT,$COPPER,GDX,GDXJ,UXG,SVM,SLW,FCX,
http://stockcharts.com/scripts/php/candleglance.php?$SILVER,$GOLD,$PLAT,$COPPER
http://tinyurl.com/22rsj4r
http://stockcharts.com/charts/gallery.html?s=$silver
http://tinyurl.com/y8k8ud4
Interactive Chart of Weekly Silver EOD Continuous Contract Index:
Interactive Chart of Daily Silver EOD Continuous Contract Index:
The platinum market
http://stockcharts.com/charts/gallery.html?s=$plat
http://tinyurl.com/ydwz4pn
$PLAT has been collapsing since August. Yet the auto industry demand has been up. Go figure.
This week, however, $PLAT soared +$87.00/oz (+6.17% W/W) to close at $1497.00.
In the WIR two weeks ago, $PLAT closed at 1391.00, and I reported in this space: “The RSI-7 is now below 30 for the Monthly price data series, and it’s down to 25.23 on the Weekly and 23.40 on the Daily. There has been a positive RSI divergence, which you Bulls should be watching. Could be a sign of a turn-around. So too could the smoke signals out of Moscow… Seriously, watch the Ruble. The Dollar might be peaking against the Ruble here, which would be terrific for Platinum and the precious metals generally.”
The Ruble has not yet broken out to the upside, but is getting close, I feel.
Spot platinum chart for the week
Interactive Chart of Weekly Platinum EOD Continuous Contract Index:
Interactive Chart of Daily Platinum EOD Continuous Contract Index:
Interactive chart of the Platinum metal index.
The palladium market
A week ago $PALL had a gain of +$21.00 (+3.40% W/W) to close at 639.00, which is almost even to where the price closed two weeks ago.
I have said, “But there could be a turn-around coming in January.”
Spot palladium chart for the week
Interactive Chart of Weekly Palladium EOD Continuous Contract Index:
Interactive Chart of Daily Palladium EOD Continuous Contract Index:
Interactive chart of the Palladium metal index.
The (base metal) copper market
This week $COPPER soared +$0.22 (+6.40% W/W) to close at 3.65.
Here is the Daily data chart of $COPPER in the solid blue line (with the 8-day EMA in dashed thin blue), the $USD in the dashed thin green line, and the S&P 500 in the thin solid brown line.
Copper typically trades inversely to the US Dollar, but has not been held back in the past couple weeks by the strong Dollar.
http://stockcharts.com/charts/gallery.html?s=$copper
http://tinyurl.com/ybgnb7f
In the WIR last published two weeks ago I wrote:
As opined a few weeks ago, “these [simple MA trend studies] are Bear trends”… But, at that point, the central banks of the G-20 had not yet made a decision on coordinating their policy to strengthen the banks of Europe, and the economies of many countries, which ultimately ought to help the Euro, and the demand for copper as well… Only time will tell.”
It’s time to reconsider Freeport McMoRan (FCX), which typically closely tracks the copper price. The current price (42.00) is now above the 8-week EMA (38.75), and 8-month EMA (41.75). The Monthly RSI-7 (48.8) looks ready to break through the important resistance of the 50-line. If, as and when the Dollar strength abates, I think FCX is going to soar.
FD: We hold FCX in both the Growth and All-Weather account portfolios.
Interactive Chart of Weekly Copper EOD Continuous Contract Index:
Interactive Chart of Daily Copper EOD Continuous Contract Index:
Interactive chart of the Copper metal index.
Goldminer Equities
Table 12: Senior gold equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
In the last WIR of two weeks ago I stated in this space: “The past two months have been destructive for goldminer portfolios. However, I’d like to repeat from previous notes as my (bullish) investment strategy has not changed… The price action of the Goldminer equities has been volatile to say the least. Heads or tails you ought to be in or out of the market. Being able to sleep at night would be best facilitated by being out of the market; however, the fundamentals, which are almost always a forerunner of future prices are indicating that prices will rally and that traders ought to be holding on. If you are holding gold and goldminers for insurance reasons, as many of you do, it may be costly insurance but it is still insurance… I clearly appreciate this is not an easy decision to make. But the choice is fiat money vs hard money and the producers of each. I don’t see any conditions occurring wherein fiat money ought to be favored for the next several years. So, I am not going to get all wound up by the screaming newsletter writers who want you to sell goldminer stocks now after they have fallen a lot… What I do see are mining, development and exploration companies that are flush with cash and issuing promising drilling (resources expansion) reports. I see take-overs being made and being attempted. I see negative real interest rates. I see a short-term panic that “the sky over Europe is falling”. I see b.s. baffling brains, and many traders becoming too emotional, which they do at bottoms as well as tops… Ultimately I see decisions being made that are based on economic depression scenarios. These could in fact play out, but let me remind people that the goldminer prices during the 1930’s Great Depression were the top performing of the equity market. Negative real rates can make that happen again… In any case, we all have to make our decisions. I made mine. It has not been a good call to cease active trading though, and so I am reducing my numbers of positions from about 30 to about 20 and splitting these groups into buy-and-hold small (illiquid but fundamentally very attractive) juniors and the group of larger ones (presently over-sold) to be actively traded.”
The past two weeks has resulted in gains of +10.38% and +5.57% for GDXJ and GDX respectively. These are the index ETFs for the senior and junior producers or near producers.
This week GDXJ and GDX were up +2.93% and +1.31% respectively.
As you know, my biggest positions in the Precious Metals accounts is US Gold (UXG), which was up +27.5% over the past two weeks, plus Silvercorp (SVM), which was up +13.8% over two weeks and Silver Wheaton (SLW), which gained +8.9% over two weeks.
Btw, I will be attending the US Gold and Minera Andes special meeting on Thursday 19th, and would like to see a few of you there.
Here is the Daily data chart of GDX in the solid blue line (with the 8-month EMA in dashed thin blue), the $USD in the dashed thin green line, and the S&P 500 in the thin solid brown line. The Goldminers clearly trade inversely to the US Dollar.
This chart shows some strength, but it cannot be said that the Goldminers are back on the dance floor – yet. For that to happen, the US Dollar will have to weaken.
As pointed out six weeks ago in this space, GDX had been out-performing GDXJ, so the big Bull move still had not happened. I remarked that “For a Bull market in the gold/silver miners, we need a stronger Euro, weaker Dollar, and the really good picture would have the weaker Yen even weaker than the Dollar.”
This Daily data chart shows the ratio of GDXJ and GDX. Gold Bulls want to see a rising line where GDXJ is outperforming GDX. Unfortunately since May 2011, GDX has been out-performing GDXJ, which is the sign of a liquidity squeeze. We need to see the GDXJ:GDX ratio chart showing the RSI running continuously above 70 rather than below 30!
Two weeks ago I noted in this space: “The tide may have turned in favor of GDXJ and risk-on for the goldminers… This is an important chart.”
And now you see the proof of concept.
Here is the current candleglance chart of 10 important Gold and Silver mining companies:
http://stockcharts.com/scripts/php/candleglance.php?ABX,GG,NEM,KGC,BVN,G...,
I previously stated in this space:
To reiterate my belief: I believe the next bullish wave in the Goldminers market will be driven by acquisitions by the major producers acquiring smaller companies – not just intermediate producers, but small producers and developers that will put large scale resources into production within three years… I also believe that resolving today’s financial system problems in Europe, Japan and the US will require central bank balance sheet expansion and that will drive precious metal prices, and with it the related stock prices, to higher levels.
A factor that you need to consider when investing in the major miners – the ones with cash flow and non-cash expenses – is the IFRS (International Financial Reporting Standards), which are being adopted worldwide.
http://en.wikipedia.org/wiki/International_Financial_Reporting_Standards
The use of IFRS became a requirement for Canadian publicly accountable profit-oriented enterprises for financial periods beginning on or after January 1, 2011.
This link might be helpful: http://www.ifrs.com/ifrs_faqs.html
To watch the moves in precious metal miners, you will have to monitor the individual stock charts, preferably in real-time, as follows: NEM ABX AU GFI GG HMY AUY KGC BVN
LIHR IAG EGO RGLD GOLD TSE_AGI GSS NG NGD AEM
Here are the key Silver miners and the SLV ETF: SLV SIL SVM CDE HL PAAS SSRI SLW MGN
Here are the Weekly and Daily Data charts of the indexes:
Interactive Chart of Weekly US Goldminers Index:
Interactive Chart of Daily US Goldminers Index:
The US goldminer share trust ETF trades under the ticker symbol GDX.
Here are the US Goldminer ETF (GDX) index Weekly and Daily data charts:
GDX Weekly data:
GDX Daily data:
The Toronto Exchange-listed goldminer iUnits S&P/TSX Capped Gold Index ETF trades under the ticker symbol TSE:XGD.
Just like GDX on the AMEX, you can trade XGD on Toronto. Canadian Dollar fluctuations will impact XGD vs GDX.
Here are the Weekly and Daily data charts for the TSX Goldshares (XGD) index:
Interactive Chart of XGD Weekly data:
Interactive Chart of XGD Daily data:
Central Bank Update
In this section, I shall reproduce any of the Econoday studies of international central bank meetings for the current week.
Forex Review
You know my posture re currencies: “We are all forced to be currency traders today.”
I have been saying it for years. Now the world agrees… The problem is that the US Dollar is still the reserve currency, and the Fed the reserve bank of last resort, which means that prices of all currencies are affected significantly by US politics and fiscal and monetary policy… For many years I have written about the pressing need for a General Agreement of Currency. I now believe that there will be such an agreement by the G-20 within five years. [Note: Three months ago, I changed my forecast from 10 years] … The biggest problem that I see is the leverage permitted by regulators of the deposit taking banks. While I am typically against more regulation and bigger government, we definitely need banking reform that includes a return of Glass-Steagall legislation that would separate low risk taking deposit banks from the much higher risk taking investment banks… The only reason that the US Congress will not pass such essential legislation is because the leaders in Congress and the White House have taken in the majority of their campaign funds from Wall Street. Upon retirement, or on the graduation of their offspring, these people also can count on incredibly high paying jobs from Wall Street – but only if they have voted in favor of Wall Street’s interests during their time in power… I say Wall Street, but really I mean the people who control Goldman Sachs, JP Morgan, and State Street Bank. They have names like Rockefeller… I say the leaders who have been elected by the US public (and even now the ones in Greece and Italy who have not been) have been bought-and-paid-for and they have. This take-over has happened in Canada, the UK and Europe as well. Canada is no longer a nation that supports peace although they call themselves peace-makers, which is laughable. This change, to which as a Canadian I strongly disagree, has only happened under the Conservatives after Brian Mulroney was elected Prime Minister… The key financial jobs now in government service and at central banks, and the IMF, etc, are now going only to the people who have the best connections on Wall Street. Common sense is no longer a prerequisite. Membership in the country club is… The banks have caused the problems in the currency markets, most of the problems in the capital markets and many of the problems in the economy. HB&B is now so entrenched with the world’s leading politicians and central bankers that, especially now that they are at war against each other, I fail to see who is going to introduce stability, and I don’t see it happening soon. In fact, the situation is so weighty, I think the Interventionists are no longer able to cope…. For years, I thought there was needed a G-20 General Agreement on Currencies – a set of rules if you will – that would serve to stabilize global capital markets -- In other words, less volatility… Who benefits most from volatility, at least to a certain level, are the Banks. They use it to control the governments that are deep in debt. Sixteen Tons… Now and then whenever volatility, i.e., the amplitude of price swings, becomes extreme, one of the Banks discovers that a so-called “rogue trader” causes huge losses for them, which is another way of saying that their colleague banks can book their huge profits… That rogue trader is usually a 20-something or early 30-something. Now they have stooped to telling us the latest rogue is Jon Corzine. They must be really getting desperate.
---------------------------------------------
The $USD is a trade-weighted US Dollar index, we used to call the Morgan Dollar.
The Forex market is a four trillion dollar a day marketplace, which dwarfs the size of the stock and bond markets. In this market, the Euro/USD is the highest volume trader, and London is the center of the universe.
The current value of $USD is a mean value of rate fluctuations of six world currencies (Japanese yen, Euro, British pound, Canadian dollar, Swiss franc and Swedish krona) that each trade against the USD. The Euro is by far the biggest component.
I don’t understand why the Yuan is not a part of this index, or the Mexican new peso, Brazilian real, Indian rupee, or Russian rouble, and why the krona is so important, but admitting this maybe shows my ignorance.
There is a Powershares ETF that tracks the G-10 currencies (NYSE:DBV).
For some time I have opined that the $USD clearly no longer meets the needs of a globalized world with respect to a reserve currency benchmark. I have suggested that Gold may now be the de facto benchmark.
As commodities are mostly priced in $USD for international transactions, you also need to study forex price trends and cycles when trading commodity price-sensitive instruments.
There is also an Emerging economy E-10 currency fund, the Wisdom Tree Emerging Currency Fund (NYSE:CEW), apparently holding the Mexican new peso, Brazilian real, Chilean peso, South African rand, Polish zloty, Israeli shekel, Turkish lira, Chinese yuan, South Korean won, Taiwanese dollar, and Indian rupee.
Regarding currencies, I find the ADVFN.com service (with inexpensive real-time price feed) to be quite useful. I have set up a monitor (one of 200-some tickers) for currencies, which you can do as well.
Click on: http://www.advfn.com/p.php?pid=m_tools
Into the window for stocks, enter the following string of currency pairs:
FX:EURUSD, FX:AUDUSD, FX:GBPUSD, FX:EURGBP, FX:EURCHF, FX:EURCAD, FX:USDCAD, FX:EURJPY, FX:USDJPY, FX:AUDJPY, FX:EURAUD
When you call up the stocks, you’ll see they are interactive, which means they update in real-time (if you paid the $10/mo for this data) or 15-20-minute delayed prices (free), and can be displayed with indicators and overlays.
If you are new to examining currency pairs charts; think about it that in any pair where the latest trend line is rising, the first ticker is the one that is strong. So EURUSD, which is the way the contract is traded, when the trend line is up, the Euro is in rally mode against the US Dollar.
The symbol USD in any pair is the denomination versus $USD, which is the trade-weighted US Dollar index (i.e., multiple currencies as described above).
A chart of the Euro vs Dollar (i.e., EURUSD) with an overlay of currencies (GBP, AUD and CAD in this case) will show you if, as, and the point when, currencies are impacting capital markets. We are looking for commonality in trend direction of the currencies in their trading against the US Dollar.
Here is the Econoday summary of the currency market trading this week, and for the year:
The US Dollar has been soaring for a couple months. This week there was a small gain of +0.32% to close at 81.51. The weekly high-low was 81.78 and 80.53.
The “hot” Dollar is jeopardizing the economy of many countries. A couple weeks ago India reacted to support the Rupee.
The current price (81.51) is well above the 8-week EMA (80.02) and well above the 8-month EMA (78.29), which is still Dollar bullish.
With the low volume over the holidays, and all the recent high level political and central bank meetings and actions though, the analysis is really too difficult to do.
Here is the Daily data chart of the $USD (solid blue line along with 8-day EMA in thin dashed blue) vs S&P 500 solid thin brown line, showing counter-cyclicality.
The question now is whether the $USD can fall from 81.51 and pierce the 8-week EMA (80.22) in order to really lift the equity market, commodities and precious metals. We are at a crossroads, I think.
Despite the apparent agreement on responses to the European financial crisis, there is a lot going on with respect to the policy differences between the US and European finance ministers and central bankers, and even between the various countries in Europe. During this period, the bankers holding a lot of improperly priced debt of the European nations are putting on the pressure to recover whatever they can.
There is a lot of indecision and doubt here as to the final outcome and what Mr. Market – you and me and the people we know – want harmony and precision. I believe there will be an extended period of forex volatility.
As for these talking heads who claim to know the Euro is going back to par with the Dollar – or just the opposite – I pay no mind at all to that stuff. These people are wasters, so don’t let them steal your time.
http://stockcharts.com/charts/gallery.html?s=$usd
http://tinyurl.com/y9c3sr4
Interactive Chart of Daily US US Dollar Index:
The Euro dropped this week -0.30% W/W to close at 126.75.
As I say, the gains and losses in the Euro have had quite an impact on the equity market. Experienced traders have seldom if ever seen such volatility.
When the Euro rises, the S&P 500 also rises and vice versa. The chart, however, shows that the Euro has been under pressure since the end of Oct., and has really started to under-perform since late Nov.
Does that mean equities are ready to collapse like many pundits are shouting? I continue to say I doubt it, and it hasn’t happened.
Here is the Daily data chart of the Euro ($XEU) in US Dollar terms (in the solid blue line with the 8-day EMA in thin dashed blue) vs the S&P 500 (in the thin solid brown line).
Now we have to see if the Euro price can bounce higher than the 8-day and 8-week EMA so that short-term it can revert to a bullish pattern. If not, commodity, precious metals and broad equity market prices will continue to be soft.
Interactive Chart of Weekly Euro Dollar Index, priced in USD:
Interactive Chart of Daily Euro Dollar Index, priced in USD:
This week, the Pound sterling future dropped -0.69% W/W to close at 153.18 American.
Here is the Weekly data charts of the Pound (solid blue line) and the S&P 500 (in the solid thin brown line), showing that the Pound Sterling has under-performed the S&P 500 since the March 2009 long-term cycle low, apparently more closely aligned with the US Dollar as the UK has seemed to have sided with the Americans against the EU. I wonder if that is much about the worries that high taxes in London have pushed the financial services industry to leave in droves for friendlier places in Europe?
This chart is bearish since the price (153.18) is below the 8-week EMA (155.36) and both lines are falling. However the Weekly RSI-7 (29.4) is now in the Accumulation Zone, awaiting a Buy Alert at some point.
http://stockcharts.com/charts/gallery.html?s=$xbp
http://tinyurl.com/yasdzc2
Weekly British Pound Index:
Daily British Pound Index:
Weekly Japanese Yen Index:
This week, the Yen (in Dollar terms) gained +1.59% W/W to close at 130.06. There was a gain of +0.96% on Friday, which is a lot.
Here is the Daily data charts of the Yen (solid blue line) and the S&P 500 (in the thin solid brown line), showing that the Yen is mostly counter-cyclical to the S&P 500, but also occasionally cyclical to it, as it has been for the past month.
Traditionally, but not always week to week, the Yen is an indicator of market direction and sector rotation. If, as and when there is a broad risk-off trade in global markets, it is usually accompanied with a stronger Yen, as well as a stronger US Dollar.
And, when I see the Dollar down and the Yen to the Dollar down even more, then, all other factors being equal, I believe the equity markets, commodity markets and precious metal markets are probably going to lift around the world.
So, if you hope for the current major rally to continue in those markets, look for a weaker Yen, but particularly against an also dropping US Dollar, which did happen this week, and you saw the result.
Daily Japanese Yen Index:
The Canadian Dollar aka Loonie has been very volatile in recent weeks.
This week the Cdn Dollar was flat (-0.03% W/W) to close at 97.92, a loss of three basis points.
The Daily data chart shows the high correlation between the Cdn Dollar ($CDW) in the solid blue line to the S&P 500 ($SPX) in the thin solid brown line. There is usually a rising Canadian Dollar when inflation beneficiaries like Oilers and Miners are in strong long-term Bull phases. The opposite happens in disinflationary markets, and early on in deflationary markets. Longer-term in deflationary markets, the important govts and central banks tend to flood the international financial system with new money and the Oilers and Miners benefit.
The equity Bulls, particularly the Oilers and Miners, are just calling for Canada to let the Loonie fly! However, since the early October cycle low for the Cdn Dollar and Equities, Commodities and Precious Metals, the Cdn Dollar has under-performed the S&P 500, and exerted downward pressure on Commodities and Precious Metals. You would like to think the Loonie can get back in sync with a lift, but many traders have gone broke waiting for such phenomena to occur.
http://stockcharts.com/charts/gallery.html?s=$cdw
http://tinyurl.com/ycx58us
Weekly Canadian Dollar Index:
Daily Canadian Dollar Index:
Here is the China Yuan (CNY) chart.
Wrap-up:
I am pleased to see in the campaign for the US Republican Party leadership that Dr. Ron Paul is now finally being much discussed in the mainstream media, being called “eccentric”, which is music to my ears.
I finally clued in to the MSM definition of eccentric. It doesn’t mean “deviating from conventional or accepted conduct especially in odd or whimsical ways” as Webster defines the word and as most people take as “kooky”; it simply means a free and independent person, one of the few who have not been bought and paid for by Humungous Bank & Broker HB&B).
So Ron Paul is one of us, and, if we contribute massive funding to his campaign, he possibly could win the nomination. More likely his delegate count will force the eventual leader to adopt a platform of real change, not the stuff that Obama promised and never delivered. And maybe that GOP initiative would serve to improve Obama’s platform and make this 2012 election a truly significant one.
Also on the horizon is the global financial system reform of the Financial Stability Forum (FSB), headed by Canada’s central bank governor Mark Carney and backed by the G-20 finance ministers and their government regulators. I often say that the 2008 financial system melt-down taught lessons to the regulators that will serve capital markets well in future.
Mr. Carney has said that the FSB “plans to make the 29 “global systemically important” banks write “living wills” by the end of this year. This aim is that governments will be able to break up and wind down very big banks rather than having to rescue them… “There is an absolute objective . . . to end too-big-to-fail,” he said. “Market-based systems mean you live with the consequences of your action. You fail if you mess up.”
http://www.ft.com/intl/cms/s/0/654e849a-3c6d-11e1-9bcc-00144feabdc0.html...
Such constructive intervention is the kind that we in this community will ultimately applaud if the FSB meets its objective.
In closing, this may be the Martin Luther King Jr holiday in the US, but markets elsewhere are open. At mid-day in Toronto, the equity market is up a tad. Equities were stronger in Europe.
Enjoy your holiday or your work, wherever in the world you may be.
I do enjoy both, as you know.
