Seeking Alpha

The Markets Speak: Equities And Palladium Are On The Move

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Includes: AAPL, AMLP, CRAK, EEM, FRN, GLD, IYT, MJ, PALL, QQQ, RJA, RSX, SNP, SPY, TLT, UNG, USO, UUP, XLF
by: Harry Long
Harry Long
Arbitrage, quantitative investing, strategy-based indices, systematic strategies
Summary

Most equity markets have started to move higher again.

Here's my ongoing effort to separate signal from noise.

Pay special attention to emerging markets if they start to outpace U.S. equities.

Emerging markets overall are at a P/E of 12. Russian equities have a P/E of 5.

Emerging markets have gone nowhere for the past 12 years (since 2007). Ironically, they also sport a P/E of 12. Sometimes, we are blessed to get a cheap price and momentum. Perhaps, this meme best sums it up.

In the meantime, S&P 500 volatility has collapsed, giving investors courage.

I'm a factual absolutist. And for me, factual absolutism in a pari-mutuel game, such as the financial markets, necessitates paying attention to trends.

Here's why: Fundamental data is widely reported. However, market prices show the reaction to that fundamental data. And those market reactions, over time, create the winners and the losers of the game.

While I don't use any type of interpretative analysis like Avi Gilburt, I do use my Zomma Directional Algorithm to quickly take the market's temperature. The algo does not use form-fitting. It uses the same settings on every market.

Here is how to understand the results:

1. When the yellow line crosses above the green cloud, it signals a buy.

2. When the yellow line crosses back into the top of the green cloud, it signals a sell and a move to cash.

Note: The algo is not designed to create short signals.

Let's start out with our P/E of 12 emerging market index. If you believe that most of the world's future economic growth will come from emerging market economies, it might be time to take a look at EEM or VWO. Who knows, if U.S. interest rates go even lower, maybe we will start funding emerging market carry trades that eventually seep their way into emerging market equities.

And Russian equities (RSX) are even cheaper, sporting a P/E of 5. Not bad for an embedded, very cheap call option on oil and natural gas exposure.

Take a look at Frontier Markets (NYSEARCA:FRN) as well.

Even U.S. equities are catching a bid (SPY).

(QQQ)

Even though Transports (IYT) have caught a bid, overall, they are going sideways.

Palladium (PALL) is still rocketing higher.

Pipelines (AMLP) are still in their own custom tailored bear market.

Look for massive players like Enbridge (NYSE:ENB) to snap up smaller players with balance sheet distress.

Natural Gas (UNG) and Oil (USO) look slightly less despondent.

Long Duration U.S. Government Bonds (TLT) had broken their parabolic upward sprint, dropped, then snapped back, then broken down again.

Gold (GLD) seems to be mirroring TLT. Gibson's paradox anyone? Once you see it, you can't unsee it.

High yield bonds are unimpressed with the upward move in equities. Interesting.

If U.S. interest rates go even lower, maybe we will start funding emerging market carry trades that eventually seep their way in to emerging market equities. Maybe this is a sign that carry trades to the U.S. have reversed, and perhaps we are now funding the beginning of a carry trade in to emerging markets. The bid for dollars (UUP) has ended for the time being.

China trade deal skepticism has turned to hope.

New lows for Sinopec (SNP), and no one is interested. If the accounting is right, this is now the cheapest mega-cap on earth. Check out the EV/EBITDA. If they increased their dividend aggressively, any skepticism would be put to rest.

Drugs (NYSEARCA:MJ) are still not cool, nor are they fattening to the wallet of equity investors.

Are bank stocks and other financials (XLF) acting as synthetic yield curve steeper plays?

Might I humbly suggest that for a cryptocurrency to have intrinsic value, that it should represent a legally enforceable claim on future computing, bandwidth, or storage, rather than a fiat currency based upon past computational calculations?

On October 9th, I wrote: "Keep an eye on the refiners (CRAK) if the crack spread continues to improve." #YouAreWelcome

Investors are still optimistic about the new iPhone (NASDAQ:AAPL).

Agricultural commodities (NYSEARCA:RJA) are still moving higher.

Stay tuned for more. If you would like notifications as to when my new articles are published, please hit the button at the top of the page to "Follow" me.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SPXL, EDC, RUSL, TMF, UGL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.