charts of the Precious Metals Complex Basket

in the previous post I introduced the Precious Metals Complex Volume Weighted Basket (PMC). here is a chart of the PMC dating back to 2/1/08:



and here's the same, only log scale:



the PMC doesn't look hugely different than a mining stock index like the HUI, even though the PMC has a sizable bullion component (GLD makes up a little over 1/3 of the PMC right now).



I'll analyze the PMC data more thoroughly in the near future (and likely in the newsletter). also I'll post the daily closing value of the basket in the 'Index Data' posts for now on. it'll replace the 'T&V Gold Stock Index' which I haven't found very useful anyway.

The Precious Metals Complex Volume Weighted Basket

that's a long name, but we'll just call it PMC for short.

the PMC includes 23 actively traded precious metals related stocks and ETFs. the basket is weighted according the average volume of each symbol over the past 2 years. components and the number of shares of each are listed below.

I decided to weight the basket according to volume, because the volume tells us how important the market considers each symbol. for example, GLD has traded 14.8 million shares a day on average over the past 2 years. rounding up I gave GLD 15 shares in the PMC basket. on the other hand, CEF only trades 1.1 million shares a day on average, so there is only 1 share of it in the basket.

requirements for inclusion were:

1) involved primarily in precious metals mining, or be an ETF that tracks bullion or holds performing mining companies.

2) listed on a US exchange with a current share price of at least $10.

3) must have average daily volume over the past two years of at least 1 million shares.

the only exception I made was to include SWC, which is trading below $10 at the moment. I made this exception because I want at least a token amount of platinum exposure, and besides, SWC shares were above 10 just a few weeks ago.

here's the list of 23 components and their weightings in the PMC basket:



I am calling the PMC a basket and not an index because I intend to keep the components and weightings as they are. if there are mergers or splits then we'll make some adjustments as needed, but that's it.

Purpose of the Precious Metals Complex Basket

the point is to measure the overall performance of precious metals investments as a whole in the proportion that each vehicle is active on a US securities exchange.

the PMC basket can be used track the performance of metals related investments in terms of US dollars (the basket's unit of account) or to compare metals investments to other sectors, the broad stock market, commodities, bonds, &c.

more importantly, I envision the PMC as a benchmark. an individual investor with a precious metals portfolio can compare his portfolio to PMC. if, over time, he is beating the PMC then he is probably doing something right. if the investor finds that he can't out-perform this benchmark on a consistent basis (and I'll just tell you right now that most of you can't) then he can either replicate the PMC basket in his own portfolio, or invest his money with a manager who has a track record of out-performing the PMC.

as I just alluded to, the PMC can also serve as a benchmark for professional money managers who have a mandate to invest in precious metals related investments. it will be interesting to see if John Paulson's much anticipated gold hedge fund can beat this PMC basket...

now I am going to compile the PMC's price history and work up some charts. check back later in the day for another post on the subject.

Index Data

closing values for Wednesday, December 30, 2009:

Trend & Value 50 Index:

1051.81 (down .01%)

Equity ETF Index:

1031.94 (down .08%)

China Small Cap ADR 25 Index:

1046.85 (down .13%)

Large Cap Dividend Top 50 Index:

1056.31 (down .05%)

T&V Gold Stock Index:

577.47 (down .15%)

General Liquidity Index:

1023.24 (down .09%)

BRIC Basic Materials Index:

1016.71 (up .25%)

Wonder Dogs ETF Basket:

404.0 (unchanged)

Leaders of the Pack Basket:

848.50 (up .18%)

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that is the third day in a row that the Wonder Dogs have closed at 404! the entire market was about as unchanged as you can get today. and you thought the Evenly Rotating Economy was just an abstraction! oh, maybe it's just the end of the year.

while not a part of any of the indexes above, I might point out that Goldman Sachs (GS) is looking decent:



no volume yet, but hey, no volume anywhere else either. one way to handle volume is to look at the security's activity relative to a benchmark. SPY usually works:



hey, death cross. maybe it's a contrary indicator! (:))

M3 falls in da Zone

from marketwatch:

Euro-zone money growth turns negative


have you considered trying QE, Jean-Claude? everybody's doing it.

CBOT Treasury Index

a little weakness this year, but in the scheme of things investors in US Treasury Bonds and Notes don't seem to be hurting too bad.

Index Data

closing values for Tuesday, December 29, 2009:

Trend & Value 50 Index:

1051.91 (up .19%)

Equity ETF Index:

1032.72 (down .19%)

China Small Cap ADR 25 Index:

1048.20 (down .88%)

Large Cap Dividend Top 50 Index:

1056.80 (down .09%)

T&V Gold Stock Index:

578.33 (up .15%)

General Liquidity Index:

1024.13 (down .48%)

BRIC Basic Materials Index:

1014.19 (down .58%)

Wonder Dogs ETF Basket:

404.01 (unchanged)

Leaders of the Pack Basket:

846.99 (down .83%)

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yesterday's high volume basket

lately I've been on this kick of taking several different stock symbols and adding up the prices, and calling them 'baskets'.

wanna chart of a basket of the 5 non-financial S&P 500 stocks with the largest volume traded yesterday?

here you go!

January Trends -- GLD

interested in how gold tends to move in January? I took the closing prices for GLD for each January since 2005 (5 years) to see if there was any discernible trend for the month. the result is the chart below.



the far right bar is the average closing price of the last trading day of January, the second to the right is the average for the second to last trading day, and so on to the beginning of the month. depending on the year, the far left bar may be the first trading day of January or the last trading day of December.

this only takes into account 5 years of data (because GLD hasn't been around longer than that) but the chart is pretty clear; gold likes to advance in January.

does that mean it will next month too? no, not really. what it certainly means is that a lot of people expect it too. the metal's January reputation is common knowledge by now. so, if a counter-seasonal move develops in the next month it could really be explosive.

do you bet on the seasonality? or do you bet against people betting on the seasonality? tough one.

Index Data

(I totally spaced out and forgot to post last Thursday's numbers. since it was the day before a holiday, we'll just leave that day blank.)

closing values for Monday, December 28, 2009:

Trend & Value 50 Index:

1049.87 (up .12%)

Equity ETF Index:

1034.66 (up .02%)

China Small Cap ADR 25 Index:

1057.49 (down .68%)

Large Cap Dividend Top 50 Index:

1057.74 (up .17%)

T&V Gold Stock Index:

577.46 (down .43%)

General Liquidity Index:

1029.09 (up .46%)

BRIC Basic Materials Index:

1020.06 (down .01%)

Wonder Dogs ETF Basket:

404.01 (up .09%)

Leaders of the Pack Basket:

854.09 (up .41%)

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EWH - Hong Kong iShares

just noticed the well-defined range that has developed over the past few months:



then I pulled up a 10 year chart with 'volume by price' bars. the abnormally large bar in the 15/16 area tells you that a great amount of trading activity has occurred right in the price range that has prevailed since October.



EWH has climbed all the way back to the base of the 2007 blowoff and the failed support levels of 2008. this is a critical juncture for the Hong Kong market and by extension the entire international stock pump complex.

if EWH can break out of the current range, then it and likely other international symbols are in good position to trade higher for some time to come. but if that fails and the fund moves lower from here things could get tough all over, and quick.

Today in Trend & Value

I just sent out this morning's Trend & Value Letter. 5 pages, 1800 words, a riddle, and surprisingly only 3 charts.

the letter gives potential price targets for the new 'Leaders of the Pack' share basket, the S&P, and the US dollar index. toward the end the letter starts to address the China situation, though I left the bulk of that task for another day.

I think it's a pretty good newsletter even if I left it a little incomplete (time constraints). sign up for a subscription at the top of the blog and I'll send it to you.

speaking of China, I almost forgot that I put a back issue of the newsletter that deals with China on the Old Reports page. click the link below to read the report in the original PDF format.

Trend and Value Letter 09_08_2009.pdf

CBOE China Index (CYX) vs Global Dow (GDOW)

here's a chart of CYX relative to GDOW over the past 9 years:



is China a bubble or the eternal Next Big Thing? I go with bubble, but I think the big money will likely come from betting against Chinese financials, which, aside from LFC, don't have a presence in CYX.

if you are not familiar with it, CYX (the CBOE China index) is an equally weighted index of the top Chinese stocks traded on US exchanges. there are currently 20 components, click here for the list.

the big financial entities mostly trade over in that Special Investment Vehicle they call Hong Kong. the FTSE/Xinhua China 25 index (FXT) is chalk full of banks and other financial companies. 47% of FXI (the ETF that tracks the index) according to iShares.

here's a long-term chart of the CYX:FXT ratio to ponder too:

Kass Predictions

Barron's has a blog post highlighting 20 predictions for the new year. all by this guy named Doug Kass. read the whole list here. I'm am going to paste a few of the ones I found interesting below. Kass's overall outlook for the markets resembles my own to large degree, at least in the general direction of things, if not the actual price targets.

3. The U.S. dollar explodes higher. After dropping by over 40% from 2001 to 2008, the U.S. dollar continued to spiral lower in the last nine months of 2009. Our currency’s recent strength will persist, however, surprising most market participants by continuing to rally into first quarter 2010. In fact, the U.S. dollar will be the strongest major world currency during the first three or four months of the new year.

4. The price of gold topples. Gold’s price plummets to $900 an ounce by the beginning of second quarter 2010. Unhedged, publicly held gold companies report large losses, and the gold sector lies at the bottom of all major sector performers. Hedge fund manager John Paulson abandons his plan to bring a new dedicated gold hedge fund to market.

6. A Middle East peace is upended due to an attack by Israel on Iran. Israel attacks Iran’s nuclear facilities before midyear. An already comatose U.S. consumer falls back on its heels, retail spending plummets, and the personal savings rate approaches 10%. The first-quarter spike in domestic growth is short-lived as GDP abruptly stalls.

11. Treasury yields fall. The yield of the 10-year U.S. note drops from 4% at the end of the first quarter to under 3% by the summer and ends the year at approximately the same level (3%). Despite the current consensus that higher inflation and interest rates will weigh on the fixed-income markets, bonds surprisingly outperform stocks in 2010. A plethora of specialized domestic and non-U.S. fixed-income exchange-traded funds are introduced throughout the year, setting the stage for a vast speculative top in bond prices, but that is a late 2011 issue.

Index Data

closing values for Wednesday, December 23, 2009:

Trend & Value 50 Index:

1044.01 (up .26%)

Equity ETF Index:

1026.87 (up .57%)

China Small Cap ADR 25 Index:

1058.66 (up 2.11%)

Large Cap Dividend Top 50 Index:

1049.31 (up .20%)

T&V Gold Stock Index:

584.81 (up 1.49%)

General Liquidity Index:

1021.30 (up ..95%)

BRIC Basic Materials Index:

1009.40 (up 1.70%)

Wonder Dogs ETF Basket:

399.58 (up .85%)

Leaders of the Pack Basket:

842.46 (up 1.13%)

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carve the turkey, turn the ball game on

the years pass, but the Christmas song here at T&V stays the same.

australia dollar january trends -- search of the day

someone just arrived at the blog via this search:

australia dollar january trends

since there was nothing on the search that looked helpful, I thought I could post the charts of the AUD/USD exchange rate for each January. so below are candlestick charts of the Aussie for each January, starting in 1997. they also include the 21 day moving average.

I don't have time to examine this right now, but the charts might prove a useful reference for someone else.

Index Data

closing values for Tuesday, December 22, 2009:

Trend & Value 50 Index:

1041.32 (up .37%)

Equity ETF Index:

1021.08 (up .26%)

China Small Cap ADR 25 Index:

1036.73 (down .93%)

Large Cap Dividend Top 50 Index:

1047.23 (up .31%)

T&V Gold Stock Index:

576.25 (up .56%)

General Liquidity Index:

1010.64 (up .05%)

BRIC Basic Materials Index:

992.54 (up .91%)

Wonder Dogs ETF Basket:

396.23 (down .15%)

Leaders of the Pack Basket:

833.02 (up .66%)

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correction: there was a data adjustment on one of the GLI components (IFGL) that I didn't spot till just now. the GLI close should be 1011.71 for Tuesday and 1011.26 for Monday. it didn't occur to me how tedious keeping these indexes could be...

anyway, here's a corrected chart of GLI:

are you sniffing for a bottom so soon?

I had been looking for at least interim support for gold in this 1090 area, but so far I am seeing very little sign of real demand here. too early to say, but it might just be a...




hey, 65 is a Padovan number!

update: just realized that gold is trading right between the 65 day exponential and simple moving averages. and here I just thought was pulling a random image off the net..

Index Data

closing values for Monday, December 21, 2009:

Trend & Value 50 Index:

1037.53 (up .87%)

Equity ETF Index:

1018.48 (up .77%)

China Small Cap ADR 25 Index:

1046.43 (up .60%)

Large Cap Dividend Top 50 Index:

1044.01 (up .76%)

T&V Gold Stock Index:

573.06 (up .13%)

General Liquidity Index:

1010.18 (down .43%)

BRIC Basic Materials Index:

983.56 (down .12%)

Wonder Dogs ETF Basket:

396.83 (down .21%)

Leaders of the Pack Basket:

827.58 (up 1.13%)

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USD/JPY daily chart

yes, this is an uptrend, but it is one of those that look extremely fragile. dollar bulls should avoid complacency when it comes to the nippy. this could go either way in the short-term, but if the direction proves to be down, the move could be extremely violent.

'Leaders of the Pack' Share Basket

in our last post we had a look at PIE, the 'Technical Leaders' emerging markets ETF. I concluded the post by saying that the fund had already picked out the 100 most overextended emerging markets stocks for us. it made me think that we could refine that list of 100 by making a portfolio of the most overbought stocks within the overall list. say, take the ten hottest stocks in PIE and make a sub-index out of them. isolating these 'leaders of the leaders' and tracking their combined performance might give us insight into health of the broader market.

then I realized that most of the stocks in PIE didn't trade on US exchanges, so I figured it would be too much trouble to create the type of basket I had in mind. instead, I turned my attention to PIE's domestic cousin, PDP, the PowerShares DWA Technical Leaders ETF.

in Reminiscences of a Stock Operator, Larry Livingston (the fictionalized Jesse Livermore) looked for the leading stocks in the market to drop sharply and not come back as evidence that the bull market was coming to an end. (I'd quote the passage, but my copy of the book is on a different continent than I right now.) This line of observation should be just as useful for today's market as it was for the market in Livermore's day. the trouble is that there are so many different stocks these days, so how do you reduce the 'leadership' to a manageable number of symbols?

well, this PDP fund holds 100 of the most relatively strong US listed stocks. I don't know exactly what their criteria for relative strength are, but I doubt the criteria are anything to argue over. So every three months the guys at PDP put 100 stocks in the fund, and each stock is weighted equally at the time of the quarterly constitution. but as the quarter wears on the leaders within the 100 gain higher weightings.

so what I did was make a sub-basket out of the top ten holdings of the fund as of last Friday. we can infer that these ten stocks have been the top performers of the 100 components since the last time they modified the fund's holdings.

VTR
AAPL
JBHT
CHRW
ARG
PCLN
CY
PCP
HSIC
BLL

so we can recognize these ten stocks as the leaders of the broad (US) stock market over past several months. taken together they represent the essence of the bull market. they are all that is good and right with the world of investing (viewed in hindsight at least).

so now we have our list of stocks to include in the 'Leaders of the Pack' basket, but we don't yet have a formula for combining them into a collective unit. I chose to combine them on a simple share price basis. in fact the basket is simply the sum of all ten prices. the main reason I did this is because I am a total ignoramus when it comes to working spreadsheets. so in the charts that follow keep in mind that the most expensive stocks (like AAPL and PCLN) exert a much much greater influence than the stocks with the lowest prices. (PCLN is fetching $216, while CY only trades for $10.55.)

like the Dow Averages, many people will take issue in this basket being share price weighted. it's 'not fair' that some stocks have more influence simply because they cost more per share. the critique is valid, but whatever, just because the composition isn't fair doesn't mean the basket isn't useful.

now to the charts. first up is the basket over the past 616 trading days:



the broad sweeps look a lot like AAPL, don't they?



now let's turn the magnifier up a couple notches and view the past 351 days:



the chart formation since the March lows is clearly that of a five wave advance. this differs from most broader market indexes that look more like ABCs. the disconnect should not be surprising, since our basket's express purpose is to represent the purely bullish essence of an unpure cyclical rally. it is when this basket completes the ideal bull market formation that we anticipate the reemergence of the primary bear market in the general market.

so if our wave count is right -- and as I say, it looks pretty clear-cut to me -- then we are in the final leg of the overall advance. the big question is whether this presumed fifth wave has hit its peak or not.

could be, but if so this last wave covered a lot fewer points than waves one and three. the first two impulse waves advanced at least 200 points, while the latest one has only managed about 100 points so far.

I'll be on the lookout for signs of a top, but honestly I don't see much evidence of one yet. in any case, our goal is not to call the top in this basket, but for the basket to help inform us as to the viability of the market at large (basis your preferred index).

the performance of the 'Leaders of the Pack' basket will be updated each day in the 'Index Data' posts. I also plan on keeping tabs on the basket in the newsletter on an as needed basis. so you'll need to sign up for the pay service (top of the blog) if you want to follow me following this.

PIE in the sky investing

I happened upon an odd ETF this evening -- the PowerShares DWA Emerging Markets Technical Leaders Portfolio, ticker PIE.

the fund has some formula for buying stocks that 'exhibit strong relative strength' (issues that have already gone up, in other words) and every few months they change the holdings.

the whole notion that you can model and quantify technical analysis is absurd to begin with, so it is no surprise that this PIE has underperformed the benchmark EEM by over 30% since its inception about two years ago:



now you might look at that chart and say that all that decline was during the bear market and the ratio has gone sideways since the Big Rally started in March. that's right, but it is also precisely the point I am trying to drive home here. PIE has barely been able to hold its own in an extremely strong market, and my hunch is that it will resume its underperformance when this Bubblet of '09 inevitably gives way to a secondary deflation.

if you are looking to bet against emerging markets, you could well get better returns shorting PIE than EEM (or similar). after all, the PIE model has already picked out 100 of the most overextended stocks in the emerging segment of the market!

Euro Index ($EXY) monthly chart

barchart's new 'beta' site now offers charts of what they call the 'Euro Index' (symbol $EXY). they don't explain what it is, but I am assuming it is the trade weighted index behind ICE Euro Index futures. if so, the currency weightings are as follows:

U.S. Dollar: 31.55%
Japanese Yen: 18.91%
British Pound Sterling: 30.56%
Swedish krona: 7.85%
Swiss franc: 11.13%
(source: theice.com/yadayada)

interesting long-term chart:



that is perhaps the ugliest chart I have ever seen.

Gold and Silver versus Money In The Bank

here is a chart of the gold price divided by the 'Barclays Capital Cash Composite' going back to 1980.



the cash composite represents the compounded return of holding an interest bearing deposit, so it seems like an appropriate 'deflator' to measure the price appreciation (or lack thereof) of a non-yielding asset like gold.

if nothing else, the above chart provides a 'reason' for the recent pullback in bullion prices. notice how the recent high approached the level of the 1987 high. the 1987 top might be considered the 'B' of the overall ABC bear market.

and here is a 'deflated' chart of silver prices since 1981:

The Relative Value of Regional Banks

check out these ratio charts of the KBW Regional Banking Index versus various other markets.







and here is the KRX relative to silver:

Index Data

closing values for Friday, December 18, 2009:

Trend & Value 50 Index:

1028.62 (up .28%)

Equity ETF Index:

1010.63 (up .33%)

China Small Cap ADR 25 Index:

1040.21 (down .28%)

Large Cap Dividend Top 50 Index:

1036.18 (up .03%)

T&V Gold Stock Index:

572.31 (down .15%)

General Liquidity Index:

1014.58 (up .31%)

BRIC Basic Materials Index:

984.76 (down .71%)

Wonder Dogs ETF Basket:

397.66 (up .04%)

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the big winner in the Equity ETF Index was KRE (Regional Banking), up 3.26%. newsletter subscribers should be happy. (though I have to admit that our model market neutral 'Seven Symbol Portfolio' was only up .19% today. our long/short commodities play backed off some.)

Index Data

closing values for Thursday, December 17, 2009:

Trend & Value 50 Index:

1025.72 (down 1.43%)

Equity ETF Index:

1007.31 (down 1.48%)

China Small Cap ADR 25 Index:

1043.10 (down 2.52%)

Large Cap Dividend Top 50 Index:

1035.84 (down 1.08%)

T&V Gold Stock Index:

573.19 (down .91%)

General Liquidity Index:

1011.45 (down 1.08%)

BRIC Basic Materials Index:

991.78 (down 3.23%)

Wonder Dogs ETF Basket:

397.49 (down 2.57%)

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Dollar Collapse

on December 17, 2008, the EUR/USD exchange rate closed at 1.4422 (New York close).

EUR/USD was last quoted today (a year later) at 1.4325.

wo ist der Einsturz?

Index Data

closing values for Wednesday, December 16, 2009:

Trend & Value 50 Index:

1040.58 (down .18%)

Equity ETF Index:

1022.45 (up .29%)

China Small Cap ADR 25 Index:

1070.05 (up .45%)

Large Cap Dividend Top 50 Index:

1047.11 (up .06%)

T&V Gold Stock Index:

578.48 (down .19%)

General Liquidity Index:

1022.51 (up .51%)

BRIC Basic Materials Index:

1024.86 (up .06%)

Wonder Dogs ETF Basket:

407.99 (down .08%)

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quote of the day

"what I don't understand, is what Copenhagen has to do with our country."

-- my sister Brooke, during a random conversation on current events.

then after I explain a little about what's going on, she says,

"that's what Hitler did. he took away people's energy."

then I made her listen to Red Barchetta.

Index Data

closing values for Tuesday, December 15, 2009:

Trend & Value 50 Index:

1042.47 (down .36%)

Equity ETF Index:

1019.50 (down .62%)

China Small Cap ADR 25 Index:

1065.28 (up .56%)

Large Cap Dividend Top 50 Index:

1046.46 (down .33%)

T&V Gold Stock Index:

579.60 (down .95%)

General Liquidity Index:

1016.51 (down .43%)

BRIC Basic Materials Index:

1024.24 (down .55%)

Wonder Dogs ETF Basket:

408.33 (down .76%)

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here's a chart of the General Liquidity Index since 11/4:



resistance is pretty clearly established now in the 1020 range. furthermore, momentum has been waning for a month now, as you can see from my super secret proprietary GLI momentum indicator:



the indicator is still above zero, so the world hasn't turned officially bearish yet, but the broad based reflation is looking more and more vulnerable.