Monthly Archives: October 2010

Barron’s Buries the Bears

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If you are a "cover contrarian" and a bear, you will love the cover of Barron's this week:

1031-bear

That's right; Barron's is declaring bears doomed, based on input from big money managers.

The same big money managers who said………

1031-geniuses

This is simple, folks: Big Money Managers have no vested interest in saying anything except that the market will go higher.

Every year.

Forever.

So this Barron's story is just a joke that the world never quite seems to get.

Weekly Sector Report | 10/29/10 (by Leisa)

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We closed October without any of the oft-anticipated fireworks that define this transition month into 4th quarter. The total stock market index was up .13%–we can call that flat.  Below are the 24 major Sectors and their relative performance.

 

Snap142a

As is usual, I have prepared a chart book in PDF form for your use with the weekly, daily, and monthly (since it is month end charts) for each of the sectors listed above.  You can downoad it here. It's a large file, so be patient.

Below is a weekly chart of the total stock market index.  I like to view this chart because it eliminates the bias of small, large, mid-cap, tech, industrials weighting that is evident in the other indices. I also like to look at the weekly to eliminate some of the daily noise. 

 

Snap147

We've a string of positive bars–9 weeks now.  With elections this week, perhaps the market will give us its own version of the move  9 1/2 Weeks?  As we've repeatedly seen, when the market gets to critical junctures, the news flow is the major impetus for the direction up or down–and last week was an example of much activity but very little direction although the sectors had quite a bit of push and pull (which is why I look at them).


A Sloper asked a very good question about "What is Intermarket Analysis".  John Murphy, at Stockcharts.com, has an intermarket chart that you can access (free to all)  to see the interplay between the USD, 30 Year bond price (price is inverse to rates), CRB index, and the S&P index:

Snap149

To quote John Murphy:

Intermarket Technical Analysis is the study of the relationships between the four major financial markets: Stocks, Bonds, Commodities and Currencies. There are three key relationships that bind these four markets together. These relationships are:

  • The INVERSE relationship between commodities and bonds
  • The POSITIVE relationship between bonds and stocks
  • The INVERSE relationship between the US Dollar and commodities

POSITIVE: When one goes up, the other goes up also.
INVERSE: When one goes up, the other goes down.

When these relationships occur, the markets are said to be acting "normally" and there is a good probability the current trends will continue. When one or more of these relationships break down, the markets should be watched carefully for signs of general trend reversals

 

I believe it is worth cutlivating a general understanding of these relationships–they truly are market drivers.  Trading/investing is often like juggling:  there are several balls that one has to keep in the air.  As with most endeavors, with practice and discipline, it becomes easier.

Courtesy of Wiki

(courtesy of Wikipedia)

 

 

Here's a clip from the Rocky Horror Picture Show…seems appropriate for this market to date and for the 'anticipation' for the coming week.  I wish you good trading this week.

 

 

Gas Up with MLP’s (by BKudla)

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By nature, I am a trend guy.  I spent most of my corporate career looking at the future and divining trends.  I invest/trade the same way.  In the energy field, this country has only two good, domestic options in its energy future; natural gas and nuclear.  Nuclear has reached recognition stage and is now catching a bid, and I wrote on its bright future in prior posts.

 

Natural gas is still trying to balance supply and demand, and prices continue to fall on average. I view this as a cyclical problem and have already positioned myself accordingly with SJT and LINE.  Why? Contrary to popular media opinion, the Northern Hemisphere is in a cooling trend, this pressures stockpiles, Natural gas can be converted to Ag Chemicals which is going to start a major buying move as farmers have underapplied fertilizers to save money, now yields are suffering, a weak dollar will make oil less attractive against domestic Natural Gas, and the clean energy movement will force companies and utilities to move to natural gas.

 

Linn energy has already Tripled from my itial purchase price because they are astute hedgers and have more oil in their mix.  San Juan Basin is an American pure play, mostly Natural gas producer and is slowly rising every month.  A third player I am watching and now will start buying is PVX, Provident Energy out of Canada.  They produce and ship liquid natural gas. I like the chart, and it is looking at breaking out again. 

 

These MLP's pay between 6.5%-9.4% monthly distributed dividends, so I get paid on these while I await gas prices to catch a bid.

 

I buy a little each month (LINE have a full position) as the RSI7 comes off the bottom.

www.arum-geld-gold.blogspot.com

 

Rare Earth – A Long Term Investment

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Rare earths are a group of at least 15 elements within the Lanthanide series (see Wikipedia for a good overview: http://en.wikipedia.org/wiki/Rare_earth_element).   These elements are relatively abundant in the earth's soil but are found in higher concentrations in certain locations.  For those of you who like chemistry – I’ve highlighted them in yellow:

Rare earth periodic table 

Demand.  The use of rare earth elements in modern technology has increased dramatically over the past years.  Rare earth elements are now incorporated into environmentally-friendly technologies (e.g. compact fluorescent lighting, hybrid cars, etc.), new digital devices (iPods, iPads, disk drives, etc.) and various military/industrial applications.

REU 

Supply.  China controls 95% of the global rare earths market, with 45% of the global supply coming from China’s Baiyun Obo mine in Inner Mongolia.  In recent years, the Chinese government has shuttered a number of other rare earth mining operations and imposed a range of export restrictions on rare earths, with the aim of ensuring domestic supply is sufficient to meet expected domestic demand (or for monopolistic control- you decide).

Given the tightness of supply and the belief that new demand has recently strained that supply, there is growing concern that the world may soon face a shortage of the rare earths.

Bubble?  The Investopedia article (linked below) notes that “although rare earth prices could stay high for a while (mines do not open overnight), new digging and new alternatives are likely to put an expiration date on this bull market.” 

My current favorite stock on this space is Lynas Corporation www.lynascorp.com (see the ZH article, below)- I believe them to be significantly undervalued medium-to-long term.  Lynas trades under the symbols (LYSCF) for the common, and (LYSDY) for the depository receipts. 

Lynas5yr 

July to October this year looks a little too exponential for my taste, so I’ll be waiting for a significant pullback. 

In addition, I’m also watching a rare earth ETF that began trading today: (REMX) from http://www.vaneck.com/funds/REMX.aspx.  I like the weighting:

REMX 

I might go with my eggs in the same basket philosophy and consider REMX when that time comes.

Further reading:

http://www.bloomberg.com/news/2010-10-22/rare-earth-in-blackberry-to-prius-underscores-alarm-over-supply.html

http://www.bloomberg.com/news/2010-10-21/rare-earth-contention-in-u-s-japan-overlooks-china-s-2006-policy-signal.html

http://www.bloomberg.com/news/2010-10-21/molycorp-lynas-may-add-to-gains-as-china-restricts-supply-of-rare-earths.html

http://stocks.investopedia.com/stock-analysis/2010/5-Could-Be-Bubbles-Waiting-To-Burst-CRM-VMW-CTXS-LOGM1020.aspx?partner=YahooSA

http://www.zerohedge.com/article/sorting-through-chaff-lynas-best-rare-earth-play