Monday, 1 November 2010
WHAT THE CHARTS ARE SAYING
We have 12 bottom readings today -- a handful of them inverse issues; and 40 top readings. Momentum is still for a correction. But there does not seem to be wholesale selling coming in to the market. We still see certain individual stocks being massacred (GNW, for instance -- see charts below). But investors, as a herd, do not seem to be spooked here; of course, it is hard to spook a herd when interest rates cannot rise because the government will not allow them to rise.
The 'free markets' have never been so manipulated. When the Fed eventually does get audited, the information of fixed markets will throw the Fed out of power and will generate massive amounts of work for America's lawyers, as lawsuits against the abuse of power in a supposedly 'free' investment environment will be nauseating and devilitating.
M4 ACCUMULATION TOP AND BOTTOM WATCH LIST:
We like VVUS in our bottom list. Note that VIX is also showing us a potential bottom. ARUN is also interesting here. Double short for oil? ESI, International Educational Service, may be popping up on hopes for a Republican victory in the coming elections. I'd trade it but not expect a long-term reversal back up. There are a lot of questions about the effectiveness and the integrity of many of these 'for profit' educational companies -- the emphasis being on 'for profit', for their own profit and the profit of their shareholdsers, but NOT for the profit of their students. Degrees are looked down up by those doing hiring; and loans are heading for an even higher default rate, because of joblessness and higher interest due. HMY looks interesting. Gold/Silver stocks seem to be trying to resist sellers interests at the moment.
Top list: GNW has been burned down. HAL looks a big gnarly.
We include a few charts below of issues we think especially interesting.
|SYMBOL||CLOSE||T11 Diff||M4 Sum Plus||Issue Name|
|^VIX_D||21.2||0.484||1||CRB Volatility Index Daily|
|DTO_D||67.145||-0.366||1||Short (Double Short) Oil|
|ESI_D||64.53||0.735||-1||Intl Educational Svc|
|GAZ_D||8.16||-0.046||-1||Natural Gas ETF|
|PPD_D||60.18||0.659||1||Prepaid Legal Services|
|TSLA_D||21.84||0.088||1||Tesla Motors Daily|
|SYMBOL||CLOSE||T11 Diff||M4 Sum Plus||Issue Name|
|^BVSP_D||70,673.30||114.507||-1||Sao Paolo Brazilian Index|
|AA_D||13.14||0.069||-1||Aluminum Company of America|
|BMO_D||59.25||0.144||1||Bank of Montreal|
|COP_D||59.388||0.127||-1||Conoco Philips Daily|
|DBB_D||22.75||0.057||1||Base Metals ETF|
|DBO_D||25.325||0.049||-1||OIL POWERSHARES DB|
|EWV_D||41.735||-0.109||1||Short MSCI Japan ETF Daily|
|HMC_D||36.03||0.09||-1||Honda Motor Company|
|HQS_D||3.31||0.016||1||HQ Sustainable Maritime|
|ICN_D||26.76||0.015||1||Indian Ruppee ETF|
|ICON_D||17.5||0.053||1||Iconix Brand Group|
|JJM_D||42.35||0.1||1||Industrial Metals ETN|
|MRK_D||36.31||0.041||-1||Merk Pharmaceuticals Daily|
|O_D||34.28||0.06||-1||Realty Income Corp|
|SLG_D||65.705||0.187||-1||SL Green Realty|
|UGA_D||34.97||0.098||-1||US Gasoline ETF|
|UPS_D||67.34||0.127||-1||United Parcel Service Daily|
CHARTS OF INTEREST
GNW, GENWORTH FINANCIAL BEFORE/AFTER CHARTS.
GNW got hammered at the end of last week. Our M4 Accum indicator did call the top. M4 Sum Plus also downticked, as a good confirmation of this coming down-move.
The next day all hell broke loose. Hedge fund manager Steve Eisman told Genworth executives on a conference call he was planning to wage a proxy battle to replace them if they pursued acquisitions at a time their stock was trading at less than 40% of book value. He essentially ordered them to make stock buyback purchases with their excess capital. The stock collapsed.
SHLD, Sears Holding.
SHLD shows pretty clearly that a downtick in M4 Accum (Top Pane, black line) really SHOULD be accompanied by either a downturn in trend (Second Pane down, red line) or by a non-spike down in M4 Sum Plus (Second Pane down, black line). Earlier downticks that weren't accompanied by one of these other two confirmations turned out to be false tops, continuing on with price appreciation -- for a time -- with M4 Accum ticking back up. When M4 Accum declines and then pauses (flatlines), this can either mean a reversal up, or an attempted reversal up. Most times these attempted reversals up fail to generate enough bull-power to turn the indicator back up. But sometimes the sell-signal is false, in terms of recognizing the exact top. A downtick in M4 Accum is ALWAYS a top reading, and a good sell-signal -- it is not, however, always the last word in the price move. Using the three indicators together is most often a very good strategy in terms of timing market moves.
MRK, Merck Pharma.
Tried to top, resisted, resisted...but the resistance seems to be breaking. A good time to take profits if you have them. The stocks should trade sideways at best, or lose value over the next week or two.
Note here also the false top in early October was NOT confirmed by M4 Sum Plus. This top is being confirmed. And the stock is beginning its descent. 0% interest rates are very strong medicine AGAINST profit-taking and shorting. But TBonds are losing strength; yields are rising. It will be expensive and politically difficult for the Fed to keep wasting billions of dollars buying TBonds no one else wants just to keep the interest rates down.
ARUN. Aruba Networks.
Should have sold off and DID NOT. If MUST take out the old high, or we'll be worried about this one. But a slight push up will take it through the old high, so we're pretty positive here. Consider buying this one.
Chart is not terrible. Long decline followed by a double-bottom and a new high. M4 Sum Plus is still in the bull zone. Our thinking at the momement is that this may not be a real top -- support is at .555. We don't want that to break. The only troubling element in the chart is in the top pane, especially (orange line) the M5 3 average, which is pointing straight down. So pressure is building for selling to come in. The stock is short-term OVERSOLD (see M2F, brown line Bottom Pane); the next rally off M2F zero will tell us if there are any buyers ready to come in.
EURGBP, Euro/British Pound.
Is the Euro weakening generally (the converse question: is the US Dollar strengthening?). The Euro does seem to be topping against the British Pound.
VCI, Valassis Communications.
HMA is a picture pretty much the reverse of GNW (above). Has taken out recent resistance and seems to be ready to attempt an assault on the mountain top.
HSIC, Henry Schein.
Look out below. M4 Sum Plus has also broken down. M5 3 Average (Top Pane, orange line) is making a broad turn down. Should go lower.
VIX, CRB Volatility Index.
A long decline. We're getting a 'beware of bottom' reading here. Both the M4 Sum Plus (Second Pane down, black line) and the M2F Momentun Indicator (Bottom Pane, brown line) show serious strength here -- is it sustainable,however? That is the question. The last pop up in M4 Accum (late September of this year) was not sustainable -- that corresponded to another 'bravado speech' by Bernanke, promising to inflate, inflate, inflate asset prices, to the bitter end. Does anyone else sense that Bernanke's bravado is growing less certain? Being attacked, as a policy, by German officials, Chinese officials (which was expected), and being supported really only by British (same boat) and Japanese officials (same deflationary trajectory) SHOULD make one wonder about one's religion.
UUP, Bullish US Dollar ETF.
If the VIX is the anti-stock indicator, the UUP (US Dollar) is its elder brother now, who has joined the other side, the bearish side with VIX. We cannot have a correction in global stock prices unless the Dollar rallies. CAN the Dollar rally? Over Ben Bernanke's dead body! The destruction of the Dollar is Ben's religion, as I have noted. His 'belief' seems to be that only a dead Dollar will make the US economy competitive with the global economies. He is seeing only half of the picture of course. He is also inflating global stock markets and commodities, creating a bubble which will eventually pop. He is, in fact, exporting inflation. He seems to feel that the proper role of the Fed is to be the hero in saving the global economy, when, in fact, he is making the problem worse. Sometimes it is better to do nothing, and let nature (and the 'free' markets) solve the problem. Sometimes, the more man interferes, the worse the problems become.
The FXE chart below (Euro vs Dollar ETF) is a mirror image of the UUP chart. Buying in the Dollar is meeting HEAVY resistance. A bottom in M4 Accum has met almost instantaneous resistance, and flattened out. This does NOT mean that the rally is dead. But the longer the flat-line endures, the more the implication is for a still-born rally. I'm adding another element to these charts, M 5 3 Mometum (Top Pane, red line): this is the lead indicator -- it bottoms before the issue bottoms; it tops before the issue tops -- currently M5 3 is positive, climbing, as shows no indication of reversing; M5 3, likewise, in the FXE chart below, is falling, not bottoming. This, to us, says the rally in the US Dollar will continue for a time. That is why stocks are stuck here, in fact. There can be no cleansing sell-off in charts without a rally in the Dollar; there can be no revival of the Bull Move without another major sell-off in the Dollar. Investors are stuck here, in this no-man's land, waiting for a signal from the Dollar (or the Dollar Decline Executives in the Fed). QE2? What is it really about, except destruction of the Dollar's value through an unnatural emasculation of the free-markets managed by Interest Rate Moves?
SPECIFIC TRADING IDEAS
VVUS, Vivus INC. BUY SIGNAL.
One trading idea today. We like this one a lot here -- which is often an indication of trouble for us. Better to not like one's trades too much. VVUS, Vivus INC: the story behind this stock is that the company seems to be benefitting from the FDA'S rejection of an obesity drug developed by Arena Pharm (NASDAQ:ARNA) -- and a more encouraging rejection of VVUS's similar drug, with a request for MORE INFORMATION from VVUS. The stock jumped up on this news on Friday.
VVUS has a huge down-gap to fill, even as it has a small up-gap from Friday to fill. The down-gap is from 12.11 to 5.11. We are getting a buy signal on this stock -- we may see some back-filling for a week of so to close the Friday gap. But this one has a chance to make some short-term money -- and to be a HUGE play if the FDA decides to love its obesity drug Qnexa.
More information on the CGTS systems can be found at:
MICHAEL J CLARK
Clark's Gate Timing System
84 4 221 92210
Disclosure: Long VVUS.