Back in late May I got a call from a local portfolio manager (Bob) asking for a technical opinion on BP PLC whose share price had torpedoed in reaction to the companies' Deepwater Horizon Gulf oil spill. "Look Bill, at $41 the shares are cheap when you take into account the earnings multiple, the yield and the book value."
Bob's analysis is typical fundamental stuff that reasons falling stocks are a better buy than rising stocks because a falling stock is "cheaper" than a rising stock which is getting "expensive." I advised against the purchase because the stock was falling faster relative to its industry peers Chevron Corporation and Exxon Mobil Corporation. I told Bob the market is clearly worried about the Gulf oil spill and that in many cases stocks will fall ahead of changes in the fundamentals which can lag the current reality.
To-day with BP trading in the 27 dollar range I have no interest in the stock because the Gulf oil spill is a crisis that may take generations to repair and the potential liabilities could wipe out the company - I think the stock could go to zero.
Now most technical analysts believe that for every negative event - there is an offsetting positive event somewhere else. So as investors we need to protect our portfolios by avoiding industries and sectors negatively impacted by the Gulf Crisis and to seek out the beneficiaries.
This is where I invite your opinion. I need to see the investing landscape ahead for the next 6 to 10 months. How will this crisis impact the U.S. economy, interest rates, food prices, energy prices, precious metals and base metals? What stock sectors will be impacted be it financial, consumer, technology, energy, materials, health care, utilities and industrials? Will we bet on inflation or deflation? Small caps or big caps? Is this bigger than the Greek crisis? Bigger than the 2007 - 2008 housing crisis? What about the transportation sector - how do we value the railroads? What about tourism and travel? Investing is not a spectator sport - what to do - your input please.
Friday, June 25, 2010
Wednesday, June 23, 2010
Nervous Gold Bugs (2)
If you’re a gold bug and you own a basket of gold stocks you have to wonder what is wrong with the group. On June 18 the price of gold touched another all-time high and yet most of the gold stocks as represented by the AMEX Gold Bugs Index once again failed to confirm the move. In a previous post I detailed the structure of the current secular uptrend in the gold complex and illustrating why we are now into the 5th bull in the series that began in mid 2000. We also know in the later stages of a secular advance the participants will splay or exhibit typical 5th Elliott Wave failures basically meaning fewer and fewer will post new 52-week highs.
Now that does not signal the end of the secular up-trend in the gold complex because we could experience a maximum of 7-cycles (two more to go) – BUT – these cycles tend to be of shorter duration and of less price magnitude. There are several ways to play this aging gold cycle game. One way is to follow the money as it moves in and out of the key gold and silver producers. Our daily chart is of the weekly closes of Barrick Gold plotted above the weekly closes of Silver Wheaton. Note the large inverse head & shoulder pattern on each stock. Note the Silver Wheaton break above the neck line in late 2009 and note the failure of Barrick to break up through the neck line. Clearly we need Barrick to clear $50 to confirm the breakout – it is now or never and if Silver Wheaton rolls over and breaks under $18, the 5th-cycle is completed.
Now that does not signal the end of the secular up-trend in the gold complex because we could experience a maximum of 7-cycles (two more to go) – BUT – these cycles tend to be of shorter duration and of less price magnitude. There are several ways to play this aging gold cycle game. One way is to follow the money as it moves in and out of the key gold and silver producers. Our daily chart is of the weekly closes of Barrick Gold plotted above the weekly closes of Silver Wheaton. Note the large inverse head & shoulder pattern on each stock. Note the Silver Wheaton break above the neck line in late 2009 and note the failure of Barrick to break up through the neck line. Clearly we need Barrick to clear $50 to confirm the breakout – it is now or never and if Silver Wheaton rolls over and breaks under $18, the 5th-cycle is completed.
Tuesday, June 15, 2010
Something is up with Natural Gas
So how come the price of natural gas is rebounding? The gassy ETFs are now into week 7 of rising prices and the natural gas producers are strong with several posting new 52-week highs. According to some “experts” there is too much natural gas and the glut could last for years. One factor adding to the production glut is those shale deposits along with the modern fracking extraction methods
I wonder if the gulf disaster is a factor here with tighter rules limiting exploration and production? Now we have the safety of fracking in question. The energy industry claims that hydraulic fracturing -- fracking for short -- poses no threat to water supplies or public health. On the other hand the U.S. Environmental Protection Agency is using a "transparent, peer-reviewed process" to determine whether the fracking process has contaminated water supplies and degraded land around drilling sites
Our chart is clearly displaying several natural gas producers breaking to new 52-week highs. Now why would that happen if there is too much natural gas? Don’t listen to the experts – listen to the market
I wonder if the gulf disaster is a factor here with tighter rules limiting exploration and production? Now we have the safety of fracking in question. The energy industry claims that hydraulic fracturing -- fracking for short -- poses no threat to water supplies or public health. On the other hand the U.S. Environmental Protection Agency is using a "transparent, peer-reviewed process" to determine whether the fracking process has contaminated water supplies and degraded land around drilling sites
Our chart is clearly displaying several natural gas producers breaking to new 52-week highs. Now why would that happen if there is too much natural gas? Don’t listen to the experts – listen to the market
Thursday, June 10, 2010
Nervous Gold Bugs
If you’re a gold bug and you own a basket of gold stocks you have to wonder what is wrong with the group. The gold stocks as represented by the AMEX Gold Bugs Index and the TSX Global Gold Index are well below their price peaks of last December which is a worry in view of yet another financial crisis and a recent all time high in the gold price.
Our daily chart displays clearly the obvious price divergence between Dec 2009 peak and the lower mid May 2010 peak - and now the shorter mid May peak to the lower June 9 peak – a series of swing failures in the broader gold stock indices. I expect this divergence to continue even if the gold price powers up to another new high because of a change in the way investors value the gold stocks. The problem is the structure of the current secular uptrend in the gold complex. We are now into the 5th bull in the series that began in mid 2000. In the first two bulls the gold stocks advanced faster than the gold price due to a symptom I call “recognition of survival”. In the later stages of a secular advance the participants will splay or exhibit typical 5th Elliott Wave failures basically meaning fewer and fewer will post new 52-week highs. The only strategy to employ now is to avoid the broader sector gold stock indices and ETFs and do selective stock picking.
Our daily chart displays clearly the obvious price divergence between Dec 2009 peak and the lower mid May 2010 peak - and now the shorter mid May peak to the lower June 9 peak – a series of swing failures in the broader gold stock indices. I expect this divergence to continue even if the gold price powers up to another new high because of a change in the way investors value the gold stocks. The problem is the structure of the current secular uptrend in the gold complex. We are now into the 5th bull in the series that began in mid 2000. In the first two bulls the gold stocks advanced faster than the gold price due to a symptom I call “recognition of survival”. In the later stages of a secular advance the participants will splay or exhibit typical 5th Elliott Wave failures basically meaning fewer and fewer will post new 52-week highs. The only strategy to employ now is to avoid the broader sector gold stock indices and ETFs and do selective stock picking.
Monday, June 7, 2010
I’m Feeling Gassy
Last May 26, 2010 I chose to put aside from my personal negative bias and bought Suncor Energy at the close at $30.69 just for a trade. Remember I never liked Suncor because it has been a persistent under performer from September 2009 and I am not a fan of the tar sands producers because their business models are cluttered with cost problems and environmental issues. The remedy for the dirty tar sands is an alternate energy source such as natural gas, solar sells, hydrogen fuel cells, geothermal power turbines, and nuclear. We could also try to get people out of their cars and build more transit infrastructure.
The problem with all these alternate energy solutions is that no investor has made a dime on this stuff. Now if you believe that for every bear market there is a bull somewhere else, or for every capital event there is an opposite capital event somewhere else we can find a potential alternate energy winner. One of the best ways to identify a bullish group of stocks or a sector is to see how they behave during a nasty correction such as the one now underway in the broader global stock indices. Our chart is clearly displaying a bullish advance in a natural gas ETF (GAS) relative to the recent downturn in the S&P/TSX60 large cap index. We need to do some homework on the gassy space and examine the gassy producers to see if they are “confirming” the move of the GAS
The problem with all these alternate energy solutions is that no investor has made a dime on this stuff. Now if you believe that for every bear market there is a bull somewhere else, or for every capital event there is an opposite capital event somewhere else we can find a potential alternate energy winner. One of the best ways to identify a bullish group of stocks or a sector is to see how they behave during a nasty correction such as the one now underway in the broader global stock indices. Our chart is clearly displaying a bullish advance in a natural gas ETF (GAS) relative to the recent downturn in the S&P/TSX60 large cap index. We need to do some homework on the gassy space and examine the gassy producers to see if they are “confirming” the move of the GAS
Wednesday, June 2, 2010
Tea Leaves, Voodoo & Other Dark Forces (4)
Last week I posted a daily chart of Suncor Energy with at least 11 squiggly lines to ponder in order to make a trading or investment decision. Keep in mind I never liked Suncor because it has been a persistent under performer through September 2009 and I am not a fan of the tar sands producers because their business models are cluttered with cost problems and environmental issues. I chose to put aside from my personal negative bias and ignore all of the studies and bought the stock for a trade at the close at $30.69 at May 26, 2010.
Rather than using the RSI, the Bollinger Bands, the 3 moving averages, the candlesticks and the MACD I simply focused on a relevant relationship. Things like for every bull market there is a bear somewhere else, or for every capital event there is an opposite capital event somewhere else. In the case of Suncor the stock should be crude price sensitive and so I needed to see if Suncor was in the process of setting up a lead – lag relationship vs. the price of crude. I believe a short term buy signal was flashed on May 21 when the price of crude (or the USO) broke below the February 2010 lows and the price of Suncor did not, setting up a condition called positive divergence between to related asset classes. So what will it be, squiggly lines or relevant relationships?
Rather than using the RSI, the Bollinger Bands, the 3 moving averages, the candlesticks and the MACD I simply focused on a relevant relationship. Things like for every bull market there is a bear somewhere else, or for every capital event there is an opposite capital event somewhere else. In the case of Suncor the stock should be crude price sensitive and so I needed to see if Suncor was in the process of setting up a lead – lag relationship vs. the price of crude. I believe a short term buy signal was flashed on May 21 when the price of crude (or the USO) broke below the February 2010 lows and the price of Suncor did not, setting up a condition called positive divergence between to related asset classes. So what will it be, squiggly lines or relevant relationships?
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