Could September be a Killer Month for Stocks?

Thursday, August 30th, 2012

In the August 29, 2012 episode of MarketClub TV (INO.com), Adam Hewison covers inflation and the bull market in the commodity sector. He also discusses crude oil more closely, given the fact that hurricane Isaac has now made landfall in Louisiana.

Why are the markets so quiet? Could September be a killer month? History has shown that September is the scariest month for Wall Street. Many traders remember September of 2008. Could this September be a repeat of the 2008 disaster? Europe and Ben Bernanke hold the keys to how September plays out.

Hewison examines the nine major sectors and point out which ones are performing well, and which ones to avoid. He also looks at one index that is not performing the way it should be.

For the past three days, the index has been extremely quiet. It has been like watching paint dry. While the major trend for this index remains positive, we still believe that major resistance lurks at the $1,420 to $1,425 area and will continue to present problems for this market. With a Score of +100, this index is in a bullish trend. Our monthly and weekly Trade Triangles are now positive on this index.

CRUDE OIL (October 2012)
Monthly Long-Term Trend = Bearish
Weekly Intermediate-Term Trend = Bullish
Daily Short-Term Trend = Bearish
CRUDE OIL closed last Friday @ $95.75

The crude oil market is lower for the week and appears to be rounding out the top. We would look for support to come in this market around the $93.00 level where an uptrend line comes into play. Our long-term 61.8% Fibonacci retracement level of $98.00 is now major resistance for this market. With a Score of +55, crude oil is in a broad trading range. Long-term traders should remain short this market with appropriate money management stops.

EURO vs USD (SPOT)
Monthly Long-Term Trend = Bearish
Weekly Intermediate Term Trend = Bullish
Daily Short-Term Trend = Bullish
EURO vs USD closed last Friday @ 1.2517

The Euro is barely changed for the week. Is everyone waiting for August to get over with and for real trading to begin in September? There will be lots of announcements and politics coming out of Europe starting in September, which should prove to be an interesting month. With the intermediate-term trend positive, the long-term trend negative and low market activity for the Euro the current trading environment is contributing to a choppy market. The next level resistance is between 1.2600 and 1.2750. With a Score of +60, the Euro is in a trading range. Long-term traders using our Trade Triangle Technology should maintain short Euro positions with the appropriate stops in place.

GOLD (SPOT)
Monthly Long-Term Trend = Bullish
Weekly Intermediate-Term Trend = Bullish
Daily Short-Term Trend = Bearish
GOLD closed last Friday @ $1,669.65

While gold is about $10 lower for the week, we still like the way this market is setting up. Potentially we could see a pullback to some key Fibonacci levels at 38.2% = $1,644.84, 50% = $1,634.68 and 61.8% = $1,624.52. Make no mistake about it, we are in a bull market for gold. A pullback and further consolidation for this market is healthy. Gold is still below our original buy point of $1,670.93 at our monthly Trade Triangle. With a Score of +85 today, gold is officially in a bull market. Long-term term traders should be long gold now.

COPPER (December 2012)
Monthly Long-Term Trend = Bearish
Weekly Intermediate-Term Trend = Bullish
Daily Short-Term Trend = Bearish
COPPER closed last Friday @ $3.4865

The copper market is lower for the week and we see little to get excited about on both the long side or short side of the market. Copper continues to be trapped within a broad trading range with major resistance at $3.55. Look for support to come in to this market this week starting around $3.43 and extending down to $3.40. Copper’s Chart Analysis Score is currently a -55 which represents a trading range. Long-term traders should be holding short positions with appropriate money management stops.

SILVER (SPOT)
Monthly Long-Term Trend = Bearish
Weekly Intermediate-Term Trend = Bullish
Daily Short-Term Trend = Bullish
SILVER closed last Friday @ $30.78

For the past four days, silver has been moving and sideways and is pretty flat for the week. We are not surprised to see some form of consolidation come into this market as we witnessed a rapid move of 10% in the past seven days. We are very close to turning bullish on this market. A close today over the $31.50 level breaks a 16 month negative force line which would indicate that we are going to see higher prices in the future. We are waiting for our monthly Trade Triangle to kick in to indicate that we are in an official bull market for silver. For now our long-term monthly Trade Triangle remains negative. With a Score of +70, silver is in a broad trading range. Long-term traders should be holding short positions in silver with appropriate money management stops.

REUTERS/JEFFERIES CRB COMMODITY INDEX
Monthly Long-Term Trend = Bullish
Weekly Intermediate Term Trend = Bullish
Daily Short-Term Trend = Bearish
CRB COMMODITY INDEX closed last Friday @ $306.04

This index remains higher for the week, indicating that the bull market is very much intact in commodity prices. With a Score of +75, this index is in a positive trend and should be approached and traded on that basis. Currently this index is in an inflationary stage and we expect pullbacks in this index to be met with strong support at the $305 to $300 level. Major resistance comes in at the $320 area where a long-term negative force line comes in. This index is presently indicating that we are going to be looking at inflation in the future. Long-term traders should be long this index with appropriate money management stops.

Tags: Technology
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Caution Indication: US Transports Show Negative Divergence With S&P 500

Thursday, August 30th, 2012

by Richard Shaw, QVM Group

Rail, trucking and package delivery are among key indicators of business activity in the United States. The recent relative performance of transportation stocks and the S&P 500 suggests that stocks overall might be somewhat ahead of themselves, or perhaps set up for a correction.

• $SPX = S&P 500 (proxies: SPY, IVV and VOO)
• $TRAN = DJ Transports (proxies: IYT and XTN [XTN is equal weighted])
• $DJUSRR = DJ Railroads (members CSX [CSX], Norfolk Southern [NSC], Union Pacific [UNP])
• $DJUDTK = DJ Trucking (member J.B. Hunt [JBHT])
• $DJUSAF = DJ Delivery services (members, Fedex [FDX] and UPS [UPS])

RELATIVE PERFORMANCE and ABSOLUTE PERFORMANCE of the S&P 500 AND TRANSPORTATION INDEXES

These three charts plot the ratio of the price level of each of several transportation indexes versus the S&P 500.

5 Years Monthly Relative

5-Year Monthly Absolute

The 5-year chart generally is outperforming the S&P 500 since the market bottom in 2009 until mid-2011, when it was basically flat with the broad index, and then under-performing in 2012.

1 Year Weekly Relative

1-Year Weekly Absolute

The 1-year chart more clearly shows the turn to negative relative performance in 2012 for all but railroads — and they too have turn down on a relative basis recently.

3 Months Daily Relative

3-Months Daily Absolute

The 3 month chart clearly shows that over the past month, the overall transports and it railroad, trucking and delivery services components are in a down movement. That probably as a lot to do with the flattening of the S&P 500 in the same period.

Disclaimer and Disclosure:

This and every post on this blog is subject to our general disclaimer. As of the date of this post (August 29, 2012), we have positions in SPY and NSC.

Copyright © QVM Group

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Stephen Roach: China is Okay

Thursday, August 30th, 2012

by Stephen Roach, former Chairman, Morgan Stanley Asia, via Project Syndicate

NEW HAVEN – Concern is growing that China’s economy could be headed for a hard landing. The Chinese stock market has fallen 20% over the past year, to levels last seen in 2009. Continued softness in recent data – from purchasing managers’ sentiment and industrial output to retail sales and exports – has heightened the anxiety. Long the global economy’s most powerful engine, China, many now fear, is running out of fuel. These worries are overblown. Yes, China’s economy has slowed. But the slowdown has been contained, and will likely remain so for the foreseeable future. The case for a soft landing remains solid.

The characteristics of a Chinese hard landing are well known from the Great Recession of 2008-2009. China’s annual GDP growth decelerated sharply from its 14.8% peak in the second quarter of 2007 to 6.6% in the first quarter of 2009. Hit by a monstrous external demand shock that sent world trade tumbling by a record 10.5% in 2009, China’s export-led growth quickly went from boom to bust. The rest of an unbalanced Chinese economy followed – especially the labor market, which shed more than 20 million jobs in Guangdong Province alone. This time, the descent has been far milder. From a peak of 11.9% in the first quarter of 2010, China’s annual GDP growth slowed to 7.6% in the second quarter of 2012 – only about half the outsize 8.2-percentage-point deceleration experienced during the Great Recession.

Barring a disorderly breakup of the eurozone, which seems unlikely, the International Monetary Fund’s baseline forecast of 4% annual growth in world trade for 2012 seems reasonable. That would be subpar relative to the 6.4% growth trend from 1994 to 2011, but nowhere near the collapse recorded during 2008-2009. With the Chinese economy far less threatened by export-led weakening than it was three and a half years ago, a hard landing is unlikely. To be sure, the economy faces other headwinds, especially from the policy-induced cooling of an overheated housing market. But construction of so-called social housing for lower-income families, reinforced by recent investment announcements in key metropolitan areas such as Tianjin, Chongqing, and Changsha, as well as in Guizhou and Guangdong Provinces, should more than offset the decline. Moreover, unlike the bank-funded initiatives of 3-4 years ago, which led to a worrisome overhang of local-government debt, the central government seems likely to play a much greater role in financing the current round of projects.

More …

Copyright © Project Syndicate

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A Two-Pronged Case for Holding Gold (Koesterich)

Thursday, August 30th, 2012

by Russ Koesterich, iShares

I’ve been advocating gold as a long-term investment and also as a risk management tool for some time now. Today, I remain bullish on the metal for two reasons – the monetary climate and gold’s diversifying qualities.

Gold is up nearly 6%[1] year-to-date, underperforming most equity indexes but outperforming fixed income. Gold – more than any other commodity – is a natural beneficiary of the current monetary regime, which is characterized by negative real interest rates.

Most of the world’s central banks are trying to hold interest rates at or below the level of inflation. This strengthens the argument for buying gold because it means there is no opportunity cost for holding gold—in other words, investors aren’t going to be missing out because inflation is so low to begin with. Over the past two decades, this relationship between real interest rates and the return to gold has been exceptionally strong, explaining roughly 60% of the variation in the annual return to gold.

While gold’s price might be high by historical standards, I still believe that investors should strongly consider maintaining their allocation.

Investors should also consider gold as a diversifying asset. In an environment in which correlations are elevated, gold continues to march to its own drummer. Since 2010, gold’s correlation to the S&P 500 has been 0.06, a remarkably low correlation in an environment in which most assets, apart from Treasuries, tend to move together.

The bottom line is that I continue to advocate a strategic allocation to gold, in addition to investing in a broader commodity benchmark.

Source: Bloomberg

iShares Gold Trust (the “Trust”) has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus and other documents the Trust has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free by visiting www.iShares.com or EDGAR on the SEC website at www.sec.gov. Alternatively, the Trust will arrange to send you the prospectus if you request it by calling toll-free 1-800-474-2737.

Investing involves risk, including possible loss of principal. The iShares Gold Trust (the “Trust”) is not an investment company registered under the Investment Company Act of 1940 or a commodity pool for purposes of the Commodity Exchange Act. Shares of the Trust are not subject to the same regulatory requirements as mutual funds. Because shares of the Trust are intended to reflect the price of the gold held by the Trust, the market price of the shares is subject to fluctuations similar to those affecting gold prices. Additionally, shares of the Trust are bought and sold at market price, not at net asset value (“NAV”). Brokerage commissions will reduce returns.

Shares of the Trust are intended to reflect, at any given time, the market price of gold owned by the Trust at that time less the Trust’s expenses and liabilities. The price received upon the sale of the shares, which trade at market price, may be more or less than the value of the gold represented by such shares. If an investor sells the shares at a time when no active market for them exists, such lack of an active market will most likely adversely affect the price received for the shares.

Following an investment in shares of the Trust, several factors may have the effect of causing a decline in the prices of gold and a corresponding decline in the price of the shares. Among them: (i) Large sales by the official sector. A significant portion of the aggregate world gold holdings is owned by governments, central banks and related institutions. If one or more of these institutions decides to sell in amounts large enough to cause a decline in world gold prices, the price of the shares will be adversely affected. (ii) A significant increase in gold hedging activity by gold producers. Should there be an increase in the level of hedge activity of gold producing companies, it could cause a decline in world gold prices, adversely affecting the price of the shares. (iii) A significant change in the attitude of speculators and investors towards gold. Should the speculative community take a negative view towards gold, it could cause a decline in world gold prices, negatively impacting the price of the shares.

Shares of the iShares Gold Trust are not deposits or other obligations of or guaranteed by BlackRock, Inc., and its affiliates, and are not insured by the Federal deposit Insurance Corporation or any other governmental agency.

BlackRock Asset Management International Inc. (“BAMII”) is the sponsor of the Trust. BlackRock Investments, LLC (“BRIL”), assists in the promotion of the Trust. BAMII and BRIL are affiliates of BlackRock, Inc. iS-7903-0812

[1] Based on the London Gold PM Fix price as of July 31, 2012 year-to-date. The London Gold PM Fix price is for illustrative purposes only and does not represent actual iShares ETF performance. The London Gold PM Fix price does not reflect any fees, transaction costs or expenses. Past performance does not guarantee future results. For actual iShares Fund performance, please visit www.iShares.com or request a prospectus by calling 1-800-iShares (1-800-474-2737).

Tags: Koesterich
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BRICs (Brazil, Russia, India, China) Continue to Underperform

Thursday, August 30th, 2012

by Bespoke Investment Group

The BRIC trade was one of the hottest trends of the mid-2000s, but it has been especially weak over the past few years.  Today, the BRIC (Brazil, Russia, India, China) ETF broke below its 50-day moving average, so we have charted the year-to-date performance of the four countries that make up the ETF in the second chart below.

As shown, India is the only market that is outperforming the S&P 500 in 2012.  India’s Sensex is up 13.17% vs. the S&P 500′s gain of 12.13%.  Both Brazil (Bovespa) and Russia (RTSI) are barely in the green for the year, while China’s Shanghai Composite is down 6.65%.

Copyright © Bespoke Investment Group

Tags: Brazil, BRICs, India, Russia
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Dow 30 Checkup (Bespoke)

Thursday, August 30th, 2012

by Bespoke Investment Group

Below is an updated look at our trading range screen for the 30 members of the Dow Jones Industrial Average.  A description of how to read the trading range charts is included at the bottom of the screen.

While the Dow as a whole has been relatively flat over the past week, our screen clearly shows that upside momentum has stalled for the time being.  Last week at this time there was just one oversold Dow stock (VZ), but now there are five (BA, HPQ, INTC, KO, VZ).  Thirteen Dow stocks were overbought last week at this time, while just nine are overbought now.  United Tech (UTX), Cisco (CSCO), Home Depot (HD) and Kraft Foods (KFT) are the most overbought of the bunch.

Looking at year-to-date performance, Bank of America (BAC) remains in the lead with a YTD gain of 44.60%.  Home Depot (HD) ranks second with a gain of 34.78%, while Disney (DIS) ranks third at 32.91%.  American Express (AXP), AT&T (T) and Wal-Mart (WMT) are the only other Dow stocks that are up more than 20% year to date.

There are five Dow stocks that are down year to date — Alcoa (AA), Boeing (BA), Caterpillar (CAT), Hewlett-Packard (HPQ) and McDonald’s (MCD).  HPQ is down by far the most with a decline of 34.63%.  Will Hewlett be the next stock to be dropped from the Dow?

Copyright © Bespoke Investment Group

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Chart of the Week: Does Adopting Technology Increase a Nation’s Wealth?

Thursday, August 30th, 2012

by Frank Holmes, U.S. Global Investors

That’s the question Harvard Business School’s Diego Comin wanted to answer. His research analyzed how quickly 15 different technologies—including steamships, the telegraph, the Internet, MRI scanners, electricity—have been adopted by 166 different countries over the past two centuries to determine if there is a relationship between a country’s historical rate of adoption and its per capita income.

He found that a strong association between the two exists. Not only did his research show that the United States and the United Kingdom had the fastest adoption rates, countries’ delays “account for at least 25 percent of cross-country per capita income differences.”

The chart below shows this relationship between tech adoption and per capita income, with each country’s data plotted relative to that of the U.S. The left axis plots how much longer a country took to incorporate a new technology compared to the U.S. in the number of years; the bottom axis charts the income per capita relative to the U.S. You can see that the bigger the lag in comparison to the U.S., the lower the income per capita tended to be, and vice versa.

Read Harvard Business School’s article, “How Technology Adoption Affects Global Economies,” now.

By clicking the link above, you will be directed to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content.

Copyright © U.S. Global Investors

Tags: Technology
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James Grant on Markets, Fed Policy, Gold Standard

Thursday, August 30th, 2012

James Grant, publisher of Grant’s Interest Rate Observer, talks about Federal Reserve monetary policy and the financial markets. Grant, speaking with Tom Keene and Sara Eisen on Bloomberg Television’s “Surveillance,” also discusses the need to return to the gold standard.
Bloomberg August 29, 2012
 

Source: Bloomberg

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Citigroup Summarizes Of Europe’s Fiasco: “Losses Are Unquantifiable”

Thursday, August 30th, 2012

Feel like every day Europe is juggling hot potatoes? You are not alone. As the following graphic summary from Citi’s Matt King (whose insight into Europe, liquidity conduits, shadow banking and a comprehensive picture of modern financial “innovation” has rapidly become second to none) shows, the hot potatoes are getting hotter by the minute, and are flying ever faster and higher. But the kicker: King has the best punchline on Europe we have yet encountered: “Losses are unquantifiable” Q.E.D.

Passing The Potato

Europe – and no less most of the developed world – is caught in a self-reinforcing deleveraging process.

They are caught in a vicious triangle.

Asset Prices Are Overbaked

Asset prices are reconnecting with the real world, but the debts are hard to eliminate.

When Asset values drop, the debts remain!

Chipping Away – Deleveraging has Barely Started

Shifting from Private to Public balance sheets – Creating new risky assets.

Merely shifting from one pocket to the other creates MORE problems

But Who Will Buy The ‘Hot Potatoes’?

Required Premium is greater than the Sustainable Premium; and Spain and Italy (among others) are getting uncomfortably close to the the cliff…

Individual Rationality May Be Collectively Disastrous

…Which leaves question of: Going Concern or Gone Concern? for Spain – but this is far more than a Periphery Problem.

Losses Are Unquantifiable – And Highly Profitable!

Source: Citi

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