July 13th, 2010
As I have said before – for the most part, portfolio managers are all the same as they all fear something. They fear the markets are about to collapse and yet they fear not to be invested. That is because they fear the markets may advance without them on board. In order to defend against a falling market they all own some gold and they all over-diversify. I recall Warren Buffett saying that “Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.”
So here we are, into a rally following a nasty correction and the question is do we move on to new highs or do we bail because the worst is yet to come. We all know what the portfolio managers are doing. They all own some bonds, some gold and perhaps an inverse product. Their objective is to have equity exposure – but not too much, and so if the market declines they won’t decline as much. The inverse is also true, if the market advances they won’t advance as much.
Which way do you think the equity markets are heading? Our chart is the weekly bars of the Phix SOX Semiconductor Index plotted above the S&P500. The studies are the 40-week MA, the Coppock Curve and the lower study of relative analysis MA. So what do you think about the outlook for the equity markets – and why?
Tags: Buy, Sell and Know When to Buy
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July 5th, 2010
I have over the years worked with many portfolio managers and I have attended the investment committees of several money management firms – IC/PM for short. Guess what I have learned from them? Nothing. Yes, that is because they are all the same – they all fear something. They fear the markets are about to collapse and yet they fear not to be invested. That is because they fear the markets may advance without them on board. In order to defend against a falling market they all own some gold and they all over-diversify. I recall Warren Buffett saying that “Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.”
Now there are three ways to protect against a falling market – you can reduce and go to cash, You can remain long and place an inverse (or short) ETF into the portfolio – or you can seek out long position that will rise against a falling market AND also rise should the markets also advance.
I think the better option is to seek out a asset that will advance without regard to the current market conditions. This special asset will soften a corrective period and because you are for the most part long – should the markets advance – your in the game
Our chart is displaying a long position of the Natural Gas ETF (HNU) plotted above the short inverse S&P/TSX60 bear ETF (HXD). Note the high price correlation – both are displaying recent price advances – but if the broader stock indices should recover we will lose on the HXD and what is more probable – still enjoy an advance in the HNU
Tags: or not to Fear, To Fear
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June 25th, 2010
Back in late May I got a call from a local portfolio manager (Bob) asking for a technical opinion on BP PLC whose share price had torpedoed in reaction to the companies’ Deepwater Horizon Gulf oil spill. “Look Bill, at $41 the shares are cheap when you take into account the earnings multiple, the yield and the book value.”
Bob’s analysis is typical fundamental stuff that reasons falling stocks are a better buy than rising stocks because a falling stock is “cheaper” than a rising stock which is getting “expensive.” I advised against the purchase because the stock was falling faster relative to its industry peers Chevron Corporation and Exxon Mobil Corporation. I told Bob the market is clearly worried about the Gulf oil spill and that in many cases stocks will fall ahead of changes in the fundamentals which can lag the current reality.
To-day with BP trading in the 27 dollar range I have no interest in the stock because the Gulf oil spill is a crisis that may take generations to repair and the potential liabilities could wipe out the company – I think the stock could go to zero.
Now most technical analysts believe that for every negative event – there is an offsetting positive event somewhere else. So as investors we need to protect our portfolios by avoiding industries and sectors negatively impacted by the Gulf Crisis and to seek out the beneficiaries.
This is where I invite your opinion. I need to see the investing landscape ahead for the next 6 to 10 months. How will this crisis impact the U.S. economy, interest rates, food prices, energy prices, precious metals and base metals? What stock sectors will be impacted be it financial, consumer, technology, energy, materials, health care, utilities and industrials? Will we bet on inflation or deflation? Small caps or big caps? Is this bigger than the Greek crisis? Bigger than the 2007 – 2008 housing crisis? What about the transportation sector – how do we value the railroads? What about tourism and travel? Investing is not a spectator sport – what to do – your input please.
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June 23rd, 2010
If you’re a gold bug and you own a basket of gold stocks you have to wonder what is wrong with the group. On June 18 the price of gold touched another all-time high and yet most of the gold stocks as represented by the AMEX Gold Bugs Index once again failed to confirm the move. In a previous post I detailed the structure of the current secular uptrend in the gold complex and illustrating why we are now into the 5th bull in the series that began in mid 2000. We also know in the later stages of a secular advance the participants will splay or exhibit typical 5th Elliott Wave failures basically meaning fewer and fewer will post new 52-week highs.
Now that does not signal the end of the secular up-trend in the gold complex because we could experience a maximum of 7-cycles (two more to go) – BUT – these cycles tend to be of shorter duration and of less price magnitude. There are several ways to play this aging gold cycle game. One way is to follow the money as it moves in and out of the key gold and silver producers. Our daily chart is of the weekly closes of Barrick Gold plotted above the weekly closes of Silver Wheaton. Note the large inverse head & shoulder pattern on each stock. Note the Silver Wheaton break above the neck line in late 2009 and note the failure of Barrick to break up through the neck line. Clearly we need Barrick to clear $50 to confirm the breakout – it is now or never and if Silver Wheaton rolls over and breaks under $18, the 5th cycle is completed.
Tags: Buy, Sell and Know When to Buy
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June 14th, 2010
So how come the price of natural gas is rebounding? The gassy ETFs are now into week 7 of rising prices and the natural gas producers are strong with several posting new 52-week highs. According to some “experts” there is too much natural gas and the glut could last for years. One factor adding to the production glut is those shale deposits along with the modern fracking extraction methods
I wonder if the gulf disaster is a factor here with tighter rules limiting exploration and production? Now we have the safety of fracking in question. The energy industry claims that hydraulic fracturing — fracking for short — poses no threat to water supplies or public health. On the other hand the U.S. Environmental Protection Agency is using a “transparent, peer-reviewed process” to determine whether the fracking process has contaminated water supplies and degraded land around drilling sites
Our chart is clearly displaying several natural gas producers breaking to new 52-week highs. Now why would that happen if there is too much natural gas? Don’t listen to the experts – listen to the market
Tags: Buy, Sell and Know When to Buy
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As I have said before – for the most part, portfolio managers are all the same as they all fear something. They fear the markets are about to collapse and yet they fear not to be invested. That is because they fear the markets may advance without them on board. In order to defend against a falling market they all own some gold and they all over-diversify. I recall Warren Buffett saying that “Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.”
