31 Jan 2012

RSI has nearly peaked out in the longest term I track at 96%.  The index itself is within a few percent of all time highs.

Pretty persistent weakness in the shorter term indicators, but it has not yet amounted to anything.  The medium term (bottom) is starting to roll over a bit, but if you look at previous times it has been this high, it usually takes some time.

30 Jan 2012

 Nearly up against the wall for both price and the RSI of the summation index.  How can things get any better for the stock market while the real world flounders?

 

In the medium and short term this has not mattered much.  Five years from now maybe we will see if this massive divergence between price and moneystream (similar to on balance volume) did matter.  Note the divergences between price and it at the peak in 2007 and 2008.

 VIX tried to break out of this triangle today and seemingly failed.  The next few days should tip their hand to whether this tightens and calms down or if we have truly already broken out.  The white support line at the bottom is ascending and the orange is flat with the previous lows.  Both are possible supports with the latter being a support with even more confidence due to long term history.

Today made quite a dent in two shorter term time frames I track when compared to previous pullbacks from the past few weeks.

"... a speculator is one who runs risks of which he is aware and an investor is one who runs risks of which he is unaware."
John Maynard Keynes

28 Jan 2012

 The peaks in the WLI in Jan 2000 and April 2007 occurred a few months before a noticeable stock market top. This time, the WLI has not really responded like the stock market nor like it responded during the 2010 rally.

 Ratio of SIL, the miner index in terms of SLV (a dubious proxy for silver, but it is the best I have) shows that the miners have recently outperformed the metal. 

The same for GDX in terms of GLD, but this time the metal has significantly outperformed the miners.  In fact, the ratio is headed back towards all time lows found in 2008.  I do not know why.

My composite indicator (shows percentage of stocks with various shorter term moving averages over various longer term moving averages...e.g. 1 over 2... 33 over 55, 55 over 88, etc) has had quite a rally off lows.  The yellow line shows its current value is one of the highest in the last 7 years.  The red boxes show the moving average crossovers. 

The short term indicators are above it, and I am frankly tired of saying they are overbought like a broken record.  However, like all things, this too shall pass.

Now the McClellan Summation Index, its RSI and TSV show us the same thing.  However, this shows there is some room to the upside still on the RSI, but only about 10 points.

"The Wheels of Justice turn slowly but exceedingly fine."

Sun Tzu

26 Jan 2012

 Showing the extreme levels for my medium term indicator. 

 Started heading down in the short term, but it tried this a few times the past few weeks and failed.

Another view of the McClellan Summation Index shows its rate of change (orange) failed to reach highs from previous rallies, but still is at a high level as indicated by my straight line.  MACD shows negative divergence and the RSI for this time frame is also overbought.

Today was the first day we started strong and got progressively weaker throughout the day for some time.

"Bull markets are born in pessimism, grow on skepticism, mature on optimism, and die of euphoria."
Sir John Templeton

25 Jan 2012

 As you can see and already probably know, we are hitting extremes from the best of times during the past four years.

TSV still low, but heading to 2nd standard deviation which has apparently worked as peak recently.  RSI is high as I continue to point out.

Like I said yesterday, VIX remains in its channel and heading to its long time support of around 16.50.  This means we need some serious dry-up of excitement to both sides. 

I was very tempted to go long EXK and RIC today as they seem to have broken a triangle to the upside, but considering the overbought indicators above, I decided not to.  I may regret it as silver and gold also broke the resistance lines I had drawn for some time now.  There is a possibility that they both fail to maintain that break, but long term I remain an extreme bull.

The economic reasons for the fall of Rome:  http://ancienthistory.about.com/od/fallromeeconomic/a/econoffall.htm  don't miss the chart of debasing the coins chart.

Elizabeth Warren on Jon Stewart.

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24 Jan 2012

Still overbought.  Fed minutes are big tomorrow.

VIX has some room to the downside still.  It bumped against its upper channel line today.

It is amazing that we are getting back to levels on the summation index that were never seen before 2009.  The TSV is also against the upper resistance.  Simply incredible.  I do not see how this can end well.

"Paper money eventually returns to its intrinsic value - zero."
 Voltaire, 1729

23 Jan 2012

This will be a little shorter tonight due to the length of last night's post.

A commenter requested a chart similar to the one from 1980 to the present but from 1998 to the present.  As much as it may seems so, I honestly did not "load" the data sets to present what I wanted to see, MZM data only went back to 1980 so that is what I used.  I may see if they have measures before that date when I have the time.

Here it is.

 

As you can see, gold is outpacing MZM by a ratio of 2 - this was reached by the Dow:MZM around 1996.  Also despite MZM going up by a factor of 3, the stock indexes have not gotten off the floor.

 These three time frames have continued to levitate. 

The VIX continues its downtrend.  Still a little room to the downside for price, TSV and RSI.  I really don't know how it could get much more complacent.. especially during a Fed minutes week.  We will have to watch to see if we break out of the downtrend. 

Remember who brought you the July 31st 2011 VIX triangle end point a few months in advance?

"Thermodynamic miracles... events with odds against so astronomical they're effectively impossible, like oxygen spontaneously becoming gold. I long to observe such a thing. And yet, in each human coupling, a thousand million sperm vie for a single egg. Multiply those odds by countless generations, against the odds of your ancestors being alive; meeting; siring this precise son; that exact daughter... Until your mother loves a man she has every reason to hate, and of that union, of the thousand million children competing for fertilization, it was you, only you, that emerged. To distill so specific a form from that chaos of improbability, like turning air to gold... that is the crowning unlikelihood. The thermodynamic miracle."

Dr. Manhattan

22 Jan 2012

As I talked with a friend over dinner last night, we came up with the idea that we need to see a chart of the Dow against a broad credit measure.   I am no expert on all the different ways economists decide to measure credit...m3, m2, m1, monetary base, but I believe I read somewhere that MZM is the most broad the Fed has to offer. Nowandfutures.com and shadowstats.com still has charts of m3 but I don't have their data.

The results are not surprising to any gold bug who has been exclaiming against deafening ears for a decade now that the US economy has not grown in real terms despite the media continually using words like "surprisingly bad considering the recovery" or "don't want to fall into a double-dip" not realizing the first two dips never ended for the broad swath of Americans.  What they mistook for growth could be labeled, in many cases, as the Broken Window fallacy, where destruction and rebuilding or building with no purpose somehow makes us richer.  Certainly there has been money to be made playing the last two stock market bubbles engendered by unprecedented fiscal and monetary easing, private outsourcing, and replacing people with better processes.  I still believe in things like competitive advantage or division of labor to drive consumer good prices down, but sometimes I waiver, especially after reading articles like this:  Apple says US not competitive. 

I view economic improvement as the increase in free time and real wealth of each individual.  These goals have mainly been achieved over the course of history through inventions and the use of fuel to make survival cheaper and easier.  I find that these are the only things that actually allow individuals to create new things, ponder new ideas, and maybe make something that make lives better for others.  Orville and Wilbur Wright invented the airplane using free time as their bicycle shop provided enough funds to meet basic survival needs and fund experimentation.

Some people view economic success as the percent of the population that spends its time doing busy work.  Maybe they are right, for a free people with plenty of time might begin to analyze the world a lot more than they do when they work 75% of their waking hours, and it may become dangerous for those in power.  Plus, in a world where everyone can easily get what they want, the rich can no longer feel special as those little things that distinguish wealth like big TVs, cars, eating out are easily available to everyone.  Ever wonder why rich people continue to live surrounded by the poor in third world countries even though they could easily migrate to a cosmopolitan city in a better country?

Without further delay, let's look at some charts confirming what worries many people.  This is from the Federal Reserve's site directly.  It is merely a coincidence that the scale works well for the Dow and MZM.  The S&P just stays at the bottom, which is why I created my own chart later.

As you can see at one point the Dow Jones Industrials, what I consider a poor index to track the quality of the stock market because it is only comprised of 30 companies, was outpacing MZM for much of the 90s.  It appears that it is no longer easily responding to what seemingly must eventually be exponential growth of debt (or credit if your glass if half full).  I think that if the Bernank is targeting any constant rate of inflation, he might want to watch this video to fully realize what that means, or he may already know.

Now, let's check out the S&P and some other prices.

This chart shows that MZM is now outperforming the S&P 500.  It also shows that on the scale of bubbles, gold is not quite there.  However to be fair, in 1980 gold was still falling from its 70s bubble and quite high.  The stock indexes were about to be launched after a decade of nothingness.  Nevertheless, it still shows the incredible growth of debt and that a lot of it has made itself appear as prosperity in the stock markets.  As of now, not a whole lot has leaked into the gold market.

To make it easier to see, I plotted the stock indices in terms of MZM.  As you can see, we have had a lost decade despite more and more desperate attempts to get it going by going further and further into debt.  We are actually below .01 on the S&P (right hand axis) meaning it actually requires more debt than we can get in output from it.

The same chart, but this time for gold.  Notice we are still substantially where we were in 1980, and the trend looks to be up since 2000.  These ratio charts don't do much for setting targets.  However, the first chart might.  If gold were to be 12 fold of its 1980, the same as the MZM currently is, the price would be $7152. 

One thing of humor while putting this together is that the Fed's site does a wonderful job of allowing for many measures to be plotted and downloaded, it doesn't have the price of gold despite having piles of other data showing they clearly are interested in gold's price, like the volatility index for gold miners or total reserves excluding Iran's gold.  See below.  I had to use gold price data from gold.org

 

                                                       Courtesy of ShadowStats.com
This seems to be showing a hard rollover for Federal Withholding Tax deposits.  Considering this is a new data source for me, I don't have anything else to say for it. 

Still haven't quite recovered for rail traffic or carloads.

And for my normal day to day charts...

 Long term view of the below chart.  Is there any reason that this must be permanently glued to the top?  Could the opposite occur?  I don't know.

 This still shows the behind the scenes weakness that is hidden by the Dow at nearly two year highs.

 This shows that the percent of stocks over their 40 day moving average cannot get a lot higher considering historical trends.

The RSI (bottom) is finally overbought for my favorite indicator.  This does not signal a turn is going to happen tomorrow, but does signal that a turn always happens in this zone.

This is the substitute for my normal excel plots.  Note that all timeframes from short to medium term are overbought.    This doesn't mean they can't stay overbought, but it does mean it is more risky to buy here than it was to buy at the numerous valleys the past six months.  We are still under the peak from 10/26.

There was an ice storm here this past weekend that caused a power outage - I live in a run down apartment to save as much money as possible.  I lost the last three weeks of my excel data.  So much for that autosave feature.  The weirdest thing is that Excel autosaved some other spreadsheets that were mostly completely useless to me.  I just put the most recent value and the value from three weeks ago as half the range each so they look like step functions.

I could fix it by using my saved plots, but find it unnecessary.  We have recorded enough values to know what is overbought and the chart above is the same - just not as easy to see.  Unfortunately, the levitation on my short term chart was amusing.

 

 

 

Best of luck.  Make it a good week.

"We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power."

 -- Alan Greenspan (Chairman of the Federal Reserve US Central Bank), appearing before the Senate Banking Committee on February 15, 2005, in response to Democratic Senator Jack Reed of Rhode Island on the topic of funding Social Security.

"Gold still represents the ultimate form of payment in the world. Fiat money in extremis is accepted by nobody. Gold is always accepted."

-- Alan Greenspan, May 20, 1999

19 Jan 2012

To use my bird analogy again, it appears the last of the birds are finally landing in the new location before the leading birds take off again.

It seems the  last of the skeptical bulls are finally being sucked into long positions.  It is a shame that they are about three months late - hope takes a much longer time to build than panic.  Sector rotation has almost ended as money has left some of the leading stocks in stalled positions while the most hated have rallied. 

I check my blog's visitor stats daily.  Maybe I am obsessed.  I always find that around turning points, my viewership begins to fall off substantially.  I was scoffed at on other blogs for saying that we were bottoming in December and AAPL was going to make a new high.  Is it because people start to think "this idiot is always wrong, I am just going to buy/sell" as I consistently tell them to look the opposite way that the market is pointing?  Likewise, it has fallen off substantially this week, and the end of last.  Once we start to fall, viewers will come back again.    Would we prefer to be lied to and told to just go with the flow?

 TSV (middle) not there yet.  RSI overbought as you would expect.  Still forming a lower peak than the previous peak.

 My composite indicator at the bottom is showing significant strength as almost every time frame is being levitated.  We are against 1.5 std bollinger bands.  The 2 std are sometimes negative, which I don't consider accurate so I don't use them.

 Overbought in medium term.  Heading towards previous peak.  Only a few peaks higher than that.

 Short term still overbought.

VIX still has some room to the downside, but is within a tightening descending triangle pattern that could explode upwards.  The Euro is at the upper edge of its descending channel.  Gold (using PHYS) doesn't have room in its descending channel, silver (using SLV - don't know what happened to PSLV, maybe reversion) not much, and GDX/GDXJ (at resistance trendline) look fairly weak again.

"The propensity to swindle grows parallel with the propensity to speculate during a boom... the implosion of an asset price bubble always leads to the discovery of frauds and swindles"
Charles P. Kindleberger

18 Jan 2012

 New highs absolutely exploding upwards!  I think Zerohedge was right, people are running to the crap and most shorted issues.  This usually means the rally is almost over.  I discovered this phenomena by accident when I first started trading - my crappiest performers always did well towards the end of bull cycles.

 Overbought in medium term.  Still negatively divergent from last peak.

Overbought in short term but performing a quite amazing levitation act to finally reach my target - I had no idea it would happen in such a straight shot.  Euphoria much?  What is so good again?  $100 oil? Next to nothing savings rate?  Earnings disappointments?  ECRI forecasting a recession?  Stealth QE? More government control over aspects of our lives?

Yes, I will keep saying stuff is overbought until it is not.  It may make me seem like a moron (maybe I am!?) as "the move passes me by" but this is a good way to get on the right side of the moves before they happen.

I'm saddened at how upset people are about SOPA/PIPA and how they (not all) let NDAA get passed without notice.  Guess what?  Facebook and Wikipedia are pretty worthless if you are indefinitely detained.

Best of luck, friends.

"The more people who believe something, the more apt it is to be wrong. The person who's right often has to stand alone."
Soren Kierkegaard

17 Jan 2012

As Charles Hugh Smith pointed out on oftwominds.com over the weekend, this melt-up, gap-up action is allowing plenty of sales to happen behind the scenes at good prices.  I don't know when it will end because I am always early for predicting tops, but we are closer to the end of this rally than the beginning.

Check this out: 5 Day Total of US New Highs - New Lows  despite the SPX melting back up to near 52 week highs, it is quite clear that most stocks are in bear markets since April of 2010.  It is only a matter of time before the virus spreads to the indexes again.


Signalling a contraction in the real economy, the Baltic Dry Index has fallen off an absolute cliff.

 In the longest term I track, the RSI (bottom) is reaching overbought levels.  This index usually turns slowly so it can remain overbought or oversold for some time.

In the medium term, TSV (middle) is reaching for the ceiling.  We do have some space left, and we have some space left for the S&P target I set in mid December.  Either way, we are closer to a top than a bottom.  I won't try to predict how much longer we melt up or for how many more percent because it doesn't really matter in the grand scheme of things.

 Medium term flat on the day. 

Short term is confused, and for good reason with the endless gap up melt ups leading lambs to the slaughter.

"When God desires to destroy a thing, he entrusts its destruction to the thing itself. Every bad institution of this world ends by suicide."

"All the forces in the world are not so powerful as an idea whose time has come."

Victor Hugo (1802-1885)

16 Jan 2012

15 Jan 2012

 I added crude oil to this chart.  I found the minimum price between 1998 and 2002 and went with that as the starting point.  It was 10.82.  I find it interesting how well the first spike correlates with that of silver's.  It also looks like the crude oil bull market is nowhere near over. 

 Medium term overbought.

Short term has been fighting selling off for some time.  However, this too will come to an end.