CTS Spotlight for the week of November 26th, 2010

Hello and welcome back to CRI's CTS Spotlight

11/26/10: The US dollar continues its' counter trend rally as growing fear over European debt problems and the very real threat of war has sent the market scrambling. Contrary to this, growth prospects for North America are looking better with every passing day. Yields are starting to move higher which has given int'l investors a reason to own American. This 'perfect storm' of pro-America/anti-international could lead to a BIG MOVE. If the bullets start flying in earnest there will may be a massive move into the US dollar as traders 'wait-it-out' in still the world's only true reserve currency. Couple this with European default fears and it makes for a not so fundamentally sound int'l market. On a brighter note, two areas that continue to look good are meat and energy. We looked at Cattle last week in CTS Spotlight and this week we shall look at some of the energies. 

Energies

This is one area of the commodities market that has not been in the spotlight for some time. In fact, while the grains and metals have gone parabolic over the past few months, there has been a relatively quite stealth bull market going on in crude in particular and energy price in general (with the one exception being Natural Gas). This stealth rally seams to be well entrenched and based on sound fundamentals. Inventories have been steadily declining while the economy is slowly improving. Couple the resurgent US economy with a forecast for a much colder North American winter and it is not surprising to see that this sector has been steadily moving higher of late. Should prices move in the fashion of other commodities rallies of late, we may see energy prices move back into the center spotlight. 

Ironically enough, the Fed's injection of $600 billion dollars into the economy over the coming quarter may be entirely gobbled up by rising energy costs. Not only will the rise counter act the Fed's injection but it will further enrich the Arab nations at the direct cost to US taxpayers.......you just can't write better fiction than reality.

Regular readers of CRI publication should be well aware of the Uranium bull market underway. OnlyDoubles's NewTrades subscribers have enjoyed several doubles over the past month as the junior Uranium sector has come alive on ridiculously low stock valuations coupled with increased demand news from China.

Looks like unleaded-gas prices are going back up.....ugh!

That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com 

CTS Spotlight for the week of November 19th, 2010

Hello and welcome back to CRI's CTS Spotlight

11/19/10: In a week that saw the US Fed Chairman defend his US domestic policy focused agenda (which should be the case) the long end of the yield curve has begun to rise appreciably. The US Fed's QE2 program is doing exactly what Mr. Bernanke desired in that the curve is steepening, money is starting to leave 'safe-havens' (in particular the Swiss franc) and one can't help but get the impression the general economic situation in North America is improving. While still a bit above my desired target, the US dollar has taken out the 'stops' (most recent resistance) suggesting the torrent of US dollar selling may be waning. As well, Money does seem to be leaving 'hard' assets and moving into 'soft' ones again. Enjoy the run while it lasts as this may be a trap. I say this now because as of last week all the equity markets that CRI follows are pointing higher. Not a signal in itself (when this happens) it is often a contrarian sign of the end of a sector's move. In other commodity markets, grains prices look 'toppy' while beef prices look strong. In our CTS Spotlight we look at a few of these markets and where prices may be headed.


Grains/Meats

1. Grains: The 2010 North American growing season was dominated by news of a European grain crisis (specifically Russian wild fires and talk of export bans). Most interesting here, wheat prices (upper right) have not moved higher since the initial news of export sales bans out of Russia. In fact, one could argue prices will have a very hard time moving higher in the coming years if the current triple top isn't broken soon. Prices just this week broke back below support and are now pointing substantially lower. The weakness in wheat prices is starting to have a negative impact on other grains. Oat prices (upper left) have put in a nice tight double top and are testing the up trend line. Should this fail there is plenty of room for prices to fall. Aside from regular 50% retracemnents, Oats have lots of gaps to fill in. Should the selling get going in earnest, price could easily see the lows of last spring again.


2. Meats: The recent win by the Republican's in the mid-term US congressional elections was a boost for American Cattle producers in that their collective voice will be heard much more if and when the Republican's are in charge of Congress. CRI has been suggesting beef prices want to go higher for some time (even did an OnlyDoubles trade last spring being long Feeder Cattle). While prices in Feeder's are way too volatile to take a position, any consolidation might represent a potential entry. Live Cattle on the other hand is currently sitting within 1.5 points of its breakout and might represent a nice entry. Should grain prices indeed top here, one could easily see meat prices move higher as both upside technical targets exist and beef prices in general have underperformed other commodity prices appreciation over the past ten years.

That steak you like so much is gonna get a bit more expensive :(

That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com 

CTS Spotlight for the week of November 12th, 2010

Hello and welcome back to CRI's CTS Spotlight

11/12/10: In a week that saw little change to most commodity trends, the US dollar bounced enough to trigger some aggressive stops. While we are still a bit above our downside target for the dollar index, one can't help but get the feeling a dollar rally/commodity sell-off is very close. Additionally, we have been looking for the market to rally into the US mid-term congressional elections and we got it. Now that the event has come and gone, a period of consolidation shouldn't be too unexpected. Interestingly, Japanese stocks have bottomed and now join the rest of the world's equity indexes in rally mode. This is probably because Japanese exporters see a US dollar bottom/Yen top coming. However, the fact that all world stock indexes are moving higher (in unison) suggests the equity bull run is very near an end.  

Japanese Stocks (Yen vs. Dollar) 

A few weeks ago CRI examined the Japanese Yen and suggested we were in the late stages of a Yen rally/US Dollar sell-off. So much so that and one ought to consider taking the other side of the trade when it eventually reverses. While the Yen's price action isn't quite bearish yet, there are a few signs that the Yen Bull might be loosing steam.

If one looks at stocks as a harbinger of growth to come, then one must clearly get the message that the world economy is expanding once again (S&P 500 hit new 52 week high last week). From Europe to the Americas to Asia, growth is once again quite alive. It is interesting to see that while the US economy was faltering, money was moving in earnest into the Japanese Yen. This 'flight-to-safety' not only pushed to Yen to multi-year highs vs. the dollar but it also destroyed any profits Japanese exporters enjoyed while selling their product into the US market. Now that the US economy (and with it the primary world growth engine) seems to be back on-line, one can clearly get the feeling money is starting to move back into the US. As well as the dollar index breaking its most recent resistance point (and associated stop level at 78.364) the Japanese stock market has finally put in a respectable bottom. Additionally (as CRI has pointed out over the past few weeks) bond prices are breaking down (and inversely interest rates are going up). 

So if one puts all of this together, it would seem rather clear that the US Fed's policy (flooding the market with liquidity until the US economy regained some traction) has worked. The Fed's finesse of the yield curve has induced a steepening of the curve. Long bonds are topping and equities are moving higher on this.
 

Now for the problem: Almost every time I have seen ALL the world equities rallying at the same time, we are very close to a top. The fact that Japan wasn't participating was actually good as we here in North America could quietly move higher (under the proverbial radar screen). This is no longer the case as the public is starting to pay attention to the euphoric moves higher in stocks. Unfortunately both rising interest rates and already high commodity prices shall act as a break on too much more of the equity rally......

So enjoy the rally while it lasts and understand that we are getting very late in this world economic expansion so much so that even markets that shouldn't be going up are starting to...

That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com 

CTS Spotlight for the week of November 05th, 2010

Hello and welcome back to CRI's CTS Spotlight

11/05/10: In a week that saw both US mid-term Congressional elections and the US FOMC meeting (among other important trading events) the markets has taken a decidedly bullish stance heading out of the events. The market got what it wanted; both a market friendly Republican controlled US House of Representatives (which ought to put a break on out-of-control Democrat spending) and an additional guarantee of $600 billion in bond purchases by the Fed....let the party resume! We shall examine the Fed's plan and how the charts look in this weeks' CTS blog spotlight so be sure the check that out. Interestingly, Japan's equity index has finally started to move a bit higher. Should this market start to rally in earnest we will know indeed the end of the run is close at hand.

US Bond market - Fed action

In its recently released minutes to the Early November FOMC meeting, the Fed said they are prepaired to inject another $600 billion dollars into the US economy through bond purchases. Specifically, they said they will be targeting the 2 to 5 year US government bonds in an attempt to both steepen the yield curve and 'jump start' the US economy. This week then I thought as a follow up to last weeks' European Bond charts, we would look at the US bond market, which durations are moving and what the yield curve looks like now.

(Please refer to charts above)

Interestingly, the US 30 year bond is NOT participating in the latest bond market rally. Is this what the Fed wants? Notice too that the 10 year bond is starting to roll over. Since we now know there will be another 600 billion in Fed purchased, it is not surpriseing to see both the 5 year and 2 year markets moving to new highs. So then what does this action do to the yield curve?

Here is a current graphical representation of the US government yield curve. Notice how steep it is? This is a healthy growing economy and it is no surprise that the stock market is happy and moving higher. The US government is giving the public a $600 billion check and the market is putting it to work. The problem (if  and when comes) will be when the curve inverts (this is where short term rates are higher than long term rates and is a very good tool at timing recessions). This simply is not the case currently.

Conclusion: The Fed is getting what it wants, the economy is slowly turning....lets hope they know what they are doing.
(oh and by the way.....I have total confidence they DO NOT but enjoy the flood of liquidity while it lasts)


That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com