Dear subscribers,
This is update #2050 for Sunday night, November 9, 2014.
If you would like to see me performing a recent rap song--I don't write very many of them--there will be a show featuring eight or nine writers on Monday, November 10, 2014 (tomorrow) at the Angry Coffee Bean at 6:15 p.m., 89 Ridge Road, North Arlington, New Jersey. There is no cover charge; a variety of food and drink will be available for purchase at reasonable prices. On a map, this is Route 17 three blocks north of Route 7.
As has been the case frequently since the U.S. employment report took over from inflation data as the most important U.S. government trading inflection point in the early 1990s (with Fed announcements a close second), there were numerous extremes achieved shortly after Friday's monthly data was released. The U.S. dollar index briefly surged to its highest point (88.190) since June 9, 2010; TLT briefly slid to its lowest level (117.83) since October 6; the S&P 500 would have traded at an all-time record zenith of 2038.21 if it had been trading one hour earlier; IWM (which tracks the Russell 2000) completed an important pre-market lower high at 116.98; and VIX slid to its lowest level (13.01) since September 19. Usually, I don't enter many orders in the pre-market or after-hours sessions unless there is a strong emotional response to something, but I generally make an exception once per month for the U.S. employment data.
For those who thought there would be new important lows for some precious metals, perhaps because of Thursday's late selloff in gold and silver mining shares or simply as a final way of knocking out sell stops to ensure that no technical traders would make money on the rebound, you were absolutely correct. On Friday at 12:50 a.m. Eastern Time, when it was afternoon in most of Asia, the most active December 2014 silver contract slumped to 15.040 U.S. dollars per troy ounce, thereby remaining just above its intermediate-term bottom from February 5, 2010. Gold also registered a lower low on Thursday at 11:58 p.m. of 1130.40 U.S. dollars per troy ounce, which marked its most depressed point since March 31, 2010. Copper has begun to recover from its double bottom near 2.98 U.S. dollars per pound, with platinum doing likewise near 1188 U.S. dollars per troy ounce and with palladium probably having completed a bottom near 730. You can imagine a momentum player getting all excited about being ahead on a contrarian long position in precious metals, only to find that he was stopped out around midnight before Friday's moderate rebound.
Trading volume in assets related to precious metals has surged in recent days. In after-hours trading on Friday, the most actively traded security by far was GDX, surpassing SPY which is frequently number one, while GDXJ was third which is even more unusual. Especially with the nearly unanimous consensus during the week that gold would slump to 1000 U.S. dollars per troy ounce, and similarly gloomy commentary, along with especially deep bottoms on Wednesday, November 5, 2014, it is likely that the ownership of gold- and silver-based assets has made a significant transition from weak hands to very strong accumulators. Momentum players have likely not yet jumped aboard, although the percentage gains from their weekly lows for GDX and GDXJ make this a reasonable possibility before the end of 2014. Generally, momentum players prefer gains of 30%-50% before they climb onto any bandwagon. Deep value asset allocators are likely among the most important purchasers during the past several trading days; these owners are unlikely to be easily shaken out or to rely on sell stops and other gimmicks.
During the past several days, I have been featuring well-known gold analysts who have recently sold some or in many cases all of their holdings due to emotional distress, which usually only happens near a historic bottom. On Thursday, I heard from an ordinary investor who emailed me on Seeking Alpha where I often make comments or post articles. I hadn't heard from this fellow before and he doesn't know anything about me, but in responding to a query about his investing method he wrote this (unedited, except I omitted his name at the very end):
To me, the most interesting part of the following article is an analyst lowering his rating on Newmont Mining (NEM)--which has recently enjoyed insider buying along with Freeport McMoran Copper and Gold (FCX), Peabody Energy (BTU), Southern Copper Corp (SCCO), and several other commodity producers--because he's afraid of "continuing to fight the tape":
A common refrain in 2009 was that buying stocks carried "too much short-term risk" and that investors would "be rewarded eventually for owning equities but not for several years." Naturally, we had one of the most powerful ten-month rallies in U.S. history. The same is often heard now from analysts who have noticed compelling bargains for commodity producers and emerging markets, but emotionally don't want to act counter to the gloomy consensus. Mentioning the weather as an important factor affecting coal prices shows a laughable misinterpretation of the historic record: the strongest rallies for coal mining shares in history did generally include a sharp climb during the winter months--but with the biggest gains occurring when the temperature was above average in most regions. The long-term seasonal outperformance by commodity producers and emerging markets from late autumn through late spring is due to factors which have nothing to do with the weather:
Analysts have become wildly and almost unanimously bullish toward the U.S. dollar:
This article takes for granted that the U.S. dollar will continue to rally and gives recommendations on how to profit from an additional greenback rise--without even hinting that the opposite might occur:
Just when everyone is expecting a U.S. dollar breakout above the top of the multi-year channel, a move toward 2011 levels is much more likely especially since a record number of speculators have bet on a higher greenback:
Here is some data about recent Chinese gold buying:
This article cites the usual party line about gold, stating "the chances are increasing that it will slip to 1000 as oil prices tumble and the U.S. economy improves" and following that up with "the reasons to hold gold are getting smaller and smaller," but gives useful data about physical gold buying in China and India and includes a nice photo:
In an article written on Sunday evening, all three analysts quoted are bearish about the future price of gold:
Ed Steer always has interesting charts and some worthwhile musings, plus he points out Thursday's sudden pre-closing plunge for gold and silver mining shares which--if I had to guess--was a few misguided hedge-fund managers selling (and possibly selling short) just before one of the strongest bull markets in this subsector in six years. They likely also sold late Tuesday and even more so into Wednesday's close when the bottoms for the current cycle may have been completed (hopefully that won't jinx it), but Thursday's plunge was especially steep and rapid:
Always be wary of internet articles about finance or anything else, since they often contain information which is misleading or just plain wrong. Here, the writer claims that there was very little insider buying of the GDX components, so I took the time to research every single U.S. and Canadian company in the index and respond properly to his terribly researched article--but I obviously can't do that for every similar article:
As you can see from my detailed research above, there has been pervasive buying of gold and silver mining shares by corporate insiders especially in recent weeks.
Paradoxically, the sharp U.S. equity correction and subsequent rebound in October-November 2014 made investors more confident than before, because now they've seen a pullback and a new all-time high and are even more certain that all retreats will again be followed by higher highs. This leaves even fewer investors prepared for what is likely to become an especially severe bear market by 2016-2017:
One of the worst job reports in U.S. history is the one which was released on March 6, 2009--when the S&P 500 later that day completed a 12-1/2-year bottom at 666.79 followed by one of the strongest bull markets in U.S. history which lasted for 5-2/3 years. It would be appropriately symmetric if perhaps one of the best job reports in U.S. history briefly marked a new all-time peak for the S&P 500 prior to what could become one of the worst bear markets in U.S. history:
Here are five clear winners from Tuesday's U.S. elections--and for symmetry, five losers:
If you are a U.S. resident, it helps to understand the details of retirement accounts:
Buying extremely overvalued assets is dangerous. Borrowing money to buy assets is dangerous. Doing both simultaneously is worse:
This article provides worthwhile insight into the older and younger groups of baby boomers:
The U.S. dollar index dropped to a Thursday 12:25 a.m. low of 87.134, rallied to a Friday 8:48 a.m. post-employment peak of 88.190, its
most elevated reading since June 9, 2010, retreated to a Sunday 9:25 p.m. low of 87.324, and traded Sunday evening near 87.41.
The behavior of the U.S. dollar index appears to have confirmed that it has likely just completed a false upside breakout as it rallied to
its highest point in almost 4-1/2 years, but did not revisit its top of 88.708 on June 6, 2010. The most likely continuation is a significant
retreat below 80, and perhaps back to around 75, completing its next multi-year bottom probably in 2015 or in early 2016. Just as the U.S. dollar
index has made several lower highs since March 4, 2009, it has made several higher lows since March 16, 2008, so another higher low in the mid-70s
seems probable for late 2015 and/or early 2016. The full pattern of important lower highs dating back to 2001 is listed below just before the
data for TLT.
Emerging-market currencies had been especially out of favor during 2013-2014, and will therefore continue to be among the strongest to
rebound during the final months of 2014, throughout most or all of 2015, and perhaps into early 2016.
The U.S. dollar index has been in a peculiar long-term bull market since March 16, 2008, when it had completed an all-time nadir at 70.698.
Since then, the U.S. dollar index completed its first higher low of 71.314 on July 15, 2008; its second higher low of 72.696 on May 4, 2011; its
third higher low of 73.421 on July 27, 2011; its fourth higher low of 73.452 on August 17, 2011; its fifth higher low of 73.525 on August 29, 2011;
and its sixth higher low of 74.724 on October 27, 2011.
It may have completed additional higher lows in November 2011, but we won't know that for certain until the greenback completes its current
intermediate-term retreat.
Peculiar is an excellent word, because the U.S. dollar index surged to an important high in less than one year on March 4, 2009, and has been
forming several important lower highs since then, thereby creating a long-term bear market which has persisted for roughly one year less in duration
than its long-term bull market.
On October 15, 2014, the U.S. dollar index plummeted to a 9:40 a.m. bottom of 84.472, its lowest point since September 23, 2014.
On September 16, 2014, the U.S. dollar index slid to a 1:00 p.m. bottom of 83.864, its lowest mark since September 7, 2014.
On August 28, 2014, the U.S. dollar index retreated to a 1:20 a.m. bottom of 82.315, its lowest reading since August 22, 2014.
On August 8, 2014, the U.S. dollar index descended to a 10:35 a.m. bottom of 81.261, its lowest level since August 1, 2014.
On August 1, 2014, the U.S. dollar index descended to a Friday noon bottom of 81.188, its lowest point since July 29, 2014.
On July 21, 2014, the U.S. dollar index retreated to a 12:30 a.m. bottom of 80.420, its lowest mark since July 16, 2014.
On July 9, 2014, the U.S. dollar index retreated to a 9:30 p.m. bottom of 79.976, its lowest reading since July 3, 2014.
On July 1, 2014, the U.S. dollar index dropped to a 1:10 p.m. bottom of 79.740, its lowest level since May 9, 2014.
On May 8, 2014, the U.S. dollar index descended to an 8:35 a.m. bottom of 78.906, its most depressed point since September 14, 2012.
On July 9, 2013, the U.S. dollar index rallied to an 11:40 a.m. peak of 84.753, its most elevated reading since July 5, 2010.
On September 14, 2012, the U.S. dollar index slumped to a 10:10 a.m. bottom of 78.601, its lowest mark since February 29, 2012.
On July 24, 2012, the U.S. dollar index rallied to a 1:45 p.m. peak of 84.100, its most elevated reading since July 13, 2010.
On May 1, 2012, the U.S. dollar index dropped to a 9:55 a.m. bottom of 78.603, its lowest reading since February 29, 2012.
On February 29, 2012, the U.S. dollar index retreated to a 12:05 a.m. bottom of 78.095, its lowest level since December 2, 2011.
On November 30, 2011, the U.S. dollar index slumped to a 9:00 a.m. bottom of 77.923, its lowest point since November 23, 2011.
On November 8, 2011, the U.S. dollar index slid to an evening bottom of 76.513, its lowest mark since October 25, 2011.
On October 27, 2011, the U.S. dollar index slumped to a 2 p.m. bottom of 74.724, its lowest reading since September 6, 2011.
On August 29, 2011, the U.S. dollar index slid to a very early morning bottom of 73.525, its lowest level since August 17, 2011.
On August 17, 2011, the U.S. dollar index slumped to a mid-morning bottom of 73.452, its lowest point since July 27, 2011.
On July 27, 2011, the U.S. dollar index retreated to a very early morning bottom of 73.421, its lowest mark since May 5, 2011.
On May 4, 2011, the U.S. dollar index slid to a mid-morning bottom of 72.696, its most depressed reading since July 29, 2008.
Relevant past peaks for the U.S. dollar index include 88.708 on June 6, 2010; 89.624 on March 4, 2009; 92.63 on November 16, 2005; 99.49 on August
26, 2003; and 120.99 on July 5, 2001.
I expect the U.S. dollar index to complete a historic top near the end of the next global equity bear market anywhere between 100 and 120,
perhaps in the year 2016 or 2017.
TLT, a fund of U.S. Treasuries averaging 28 years to maturity, rose to a Thursday 10:02 a.m. high of 118.93, dropped to a Thursday 1:17 p.m.
low of 118.31, closed Thursday at 118.39, retreated to a Friday 8:47:18 a.m. pre-market, post-employment bottom of 117.83, its lowest point
since October 6, and ascended to a Friday 7:26:54 p.m. after-hours high of 120.00.
The behavior of TLT is typical for any asset which is still in a very-long-term bull market, but which has been forming several important lower highs
since July 25, 2012. TLT likely completed a multi-year top at 127.63 on October 15, 2014; its next most likely move is to retest the bottom of its
channel in the high 80s or low 90s sometime in 2015. This is part of a typical rotation from defensive to cyclical assets, which occurs during
nearly any transition from a multi-year equity bull market to a subsequent equity bear market. Because defensive assets became more overvalued than
usual and cyclical names including mining and emerging-market shares had been more undervalued than usual during June 2013-October 2014, this
rotation will likely continue to be stronger than average throughout the remainder of 2014 and likely persisting into the first half of 2015
until it completes its next multi-year nadir. Afterward, when U.S. Treasuries have once again become highly unpopular, TLT will perhaps form
several higher lows for a period of months until it once again rallies strongly and likely achieves a new all-time peak in 2016 or early 2017.
TLT is likely to slump to roughly 90-100 and possibly below 90, where I will progressively repurchase it as close as possible to its lowest
points during the first several months of 2015. I would like to see several well-known analysts declare that the long-term U.S. Treasury bull
market which began in 1981 has ended, since that will signal that it still has a lot of life and at least one more spectacularly higher high still to
come during 2016-2017.
On October 16, 2014, TLT rallied to a 5:46:59 a.m. pre-market peak of 125.32, its highest level since October 15, 2014.
On October 15, 2014, TLT soared to a 9:40 a.m. peak of 127.63, its most elevated point since September 4, 2012.
On September 17, 2014, TLT slid to a 3:56 p.m. bottom of 112.73, its most depressed mark since July 15, 2014.
On July 15, 2014, TLT retreated to a 10:27 a.m. bottom of 112.50, its lowest reading since July 9, 2014.
On July 3, 2014, TLT slumped to an 8:33:08 a.m. pre-market, post-employment bottom of 110.13, its lowest level since April 29, 2014.
On April 29, 2014, TLT slid to an 8:39:36 a.m. pre-market bottom of 109.98, its lowest point since April 22, 2014.
On April 22, 2014, TLT slid to a 10:30 a.m. bottom of 109.61, its lowest mark since April 10, 2014.
On April 2, 2014, TLT slid to a 3:19 p.m. bottom of 107.17, its lowest reading since March 20, 2014.
On March 19, 2014, TLT slid to a 2:00 p.m. Fed announcement bottom of 106.81, its lowest level since March 13, 2014.
On March 7, 2014, TLT slumped to an 8:32:41 a.m. post-employment bottom of 105.44, its lowest point since January 22, 2014.
On January 10, 2014, TLT dropped to an 8:28:12 a.m. pre-market and pre-U.S. employment report bottom of 103.05, its lowest mark since January 9, 2014.
On January 8, 2014, TLT retreated to a 1:02 p.m. bottom of 102.10, its lowest reading since January 3, 2014.
On January 3, 2014, TLT descended to a 10:33 a.m. low of 101.77, its lowest level since January 2, 2014.
On January 2, 2014, TLT dropped to an 8:30:15 a.m. pre-market bottom of 101.44, its lowest point since December 31, 2013.
On December 31, 2013, TLT slumped to a 1:59 p.m. bottom of 101.17, its most depressed mark since August 2, 2011.
On August 31, 2012, TLT surged to close at 127.72, its highest mark since August 6, 2012, and traded in the after-hours session as high as 127.76.
On August 2, 2012, TLT soared to an 11:53 a.m. peak of 130.69, its highest reading since July 26, 2012.
On July 25, 2012, TLT climbed to a 10:09 a.m. top of 132.21, an all-time record zenith.
On July 25, 2011, TLT slumped to a pre-market bottom of 94.75, its lowest reading since July 7, 2011.
On June 30, 2011, TLT slumped to a mid-morning bottom of 93.29, its lowest level since May 2, 2011.
On April 8, 2011, TLT slid to a pre-market bottom of 89.64, its lowest point since February 18, 2011.
On February 10, 2011, TLT retreated to a late morning bottom of 88.14, its lowest mark since April 7, 2010.
On April 7, 2010, TLT slumped to an early morning bottom of 87.30, its most depressed reading since September 20, 2007.
VIX is probably the best-known measure of equity index implied volatility, which is synonymous with investors' fear of an upcoming bear market.
VIX rose to a Thursday 10:16 a.m. high of 15.08, slid to a Thursday closing low of 13.67, rose to a Friday 9:55 a.m. high of 14.16, slid to
a Friday post-4:00 p.m. bottom of 13.01, its lowest point since September 19, and closed Friday down 55 cents at 13.12.
VIX began a pattern of higher lows from a multi-year bottom which occurred at 10.28 on July 3, 2014, which is signaling the recent or upcoming
completion of a bull market for the S&P 500 just as the VIX bottom of 9.39 on December 15, 2006 followed by several higher lows for VIX presaged
the general U.S. equity peaks in the second half of 2007. VIX will likely continue in a general uptrend with additional higher lows until it
eventually reaches its next multi-year top probably in 2016. At that point, it will begin to form lower highs over a period of several months to
signal that U.S. equity indices are approaching some kind of multi-decade bottom, just as progressively lower readings for VIX following its October
24, 2008 multi-year zenith of 89.53 served as an early notice of the S&P 500's historic nadir at 666.79 on March 6, 2009.
On October 16, 2014, VIX rallied to a 10:17 a.m. peak of 29.41, its highest point since October 15, 2014.
On October 15, 2014, VIX surged to a 1:28 p.m. peak of 31.06, its most elevated mark since November 29, 2011.
On September 19, 2014, VIX retreated to a 9:38 a.m. bottom of 11.52, its lowest mark since August 26, 2014.
On August 26, 2014, VIX retreated to a 9:36 a.m. bottom of 11.33, its lowest reading since August 25, 2014.
On August 25, 2014, VIX descended to an 11:56 a.m. bottom of 11.24, its lowest level since July 17, 2014.
On July 17, 2014, VIX retreated to a 10:22 a.m. bottom of 10.85, its lowest point since July 16, 2014.
On July 16, 2014, VIX slumped to a 9:36 a.m. bottom of 10.59, its lowest mark since July 3, 2014.
On July 3, 2014, VIX slid to a post-1:00 p.m. (half-day) bottom of 10.28, its most depressed reading since February 22, 2007.
On March 14, 2013, VIX slid to a post-4:00 p.m. bottom of 11.05, its most depressed reading since February 26, 2007.
On June 4, 2012, VIX rallied to a 10:09 a.m. peak of 27.73, its highest point since December 12, 2011.
On November 25, 2011, VIX climbed to an early morning peak of 34.77, its highest reading since November 21, 2011.
On November 21, 2011, VIX rallied to a late morning peak of 35.29, its highest level since November 17, 2011.
On November 17, 2011, VIX surged to a 1:52 p.m. peak of 36.46, its highest point since November 1, 2011.
On November 9, 2011, VIX soared to a late afternoon peak of 36.43, its highest mark since November 1, 2011.
On November 1, 2011, VIX soared to a noon peak of 37.53, its highest reading since October 7, 2011 and a gain of more than 53% within 1-1/2 trading days.
On October 4, 2011, VIX climbed to a 10 a.m. peak of 46.88, its highest level since August 9, 2011.
On August 9, 2011, VIX rallied to a post-Fed-announcement peak of 47.56, its highest point since August 8, 2011.
On August 8, 2011, VIX soared exactly 50% to its intraday peak of 48.00, its highest mark since May 21, 2010.
On May 21, 2010, VIX soared to an early morning peak of 48.20, its most elevated reading since March 10, 2009.
The S&P 500 Index dropped to a Friday 10:31 a.m. low of 2025.07, climbed to a Friday 11:30 a.m. peak of 2034.26, a new all-time
zenith, and closed Friday up 71 cents at 2031.92. If the S&P 500 had been trading just after the U.S. employment report was released,
according to SPY which achieved an all-time top of 203.85 at 8:31:33 a.m. in the pre-market session, then the S&P 500 would have traded as high as
(203.85/203.15 * 2031.21) or 2038.21.
IWM is an exchange-traded fund based upon the Russell 2000 Index. IWM reached 120.58 on March 4, 2014 and 120.64 at 8:43:34 a.m. in the pre-market
session on March 6, 2014, just after the monthly U.S. employment report was released. On July 1, 2014, IWM completed a 1:26 p.m. top of 120.97, a new
all-time zenith, thereby creating what proved to be a false upside breakout. Whenever small-cap U.S. equities underperform their
large-cap counterparts, a major bear market is generally imminent as in 2007, 1999-2000, 1979-1980, 1972-1973, 1946-1947, 1936-1937, and 1928-1929.
Notice how IWM frequently surpasses previous peaks by tiny amounts, intended primarily to knock out buy stops used by momentum players.
An important lower high for IWM was achieved on September 3, 2014 at 8:02:05 a.m. with a pre-market price of 118.12, its highest point since
July 7, 2014.
Another lower high for IWM was completed on November 3, 2014 at 9:56 a.m. with a trade of 117.37, its highest level since September 4, 2014.
Yet another lower high for IWM was touched on November 7, 2014 at 8:31:31 a.m. with a post-employment, pre-market transaction a 116.98, its
highest reading since November 3, 2014.
Continuing a two-decade pattern, the S&P 500 had achieved a new all-time zenith above its October 11, 2007 top of 1576.09,
just as its 2007 top was higher than its 2000 top which was above its 1997 top.
Within the next few years, the S&P 500 will slump below its March 6, 2009 bottom of 666.79, just as its 2009 bottom was lower than its 2002
bottom which was below its 1998 bottom, thereby continuing another long-term pattern.
This sequence of higher highs and lower lows over a period of many years is known as a megaphone formation.
Eventually, its dividend yield will climb above six percent, just as U.S. equities overall have done during all prior eras of stagnation.
On October 16, 2014, the S&P 500 slid to a 10:17 a.m. bottom of 1835.02, its lowest reading since October 15, 2014.
On October 15, 2014, the S&P 500 slumped to a 1:28 p.m. bottom of 1820.66, its most depressed level since April 15, 2014.
On April 15, 2014, the S&P 500 retreated to a 1:02 p.m. bottom of 1816.29, its lowest point since April 14, 2014.
On April 14, 2014, the S&P 500 slid to a 3:14 p.m. bottom of 1815.80, its lowest mark since April 11, 2014.
On April 11, 2014, the S&P 500 slid to a 2:49 p.m. bottom of 1814.36, its lowest reading since February 13, 2014.
On February 5, 2014, the S&P 500 slid to a 10:29 a.m. bottom of 1737.92, its lowest level since October 18, 2013.
On October 9, 2013, the S&P 500 retreated to an 11:24 a.m. bottom of 1646.47, its lowest point since September 6, 2013.
On August 30, 2013, the S&P 500 slid to a 3:54 p.m. bottom of 1628.05, its lowest mark since August 28, 2013.
On August 28, 2013, the S&P 500 retreated to a 9:35 a.m. bottom of 1627.47, its lowest reading since July 5, 2013.
On June 24, 2013, the S&P 500 slumped to a 12:23 p.m. bottom of 1560.33, its lowest level since April 22, 2013.
On April 18, 2013, the S&P 500 slid to a 2:58 p.m. bottom of 1536.03, its lowest point since March 5, 2013.
On February 26, 2013, the S&P 500 slid to an 11:48 a.m. bottom of 1485.01, its lowest mark since January 22, 2013.
On December 28, 2012, the S&P 500 slid to a 3:50 p.m. bottom of 1401.58, its lowest regular-hours reading since December 5, 2012. At 16:14:45 in
the after-hours session, the S&P 500 as measured by SPY at 138.55 would have traded at 1387.61, its lowest reading since November 28, 2012.
On December 5, 2012, the S&P 500 retreated to a 10:55 a.m. bottom of 1398.23, its lowest level since November 28, 2012.
On November 28, 2012, the S&P 500 slid to a 10:10 a.m. bottom of 1385.43, its lowest point since November 20, 2012.
On November 16, 2012, the S&P 500 slid to an 11:29 a.m. bottom of 1343.35, its most depressed mark since July 26, 2012.
If you admire the old monk, the 61.8% Fibonacci retracement is 1346.11, which was slightly broken to the downside on November 16, 2012.
On July 25, 2012, the S&P 500 slid to a 10:57 a.m. bottom of 1331.50, its lowest reading since July 24, 2012.
On July 24, 2012, the S&P 500 slumped to a 2:30 p.m. bottom of 1329.24, its lowest level since July 12, 2012.
On July 12, 2012, the S&P 500 slid to a 10:46 a.m. bottom of 1325.41, its lowest point since June 28, 2012.
On June 28, 2012, the S&P 500 slumped to a 2:31 p.m. bottom of 1313.29, its lowest mark since June 26, 2012.
On June 26, 2012, the S&P 500 slid to an 11:10 a.m. bottom of 1310.30, its lowest reading since June 25, 2012.
On June 25, 2012, the S&P 500 slumped to a 12:00 p.m. bottom of 1309.27, its lowest level since June 12, 2012.
On June 12, 2012, the S&P 500 slumped to a 10:39 a.m. bottom of 1306.62, its lowest point since June 6, 2012.
On June 4, 2012, the S&P 500 slid to a 1:25 p.m. bottom of 1266.74, its most depressed mark since January 5, 2012.
On December 19, 2011, the S&P 500 slid to a late afternoon bottom of 1202.37, its lowest reading since November 30, 2011.
On November 25, 2011, the S&P 500 slid to a late afternoon bottom of 1158.66, its lowest level since October 10, 2011. If you count the
pre-market session, the futures-equivalent bottom at 8:36 a.m. was 1149.60, which would mark its lowest level since October 6, 2011.
On October 4, 2011, the S&P 500 plummeted to a 10 a.m. bottom of 1074.77, its lowest point since September 1, 2010.
On August 27, 2010, the S&P 500 retreated to a mid-morning bottom of 1039.70, its lowest mark since July 7, 2010.
On July 1, 2010, the S&P 500 slid to a late morning bottom of 1010.91, its most depressed reading since September 4, 2009.
GDX, a fund of primarily large- and mid-cap gold mining shares, dropped to a Thursday 8:41:04 a.m. pre-market bottom of 16.59, its lowest
mark since November 5, climbed to a Thursday 3:18 p.m. high of 17.69, retreated to a Friday 5:35:51 a.m. pre-market bottom of 17.05, its lowest
point since November 6, and rallied to a Friday 4:48 p.m. after-hours peak of 18.74, its highest mark since October 29.
On November 5, 2014, GDX plummeted to a 3:57 p.m. bottom of 16.45, its most depressed reading since October 28, 2008.
On October 9, 2014, GDX surged to an 8:20:20 a.m. pre-market peak of 22.22, its highest reading since September 26, 2014.
On August 29, 2014, GDX climbed to an 11:31 a.m. peak of 26.74, its highest level since August 20, 2014.
On August 14, 2014, GDX rose to an 8:35:43 a.m. pre-market peak of 27.65, its highest point since July 10, 2014.
On July 10, 2014, GDX rallied to a 9:48 a.m. peak of 27.78, its highest mark since March 14, 2014.
On March 14, 2014, GDX rallied to a 9:37 a.m. peak of 28.03, its most elevated reading since September 19, 2013.
On September 18, 2013, GDX soared to a 3:50 p.m. peak of 28.64, its highest level since September 3, 2013.
On August 27, 2013, GDX rallied to a post-open peak of 31.35, its highest point since April 12, 2013.
On April 9, 2013, GDX surged to an 11:59 a.m. peak of 36.29, its highest mark since April 2, 2013.
On March 21, 2013, GDX rallied to a 1:46 p.m. peak of 38.58, its highest reading since February 27, 2013.
On February 26, 2013, GDX rallied to an 11:57 a.m. peak of 39.29, its highest level since February 19, 2013.
On February 7, 2013, GDX ascended to a 10:54 a.m. peak of 42.94, its highest point since January 30, 2013.
On January 30, 2013, GDX rallied to a 10:39 a.m. peak of 43.14, its highest mark since January 24, 2013.
On January 22, 2013, GDX rallied to a 2:18 p.m. peak of 45.92, its highest reading since January 15, 2013.
On January 15, 2013, GDX rallied to an 11:52 a.m. peak of 45.96, its highest level since January 3, 2013.
On January 2, 2013, GDX surged to an 8:06 a.m. pre-market peak of 47.75, its highest point since November 30, 2012.
On November 23, 2012, GDX rallied to a 12:52 p.m. peak of 49.00, its highest mark since November 14, 2012.
On November 8, 2012, GDX surged to a 3:15 p.m. peak of 51.82, its highest reading since November 1, 2012.
On October 31, 2012, GDX surged to a 3:55 p.m. peak of 52.97, its highest level since October 17, 2012.
On October 17, 2012, GDX rose to a peak of 53.40, its highest point since October 9, 2012.
On October 5, 2012, GDX climbed to a 10:22 a.m. peak of 54.64, its highest mark since September 21, 2012.
On September 21, 2012, GDX rallied to a 9:41 a.m. peak of 55.25, its highest reading since March 2, 2012.
On May 16, 2012, GDX slid to a 1:51 p.m. bottom of 39.08, its most depressed reading since September 2, 2009.
On February 29, 2012, GDX rose to a 9:38 a.m. peak of 57.91, its highest level since February 2, 2012.
On February 2, 2012, GDX rallied to an 11:07 a.m. peak of 57.94, its highest point since December 9, 2011.
On December 1, 2011, GDX rose to a mid-morning peak of 61.01, its highest mark since November 16, 2011.
On November 8, 2011, GDX rose to a 1 p.m. peak of 63.69, its highest reading since September 21, 2011.
On September 21, 2011, GDX rallied to a mid-afternoon (pre-Fed) peak of 66.90, just below its all-time high.
On September 9, 2011, GDX climbed to a mid-morning all-time zenith of 66.98.
On December 7, 2010, GDX rallied to an early morning peak of 64.62, a new all-time high.
Today's first main topic is commitments 2014-11-7.
These are Friday's 3:30 p.m. traders' commitments, starting with copper since this is the most important overall number for commodities and the shares of their producers:
Copper's traders' commitments moderately improved, as commercials increased their net long position to 35,875 contracts which is the fourth largest net long position ever recorded. The current level has become very strongly bullish for COPX and the shares of most base metal producers. Here are the commitments for the "poor man's gold":
Silver's commitments modestly improved, as commercials reduced their net short position to 12,408 contracts which marked their smallest net short position since June 3, 2014. This remains significantly bullish for silver and for the shares of silver producers. Let's continue with the yellow metal:
Gold's traders' commitments dramatically improved, with commercials decreasing their net short position to 55,307 contracts which was their smallest net short position since January 21, 2014. The current absolute level is now 6.4 times as close to the bullish extreme since the end of December 2001 (19,041 on July 9, 2013) as compared with the bearish extreme (287,634 on August 2, 2011), which has become strongly bullish for gold and for gold mining shares. Here are platinum's traders' commitments:
Platinum's traders' commitments slightly improved, with commercials decreasing their net short position for the 15th time in 17 weeks to 21,908 contracts which is their most bullish mark since July 9, 2013. This remains strongly bullish for platinum and for platinum mining shares. These are the long bond's traders' commitments:
The traders' commitments for the 30-year U.S. Treasury bond modestly improved as commercials increased their net long position to 5,531 contracts which was their most bullish stance since July 8, 2014. The situation is now modestly bullish for U.S. Treasuries. Until commercials become substantially net long, and Bill Gross is bragging about how much he has reduced his Treasury holdings--whether at Janus or not doesn't matter as long as he is being interviewed frequently--it remains too dangerous to purchase TLT and similar assets. Here are the commitments for the loonie:
Canadian dollar commercials slightly increased their net long position to 35,667 contracts after having touched their most bullish position two weeks ago since April 15, 2014. The Canadian dollar on November 5, 2014 touched its most depressed level--just below 87.3 U.S. cents--since July 13, 2009; FXC is a useful chart to track the loonie. FXA tracks the Australian dollar, which slid to its lowest point on November 5, 2014 (about 85.5 U.S. cents) since July 7, 2010, and where commercials significantly increased their net long position during the past week to 55,660 contracts. I favor purchase of both the loonie and the aussie which are both likely to move above parity with the U.S. dollar by early 2016 or sooner. These commitments are for the British pound:
Commercials in the British pound moderately increased their net long position to 19,005 contracts, which marked their most bullish stance since September 10, 2013. This pattern is consistent with most currencies strongly suggesting that the U.S. dollar will begin or has already begun what could become a significant decline toward the bottom of its multi-year channel. Here are the euro's traders' commitments:
The shared European currency's commitments significantly improved, with commercials increasing their net long position to 237,283 contracts which marks its most bullish level since June 5, 2012, thereby creating the likelihood of a dramatic euro rebound. It should be remembered that the traders' commitments are much more significant when they are near multi-year extremes; during the well-publicized euro crisis in the spring of 2012, commercials had gone net long 259,084 contracts. We haven't quite reached those extremes, but since we're reasonably close, the probability of an intermediate-term rally for the euro has dramatically increased. I think the euro is far from its ultimate long-term bottom, but sentiment has become quite negative in the media and almost everyone I know is bearish toward the euro. Therefore, the euro will likely stage a "sudden, unpredictable" surge higher during the upcoming year.
Here are the traders' commitments for crude oil:
Crude oil commercials slightly increased their net short position to 279,453 contracts, thereby just falling short of their most bullish level since June 25, 2013. No doubt you have noticed that the prices of heating oil, gasoline (petrol), and similar products have become quite cheap in relative terms. Partly this is from the strong U.S. dollar, and partly from the global unpopularity of commodities; both of these trends are likely in the process of reversing direction and experiencing surprisingly strong countermoves. Someone who is almost always wrong at major turning points told me today that gasoline prices would drop below two dollars per gallon; these kinds of extrapolations when they are repeated by the general public almost always demonstrate the existence of an unsustainable and irrational extreme.
Let's also check out natural gas:
Commercials in natural gas moderately decreased their net long position to 168,451 contracts, which the previous week had been at their most bullish point since March 22, 2011. This is a confirming reason for having bought FCG in recent weeks as subscribers hopefully did. There are no traders' commitments for coal or uranium, but it's clear that energy products have shown unusual extremes of commercial accumulation which is bullish for the entire sector of energy producers and their respective commodities.
Today's second main topic is pathways, part one.
It might seem that investors only care about their net gains and losses over an extended period of time. However, this is definitely not the case, as can be determined by studying records of inflows and outflows out of numerous assets. The way in which any given security fluctuates exerts a significant impact upon buying and selling decisions. It is therefore worthwhile to understand how asset fluctuations emotionally affect investors and how to capitalize upon understanding this phenomenon.
Let's take the case of an asset which is rising slowly. Most people love to own something which is gradually and steadily climbing, because the lack of periodic corrections creates the illusion that the asset is especially safe and superior. If there are two assets, one of which is rising more in percentage terms than another, but which experiences sharper ups and downs, many investors will prefer the calmer asset. This is one important reason that people have crowded into the S&P 500 and similar large-cap U.S. equity funds since the beginning of 2013, because there have been so few modest pullbacks. The one we had last month was the biggest such decline in three years. Interestingly, when something has been in an extended uptrend and it experiences a pullback followed by a push to a new all-time high, it creates an even more euphoric atmosphere because investors are convinced that any decline is a buying opportunity. Those who had considered selling the S&P 500, being suspicious of its lack of volatility, are now convinced more than ever that they shouldn't sell it. Ironically, this causes the fewest people to benefit from an extended bull market, because they are very reluctant to sell anywhere near the top and end up hanging in there until they are eventually behind.
On the other hand, an asset which has been in an extended bear market, and then suffers a similar correction, is seen to be "hopeless" as we experienced just during the past week with gold and silver mining shares. The outflows of recent years became even more intense during the past several trading days. If something has been in a bear market which has lasted for a long period of time, then many investors decide that they had better get out because it could only get worse. However, many investors will procrastinate in actually taking action until there is some kind of news event or there is an additional sharp pullback. We got all of the above recently: the Fed meeting, the U.S. Congressional elections, and the U.S. employment report on the news side--and with market behavior, we experienced an unusually dramatic short-term plunge for gold and silver mining shares. The combination of the above encouraged outflows to become their strongest ever recorded for many of these assets, and in some other cases to be the most intense since around August 1976. The media helped out with a nearly unanimous consensus and dozens of articles debating when gold would reach one thousand U.S. dollars per troy ounce--with almost no dissenting viewpoints out of hundreds of such analyses. It's possible that we had a similar situation in past decades, but I can't recall a similar unanimous consensus in this sector since I began to closely track it about 25 years ago.
Investors behave quite differently if they own an asset and they lose money on it, versus an asset which they don't own and they are thinking about buying. Generally, the greater the ownership of anything which is losing money, the more difficult it is for such investors to perceive the improved bargains and the more likely they will want to sell out of disappointment. It works in the opposite direction also: if investors own an asset which has enjoyed an extended bull market, they're much less likely to understand how dangerously overvalued it has become, and much more likely to want to own more of it out of excitement or out of confirmation that they were smart enough to own a superior security.
Even if investors are aware that every asset has an associated fair value, they don't perceive something which has deviated from fair value as being likely to regress toward it sooner or later. If something has become especially far below fair value, then most investors perceive that it is far less likely to move back toward fair value, instead of realizing that it has become far more likely to rally to a roughly equal and opposite overvalued extreme. Similarly, if something is in a bubble, then investors don't become progressively more concerned about the likelihood of a bear market even though that would be the most rational conclusion. Instead, they become convinced that even if there is a decline, it is very unlikely to return to fair value. Paradoxically, nearly all bubbles end with collapses which follow almost identical chart patterns, but if any given asset is in a bubble, nearly all of those who own that asset are convinced that it must be different this time and that it would be impossible for history to repeat itself.
Investors' attitudes are very heavily influenced by the recent past. Just a few days ago, I received repeated negative commentary not only about gold and silver mining shares, but also about uranium producers. Since then, these have been among the biggest winners, and all of a sudden many people want to own these. Before they rebounded, many investors concluded that somehow this time was different and that if we did have a recovery it would have to be very slow and would take years to regain its losses. This happens at every major bear-market bottom which I can remember: investors become convinced that we can't have a sudden strong rally from any major nadir, even though that is by far the most likely behavior. At the New Orleans Investment Conference, I had an extended debate with one fellow who told me that once gold and silver mining shares finally bottomed, it would take a year or two of slow gains before there could be any kind of meaningful improvement. I asked him to name one asset--U.S. Treasuries, the S&P 500, or anything else--which recovered slowly from a historic bottom. He concluded that it was definitely different this time. From a rational point of view, it would be like someone on an especially cold day in January concluding that because we were so far below the average temperature for that time of year, it was probable that we wouldn't be able to go swimming the following summer. From an emotional point of view, most people understand how fluctuations behave for the weather, but can't apply similar logic to the financial markets.
If we look back at the behavior of gold and silver mining shares, we can see numerous examples of incredible extremes in both directions during the 21st century. We had a historic undervaluation around the U.S. Thanksgiving holiday in November 2000, followed by equally irrational overvalued extremes in early December 2003. We then had similarly irrational lows on May 16, 2005, followed by yet another period of overvaluation just under one year later. Following this, we had important highs in the middle of March 2008, followed by a collapse through the open on October 24, 2008, and then a rapid surge into late 2010 and early 2011. After this was yet another bear market, even more crushing in some ways than the previous ones, which may or may not have ended in early November 2014. Having already experienced four extremes for gold and silver mining shares which were far above fair value just during the past eleven years, does it seem likely that we'll have a fifth major peak within the next few years? Such a repeat performance would be nothing more dramatic than experiencing snow this winter in New York City and hot days next summer, and yet almost no one is forecasting such an event.
If you were to survey ten thousand investors and ask them how many believe that the S&P 500 will go below one thousand at any point between now and the end of the decade, almost none of them would consider it to be a realistic possibility. Historically, if you study eras of stagnation, you will discover that bull markets during such eras are barely distinguishable in percentage terms from bull markets during eras of prosperity. What differs is the intensity of bear markets, which tend to be roughly twice as severe in percentage terms during eras of stagnation than they are during eras of prosperity. Check out the behavior in September 1929 through June 1949 or from February 1966 through August 1982 for examples of the past two eras of stagnation; you will see that they are amazingly similar to the current era which began in March 2000. Stating that the S&P 500 will drop below 1000 is actually an overly optimistic forecast, since the real question is whether or not it will slump below its 666.79 bottom of March 6, 2009. However, a "mere" drop of a little over half is inconceivable to most investors--not because they've already forgotten 2007-2009 when the S&P 500 plummeted 57.7% from top to bottom, but because the recent behavior of the S&P 500 and mostly positive media coverage has convinced people that a repeat is almost impossible. Anything which behaves calmly and predictably, and when it does suffer a stronger pullback immediately rallies to a new all-time high, is perceived by almost everyone to be immune to any kind of serious loss. On the other hand, an asset which first suffered a multi-year bear market and thereafter experienced several "failed" rebounds, as many commodity producers and emerging markets have done since late 2010 or early 2011, are assumed to be inherently inferior assets no matter what they had done earlier in the century. Almost no one can imagine them gaining by a significant percentage, so they aren't even considered as potentially viable investments. Naturally, this will change once they enjoy sufficient percentage gains, but before that almost no one will want to touch them except perhaps as short-sale candidates.
From time to time, I go to xtf.com to figure out which exchange-traded funds have recently experienced the sharpest gains or losses. If something has been unusually energetic to the upside in recent weeks or months, as SCIF had been in the late spring, then if I own it I will likely consider selling it especially if it has experienced heavy insider selling, near-record investor inflows, nearly unanimous media adulation, and similar features as we had for Indian equities following Modi's election. On the other hand, if there has been an especially rapid plunge, as we had experienced for FCG during the past few weeks, or an intensification of negative media coverage combined with a slump to new lows as coal, gold, silver, uranium, rare earth, and many other mining funds had experienced in recent weeks, then this often serves as a buying opportunity. The biggest percentage loser last week was NGE, a nearly unknown fund of Nigerian equities which in my opinion has become compelling precisely because investors are surrendering nearly simultaneously.
When something is completing a top or a bottom, you will often hear commentary such as "how high/low can so-and-so go" or "there is no obvious catalyst which would cause a reversal to occur." Investors often forget that the biggest percentage changes in financial history rarely had any catalysts, including the stock-market crashes of 1929 and 1987, as well as the early bull market surge which began in August 1982. In order for investors to justify not buying near the bottom and not selling near the top, they convince themselves that even though something is very far away from fair value, there is no reason to believe that the situation will change any time soon. Investors are never swayed by information such as insider buying or selling, or investor inflows or outflows, because such data seems too abstract to most people. We have experienced huge insider buying for gold and silver mining shares and for many commodity producers during October 2014 and especially in November 2014, but investors simply conclude that insiders are acting "too early." I remember an analyst on cable TV in early 2000 pointing out that many other analysts had been bearish toward the Nasdaq when it was at 3500, and then at 4000, and then at 4500, and therefore the fact that these analysts were still bearish at 5000 proved that they were idiots and therefore could be completely ignored. I attempted to convince many of my friends and family to sell technology shares in late 1999 and early 2000, but with a few key exceptions it was almost hopeless because without realizing it we are all subconsciously brainwashed by what we hear from the media and from other people. It is similarly almost impossible to convince anyone today that the S&P 500 will go below one thousand--of course once it happens, it will appear to everyone to have been "obvious" because we invent nonexistent storylines which make everything that has already occurred seem to be part of an inevitable path. Consider the difference in watching a documentary about Steve Jobs from the 1970s versus a documentary after he passed away. In hindsight, everything he did even as a teenager seemed like an inevitable step toward what actually happened, whereas when it was occurring in real time, no one knew how it would turn out.
Investors are often more concerned with how an asset is fluctuating than its net gains or losses, and therefore many buying and selling decisions are heavily influenced by the manner in which a given security is behaving. An especially extended and calmly behaving asset which is periodically setting new all-time highs will be a huge favorite and will likely enjoy near-record investor inflows, while a highly volatile asset which has been in an especially extended bear market and which has recently slumped rapidly to a new six-year bottom will surely suffer intense outflows. If an asset has recently collapsed, as the S&P 500 had done in September-November 2008, it will tend to suffer limited net redemptions--but the same asset several months later following a period of "failed" rally attempts and grinding gradually lower to a new 12-1/2-year bottom will experience intense outflows. As humans, we can deal with panic because we needed to be able to do that to survive various personal crises through the millennia, but we are much less capable of handling a prolonged period of emotional disappointment. When something has become especially far away from fair value, investors become convinced that it will take years or longer to return to fair value instead of appreciating that a regression to fair value has become increasingly likely and will probably occur with surprising force and rapidity. The shape of the chart of any security will usually be the most important clue to how investors are likely to be acting with their own money. When investors own any given asset, they tend to become far more emotional about its behavior than if they don't own it, and become far less capable of perceiving a bottom as a buying opportunity and a top as an important reason to sell. In hindsight, a sudden surge toward fair value which had previously been imagined as impossible appears to be completely obvious and inevitable.
P.S. If you are interested in September's True Contrarian conference which discusses emotional investing behavior and where attendees including Michael A. Gayed raised some fascinating points, you can order a 4-DVD set of the seminar sessions here. This link includes a video excerpt:
Take care.
--Steve
