Friday, April 24, 2015

U.S. Equities Topping Process Is Ongoing

The technical picture of American equity market is still deteriorating. Toady Nasdaq 100 printed another once again the record was accompanied with worsening market internals. Please, look at the table below:

As it is easily spotted, subsequent records printed by S&P500 and Nasdaq 100 are reported at lower new highs. For example, at Nasdaq 100 only 219 issues hit their records today while in the middle of the bull market, in May 2013, as many as 236 issues made records. The similar pattern is visible in S&P 500.

Another example of worsening technical picture of the equity market is presented at the chart below:


 In October last year both indices, Industrials and Transportation, broke their supports. Then the bearish pattern was invalidated and equities started another bull up leg. But since December 2014 Transportation has been trading in the range of 8,600 - 9,200 points. DJIA managed to print another record (in the beginning of March) but this occurrence has not been confirmed by the sister indice.

In my opinion since October 2014 the U.S. equity market is in its topping pattern.

As for fundamentals - below I present a chart of  net operating profit after taxes reported by Ebay. I guess everybody knows this company. Apart from an excellent ecommerce platform, this company is also an excellent investment play. But looking at the company's nopat one can spot that this company probably reached a sort of plateau. Since the beginning of 2013 nopat has been staying practically unchanged (with spikes in Decembers, which are usually the best months for ecommerce companies).

Another problem - return on invested capital (ROIC). As the chart below shows, since 2011, Ebay has reported lower ROIC. Simply put, the company is not able to provide its shareholders with decent returns on its capital.

Therefore, as other U.S. corporations, Ebay repurchases its shares - since 2011 the company has spent $9.7 billion on stock repurchases.

Saturday, March 7, 2015

Precious Metals Market - One of the Most Hatred Sectors

Well, in the Precious Metals (PM) market once again we see the same story.
Some time ago I presented the chart showing the probable "Head and Shoulders" pattern. Well, as you can notice at the chart above, the pattern has been negated.

Now, we are once again in the PM market downtrend:

But still, PM market relative strength against the broad equity market is testing its lows. Look at the chart below:

So the thesis, that a new big bull market in the gold sector may start again, is still intact.

For example, Juniors are still being accumulated. The chart below presents a few best juniors (maybe except from Midway Gold, which goes the same as the broad PM sector), which perform much better than the broad PM sector equities. As you can notice, new, promising mineral assets are being widely bought.

Apart from Juniors, there are some companies, which perform much better than the PM sector. Please, look at the chart below:

  • Randgold (NYSE: GOLD) is one of the best gold miners in the world - see my article on the Seeking Alpha website.
  • Franco-Nevada is the streaming company - the company looks for profitable PM purchase agreements signed with PM miners.
  • Fortuna Silver Mines and Fresnillo are silver and gold miners.

All these companies, due to their sustainable competitive advantage,  perform much better than the whole PM sector. Therefore they seem to be suitable for conservative investors.

Thursday, February 19, 2015

We Are Very Close To A Buy Signal In Precious Metals Sector

In June last year I published an article on an easy play in Precious Metals Market. Here is the link.

Today, despite falling PM share prices we are very close to another LONG trade. Please, look at the chart below:

In the upper section you will find the chart showing the relative strength of Junior sector of PM market (GDXJ) against the big gold producers (GDX). Every time Juniors start showing strength against Big gold the rally in the whole sector begins.
Keep a close eye on the behaviour of PM shares in the coming days.

Sunday, February 8, 2015

Fundamentals of Corn and Wheat Look Better Now

A few days ago I published a post on agriculture commodities - link is here. Today let me take a closer look at two grain commodities: wheat and corn.
Both commodities are in their medium term downtrends. But these days corn and wheat prices look like they are ahead of some correction to the upside or even ahead of starting a new uptrend.


According to USDA (United States Department of Agriculture) the world production in 2015/2014 season will outnumber the world consumption by 16.9 million metric tons. Simply put, the supply of corn will be higher than demand. The table below shows the difference between corn production and consumption  since the season 2009 / 2010. As you see, since 2011 / 2012 we have seen an overproduction of corn - this is not a good situation for those going long this commodity. In effect, the prices of corn have been trading in a range or trending down since 2011.

                                                                  source: USDA and Simple Digressions

In the ongoing season once again the USDA forecasts that there is going to be an oversupply of corn with the world production of 988.1 million metric tons and consumption of  971.2 million metric tons. It means supply outnumbering demand by 17.0 million metric tons.

But for the first time since the season 2010 / 2011 the demand for corn will grow by 2.07% while production should grow by only 0.38% - please, look at the table below:

                                                                  source: USDA and Simple Digressions

Let me picture these relations once again, this time with a chart below:

                                          source: USDA and Simple Digressions

This should suport the bull case of corn - despite the forecast that in the season 2014 / 2015 the supply should be still higher than demand, there are positive changes in corn fundamentals. Together with the probable bottoming process for a majority of commodities, in my opinion, the above numbers may be of some help for corn bulls.


It is a similar story to corn. In the season 2015 / 2014 the world wheat production is forecasted to outnumber the world wheat consumption by 10.2 million metric tons (production standing at 723.4 million metric tons  and consumption at 713.2 million metric tons).  But, similarly to corn,  demand for wheat will grow by 1.31% while production should grow by 1.12%. The difference is not big so wheat seems to be a worse bull play than corn but anyway the fundamentals for wheat are a little bit better for those going long this commodity.

                                                                       source: USDA and Simple Digressions

Saturday, February 7, 2015

Gold Is Still In Its Downtrend

Despite having gained some life most recently, gold (and silver as well) is still in its downtrend.
The chart below clears the long term technical situation of gold:

As the chart shows, in the beginning of 2015 gold bulls tried to break above the descending long term trend line. As usually, they failed.

For those thinking the classical technical analysis makes sense, I have drawn an emerging technical pattern called "Head and Shoulders". Presently gold is bouncing back towards the pink line, which is a crucial element for this formation. In the coming days the battle between bulls and bears seems to be conducted between $1,225 - $1,300 per ounce of gold.

In the short term, the Head&Shoulders pattern looks as below:

Thursday, February 5, 2015

Prices of Agriculture Commodities Are At Their Multi - Year Support

It looks like the agriculture commodities are forming their bottoms. These days their prices are near the long-term support. Please, look at the charts below:

The chart shows two investment vehicles replicating the prices of agriculture commodities:

1. the first one is DBA, which tracks the price and yield performance of the Deutsche Bank Liquid Commodity Index - Optimum Yield Agriculture Excess Return. The table below lists the commodities tracked by DBA:

                                                source: Deutsche Asset and Wealth Management

2. the second one is RJA, which replicates the Rogers International Commodity Index – Agriculture Total Return index. The table below lists the commodities tracked by RJA:


Going back to the chart, it can be spotted that both vehicles are at their multi-year supports (the blue area). In my opinion, the majority of agriculture commodities should start forming their bottoms.

Monday, January 26, 2015

Big Precious Metals Miners - Long Term Supports Are Working

In the beginning of November last year I placed a chart showing the technical situation of big precious metals miners (link). After nearly three months those miners' prices are still above their strong long-term supports. Please, have a look at the chart below:

Although the shares are above their supports, they are not in a bull market yet. But, similarly to gold, the risk of investing in the whole PM sector is today at the lowest levels in history.