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 

CTS Spotlight for the week of October 29th, 2010

Hello and welcome back to CRI's CTS Spotlight

10/29/10: We have finally made it to the US mid-term congressional elections (to be held this coming Tues. Nov. 2nd). The market has priced in a Rep. party victory in the House, the question now remains will they take the Senate too. Stocks are generally happy (with the notable exception of Japan) and look to continue their recent rally. Commodities in general are strong and until we see a discernible bottom in the dollar, that trend has no reason to abate. It has been quite a run since Aug. (for example, CRI's OnlyDoubles has had 3 doubles in the month of October alone!) but there are early warning signs of the end of this Euphoria. CRI's DI index is looking very toppy and bond markets in Europe have started to break down (please refer to this week's CTS Spotlight). Should the US Fed's 'shock & awe' quantitative easing indeed work, then one might expect to see serious deterioration in bond prices which will then ultimately lead to a deterioration in equities. We are not at that stage yet, so enjoy the top of the market while it lasts.

European Interest Rates:

While growth within the US is still in question, there are clear signs that the bond market is starting to price growth back into the equation in other parts of the world. Specifically today, we look at two big European issuers of debt - Germany and Britan. Both bond markets are clearly in long term bull markets (lower charts) but there are signs of the bears taking control in the short/medium term (upper charts). 50% retracements will bring both markets back into long term support areas so those fixed income investors out there, be patient and wait for yields to raise a little more before locking in.

Historically low 10 year US treasuries?

 

Every once is a while I like to look at really long term charts just to put where we currently are in historical context. Here then is a 200 year chart of US Treasury yields from back in 2002. The most recent chart hasn't changed that much other than yields are still falling. 

 

While one can draw many different conclusions about government yields and the development of a country, there are some basic ideas we can take away from the long term trends.

1. The combination of the 'baby-boomer' generational influences coupled with a peak in world socialism pushed inflationary pressures and thus yields to historically anomalous levels. 

2. The simultaneous unwinding of both of these significant market forces may bring the market right back to where it started. Baby-boomers's demand for hard/fixed-income assets shall dominate while current 'emerging market' politics/economics have all but crushed the gains of the international socialist movement. Trade union, what trade union?

The more things change....the more they stay exactly the same....

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 October 22nd, 2010

Hello and welcome back to CRI's CTS Spotlight

10/22/10: In a week that saw the US dollar bounce, many if not most commodities took a breather from the torrid pace that has been set over the past few weeks. Considering the significant fundamental event on the horizon, it should be of no surprise to see a proverbial 'calm before the storm'. Interestingly, only the Nikkie still remains bearishly pointing. My hunch, once Japan's stock market starts pointing higher (and thus making every stock index followed bullish) we will know that the equity rally has almost come to an end. That hasn't happened yet so enjoy the mini-bull in your neck of the woods while it lasts. Of particular note this week, Live Cattle and Wheat are starting to show signs of reversing, is this the beginning of the end for the grain rally? 

Wheat & Live Cattle

The late summer saw a dramatic rise in the price of grains. Wheat for example, moved from a low of $4.5/bushel to almost $8/bushel in less than three months. But that bullishness seems to have evaporated for the time being. Indeed, Wheat prices began to break down three weeks ago when prices traded back below 647. CTS now has a short trading pattern working (where one ought to be short from that 646 area with corresponding stops just above the recent highs at or near 7.535). The 50% level for wheat currently sits near 607 for a profit potential of 40 points ($2000/contract). While CRI doesn't have a position here, CRI still expects this market to continue to correct into the harvest. Once the 50% level has been reached the next technical objective shall be to gap at $4.9 area; but we will cross that bridge when we come to it.


Live Cattle


Quit conversely, Cattle prices spent the summer going sideways and have only now started to break out in earnest. The move this past week through the significant resistance at 1.00 has cleared the way for Live Cattle prices to move into the $1.10 area if not higher. This is a classic bull flag formation and one of the easiest patterns to trade. One should be long from the breakout (at or near 100.2) with corresponding stops below recent support (in this case I would be thinking 94.50 area). The target is straight forward in that one takes the flag pole distance (in this case 100.2 minus 78.7) and adds that number to the bottom of the consolidation (in this case 87.9). One could even have an open order to sell (once you have been confirmed on your buy!) sitting at $109.3. These price patterns can move very quickly so if you missed it...don't chase it!


Summary


The fact that Wheat and Cattle have price inverse price patterns working suggests to me there is money moving in the market. Considering the time of year (specifically the seasonal tendency for farmers to bring their harvested crops to market) I think there is validity to these breakouts. 

At all times one must ask, 'is the trade worth doing?' And unfortunately in both cases, there just isn't enough of a profit margin to justify taking the risk. In wheat's case there is 40 points of profit for over 100 points of risk. In Live Cattle's case the original trade [long from 100.2, with stops just below 94.5] would have had 9 points of profit for 5 points of risk but now that the market is at 102, this trade now has 7 points of profit for 7 points of risk. 


Here then is a case of understanding where the market is going but not doing the trade. Since we have a limited amount of capital to work with (and we really don't want to loose too much if we are wrong) we have to be constantly deciding if a trade is worth the risk. One simple formula CRI uses to judge if a trade is worth taking the risk on:

Option eligible: 
If a six month option's strike price - your target price is twice the current offer for that option
Non-option eligible stock:
If your target price is twice the current market price AND your risk is less than 50%.
penny stock note: CRI tries to buy stocks that have been recently rolled back (please refer to CRI's Venture Cap Inv Model for more on this) and take a 100% risk on the trade.  This approach could only be contemplated understanding that any single trade NEVER represents more than 5% of total assets of a portfolio.

We traders spend a lot of our time just watching and here I think is a great example of just sitting patiently on the sidelines and enjoying the scenery...


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 October 15th, 2010

Hello and welcome back to CRI's CTS Spotlight



10/15/10: The British Pound has joined the bull camp as it too has begun to appreciate in earnest vs. The US dollar. Amid this orgy of dollar selling many commodity prices have hit upside objectives (please refer to this weeks CTS spotlight: Silver for more) so please take some profits and be careful. Having said that, there is still further to go to hit our US dollar bearish target and there doesn't seem to be any impetus to halt its decline until after the November elections and maybe even into early January. The Canadian stock market (an excellent barometer for commodity related stocks) has confirmed its bullish breakout of last week suggesting that commodities and commodity related stocks are still very much in the spotlight. Enjoy the rally, check out CRI's latest OnlyDoubles trading opportunities and again, please take some profits along the way...

Silver

Regular reader of CTS and CRI's other publications will recall how bullish we got of Silver last spring. Indeed, CTS has pointed out how the Silver market has been trending higher now for more than 21 weeks and most importantly, our upside target in the $24.00 area has been hit!

If you refer to the chart above you will see a very basic yet extremely powerful chart pattern explained. As the A-B-C-D pattern suggests, if the market can break the top of the flag pole formation (in this case it was just under $20 - Point B) one can feel quite confident that the market will move towards the upper channel line (in this case near $24 - Point D).

Readers will also remember CRI suggesting one ought to accumulate Silver Call options last May, when prices briefly broke through the previous high (at $19.50). Specifically, CRI suggested investors ought to take a good look at the January, 2011 $18 calls that at the time were trading at $1.75. Currently, those options are roughly $6.00 or 250% higher. Indeed, it seems quite logical for those that did participate in the trade to take some profits (smells like another OnlyDoubles trade to me).

For those that did not do the trade, forget about Silver for the time being!

Too often I find that people get most interested in a market AFTER THE MOVE. As the chart clearly demonstrates, buying now is just asking for trouble and yet it is now that the public is getting interested in investing again.....ugh!

Instead, maybe it would be a good idea to subscribe to CRI's OnlyDoubles Monthly subscription service and learn about what markets CRI expects to double going forward...

just a shameless plug......

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