Terence Chan's  Instablog

AMSC has been known as a wind power play but what is clearly heating up is its disruption-resistant superconductor wires for smart grid utilities. According to the Alternative Energy Stocks Blog:

"American Superconductor’s (AMSC: Nasdaq) wires run underground inside cable systems that are less susceptible to nature or terrorist attacks than the current technology. A high temperature superconductor has almost no resistance to the flow of electricity and is imbued with the capacity to transmit 150 times the power of copper wires. A key characteristic of AMSC’s superconductor technology is its ability to self-heal by automatically isolating dangerous power surges. The feature allows a smart grid to survive attacks and natural disasters without impacting the rest of the chain."

As for major developments for this potentially disruptive technology:
"AMSC and LS Cable, Ltd., a Korean manufacturer, recently agreed to co-market 10 kilometers of commercial superconductor cable in power grids over the next five years. LS will sell cable systems containing the wires to utility companies across the globe.

Last month, the Tres Amigas Project announced it will use AMSC’s superconducting technology to link the three major US power grids: the Eastern Interconnection, the Western Interconnection and the Texas Interconnection. The arrangement will give renewable energy companies the means to sell power through a superconductor pipeline for the first time."
Pretty interesting huh? The chart is pretty interesting too as the flattening of the MACD near zero (sign of accumulation) and the convergence of the 32-day and 65-day moving averages (demand and supply reaching equilibrium) is like a coiled spring and we could have a sizeable move in the next few days, most likely to the upside. It has also managed to maintain its gap from $28-$30. Clearly a stock to watch.

Disclosure: No personal position

Gold broke out this morning to a new record high, after leaders of the Asia Pacific Economic Cooperation (APEC) forum pledged to maintain stimulus until the global recovery is in firm footing. From Bloomberg:

"Stock markets rose around the world and the dollar began a third week of declines after Asian leaders pledged to maintain measures to stimulate economic growth. Commodities gained as gold jumped to a record... Copper for delivery in three months advanced $165 to $6,685 a metric ton on the London Metal Exchange, $47 away from its high for the year. Aluminum, nickel and zinc also gained. Gold for immediate delivery rose 1.1 percent to $1,130.92 an ounce, after earlier reaching an all-time high of $1,133.20. Crude oil added 1.4 percent to $77.45 a barrel in New York. "
Looking at the technicals, Gold has broken out of its channel trading range, and if gains are sustainable in the next few trading sessions, we could see a price acceleration towards the $1,180 per ounce level at the minimum ($60 range of price channel added to channel high of about $1,120). Gold has benefited either way, be it inflation (due to continued stimulus and money-printing) or deflation (double dip in economies), and it looks like this accelaration scenario is very well possible. A failure to hold above $1,120 per ounce however would classify this as an exhaustion move, and we may very well see gold correct to the $1,080-$1090 per ounce range as funds liquidate.

The US Dollar Index (USD) is currently trading at $74.90, which is a new low as it is slightly below the $75 ($74.97 to be exact) support level from October. A lot of people, including me, have called for a potential US dollar rally, but I have basically given up timing it a month ago. The Fed train's chuggin' along and the US dollar is along its path... anyone wanna bet their dollar on a double bottom??? Let's see if the breakdown is sustainable.

Markets sort of paused yesterday after six straight up days (except for the Dow, up another 0.20%). So what to expect now? If we do get a slight (3%-5%) correction from here to consolidate recent gains, it is important to see if the 1,066 and 1,047 levels hold, which are the 32-day and 65-day moving averages respectively. If these levels hold, then we could see a year-end rally as under-invested portfolio managers catch up with their buying. Quoting Jeff Saut from Raymond James:

I haven't done this update for a while, but the Weekly Leading Index from the Economic Cycle Research Institute (ECRI) continues to indicate a "V"-shaped recovery for the US economy. The Coincident Index has just come off the lows, while the Lagging Index is doing what it should do and is still in the doldrums. For those not familiar with ECRI's approach you can check it out here.
My belief in the validity of these leading indicators is predicated on my belief in cyclicality. While economic cycles are not exactly identical to each other (you could have different levels of employment, inflation, productivity, interest rates), they are still composed of peaks and troughs, and right now, as shown by the Coincident Index above, we are still nearer to the troughs. On the other hand, the pundits that are touting a "new normal" wherein they see the economy experiencing sub-par growth for years on out (due to the obvious reasons they throw out like a paradigm shift in consumer spending, leverage, etc) are calling into question this concept of "cyclicality". My response to that is so long as the US Treasury and Fed are running the show, its the same asset bubble and bust cycle all over again. Some things never change.

While I am looking for a possible stock market correction in the short- to medium-term, what still makes me unsure of this scenario is the movement in the bond markets. The signals that the bond market is giving off through the daily and weekly TLT charts is that of inflation... a very good signal if you are an equity or commodity bull. If the bond market breaks down from these levels, this might wipe out my stock market correction scenario entirely.

The daily chart of TLT below shows a breakdown of the channel range support level, and now two trendlines (short-term and intermediate) serve as resistance levels. What difference a week makes since previously I was looking for TLT to respect the channel lows, and suddenly it has broken down.  It is short-term oversold though, so we could see some rallies (along with a stock market correction). But anything is possible and we could just see a momentum move downwards from here.

The weekly picture shows even a more dire situation for bonds.... a third MAJOR trendline had already been broken in April, and this will serve as a bigger overhang than the prior two resistance zones we mentioned on the daily.

A breakdown in bonds would force people out of fixed income reluctantly, and shift their investments to stocks and commodities as the inflation trade would be in full force. We should thus watch bond technicals closely.

Meanwhile, Jim Jubak has an article on how the details of the upcoming bond auction indicates that the Treasury is getting ready for higher rates:

"First, the package is a very clear effort to extend the maturity of U.S. debt. Right now the average maturity of the U.S. debt as a whole is just 53 months. The Treasury has told bond dealers that it would like to extend the average maturity to 74 to 90 months.

A longer maturity means the Treasury gets to lock in today’s low interest rates for a longer period of time. Extending the average maturity by somewhere between almost two years and about three-and-a-half years is exactly what you’d expect Treasury to do if it was convinced that interest rates were going to start climbing within the next year or so. Time to lock in those low rates, you can hear Treasury Secretary Tim Geithner saying.

Second, those aren’t just any 30-year bonds the Treasury is selling. It’s selling 30-year inflation protected bonds, or TIPS (Treasury Inflation Protected Securities). The Treasury has told dealers that it will replace sales of 20-year TIPS with a 30-year issue."