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).