The charts of the Dow industrials and Dow transports both
look relatively decent The Dow is roughly 10% away from
testing its 5 year highs and the transports are more or less
trading at their 5 year high. The picture is considerably
different with the Utilities. While everything looks great
in the 1-3 year charts, a 5 year chart clearly illustrates
that all is not well. The utilities are trading well off
their 5 year highs; in fact, they would have to mount a
stunning rally to test their 5 year highs. From their
current levels they would need to rally a whopping 29% to
test their 5 year highs. Instead of leading, the utilities
are clearly languishing. The fact that the utilities have
not even managed to trade past their Nov-Dec 2008 lows,
illustrates how weak they really are.
Conclusion
The utilities are clearly
indicating that the long term outlook is rather dire. They
have not even managed to trade past their Nov-Dec 2008 lows.
Instead of leading the way up it appears that they are
languishing. Perhaps their inability to break out suggests
that they might actually be leading the way down. Could this
be harbinger of what lies in store for the markets in the
months to come?
If we look at the following
charts they seem to support this view that all may not be
well.
The Baltic dry index is a leading economic indicator. One
look at this chart and it tells us that the worst is far
from over. 3 years ago this index was trading in the 8000
plus ranges and today its trading at roughly 1310. It is off
by almost 85%. It has been putting in a series of lower
highs after topping out in Dec 2009 and in Feb 20011 it put
in a new 52 week low. Should this index be trading at this
level if the long term outlook was bright?
The 5 year chart of the VIX illustrates that it is
trading at 5 year support and it is only a few points away
from testing its lows. A multitude of positive divergence
signals have been generated in the long term time frames
(usually bearish for the markets). A weekly close above 30
will turn the daily trend bullish, neutralize the weekly
down trend and strongly suggest that the VIX has bottomed.
The 5 year chart of the
NASDAQ illustrates that is has run into a zone of rather
formidable resistance and it appears to have put in a triple
top formation. Triple top formations are usually followed
with substantial declines. In addition a series of negative
divergence signals have been generated; none of the recent
new highs were confirmed by any our technical indicators.
Finally, consider this
volume which is already extremely low, has dipped even more.
Average volume is now roughly 1 billion shares lower than it
was just 30-45 days ago. The data from the above charts is
rather compelling because it is based on 5 years worth of
weekly data. Thus these charts are giving us a good idea of
what to expect going forward. The only exception to this is
the chart of the BDI; here 3 years worth of daily data was
used.
Things are certainly
heating up and it will be interesting to see where the
markets are trading 3, 6 and 12 months from today. We live
in such uncertain times that now more than ever it is
imperative that one have some exposure to the precious
metals sector (Gold, Palladium and Silver bullion). If you
have no position at all then use any decent pull back to
open up a small position. If the precious metals sector
should experience a strong pull back you become an
aggressive buyer. The long term outlook for the precious
metals and commodities sector in general remains extremely
bright.
Every man is a
damn fool for at least five minutes every day; wisdom
consists in not exceeding the limit. ~Elbert Hubbard