Slope Of Hope with Tim Knight

Why Financials and Google Are Lagging

Well now that we've got that out of the way

 

Get what out of the way you ask?

 

Breakout into new all time highs in the S&P 500 that is.  We're not really excited about this breakout errr eek into a new high rather as it took place into a holiday and into quarter end window dressing. But it is what it is.  Don't forget to be on the lookout for a shake and bake shake out high here folks.  If that's going to happen, it's going to happen soon.

 

 

 

We've spent a lot of time the past few days looking at tons of stocks and you know what? One would think with a breakout into new all time highs in the indexes we'd be seeing a lot of names set up on the long side but we aren't . What we do see are a lot of charts that look like this:

 

JNJ

  

 

 

 

KR

  

 

 

K

  

 

GIS

 

 

 

This is where the bulk of the gains have came from last quarter.  See the theme here?  Consumer staples.  These are DEFENSIVE ISSUES. Typically when defensive "people still gotta eat" issues start to lead it says something about  what big mutual funds and money managers are thinking down the road. 

 

Now a lot of you when you look at these may say these are great shorts coming soon.  We get that BUT if the market sees bad times ahead the big "long only have to stay invested money" looks for a safe port. They may not be looking for returns out of these going forward, just a safe port. So we wouldn't think about shorting them anytime soon.  It also may be saying batten down the hatches we might be in for some rough seas soon.

 

We've said it time and time again that we do not chase stocks. If we don't buy the extended stocks above then when do we buy? We buy stocks that are in uptrends that are pulling back off highs (POH) and you know what? We see very little of that outside of what's on our watch list for the time being. A healthy pullback though? We'll then see a lot set up so stay tuned. In the meantime these two are the best looking on our list currently.

 

GOOG

  

 

 

C

''

 

Look at JNJ and KRO etc. then compare those  to GOOG and C . Big difference right?  Call it a tale of two tapes. See any low risk entry points in JNJ, KRO, K  and GIS?  Us neither.  That's what's been going on, the extended get more extended -- all right into quarter end.

 

If you subscribe to the theory that money stays in the markets but rotates around then what does that say about JNJ, KRO, K and anything else that's been on a tear and extended or has gotten marked up into quarter end? At the least it means you are late to the party. While these issues may just track sideways from here as big ocean tankers look for a safe port. Money is still going to rotate and look for a home.  

 

So where is money going to rotate to? It's going to go somewhere. It always does, maybe the financials that have lagged of late? (Citigroup and the like?) Tech? (GOOG). Honestly? We don't know and neither does anyone else, all we know is from a technical perspective those two stocks look primed for a move higher.

 

Let's not forget about tape painting here either because as we've seen the market has a way of gravitating to names that are able to keep the drive alive on the surface, just look at the DOW's eeking into a new high Thursday. IBM was up 2.40 points which Thursday accounted for about 20 some points of the 52 points -- yep, almost half the indexes move came from one heavily weighted stock. 

 

That's part of why we like GOOG here.  It makes up 8% of NDX 100 index, it's in a clearly defined uptrend, it's pulling back off highs to trend channel support and last quarter tech lagged. All of those are good reasons for why we are looking at it especially with it making up 8% of the NDX 100 index. What that part really means is if they want to keep the index afloat or make it move all they have to do is pop that stock, not to mention it has no topping pattern in place either which is another good thing.  That goes for a lot of financials too by the way.

 

And finally...

 

There was a lot of talk last week about how Uncle Ben and his wild rice gang have got your back and we'll never go down again (be careful about forming an opinion on that folks because that's called complacency).  We've touched upon that in the form of the markets can still go into corrections too you know so we'll spare you the repeat of that conversation. BUT we will say though that even if he does have your back the extended are still extended regardless.  Much like the old adage of last cycles leaders are next cycles laggards the same can be applied to this past quarter -- last quarter's leaders next quarter's laggards? We'll find out in the next two weeks.

 

Let's also not forget about seasonality with the best time being November through April and the worst time April through October.  So that's an issue that is going to be coming to the forefront too you know.  No matter though as we are opportunists around here and that means both sides of the market. So you see we actually love corrections because it's an opportunity.

Those Were People Who.....

This Sunday for many is the most important day of the year. Of course I’m speaking of Easter. For many others it’s just a holiday celebrated with no time off of work. Then there are others who bristle at such a thing and go out of their way to not pay attention to anything religion based. Fair enough, it’s a free country which I believe is one of our great strengths when put into proper perspectives. Only people comfortable with who they are can tolerate or accept others for who they are. At least that’s how I see it.

Regardless if your observance of Easter is religious or not. One thing is irrefutable. This Sunday is based on a death, and what that death means to us. I believe even for the most religious avoiding person alive there have been people we knew, loved, and more that were here today – then gone leaving us wondering why?

For some of us, a lifetime of reflection and wondering. All through life we remember them at certain times thinking “What did them dying really mean to me? Do I take something from this and apply it? Why them and not me when I was right there? Was I lucky? Was there a message to be taken for me from this tragedy?” I could go on, and on. I believe you get my point.

Over my life I’ve personally watched friends, family members, business associates, and more die in meaningless tragic ways more than I care to remember.

Growing up and through many of my adult years I watched from a friends store front on the main drag of our city as people we went to school with (both girls and guys)  as well as others we knew that were once considered pillars of the community, or a wealthy business owner, walk the boulevard like zombies turning tricks as prostitutes because they became what we referred to as “dopies.” (If you said that word to describe anyone, they knew exactly what you meant.) It was more than heartbreaking at times to say the least.

Then there are the ones that stamp time in one’s world. The one that you consistently think about throughout your life. The one that still to this day seems to have locked within it more insights, more reasons to keep going, reasons to make you think more deeply than you’ve ever thought about most other things. I have one. I believe many others do also.

We don’t talk about them to others. They seem to be just a little too private. However, in light of this holiday celebration I’ll share one of mine. Because, in the end. As much as it is about a death. It is about renewal of life. The life and the path – we the living – will now choose to walk.

In the late 70′s like most young adults I was searching for direction. I had grown up pretty fast, and doing it in an unforgiving city. I was then going on 19 years old, quit school, and had 3 years bar-tending as well as manager experience under my belt in one of the largest biker bars in the city. (drinking age was 18 back then and id’s were a joke) I had an apartment on top of the club, and couldn’t remember when I had spent more than 4 hours in actual day light. My world was basically – a gin mill.

I tried to break out of the lifestyle because instinctively I knew it would be the end of me sooner rather than later so I made arrangements with a family member to get out of the area, and I left.

I returned a few months later and was desperate for work. (I didn’t want to go back to bar-tending at that time.) A close friend of mine whose name was Raymond said, “Don’t worry. I’ll get you a job where I work and you’ll start Monday.” I said, “Ray, please don’t say something you can’t deliver. I really need work. Don’t get my hopes up saying it’s a given.” He shrugged me off saying, “I promise. Don’t worry.”  And he did. I started the following Monday.

Ray and I were the same age. We grew up together. Hung around through our teens, and Ray was one of the first of us to get married and start a family. The company he worked for was called Kenney & Co. I had never heard of it but who cared – it was a job!

Ray had worked there for a while and was looked upon as one of the family. He basically could do no wrong. (within reason of course) So much so that when Ray was involved in a traffic accident with the companies largest and most expensive truck. The owner gave him his new Cadillac to use for an errand to show he still had faith in him.

For the record this accident involved Ray rolling a loaded box truck packed with tons of cargo end over end 3 times (Yes, end over end!) on a major thoroughfare as he tried to avoid hitting another car. He walked away exiting the truck by walking through where the windshield once was. No one was injured. Not even Ray. The State Police all said something or someone had his back because they never seen such destruction and no one had as much as a scratch. In less than a year from this miracle – Ray would be dead.

As life takes its turns with all of us. Ray left the company for greener pasture. Like many who married so early troubles became commonplace and Ray and his wife split. And, as with most cases now a baby’s involved.

Ray’s wife started dating another person we all grew up with. (His house actually shared the same back fence as mine.) Ray for his own reasons was incensed about him being around his child. So much so many of us knew something was going to happen. Not if – but when.

As I said Ray and I were friends. He was asking me what I thought, what I would do. Should he confront the both of them with his thoughts. etc. This discussion came up this night because Ray was leaving the area in just two days. He had met a great girl and they were by all signs in love. They were moving to Florida as to start a new chapter in their lives.

They both had jobs lined up and more. Everything seemed to be breaking the right way. I kept telling Ray, “Don’t think about it. You’re going away in 2 days to start a new life. Put this out of your mind. Nothing good will come of it. Promise me Ray…I mean it…Promise me!” He said I was right, and promised me. We parted ways and said we’ll see each other tomorrow. Tomorrow came, but life would never be the same.

I guess his rage got the best of him because he went to where both his ex-wife, boyfriend, and baby were. And for reasons I won’t get into here, all I can say is there were words, an altercation, and in a moment of stupidity – Ray was dead. It still is without question one of the saddest, emotional, gut wrenching days or times I have ever been through to this day.

However, as much as times like this can be the saddest, it’s what you decide to do with that sadness that is the real question. For you see that job Ray obtained for me was the very company that allowed me to acquire most of the skills and attributes I applied over my business career.

Kenney & Co. was a meat company. And, although at the time I didn’t know the difference between hamburg and ground turkey. It was that very job he spoke on my behalf to be hired that launched my career before retiring at the top in that industry.

So in the light of this Sunday’s celebration. Whether you celebrate the Pentecost, or other ways. I would like to leave you with this thought. As much as we mark death, in the end it’s really all about life.

It doesn’t matter what path is opened. It’s meaningless unless you choose to walk it. Paths are about choice. And choosing is about living.

I’ll finish with something that reminded me of all this and made me reflect a couple of days ago. I was thinking about another friend who was also like a brother to me, but for reasons I can’t go into here is no longer around. He played in one of the bands that the singer/songwriter/author Jim Carroll used as support when he was touring.

I think it sums up things in way most of us feel, then just shake our head in dismay trying to figure out.

http://www.youtube.com/watch?v=gQbzGOKb6xg

© 2013 Mark St.Cyr   www.MarkStCyr.com

GLD Versus SPY: An Interesting Divergence

Hey Fellow Slopers,

I'm still digging into the new Slope, which looks pretty impressive so far. Just thought I'd take a moment to share something that caught my eye about SPY and GLD. Happy Easter to Tim and the Slope community.

GLD versus SPY in Q1

The SPDR S&P 500 Trust ETF (SPY) dramatically outperformed the SPDR Gold Shares ETF (GLD) in the first quarter of 2013, as the chart below illustrates, but, interestingly, GLD is considerably less expensive to hedge over the next several months.

Low Volatility On Both Gold and S&P 500

As of quarter end, expected volatility was low for both gold and the S&P 500, as measured by their respective Chicago Board Options Exchange volatility indexes. The VIX, which measures expected volatility over the next 30 days in the S&P 500, closed at 12.70, and the GVZ, which uses the same methodogy to measure expected volatility in gold, closed at 12.41.

Bigger Divergence In Six Month Hedging Costs

Both GLD and SPY are inexpensive to hedge over the next several months, as you might expect from their low expected volatilities over the near term. Nevertheless, the difference in cost, as a percentage of position, is quite striking looking at hedges expiring in September. Compare the two screen captures below.

1) Hedging SPY

These were the optimal puts*, as of quarter-end, to hedge 1000 shares of SPY against a greater-than-15% drop between March 28th and September 20th.

As you can see at the bottom of the screen capture above, the cost, as a percentage of position value, was 1.03%. Note that, to be conservative, the cost is calculated based on the ask price of the optimal puts; in practice, an investor can often buy the puts for less (i.e., some price between the bid and ask).

2) Hedging GLD

And these were the optimal puts to hedge 1000 shares of GLD against the same 15% drop over the same time frame.

As you can see at the bottom of the screen capture above, the cost, as a percentage of position value, was 0.42% -- roughly 40% of the cost of hedging SPY.

*Optimal puts are the ones that will give you the level of protection you want at the lowest possible cost. Portfolio Armor uses an algorithm developed by a finance Ph.D. to sort through and analyze all of the available puts for your stocks and ETFs, scanning for the optimal ones. The screen captures above are from the Portfolio Armor iOS app.

Money Flow for March Week Four (by Strawberry Blonde)

Further to my last Weekly Market Update, this week's update will look at:

 

• 6 Major Indices
• 9 Major Sectors
• 30-Year Bonds
• U.S. $
• Emerging Markets ETF (EEM) and BRIC Indices & ETF (BKF)
• Germany, France, and the PIIGS Indices

 

6 Major Indices

 

As shown on the Weekly charts and the percentage gained/lost graph below of the Major Indices, the largest gains this past week were in the Dow Utilities, followed by Dow Transports, Nasdaq 100, S&P 500, Dow 30, and Russell 2000.

 

The Indices remain (technically) in overbought territory on their Weekly and Monthly timeframes, which may be viewed as overvalued to some and bullish to others. 

 

 

 

9 Major Sectors

 

As shown on the Weekly charts and the percentage gained/lost graph below of the Major Sectors, the largest gains were made in Health Care, followed by Utilities, Consumer Staples, Cyclicals, Energy, Industrials, Technology, Financials, and Materials. There was a bigger appetite for the 'Defensive' Sectors as the S&P 500 approached and finally closed above its all-time closing high.

 

The Sectors also remain (technically) in overbought territory on their Weekly and Monthly timeframes, which may be viewed as overvalued to some and bullish to others.

 

 

 

30-Year Bonds

 

The 5-Year Weekly chart below of 30-Year Bonds shows that price continued its bounce from the prior two weeks and is sitting just below major resistance. A break and hold above resistance may coincide with profit-taking in the Major Indices/Sectors...something I'll be watching for in the coming week(s). I'd need to see major support below broken and held on increasing volumes before I'd suggest that perhaps big money is finally flowing out of Bonds to be deployed into equities, and/or commodities, currencies, other instruments. However, there may be some drifting out within this current range (in between support and resistance) that is not so apparent because of Fed intervention.

 

 

U.S. $

 

As shown on the 5-Year Weekly chart below of the U.S. $, price closed (once again) above an important convergence of two 60% Golden Fibonacci ratio levels. A break and hold above its recent highs may also coincide with some profit-taking in the equity markets, or serve as a hedge on any further equity rally.

 

 

Emerging Markets ETF (EEM) & BRIC Indices & ETF (BKF)

 

As shown on the 5-Year Weekly chart below of EEM, price is retesting major resistance. A break and hold above may positively influence the 'riskier' Sectors, while a break and hold below major support [the confluence zone of the 50% Fibonacci level, 50 and 200 smas (note the bearish 'Death Cross' formation on this timeframe as price is still subject to its bearish influences), Volume Profile POC, and lower Bollinger Band] could produce a drag on any further equity rally...an important ETF to watch going forward.

 

 

You can see on the Daily thumbnail charts below of the BRIC countries and ETFs, that those Indices/ETFs are attempting to rally from or near to a support level of one form or another.

 

 

The following graph shows gains/losses made year-to-date for these countries and ETFs. You can see that Brazil has been battered the most, followed by Russia, and India, while China is basically flat on the year...ones to watch as further weakness in these countries may finally negatively affect U.S. equities.

 

 

Germany, France, and the PIIGS Indices

 

The Daily thumbnail charts below show that Portugal, Italy, Greece, and Spain have broken their uptrend lines, while Germany, France, and Ireland are in the process of testing theirs. Greece looks particularly vulnerable at the moment, as does Italy.

 

 

The following graph shows gains/losses made year-to-date for these countries. Italy, Greece, and Spain have suffered the most losses, so far this year, while Ireland has gained the most, followed by France, Portugal, and Germany. Unless the other countries, particularly the southern European countries pick up the pace, I doubt whether Ireland can carry Europe on its own for the rest of the year...also ones to watch, as continuing weakness may produce a drag on U.S. equities.

 

 

Summary

 

In summary, as I pointed out here, the Dow 30 and Russell 2000 have made a new all-time high and closing high, while the S&P 500 made an all-time closing high on Friday (however, its all-time intraday high of 1576.09 remains unbroken and is still serving as major resistance at a formidable triple-top formation and represents an opportunity for some cannibalization, as I wrote about here. The Nasdaq 100 has lagged the other three Major Indices, so far this year, and is hampered by major resistance. However, all four remain in a strong uptrending channel on the 4-Hour timeframe, as I mentioned here and will likely need to be broken convincingly before the trend changes. We'll see whether the longer-term resistance scenario holds for the SPX to turn it back, or whether the shorter-term uptrend continues to push it up and over major resistance.

 

The U.S. $ has strengthened, while the Euro has slumped, as I wrote about here. Foreign (and U.S.) markets have been trading erratically, as I wrote about here, here, here, and here. As I've mentioned above, they will need to strengthen considerably (otherwise I'd be looking for the 'Canaries' to drop, with the others following suit) if a convincing case is to be made that all is well in the U.S. and that now is the right time to be buying stocks, particularly at their current (technically) Weekly and Monthly overbought levels. Brent Crude Oil and WTIC have begun to rally (no doubt in taking advantage of the recent banking and fiscal upheaval in Europe), and I'm watching Brent to see if the spread begins to widen again in favour of Brent, as I wrote about here and here.

 

Next Friday we have a few data releases, including Non-Farm Employment Change, Trade Balance, Unemployment Rate, and Average Hourly Earnings. Inasmuch as the first three are hinting at some slight economic improvements, wages have yet to make a comeback to the pre-2009 financial crisis levels, as shown on the following graphs. Without seeing much improvement in wages this year, the average consumer may not be so inclined to keep piling on debt as product prices continue upward (which they will do as companies look for ways to keep improving profits, while lowering costs). In that regard, we may see a slow and choppy growth for 2013 on the earnings and economic front...whether the stock market accurately reflects that is another matter, particularly with the Fed pouring gasoline on the fire.

 

 

Happy Easter and good luck next week!

 

Q1 2013 Market Wrap-Up (by Strawberry Blonde)

Each candle on the following charts of the 4 Major Indices represents One Quarter. The last candle represents Q1 of 2013 and closed today (March 28th, since the markets are closed tomorrow for Good Friday of the Easter long weekend).

 

You can see at a glance that the Nasdaq 100 has lagged the other three all year, so far, and is hampered by major resistance. The Dow 30 and Russell 2000 have made a new all-time high and closing high, while the S&P 500 made an all-time closing high today (however, its all-time intraday high of 1576.09 remains unbroken and is still serving as major resistance at a formidable triple-top formation and represents an opportunity for some cannibalization to occur, as I wrote about here.).

 

 

The following percentage gained/lost graph shows that, from the beginning of January to today, the Russell 2000 is the leader, followed by the Dow 30, S&P 500, and Nasdaq 100.

 

 

The following percentage gained/lost graph of the 9 Major Sectors shows that, for 2013, the market participants have positioned themselves more defensively, as the largest gains have been made in Health Care, Consumer Staples, and Utilities.

 

 

Going forward into Q2, Technology will need to pick up the pace and make a convincing argument to attract serious money into all sectors of the equity markets to keep up the bullish sentiment. Otherwise, these markets could be in for a pullback, particularly in view of the financial woes that have surfaced again in Europe. We'll see whether buying gets more aggressive in the other, riskier sectors, now that the psychological closing high has been broken on the SPX; however, the SPX will still need to close and hold above its all-time high...ones to watch (particularly the Financial Sector), as well.