Signs of the Bottom in Precious Metals Sector

Although the medium term bear market in precious metals sector is still intact, the signs of the reversal can be spotted.
Let us look at the chart below:

During the bear market phase, silver prices fall more than gold. During the bull market phase the opposite occurs.
Look at the green lines at the end of 2008 and now. In 2008 the bull phase started with silver being stronger than gold. Now something similar is happening.

Chart of the Month

History repeats. Let us look at these two charts. One shows Dow Jones Industrial Average and another one shows Dow Jones Transportation Average.

                                                           source: www.stockcharts.com

Quite impressive.

Uranium - something big in the making ?

Gold bugs are still waiting for "their" time. Although fundamentals are strongly pro gold bugs the prices of the metal are very disappointing. Simply, for the time being, Mr Market does not care about fundamentals.

The same thing has been observed in the uranium market. For many years, the uranium bugs have been claiming that the only direction for uranium prices is "UP".

To name just a few arguments:

• DEMAND - despite of the Fukushima event the world is condemned to uranium as an energy source - "green" energy is  just a gadget and is not able to provide the world with enough energy, therefore many countries, especially China, are still developing their nuclear energy projects;
• SUPPLY - at the end of 2013 the so called "megatons for megawatts" program is scheduled to expire - this is one of the main uranium bugs' arguments.

Unfortunately for the uranium bugs Mr Market just ignored these thoughtful arguments and headed for the South.
But today it seems the situation is ripe for a change. Let us look at the chart:

U.TO is a chart of Uranium Participation Corp. - sort of a fund investing in uranium oxide (U3O8)which is a fuel for the nuclear plants. As you can see, in short and long term, the price of U3O8 seems to be bottoming. What is more, the relative strength of U3O8 against S&P 500 is growing.
I do not claim we see the trend change (a little bit too early for that) but there is something to keep our eye on.

Big undervaluation of gold against U.S. monetary base

As everyone knows, there is no gold standard anymore. It means that central banks may carry their monetary policy without any restraints. But the invisible hand of the market is still active. Let us look at the chart below:

The chart shows the U.S. monetary base and gold prices.  Although officially there is no gold standard anymore, it can be easily spotted that gold prices follow the monetary base. In reality, due to market forces, the gold standard is, magically, still intact.
What is more, there are periods when gold prices are behind the monetary base. In such a period we can say that gold is undervalued against the monetary base. And such a period is a right time to own gold.
The first such a period was between 2000 - 2003, when the big bull run on gold started.
The second period was between the end of 2008 and the beginning of 2009 at the end of the big correction of gold prices.
And the third period is...today.

Summarizing, it seems that presently it is a good time to own gold (as was the case in the first and second period).

Knightsbridge Tankers Limited (VLCCF) - shipping company with sustained high dividends

Though this company has a word "tankers" in its name, these days it has nothing to do with the tanker sectors. Presently Knightsbridge's fleet comprises four Capesize dry bulk carriers. What is more, most recently, the company has concluded two contracts for building two Capesize vessels additionally.
Another very important event in the company's history was a new shares offering which brought $51 million in cash. In my opinion this offering has stabilised the financial situation of the company, which operates on a very fragile dry bulk sector.

This week Knightsbridge has published its quaterly report. Just a few numbers:

                                                                             source: Simple Digressions

As you can see, the results improve with Capesize spot rates going up.
But the most important thing is that the company's high dividend yield (presently 9.0%) seems to be sustainable. The new offering, stabilising the company's fundamental situation, is another beneficial factor supporting that thesis.

Now let us look at the chart:

                                                         source: www.stockcharts.com

Currently, after announcing the new offering, we observe the strong price correction. The inflection point seems to be around $8.5 - $9.0 where many shares have changed hands. See another chart below:

                                                                           source: www.stockcharts.com

U.S. equity markets - divergencies, weak broad market but...still up.

For perma-bears this is really tough time. In spite of the many divergences and weakening market internals new tops have been printed.
Example of weakening market internals:

                                                                       source: Simple Digresssions

As you can see, it looks really very bad. Less and less equities participate in the march up.

On the other hand, we have another confirmation in the Dow Theory:

                                                                            source: www.stockcharts.com

I think we are going again to the first stage of a late bull market - divergences are seen but the bull is still intact.

Finally, the up-dated chart of Microsoft after the quaterly results:

                                                                            source: www.stockcharts.com

Microsoft Corp. - are these results that good ?

Most recently Microsoft has released its last quater report. The market assessed them as excellent - the price went up nearly 6%. Let us look at the chart:

                                                                             source: www.stockcharts.com

Now let us look at  a few last quarter's basic numbers -  revenues and margins:

I made just one adjustment - the revenues and margins on corporate level were deleted. I focused only on the core Microsoft's businesses.
As you can see the revenues went up 7.52% against last year revenues but margins much less because only 2.71%. Well, Microsoft is still a fantastic company but are the last quarter's results really that good ? I do not think so.

Dow Theory - fresh signals

Some people say the Dow Theory does not work anymore. I do not think so. These "old" methods, in my opinion, are still valid and each investor / player should, from time to time, look at what the two averages (Industrial and Transportation) are saying.
So, let us look at the chart below:

                                                           source: www.stockcharts.com

We can easily spot that on October 16th the Dow Jones Transportation Average broke out above its resistance level (green line). But the Dow Jones Industrial Average did not. It is still in the trading range commencing in July. This is a classic non-confirmation pattern.
But watch out - I have not said this a sell signal. This pattern only says that not everything is O.K. with the market...and that's it. Be careful.

Generally, the market cycles end this way:
1. First, the market internals are worsening (e.g. less new issues highs at the market record price highs during the bull run).
2. Then we see the Dow Theory patterns saying that something wrong is in the market.
3. And then we see the number of the classic Technical Analysis signals: trend lines and technical supports being broken during the bull run, special patterns seen, e.g. Head and Shoulders etc.).

Where are we now ? Probably at the the stage 2.

Bull market in stocks ? For the Americans yes but for the others...hmmmm....



Let us look at these two charts:


                                                                             2007...

                                                                        ...and today

In 2007, though S&P 500 made the top, this same indice measured in the other currencies did not. As you can spot, today the situation is similar. Top in S&P500 is not confirmed in the other currencies.

Charts of a few very popular stocks

Well, U.S. market seems to be not bothered about anything. It is marching up without any hesitation. At least the indices.
But what about the specific stocks ? Here are a few charts of some most popular ones:

 

                                                                             source: www.stockcharts.com

As you can see, most of these stocks are in their consolidation modes. Only a few are breaking up. And a few are in triangle formations (where the character of the next move is not clear) or even in a downtrend. But IBM, IT giant, seems to be breaking down.

So the big picture, as specific stocks are concerned, does not look too bright.

Precious Metals stocks - does anybody remember something like that exists ?

Precious Metals sector is an asset class I have been keeping my eye on for many years. The present gold bull run started in the beginning of this century but precious metals stocks generally underperformed against gold. Now, this undervaluation is at its extremes. Let us look at the chart:

                                                                          source: www.stockcharts.com

XAU (the Philadelphia Gold and Silver Sector Index) represents 30 gold and silver miners. As you can see at the chart, most of the time this index was trading in the range between 3 - 6 against gold. But in 2008, when the last uptrend leg in gold prices started, at the same time miners shares started to underperform against gold prices in an astonishing way. What happened ? I guess many investors at last understood that the miners were not such good businesses as they thought.  The main constraints were as follows:
 - the miners managers did not seem to care about the shareholders value - mining companies were offering more and more shares to buy precious metals assets at rather high prices
- most of the existiing gold and silver reserves were of a very low grade
- the operating expenses were rising much faster than the precious metals prices (low grades participated here very much)
- most recently, due to decreasing gold and silver prices, many miners impaired their mining assets - this had a big negative impact on the miners earnings.

In effect, today we see the biggest undervaluation of the miners against gold prices since 1985.

Is it a buying opportunity ? Well, your decision.

P.S. The third quarter earnings season will show whether there are any changes in precious metals miners' fundamentals. Expect my report on that subject.

Funny Games on Wall Street

Low volumes induce to funny games on Wall Street. Let us look at these two charts:

As can be spotted, during the last stage of the trading day the players have a lot of fun. The game is called "How many points up can we make ?".  I do not have the slightest idea what kind of awards there are but surely the fun is great.

Well, for somebody looking at the charts in daily or longer time frames these games are invisible. What is more, the overall impression is that the market is strong.
I do not know how all that matter will end but....well, maybe the last sequences of "Funny Games" by the Austrian film director Michael Haneke could be a clue ?
If somebody has not seen it I am strongly recommending that movie (the U.S. remake is also available).

US markets - an update

Yesterday, after the FED announcement, US markets reacted as usually. Looking at that I have an impression that there is no bad news. There is only good news - never mind what this news is - the market always goes up.
O.K., this is "what is seen" (as French economist Frederic Bastiat used to write) but "what is unseen ?".

Let us look at some charts.

The first chart shows the number of advancing and declining issues:

As in my previous posts we can spot the deterioration of the market internals - the market goes up with less advancing issues.

The chart below shows what smart and big money has been doing for some time:

As one can see - smart and big money does not care what Ben Bernanke has said - the selling goes on.

But, as I wrote some time ago - smart and big money indicators are not a good timing tool. To assess whether it is time to think about shorting the market I use the chart below:

Now the market is in the selling zone - for active investors this could be the opportunity to try to short the market.

Improving situation in global shipping


Something good for global sea transportation is happening in China. For a few months in a row the imports of iron ore have been growing quite strongly; similar situation is in other sectors as well.
Due to that improvement the rates in bulk shipping are on the rise - this can be seen in the behaviour of the Baltic Dry Index (BDI). Yesterday BDI broke out above the resistance line at 1150.

This is a bullish sign for the prices of dry bulk transportation companies (and maybe for some others, e.g. container carriers). The pattern is that BDI goes first and stock prices of dry bulk carriers follow it after some time.

Below is the chart:

                                                     source: www.stockcharts.com

Big money sells two popular tech stocks very aggressively.

Just a quick look at what big money does with Blackberry and Apple stocks:

                                                     Blackberry (BBRY)

                                                         Apple (AAPL)

S&P 500 - update.

US equity market, although still in an up trend, is showing weakness again. Technical analysis fans could very easily point many charts showing various divergencies indicating that weakness. Well, I will show just a few of them.

First chart shows the S&P 500 index subsequent peaks with less number of new highs. Though index reaches another record highs, every time it happens we can spot less and less new highs. This is a clear sign of weakness. Declining volume is another sign of weakness.

                                                             source: Proste Dywagacje

Another chart.

                                                            source: Proste Dywagacje

This chart is especially crucial. It shows what the big money does. I've presented similar chart quite a few tines here but this time I made a small modification. The blue line shows what is happening during the last hour of daily session. This is time when big investors are active. When the blue line is in a down trend it means that big money is selling. And vice versa. Quick look at the chart and we see that since the middle of May the big money has been selling very intensively.
One remark - that indicator isn't a good timing tool - it just shows the tendency. But I wouldn't rather  like to be on the buying side when big fishes sell....

Next chart - and this is a timing tool.

                                                    source: www.stockcharts.com

The chart shows NYSE advance - decline issues and its climaxes. Without boring details - red circles indicate when the market reached the selling climax and the bounce up is expected. Currently we have such a situation. After the latest short term down trend the market is expected to have some sort of a rally.

Well, we'll see. But the big picture is that  the market shows longer term weakness with big investors selling their stocks with full determination. While Wall Street sees only momentum trading the market is loosing that momentum.

Wheat - fundamentals bullish

Some positive things have appeared most recently in wheat fundamentals. Wheat is a commodity so the most important aspect of investing in it is demand and supply.
Because of increasing demand from China seasonal world demand is forecasted to be bigger than supply. Let's look at the table:

                                                                         source: USDA

Season 2012 / 2013 has set a record - 25.013 thousand metric tons of wheat were on demand side. Then, the forecasts for season 2013 / 2014 were quite opposite - supply was to be bigger than demand. But in July this forecast has changed; due to bigger demand from China, current forecast is again for demand side. What's more - the ending stocks of wheat are forecasted to stand at 90 days of world daily consumption which is quite a small numer.

Now, fundamentally we have the situation ripe for higher wheat prices. So what about the futures market ? Well, here everybody seems to be very busy in selling wheat.

                                                                             source: www.stockcharts.com

For example, speculators have one of the biggest short positions in many years.

                                                                     source: Proste Dywagacje

So, generally, this seems to be one of the best opportunities to start betting on wheat prices on long side of the market.

S&P 500 - Smart Money update

Quick up-date of Smart Money actions. Well, nothing has changed. Broad market in the US is stuck at the moment but big investors keep on selling:

Another interesting metrics - new highs and the difference between new highs and new lows:

The last peak was set on 21 May 2013  - then there were 700 new highs. But when the previous peak was set on 14 September 2012 there were as much as 958 highs. The same with the difference between new highs and new lows.

This is not a picture of the healthy market.

Chart of the month - silver

Yesterday, after quite a fight the long term silver trend line still intact.

Marine Transport - world economy weak, marine transport weak as well but...it is not going weaker


Months ago I was writing (in Polish) about marine transport. This is quite interesting sector of the global economy. In my opinion if you want to know how performs the world economy - look at the marine transport. If it's weak so is the global economy. Don't seek the answers in the media - just look at marine transport indices, e.g. the Baltic Dry Index (BDI). This indice is constructed on the basis of time charters rates in bulk carriers sector (bulk carriers transport such commodities as iron ore, coal and agro commodities). So, the behaviour of BDI shows the condition of global bulk transport. Let's look at the chart:

                                                     source: www.stockcharts.com

Since June 2008 peak BDI went sharply down till its bottom in December 2008. Then quite a big rally took place but again, since the end of 2009 the index went one more time to its December 2008 bottom. And now, since the beginning of 2012 we have a consolidation phase - the time charter rates are still very low but...they are not falling further.
What's more - BDI can be used as the leading indicator for the whole marine transport sector - it means that if something happens to BDI , then, after some time it happens to transport companies as well.  The grey areas above show that; for example, the area "A" shows BDI going up while Marine Index still going down - but after some time Marine Index follows BDI up.
Now BDI is going a little up, or at least it is consolidating at very low time charter prices range - therefore, due to BDI behaviour,  the prices of marine transport companies aren't falling which is quite a pleasant thing for their investors.

Fundamental situation in the sector is very bad - many companies have financial troubles, many went even bankrupt - generally I can say there is a lot of blood in the sector. And if there is a lot of blood so, according to the old rule of investing, it is the proper time to start looking closely at some companies.
The chart below shows the technical situation of some transport companies included in Marine Index.

                                                              source: www.stockcharts.com


As one can spot, most of them (apart from Teekay which operates in liquid natural gas transportation sector and has been in a strong up trend for many years) are consolidating at very low price ranges.

I should also add that some companies, despite the catastrophical situation of the sector, still pay dividends; what's more, very fat ones. But about that....later.

Silver - entry point (the same as gold)


While still in a correction mode, silver seems to generate a strong buy signal.

                                                                       source: www.stockcharts.com

Bollinger bands, which are below the silver price chart, are the statistical measures - they have nothing to do with the fundamentals of silver. But they show the extreme behaviour of prices, both on buy side and sell side. In case of the red circles we have the buy signals indicated - since 1993 there have been only four such signals so that measure seems to generate long term buy signals.

Another chart below shows the behaviour of big silver speculators.

                                                            source: Proste Dywagacje


As you can see, presently the speculators are the less interested in silver since 2006 - their net position in silver contracts is nearly neutral (neither long nor short). This means rather very pessimistic view on silver prices which is another sign of capitulation of bulls in that market.
And capitulation of bulls is, from contrarian point of view,  a strong buy signal.

Tesla Motors - short squezze coming to the end

Tesla Motors, electric eco-vehicles manufacturer run by Elon Musk, has its days. Most recently it goes up parabolic. Probably one of the main factors behind this super bull market is the short squezze:

                                                                          source: www.stockcharts.com
On March 15 many players were betting on Tesla shares going down - 28,4% of shares outstanding were being shorted. That's quite a big number. After that day the price of Tesla went parabolically up and on May 15 there were "only" 20,2% of shares shorted. During that short squezze period the price went 228% up.
But O.K. - this is the fact very well known. The aim of that blog is to present in a simple way things not very well known. Therefore let's look below:

                                                                               source: Proste Dywagacje

That chart shows something annoying for the bulls - despite very strong up trend the number of days up is sharply going down. This kind of behaviour rather doesn't support the Tesla bulls.....

Precious Metals - bull still intact

Most recently the prevailing opinion is the bull market in gold and silver is finished.
In that post I don't want to present the fundamental reasons that this is not the case. Instead of that let's look at the charts:

                                                                        source: www.stockcharts.com

Above is the chart of the price action of Central Fund of Canada (the  pool of physical gold and silver). As you can see, the latest selling pressure in precious metals brought the price of that Fund to its long term rising trendline. This is nothing special - just the usual correction in the long term trend. The interesting thing is that the relative strength of that Fund against gold is at historical point where each essential rally started (the red circles).

Now let's look at GLD (SPDR Gold Shares) - the pool of physical gold.

                                                                 left scale - ounces outstanding
                                                                 right scale - price of GLD

                                                     source: Proste Dywagacje

The black line shows the price action of GLD and the green area shows how many ounces of gold the pool consists of. As you can spot, the fund was accumulating gold through many years of the secular bull market in precious metals. And lately something different happened - see the chart below:

                                                           left scale - market value of GLD (usd billion)
                                                           right scale - price of gold (ounce / usd)

                                                                      source: Proste Dywagacje

After breaking the support line above $1500, the capitulation phase started. Investors, anticipating the end of bull market in gold, started liquidating their long positions in gold in panic.

Conclusion:
Precious metals are again at their long term rising trendline (CEF chart above). The last phase of that correction occured in the form of panic. And panics are in most cases the last phases of price drops.

US market - what Smart Money is doing today

Periodically I present one of the most important aspects of market action, i.e. what the so called Smart Money does. Smart Money, which means big, experienced investors, is always right. The only problem is timing - it can take months when, at last, we see the effects of the behaviour of these investors. Let's look at the chart:

                                                                                source: Proste Dywagacje

As you can see, Smart Money distribution phase has lasted nearly one year (it started July last year). During that time S&P 500 has been marching up and up, fuelled by media - driven optimistic news, high sentiment readings, FED action...name it as you want. But Smart Money does what it does - sells, no matter how brilliantly the future looks.
What's more - that selling means not only the usual correction but something much bigger.

US stocks - relevant correction in the making ?


Old rules are still valid - dow theory works.

Whether you like it or not, US stock market is still in a bull stage. Although volume is thin, market breadth is deteriorating and investors bullishness is at its historical highs - dow theory still validates current bull stage.

But looking at the main two averages, Dow Jones Industrial and Dow Jones Transportation, apart from dow theory confirmation we can spot quite interesting thing: transportation average is lagging behind industrial average.
Let's look at the chart:

                                                   source: www.stockcharts.com


As one can easily spot, each time we have seen such a situation, the relevant correction took place.

Looking at the market as roulette

Sometimes it's fine to look at the market as a gambling place.
Let's look at S&P500 index. Beneath is the chart of that index together with the line showing how many days were up during 20 days periods. Simply talking  - as the market is in an uptrend there should be many days when the daily closing prices are higher than preceding day. That's quite obvious definition of any uptrend. The opposite is also correct - during down trend  there are less days when closing prices are higher than preceding day (there are more down days).
While the up trend is developing so is the number of up  days. Nothing special.
But...when the trend is weakening we can spot it  - the number od days up is diminishing.

O.K., let's look at the chart:

As you can see, looking at the number of days up we can easily spot the strength of the trend. Most recently the up trend in US stocks seems to be strong - the number of up days goes with the index - no divergence.

But let's look at the gold prices. Here is quite different situation - the price of gold is going down abruptly while the number of up days is going up strongly. It seems that the change of the down trend is in the making.....