Sunday, December 23, 2012

CTS Spotlight Blog for December 21st, 2012

Hello and welcome back to CRI's CTS Spotlight Blog.

12/21/12: Well the world didn't come to an end on Friday so now back to reality. Interestingly, as we approached the significant date we saw both 'fear' currencies (US Dollar & Jap. Yen) continue to sell-off. The dollar is now at key support so it should be interesting to see where we go from here. Conversely, the Yen has broken a well defined uptrend line and Asian stocks have continued to rally smartly off that reversal. One could argue that the current 'fiscal cliff' concerns have acted as a natural break on the current economic cycle. Should that be the case, and we get some sort of resolution, we may actually be setting the stage for a substantial move higher through 2013. That is a rather big assumption at the point and I for one shall let early January's price action (the January barometer) tell us what to expect for 2013. Regardless, stocks appear strong, inflation appears in check (for now) and commodity prices are relatively calm for the time being. Enjoy your holiday and get ready for a wild 2013.


While doing my WCTS today something jumped out at me. After considering this past week's price action in two market's in particular I thought a longer term perspective was needed. After looking at the monthly charts I became convinced that something of significance ought to be brought to CRI's broader reader base - hence this week's WCTS blog post. I won't tell you the market in particular now because I don't want your personal bias to impair your judgment (those shrewd investors out there ought to know exactly what market I'm talking about by just looking a the chart and reading this weeks CTS). 

Anyway, on to the analysis. The chart to the left above is a monthly continuous contract for Nymex Crude Oil. It is important to note that energy is a 'leading' commodity. Often the broader market gets its' ques from energy prices. Once energy prices started to rally, they basically dragged the rest of commodity land (and price levels within our society) higher with them. Notice the dramatic run up in price through the period from 2004-2008 (about 4 years). Notice too the long term trend line (drawn off the significant lows). It was incredible to watch price triple what it was from the panic lows in January, 2007 ($50) up to its peak (near $150) by mid 2008 - but it did. It was just as stunning to watch the whole thing fall apart to hit a low (around $40) by the end of that year - but it did. If you had suggested such a thing prior people would have thought you were nuts - but it happened! Indeed, there were very few who could see this whole thing from start to end, but those who did catch either side made a handsome sum (regular readers will recall CRI's recommendation to buy Dec, 2008 $90 puts at $2,500 in June of 2008. That option went to over $50,000 by time all the dust settled in December). Crude oil's 'bubble' burst and it burst hard. Once it had broken, the question really was, where would it bottom? While yes the market did move beyond the long term trend line on its inital burst lower, it is interesting to see how we have basically gyrated around that long term trend line over the past couple years as the dust settles from the disaster. Additionally, it is interesting to see how the original significant monthly breakout price ($80) has acted as a magnet during the current market confusion.

So now that brings us to the chart on the right. If someone had told me five years ago that this market was going to triple (in five years) I would have thought they were nuts - but it did. I am sitting here today, wondering aloud...."if a 'leading' commodity (like energy) can do a massive 'V' top, is there any reason why this 'lagging' commodity (fear proxy) can't?"... If one draws the same long term trend lines (as Crude's) we see that current long term price support for this market is around $1000 or 40% below current levels (40%!!!!!). Additionally, price broke out on a monthly basis from around that same level when it started its run into late 2009. It took the energy market less than six months to correct back to that long term trend line - could the same thing happen in this market??? Unfortunately, I have been playing this game for so long I already know the answer, the question for me now is not 'if' but 'when'. Considering WCTS just gave a significant weekly 'sell' signal on this market, I would be very reluctant to own any asset related to this market for at least the next year or so...Furthermore, Like CRI's recent foray on the short side of the bond market (through TLT put options) I do believe there is an OnlyDouble's trade here and shall be looking in earnest for acceptable options to consider over the coming weeks.

Have you figured out which market it is, yet??? 
blow up this script to see the answer........................................ gold

That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
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Sunday, December 2, 2012

CTS Spotlight Blog for November 30th, 2012

Hello and welcome back to CRI's CTS Spotlight Blog.

11/30/12: While the US dollar index itself was little changed this past week, the Japanese Yen was anything but. After breaking down through support just two weeks ago, the Yen is in virtual free fall as talk from the BOJ (about a need for further stimulus) and a general 'risk-on' tone have both helped to bring the Yen down dramatically. In almost reverse fashion to Europe though, regional stock indices look rather bullish in the face of Yen weakness and is the focus of this week's WCTS Spotlight. Elsewhere, it is interesting to see the historical relationship between the grain and meat markets play itself out. Grain prices look rather weak and conversely meat prices look strong - is a spread trade in Oats/Hogs developing?


As a follow up to recent posts regarding how poor Europe looks from an investment landscape, I though this week we ought to take a look at Asian markets and what the current currency gyrations may be implying for the region in general. Interestingly, the Japanese Yen has acted almost opposite to that or the Euro. Unlike the very weak Euro-Fx, a strong Yen seems to be what is holding this region down. Considering how dependent Asian markets are on manufactured exports, it shouldn't surprise anyone that a strong Yen is literally killing Asian companies. As we have pointed out in the past, currencies are often driven by short term interest rates (and more importantly, the public's perception of how secure those returns will be). When the US economy collapsed (and with it US short term interest rates) there was no longer a premium to hold US paper over Japanese. Additionally, many investors have come to believe North America will have to go through a 'lost decade' similar to that Japan just went through. Given this backdrop, it was no wonder investors were fleeing the US dollar and running into what it perceived to be the only other reliable 'safe haven' to park their money. The Euro itself is simply not a viable alternative and you can only put so much money into gold. 

With the recently released better than expected manufacturing data out of China (linked pair to the US dollar) and encouraging US housing market data, that 'panic' flight into the Yen seems to be waning. Couple this with a horrific domestic economic situation within Japan itself and escalating tensions with its trading neighbors and the end result could be an equally violent move out of the Yen. The question at this point, does the weekly support line (we are fast approaching) hold? We have just filled in an important gap and have made a text book OTE (70.5%) Fib. retracement so odds are there could be a sizable bounce into the end of the year. Regardless of the short term gyrations, we ought to appreciate the simple fact that the Yen's relentless rise seems to be in check (for the time being) and local economies seem to be cheering the news.

Looking at the price charts of the individual countries in the region we see that indeed, stocks are pointing higher, not lower here. It is interesting to see Japanese stocks turned violently higher on the break in the Yen and until the Yen itself shows signs of turning I believe the wind is at these countries backs not in their faces. I do see a nice little gap on the Nikkie (quite a bit higher than where we currently are) that suggests once filled we ought to see some cooling down in price appreciation. That gap seems to correspond well with the other countries upper channel boundaries and those channel lines shall represent my collective resistance zones going forward.

As has been pointed out elsewhere, we are now comfortably into a very healthy season for stock investors. Typically we enjoy a 'Santa Claus' rally into Christmas and with the US Presidential election, we have an added seasonal boost into January's inauguration.....

as one of my trading partners used to always tell me, "make hey while the sun is shining my boy...."  

That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
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