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July 20 2013 Weekend Market Comment

July 20, 2013 – My trader friends in London are dying in the heat wave and I am sure on the streets of Manhattan the pavement is radiating heat and that smell of years of trash left on the street corners is wafting over the city. There people stare in to window mounted Air Conditioners and pray the machine does not die. But here in the West Coast of Canada it is Sunny cloudless, 24C and nearly ideal weather it is all amazing. So get out on the patio and raise a glass of beer.   

If you have been following my trades your pockets a full of money – lets face it life is good. I predicted this bull market was coming in The New Momentum, and the world is pouring money into US equities, commodity markets are dead and bonds are toast -- just like it had to be.  This is the beginning of an American long-term secular bull market and the good news is going to be around for a while. In a word I am euphoric.  

The bad news is that euphoria is a bad sign. In this case we are probably a bit overbought, and a dip here would be par for the course. You can re-read Buy Now? and see that again we overbought and this moment is not the time to put on big new positions -- in fact a little pruning and profit taking is in order, I am rotating from my really leverage speculative bets into my more conservative choices.

First look at the “Green Arrows” chart, wow are we exceeding all prior highs on the MACD at the top of the page. 
(click any image to enlarge)

Next I have a simple chart of the market with a stochastic RSI on top. As you can see in the past once you are up in that green overbought area too long there is a little pull back coming. 

Here is a version of the VIX index, this is called the fear gauge, by drawing two lines I have created a sort of a fear and greed meter. Be greedy when others are fearful and fearful when the market is greedy. As the VIX drops near 12 the market is too greedy.

OK so a mild fluctuation is coming, but is it going to be a broad sell off? Very unlikely.

Look at the YP primary Sell it is moving along nicely.

The NYSE high low forces are back moving up . . .

The NYSE stock above 50 day average still has room to run higher

Check out FedEx, when transportation companies do well, everyone does well.

So a lot of the stock rally is dependent on what the Federal Reserve does in Washington. Well you can listen to thousand experts but there is a chart that will tell you exactly what is going to happen. This chart is the Employment rate in other words the number of people working. At the last peek it was nearly impossible to find workers. With the 2006 mass-housing boom -- who wanted to flip burgers when they could get twice that pounding nails. In fact employment in 2006 was so robust it actually was hurting business and send work offshore.

As you can see the market is getting stronger and the US must stop the stimulus. When that juiced market comes off this fall we may have a real good pull back for now expect a good "buy the dip" opportunity very soon.

The US Tech Wreck
It all kicked off with IBM missing its numbers, then a few networking stocks drooped. Then Nokia sale figures were a huge miss followed by news that Blackberry is slashing prices. Between a maturing of the cell phone market and very slow PC sales, technology is not the place to be.  In this rally only technology stocks are looking a little weak.

I hate this company in two different ways;

First -- Microsoft products are slow cumbersome, their licensing policies are unfriendly and most of all there operating system is as reliable as a Russian built car.

Second -- it is a bad investment and has been for a long time. If you bought shares in this massive tech firm any time after 1995 your money was put to sleep, the stock goes nowhere. Activist investor ValueAct has been in talks for a few months about getting a seat on the technology company’s board, according to sources. Microsoft had been resisting, but its recent performance—it lost $33.7 billion in market value on Friday—puts more pressure on Microsoft and its CEO Steve Ballmer to answer to investors. Before last week a number of “experts” had a buy rating on Microsoft expecting big things from the Surface tablet, cloud computing and the introduction of Windows 8. Also many connected some dots looking at HP as this year’s big comeback story -- they made the leap that Microsoft might too.

The truth is people are not buying PC computers where users are forced to buy Microsoft's bloated Windows operating system. Windows 8 is a disaster the only people who still buy PC are business and they don't want touch screen icons, users are getting fatigued arms pointing at screens all day. Microsoft even gave in and brought back the start button. In areas where consumers can choose, like smart phones, tablets and video games, people don’t want Microsoft products. 

You might also note that Google missed earnings and also had a sell off, but there is a completely different vibe about Google.  Their Android system is gaining users, it is fast and relatively worry free and is so adaptable we are seeing Android not just in smartphones but now in car sound systems, smart TVS and even TV media players. Google controls the markets it is in and Microsoft can only say that about the dying world of PC operating systems.

What Works Now

Iron Mountain
This company is in a great business. They store documents and they destroy documents. This is a great business and if you can create a solid name brand you become the go to supplier for these services. Major companies, banks and government office do not want to use the low cost supplier when it comes to destroying information. But when a company is in a great business (like Visa is or Goggle is) everyone can see it and everyone wants a part of it.  However sometimes some little thing scares people off an otherwise good firm and you can get the stock on sale. In this case Iron Mountain tried to get the same tax treatment as a real estate development company. It may be a while to we hear if that is going to be accepted but the stock has been on a fire sale and it looks ready to rise regardless of the tax ruling.

Investing Globally
Raise your hand and have a big smile on your face if you followed me into the ETF FM that is investing in the new Frontier Markets. FM, tracks these new oil producers and sweatshop havens in places like Nigeria, Pakistan, Kenya, Oman, Kazakhstan, Argentina and Vietnam. Go baby go . . .

Tata Motors did very well this week – up over 4% since I recommended it. Their icon brands are Jaguar and Range Rover but they also make inexpensive cars and even the bus pictured here. Now the world's 7th largest automobile company.

Japan --  things are booming for DXJ because Japans Stock Market is the world’s best performing this year – UP 40% since January. The Prime minister is so popular with economic reforms that his party looks poised to win in both the upper and lower houses in Japan, something not seen in many decades. DXJ was up 1.5% this week, but expect it to do very well in the next month.

Germany -- Wev have vaze of making you very profitable! --- Hope you put uber bucks in to the German ETF EWG way up again this week. 

Philippines - EPHE should enjoy a steady rise for the next few years as China is losing low-end manufacturing to this island. This is the next China. Same slave labour, better quality control and simpler legal structure.

Oh Boo Hoo
The longrunning insider trading investigation of Stephen A. Cohen and his hedge fund, SAC Capital, has finally come to a head.

The US Securities and Exchange Commission (SEC) has charged Cohen with failing to supervise two senior employees and prevent them from conducting insider trading. If found guilty, Cohen could face “financial penalties, a supervisory and financial services industry bar, and other relief,” according to an SEC press release. The charges come just ahead of a legal deadline government was facing to file a suit against Cohen based on the evidence gathered. Other regulatory organizations—such the Federal Bureau of Investigation (FBI)—may still file additional, possibly criminal charges.

The SEC has had a busy day. Earlier today, it rejected an $18 million settlement that its enforcement division had struck with hedge fund investor Phil Falcone and his firm, Harbinger Capital Partners. The SEC accused Falcone of market manipulation, borrowing from client money to pay his taxes, and giving special preference to certain investors.

Cohen's marketing material says he is the best manager in the business -- but his defense so far has been he has no idea what his traders are up to. Well Stephen -- which is it?

Enough Said
Now get out there and spend some of that money I made you and enjoy some summer fun