Market WrapUp (11-25-03)

Financial Sense Online ^ | 11/25/03 | Ike Iossif

[arete]

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Today's WrapUp by Ike Iossif 11.25.2003  Mon   Tue   Wed   Thu   Fri   Archive

"This Time May Be Different"

This is going to be a rather short commentary because I really find only one thing that in my view is worth noting.

Despite that the SP only declined about 2.8% from its 11/14 high of 1063.65, to its 11/21 low of 1031, many of the indicators we follow reached oversold levels that in the past few months have been associated with "entry points" which yielded respectable returns.

For example the McClellan Oscillator, reached the same level that for the past 12 months has marked bottoms of importance.

The Quantifiers held  at the rising support line, and bounced strongly.

The "Quantifiers" are a composite of our core indicators. They move from +26 to -26. These are not overbought/oversold oscillators. A reading of +26 means that the market's technical condition is as positive as it can be, and vice versa. In addition, it is great tool for predicting turning points, and volatile moves. Those who follow our technical work  know that when the Quantifiers have little, or, no change of two or more consecutive days, then within 1-3 trading days we get a move in the SP500 in excess of 1.5%, and a move in NASDAQ in excess of 2.0%

If the overall bullish environment remains intact, one would expect that the indices will rally from current levels, imitating their previous behavior of the last 3 months, resulting in yet another leg up. Is the overall bullish environment still intact? Let's take a look at the inflows/outflows charts.

Notice that last week we got a negative cross-over,  outflows exceeded inflows. We did have a brief cross-over in mid-July for the NYSE, which was quickly reversed (point AA') If this turns out to be the case again, then Friday's action  by both price and indicators would represent yet another buy signal, and we would expect the indices to embark on another advance. However, if we don't get another  reversal, and outflows continue to exceed inflows, then the decline  is not over, and in fact it can accelerate rapidly. We have no way of determining whether the equity markets will get another liquidity infusion this week, reversing the cross-over, we can only report to you what the liquidity situation is. This week could mark the beginning of another advance, or, the long awaited demise of the rally that started last March. Given that this is a holiday shortened week,  we may not see a dramatic move until the following one.

One thing that needs to be kept in mind is that during times of negative liquidity, the markets do bounce when they get oversold, but because there is not enough liquidity to sustain the bounce, it ends up being a few days affair. The markets were oversold as of Friday, thus , Monday's strong rally was in the cards.

In summary, last Friday many indicators reached levels that in the past few months have generated reliable "ENTRY" signals. However, this time it may be different,  liquidity has turned negative and unless it quickly reverses,  we will see the first meaningful decline since last January, beginning some time next week.

All charts are property of Aegean Capital Group, Inc.
All Rights Reserved, Reproduction without written permission, is strictly prohibited.

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[arete]

One thing that needs to be kept in mind is that during times of negative liquidity, the markets do bounce when they get oversold, but because there is not enough liquidity to sustain the bounce, it ends up being a few days affair. The markets were oversold as of Friday, thus , Monday's strong rally was in the cards.

In summary, last Friday many indicators reached levels that in the past few months have generated reliable "ENTRY" signals. However, this time it may be different, liquidity has turned negative and unless it quickly reverses, we will see the first meaningful decline since last January, beginning some time next week.

Liquidity has turned negative. I think that just may be BIG news. Call Fannie. Call Freddie. Get Sir Alan on the Batphone.

Richard W.

[arete]

Market WrapUp is Delivered!

Good Roger Arnold show today. Recommended listening.

Today's Roger Arnold Show

Richard W.

[arete]

Hope everyone has a great Thanksgiving holiday.

Richard W.

[Al B.]

Friday's action by both price and indicators would represent yet another buy signal, and we would expect the indices to embark on another advance. However, if we don't get another reversal, and outflows continue to exceed inflows, then the decline is not over, and in fact it can accelerate rapidly.

LOL!. The market may go up. It may go down. What a revelation.

[arete]

The market may go up. It may go down

Very important to those sensing a change in trend and a confirmation of that change.

Richard W.

[imawit]

HEY ! Sideway arrows, I’ve never seen that before.

Liquidity has turned negative.

Does that mean there is no money, just debt ?

Have a good one, see you when you get back.

[arete]

Does that mean there is no money, just debt ?

You can buy a heck of a lot more of things and good times with debt than you can that dirty old money stuff. Real money is so old school. You have a good one too. Talk to you in a few days.

Richard W.

[Al B.]

Very important to those sensing a change in trend and a confirmation of that change.

I was just funnin' ya.

Commercial demand for loans has been in the toilet since 1999 and shows no sign of a rebound. M3 rate of change has been collapsing for the last 5 months. THAT'S the confirmation I need for an impending change of trend.

The stock market is on borrowed time. Greenspan is running out of string.

[arete]

I don't know. I haven't yet figured out what part the GSE's are playing in all this. No doubt they are liquifing the housing market but I'm not sure how it fits into the big picture and more important, how big a factor that will be down the road. Roger Arnold said today that deflationary signs would show up in 90 to 180 days and the FED would resort to unconventional means as well as lowering short end rates. Inflate or die is still in play.

Richard W.

[imawit]

Got another good one, CBJ. I see it doubling in no longer than 3 months. The other 3 I gave you have doubled in less than 3 months and this is a catcher-upper.

[Soren]

Russell likes CBJ. I haven't followed this stock because they are a hedger. Perusing yahoo news on CBJ I notice:

• they plan to close out their hedges by YE 2004
• $2.4M in losses due to non-hedging derivative adjustments (not sure what that's about)
• 500,000 oz expected to go to 700,000 when Suriname property comes online.
• 225M shares
• properties in Quebec, Guyana, and developing Suriname.
• total production costs $310 (9 months 2003)

Doing a back of the envelope calc assuming POG=$400, $310 production costs (even though new project probably has lower costs because I believe it is an open pit, however, costs have been increasing on existing projects), elimination of hedges (so spot price is realized), 700,000 ounces, P/E of 20:

(400-310) x 700,000 / 25M shares x 20 = $US 5.04 versus $US 3.30 currently. At POG $450, $7.84. At $500, $10.64. Not too shabby. I don't own any and only know what I've learned in the last 20 minutes.

What do you like about them in particular?

[Al B.]

Roger Arnold said today that deflationary signs would show up in 90 to 180 days...

The signs have been there.  14 rate reductions in the last couple of years and the Feds STILL can't make businesses borrow.

Arnold may be right that more overt signs may be just around the corner.  We'll see.

A graphic from your 11-3-03 market wrap-up really caught my eye.  Something IS wrong with the Fed printing press:

[bvw]

Shortening maturites, like with the 30 year? Power factor affect on volatility inverse to maturity.

[Soren]

I should add that using current projected 2003 production of 500,000 oz and current POG=390 gives an estimate very close to the current stock price. So while I wouldn't base my investment decision on this calc, it does seem to have some merit.

[dalereed]

Looks like it's going out in foreign trade and coming back through the government bond market, keeping intrest rates far below what they should be in the current climate. They print money and it just keeps coming right back at them.

[Soren]

Double error. First typo: 25M should be 225M. Second, I used 250M when I calc'd the numbers, so the projected share prices are lower than they should be. Who knows what the hell else I did wrong. Too tired to look into it any further.

[imawit]

Purty nifty calcs there.

I see your heavy into fundamentals on gold shares. I'm going to look this over carefully because I have just been using technicals but don't mind getting more fundamental.

I've been riding BGO, CDE, GSS with less than a tenth of each in qty of these in HL & FCX (meaning less than 10 shares of HL & FCX for every 100 each of BGO, CDE, GSS) for a few months now and the gains have been astronomical.

CBJ has better market technicals here and there than these 3 which have beaten it by a bunch. I figure it just isn't popular yet but it will be.

What I also do is compare where they are now with their 97 high to see how much head room they have, book value and market cap. That's why I think it's a go getter and is lagging the other 3.

ps: I'm in CA and have a few more hours to go until shuteye to eyes wide open.

[imawit]

There is some very major up/down check mating going on in Asia right now and it looks like the dollar is on a new down leg.

By the way the stats came out today on sales of US treasuries and the major note is that Euro guys and Asia guys are deserting by 10's of Billions. As you can see, I'm playing the momentum as well as basic global fundamentals.

[arete]

Fannie, Freddie Raise Home Loan Limits

They are just going to keep changing the rules and pumping more and more liquidity into the real estate bubble. No down payment loans have now become common and I just heard something new about "less" than no down payment whatever the heck that is. Next will be 50 year interest only and then intergenerational mortgages. Anything to keep the masses buying and trading homes. No, this battle isn't over by a long shot. The FED is in a death match and they are willing to take everyone down with them if necessary.

Richard W.

[Soren]

I just do that fundamental calc as a reasonability check. I rely on a combination of FA, TA, and also just trying to get a feel for where the buzz is. May look further into CBJ. Just the fact that Russell likes it is enough to get my attention. The six he mentions frequently are BGO, GSS, CBJ, WHT, EGO, CDE. I own WHT, BGO and GSS. I rode CDE up from under $1, but sold it too soon (got worried about their debt). Don't know anything about EGO.

I've been holding a good chunk of DROOY since about $1. I was looking at the gold/rand chart tonight, and it doesn't look bullish to me, but I'm not a TA expert. So, I'm thinking about lighetening up on DROOY a bit. OTOH, DROOY is one of those that is really lagging, and maybe due for a bigtime comeback if the POG/Rand breaks higher.

One pitfall about comparing to previous highs is share dilution.