Facebook - Similar Situation To the Broad Market

Yesterday I published the charts showing the actions of the so-called Smart Money.

Today let me show how the Smart Money perceives the shares of Facebook. I guess this is a right time for that due to the latest report published by this company. It is not my intention to elaborate on the Facebook's financial results but only on the market action.

Firstly Smart Money's actions:

                                                                   source: Simple Digressions

As the chart shows, although Facebook shares are up 57%, Smart Money has been selling heavily in the reported period (down 32%).

Now Big Money's action:

                                                         source: Simple Digressions

Big Money started to correlate with the broad Smart Money index in October 2013. Since that time the Big Money index has been falling. As you can spot, the most impressive movement was at today's session.

Conclusion: Facebook shares are another example what Smart Money does. The late stage of the bull run on Wall Street is being used by the big players to sell as many shares as possible.

Update on Smart Money

Two charts below show the action of Smart Money in the U.S.
The first one shows the general Smart Money index:

                                                                             source: Simple Digressions

The crucial thing is that Smart Money has been selling out the shares since July 2012. This action has been taking place during the quite impressive bull market run. While the majority of the public was very busy in buying into the late stage of the bull, Smart Money was doing the opposite.

Well, but here is the next part of the story:

                                                                             source: Simple Digressions

Big Money is that part of the Smart Money which is active at the last stage of the daily session (to be precise - the last one hour of the session). This group of the players started to sell their holdings in May 2013, nearly a year after the general Smart Money. Big Money participation has added an additional impulse to the selling pressure initiated by the Smart Money in general.

Conclusion: presently Smart Money, together with its Big Money component, is selling the U.S. shares very intensively. While I do not have any slightest idea whether this combination triggers the bear market in stocks one thing is pretty obvious for me - this market seems to be matured for the correction of  at least 20 - 30%.

This Rarely Used Indicator Generates WARNING for the U.S. stock market

Has anybody heard of Skew Index ?
Skew Index is a risk measure  (quite different from the popular VIX index) published by CBOE. Without details (for those interested the details are here) this index measures the risk of a very rare market event, e.g. stock market crash or another black swan event. Let us look at the chart:

                                                                source: CBOE and Simple Digressions

Look carefully at the blue spikes of the SKEW index. During the on-going bull market, shortly after SKEW index spikes the relevant corrections took place. Presently the SKEW index value is around 130 - it is a very high reading meaning a very high probability of the spectacular event.

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).