I just finished my Commodities and Currencies review and updated all of them in the Chartbook. Today’s notes include updates on:
- Crude Oil
- USD/JPY [Read more…]
Sometimes I just like to babble about what’s on my mind. It helps me organize my thoughts and you guys keep asking me to do more of this. So here’s what I’m thinking….
The year is off to a great start for us. I’ve never gone into a new year this prepared. Sunday night January 4th I couldn’t even sleep I was so excited. It was like I was a little kid on Christmas Eve. I keep a spreadsheet with a list of if/then statements where if certain things happen I would enter long or short positions in asset classes of all kinds. So far this year I’ve been in soft commodities, energy stocks, foreign stock markets and base metal stocks. Some of these were longs and some were shorts. If you follow my stocktwits and twitter streams, you pretty much know what I’ve been looking at.
This whole interest rate thing is hilarious to me. I never knew the bond market could be so funny. Wall Street Economists keep telling us that rates are going higher and I have no idea what they’re looking at. Why on earth would they think that? Fed Fund Futures keep pricing in lower and lower probabilities of the first hike at the October meeting. Last I checked we were now down to just a 56% chance, down from over 80% last week. It’s hysterical to me.
I get asked every day when Crude Oil is going to bottom. I really have no idea. Bearish sentiment is stretched to levels rarely ever seen before. But that alone is not a reason to buy it. I’m looking for a momentum divergence to even think about putting on a position and so far we have not gotten it. We can put Unleaded Gas and Heating Oil in that same camp, with respect to both sentiment and a lack of momentum divergence. I don’t know when they will bottom. So we’re focused elsewhere. Euro is in that category too. Maybe they bottom simultaneously. We’ll see…
Natural Gas has exploded this week. To me, this one came out of no where. Earlier in my career I would have gotten upset with myself for missing this move. But now I realize that there is no reason to get mad. Looking back at the setup last week, there wasn’t any reason why I would have bought it. I have to stay true to my process and wait for only the perfect setups. If something makes a big move and it wasn’t my trade, there’s no reason to be mad. It wasn’t for me. And still isn’t, for that matter.
As far as US Equities go, I still don’t see any reason to put money to work up here in the major averages. One of my favorite positions so far this here has actually been a short SPY with a long REITs as a hedge. This has worked well and don’t see any reason why this still won’t work. I’m looking at 0.42 target on that spread (IYR/SPY). As long-term interest rates keep getting killed, there will continue to be a relative demand for higher yielding stocks. Fixed income guys aren’t getting their yield in the bond market. So they have to go to stocks. This is the reason I believe REITs and Utes doubled the returns of the S&P500 last year and will continue to do so in the first quarter.
I went to see Louis CK at Madison Square Garden last night. He was hilarious as always. So much fun. But I have a problem with the cavemen that run the arena. I get to the front of the line and show my tickets on my iPhone and these idiots make me go across the street to the Pennsylvania Hotel to print out the tickets. I couldn’t believe it. I thought this was 2015? I haven’t printed out tickets to a game or show in god knows how long. Anyway, I get to the hotel business center and there are 20 other angry people there printing out tickets wondering why we’re all doing this. And then if things couldn’t get any dumber, the guy’s gun to scan the bar code on the freshly printed tickets couldn’t even scan the bar code. He had to enter the numbers manually!!!! I couldn’t believe it. Still can’t. MSG get your act together. This is 2015 and we use phones not printers. And you wonder why the New York Knicks have the worst record in the National Basketball Association.
Some of the soft commodities are interesting. Coffee got off to a great start. We’re long Sugar futures currently and as long as we’re above the September lows, I love this one. OJ doesn’t look too bad either. My buddy Jonathan Krinsky at MKM Partners calls this the Breakfast Trade. Love that. I like Sugar the best of the 3.
Around the world I think we can see some nice mean reversions in countries that have been beat up. I like Malaysia down here. The risk/reward is definitely in favor of the bulls. I only like it above this week’s lows. Below that and things get messy.
Shorting Base Metals has worked out well for us so far this year. I was upset because we’ve had a small position. I didn’t want to chase it. This brings up an interesting point that has become the theme around the office this year. I think I’ve caught myself saying, “well that’s the downside of risk management” at least once or twice every day. It’s turned into a joke. But funny or not, it’s true. If you miss it you miss it. This isn’t venture capital where missing a good one could be a disaster. For us liquid market guys, there will be other opportunities.
Business wise things are going well. We’ve received great feedback from our subscribers about our weekly research reports. I love putting them together. This is really just my homework that I have to do anyway. I think of it as a professional athlete having to go to practice or to the gym. Even when it’s a Saturday morning or Tuesday late at night and I kind of don’t feel like putting in the work, I have to do it. No choice. I owe it to our paid members, I owe it to investors in our hedge fund and I owe it to myself. Hard work pays off. If I didn’t take the time to look at all of these charts, there is no way that I would find as many opportunities to profit around the world. I really want to have a great year, especially if the US Stock Market doesn’t do well. It will be nice to point to the success of an uncorrelated portfolio looking for absolute returns. I’m trying my best.
Solars are another interesting one. The trend here has been to the downside for almost a year. With downward sloping smoothing mechanisms on both daily and weekly timeframes, I think we break to the downside soon. Will that have anything to do with crude oil breaking to new lows? Possibly. But I want to be shorting these guys on a break of the lows from the 4th quarter. Solar stocks look terrible as a group.
Why are so many people lazy when it comes to math? I read things and am told things constantly that contradict 3rd grade math. I don’t understand. Interest Rates and US Dollars are positively correlated? What idiot told you that? When one is making new highs and the other is hitting new lows…..guess what? They’re not positively correlated buddy. The furthest thing from it in fact. I don’t get it.
I went to an art class the other day. It was so much fun. I’m not exactly the most artistic person. I’m not very good at drawing or painting. Although Howard Lindzon calls what I do “Chart Art”. But I had a blast at this class. It was at bar down in the Bowery. As it turns out my college buddy is dating this girl who is a lawyer during the day. But her heart and passion is really in art. So she decided to start this company called Art By Friends NYC. She teaches the class. So a few of us went to go support her. It was about 2 hours on Tuesday night. We drank wine, ate pretzels with a delicious mustard dip and my painting came out terrible. All good though. Some of the people in the class were incredibly talented. It was amazing how good some of these came out. But there was no judging. Everyone in the class was very supportive and friendly. Great time.
I don’t know when Copper is going to bottom out. It looks horrible. Structurally this is and has been a broken market that will take plenty of time to bottom out. We will get rallies, but I believe they will just be counter-trend in nature and the bottom will be a process. A long process. This tells me I need to keep looking at shorting base metals and base metal companies.
The metal I do like is Palladium. Relative to the others this is by far and away the best one. I want to buy this, but only on a breakout above 825. Below that and I don’t think there’s any reason to be involved long or short. The precious metals, gold, silver and platinum have done well so far this year and I think they have a little more upside maybe. But this isn’t something I want to fool around with. I think there are better setups elsewhere. But we’ll keep a close eye on them. Platinum to me has been the cleanest. I think we see at least 1350 on that one. Gold and Silver should benefit as well.
So that’s what’s on my mind.
What are you guys thinking these days?
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Last week I sat down with the CEO Technician over at CEO.CA to talk about my methodology in the market, how I utilize sentiment, what I currently see in Energy, Metals and Interest Rates and to talk a little bit about our business, both the hedge fund and research products.
Here is the Interview in full:
In the financial blogosphere, the cream rises to the top. JC Parets, Founder and President of Eagle Bay Capital, LLC, is one of the clearest voices on Wall Street today. As author of the popular technical analysis blog, All Star Charts, Parets, 32, has established a significant following (You may know him from CNBC and other frequent media appearances). We respect JC as a disciplined trader and market analyst; he is especially strong at risk management and often finds unique insights utilizing inter-market analysis. We had the opportunity to catch up with J.C. the other day and so without futher ado, here is our interview with J.C. Parets talking global markets…It’s great to have you here J.C., what can you tell us about your methodology for the markets? What do you look at on a daily basis?
Sure, the only reason why we are in the market is to make money. We aren’t journalists, we aren’t economists, the only reason we are in the market is to make money. So we are being very selfish in that respect, to make money for our investors. In order to achieve this goal I am constantly going out there looking for risk/reward opportunities that are very much skewed in my favor. We are looking for opportunities where for each $1 of risk we are able to make between $8-$12 in profit, so we are looking at 1:8 risk-to-reward opportunities. We are very picky.
We are able to do this because we look at such a broad array of markets and asset classes. We run a lot of spreads as well, where we can be long one market and short another etc. So for example if we want to be neutral precious metals as a group we can be long palladium and short silver, a trade which has worked very well for the past couple of years.
A few of the tools we are able to use to find the best risk/reward opportunities, obviously we are analyzing price because it is the only thing that pays. When we are looking at momentum I use a 14-period relative strength index, I do a lot of relative strength analysis, so not only on a particular stock relative to the overall market but also for example we will look at emerging markets as a group and compare countries within the emerging markets. So for example India has been showing relative strength compared to emerging markets as a group, Russia has been showing a lot of relative weakness compared to emerging markets as a group.
We also do a lot of seasonal studies. We have some proprietary models that we incorporate because during different times of the year certain markets behave in different ways. Not just the stock market, but commodities, fixed income, and currencies as well. And we also implement traditional pattern recognition, something that we kind of take for granted, looking at behaviors of the market in different patterns. As a technician that’s what i’m really focused on, price and pattern recognition. I also do a lot of Fibonacci analysis to come up with price targets and to manage risk.
How do you utilize sentiment in your market analysis?
More often than not there isn’t any valuable information we can take from sentiment. I only really start to pay attention to sentiment when we’re at extremes. For the most part sentiment is a bunch of noise. For example in the US stock market right now I believe that sentiment is just a bunch of noise – sentiment has been relatively bullish and we have continued to make new highs, but we have not seen extremes in bullish sentiment. Another example are metals, sentiment has been extremely depressed yet prices have continued to make lower lows. This sort of action is classic bear market stuff. Could we see a counter trend rally in metals? Sure. But is there enough evidence to say that this multi-year bear market in metals is over and we’re going higher? It’s way too early to say that, but short term we could definitely get another counter trend rally.
What are you seeing in crude oil after the big sell-off the past few weeks?
I really like to wait for the perfect storm in terms of sentiment, price, and momentum before I get involved in a market. In crude we are really only at extremes in terms of sentiment, there is really nothing else to suggest that now is the time to be buying. Are we close to a bottom? Yeah, I’ve got to believe that we’re close and the mean reversion process is likely to get going soon. I could see oil getting back to the low-to-mid $80s on a rally but we must remember that this will be a counter trend rally. Oil has been in a bear market since it topped at $147/barrel in 2008.
One of the best trades you’ve had during 2014 has been your long US Treasury Bond position which you’ve had on since January. What do you see from here and when will we know that we’ve put in a bottom in yields?
It’s a process and that’s what I think the academics and the economists don’t understand. It’s something that takes time and it’s not going to be a single event that’s going to be like “BOOM!! that’s the bottom in rates” and then we’re going to have a multi-decade bear market in bonds. I like to look at history, we can learn a lot from the past behavior of the market, especially a market like the US Treasury Bond market, a market that’s been trading for over 200 years. Historically speaking a bottom in interest rates takes 10-15 years to happen. I see zero evidence that interest rates are heading higher, in fact everything we were seeing back in January that made us bullish bonds we are still seeing now.
So to be clear, you are seeing no signs that we are near a bottom in long bond yields?
To the contrary, everything i’m seeing is telling me that interest rates are going to stay down. Look what’s happening in the stock market, what are the best performing sectors year-to-date? Utilities and REITs. This is yet another indication that rates are staying lower. The only people saying rates are going higher are the economists and the journalists, people who don’t put any money to work.
What are your favorite sectors and asset classes out there right now and what are your favorite charts?
We want to be in utilities (XLU) and REITs (IYR), these sectors are breaking out to multi-year highs. Tactically from a risk/reward standpoint it doesn’t get much juicier than this; we have a target on IYR of 85 and we only want to be long above 76, if it breaks back below 76 we will be out.
We also really like being short the Canadian dollar via being long USD/CAD. This pair put in a huge bottom and as they say “the bigger the base, the higher into space” – we have a 1.17 target for USD/CAD.
Relative to the broader market regional banks have been strong recently, this is a sector that I have previously been vocally bearish on, but recently I have been seeing some interesting things:
We are targeting $47.50 on KRE and with two weekly closes above $40.50 I will get long.
We also want to continue to be long S&P 500 (SPY) vs. short emerging markets (EEM). This has been a huge bottoming process and when we see huge bottoms like this one we need to respect it:
Thanks, J.C. Now what should our subscribers know about your fund and research services?
My #1 job is to manage money for my fund investors and if you would like more information on that please email us at firstname.lastname@example.org. We also offer weekly chart research packages. For years I had been getting emails from people to launch some sort of subscription platform. Fortunately we were recently able to partner with some people on our back end so I could focus on what I do and we were able to launch these chart research products which are all detailed at www.eaglebaysolutions.com – every market we cover includes analysis on both weekly and daily time frames including momentum analysis, relative strength, pattern recognition, fibonacci levels, price target, and support/resistance. We currently offer 5 chart packages:
I would like to thank J.C. for sharing his insights with us and I invite readers to check out his blog at www.allstarcharts.com and we can attest that his chart research packages are well worth the price of admission. You can also follow J.C. on Twitter @allstarcharts
Tags: $USO $CL_F $HO_F $RB_F $UGA $UHN $IYR $XLU $GC_F $GLD $SI_F $SLV $PA_F $PALL
This week I was over at the ABC studios on the Upper West Side to talk about Gold and other metals. I think it’s important for investors to define their goals and time horizon in the market. Structurally I see little evidence to suggest that a historic low was made last month in Gold and a new structural bull market has begun. Short-term I think we can see a bit more upside, but bigger picture I think we can be patient before calling this a real bottom. I believe there are better ways to be positioned in the metals space.
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Tags: $GLD $GC_F $SI_F $SLV $PA_F $PALL $HG_F $EEM $JJC
One of the more interesting developments in recent weeks is the increased selling pressure in precious metals. Gold and Silver are two metals that we’ve wanted to be aggressively short for some time now. This has worked out well as prices continue to hit multi-year lows. But one thing that stands out from the group is the continued outperformance from Palladium. When we review our commodities charts, this one definitely stands out from the rest.
Here is a 3 year chart of Palladium compared to Gold, Silver and Platinum. The outperformance here clear:
It’s no wonder that with Silver down almost 20% this year, and gold and platinum also down, that somehow Palladium is up 8% for 2014. The pair trades continue to work.
Here is a chart of the Palladium/Silver pair hitting 10-year highs this week. I don’t see any evidence yet that this trend has changed:
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Tags: $PA_F $SI_F $PL_F $GC_F $PALL $PPLT $SLV $GLD
On Friday I was over at Fox Business chatting with Liz Claman about the Stock Market. I think the biggest thing that I don’t hear people talking about is how there isn’t anything better than the S&P500. On a relative basis, none of the other countries can compare, especially Emerging Markets who continue to underperform. Latin America specifically is one of the worst relative to the United States. We also discussed precious metals and how our downside targets in Gold and Silver still have not been reached. Palladium on the other hand continues to be the best of all the metals and proved that once again rallying 1.55% last week while Gold and Silver were down 4.7% and 6% respectively.
Here’s the full clip:
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Tags: $GC_F $GLD $SLV $SI_F $PA_F $PALL $SPY $ILF $EEM
On Friday afternoon I was over at Fox Business to follow up on some of the things I’ve been discussing in previous appearances, particularly precious metals and shares of JC Penney. I think we need to give JCP some time here before getting aggressively long again. But precious metals are just starting to break down and I believe there is still more downside left.
Here is the quick clip:
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Tags: $SLV $GLD $SI_F $GC_F $JCP $PALL $PA_F
I had a nice little chat today with Howard about the markets. After I leave he stays on with Jenn Van Grove to talk about tech. It was great. I really like the format:
You can listen here
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Tags: $SPY $SPX $ES_F $EWZ $EWG $FEZ $PA_F $PALL
Of all the TV and Radio that I do every month, this is without a doubt one of the most enjoyable for me. I really appreciate a show that is dedicated to analyzing the behavior of the market and market participants. They get it.
Here is the interview in full:
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Here’s the clip from this week’s appearance on Fox Business
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Tags: $GLD $GC_F $SLV $SI_F $PA_F $PALL $PL_F $PLAT
As you guys know, I look at a lot of charts. But coming into 2014, it was Palladium, of all things, that I liked the most. I called this one “My Favorite Chart in the World.” Now as we approach the midway point for the year, everything that we’ve seen continues to suggest that higher prices are still coming for the metal.
So far year-to-date Palladium prices are up 17% while the other metals struggle. I want to reiterate a few points as we continue to see Palladium soar to multi-year highs. The first thing is the relative strength that it’s shown versus the other metals. Here is a 2-year chart comparing Palladium to Gold and Silver. Big difference to say the least:
The second thing that I think is worth pointing out is this year’s breakout from that huge base. As they say, the bigger the base the higher in space. Here we’re looking at a weekly bar chart showing the impressive breakout from this multi-year consolidation:
The measured move target based on the size of the pattern is about $1050-1100 based on the size of the base ($300-350). We take that number and add it to the breakout level around 750 to achieve our target.
My outlook has not changed for this market since we first brought it up in January. In fact, everything we’ve seen confirms our original bullish thesis. I’m going to remain in the ‘buy any and all weakness’ in this space. I think it continues to outperform the other metals as well as Commodities as an asset class. Most importantly, it’s left US Stocks in the dust and I think we see more of that.
You still don’t hear much about the Palladium market. But I get the feeling that once we take out the 2011 highs, you’ll start to hear a lot more chatter…..
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Tags: $PA_F $PALL $GLD $GC_F $SI_F $SLV $CRB $CCI
Now that we’re officially in the second quarter of 2014, we can look back at Q1 to see what we’ve learned. The big winners were in the commodity space with the equal-weighted commodies index up over 10% for the first quarter. Coming in second were US Treasury Bonds up almost 8% for the quarter. On the equities side, the Dow Jones Industrial Average struggled losing 1.5% for Q1, the S&P500 closed up 50 basis points and the Small-cap Russell2000 was down 1%.
There were a lot of stock market bulls coming into the new year, but we couldn’t find many bond or commodities bulls. It’s fascinating to see sentiment play itself out. We’re starting to hear more chatter about commodities lately but still not many bond bulls. We’ll see what happens in the second quarter.
Individual sector-wise, I can’t say I’m surprised with the results. Back in February we noticed that the high yielding Utilities and REITs were leading the way for stocks. As interest rates have been falling (while most expected them to rise), fixed income managers need to find yield. They’re not getting it in bonds, so the flow goes into the sectors with the biggest dividends. I don’t think it’s a coincidence that the historically low yielding Cyclicals and Industrials were the worst performers.
In the metals space Palladium was the big winner finishing up the quarter up 8.5%. This was my favorite chart coming into the new year and the price action so far continues to prove why. Copper was a big time loser getting crushed along with emerging markets. Something else that sticks out is the underperformance of Silver in a positive precious metals environment. That calls me to question this quarter’s rally in that space. I would expect (and want) silver to outperform if this was a real bull market:
The soft commodities were the big winners for sure. Coffee finished up the quarter up over 60%, after doubling from the Q4 lows. Corn, Wheat and beans all came in with double digit returns and Sugar, Cotton, and Cocoa all finished with solid gains:
In Energy we had some mixed returns. West Texas Crude finished up close to 3% with Brent Crude down almost3%. Natural Gas finished up 3% and Heating Oil down 4.5%. Mixed signals out of this space:
Going forward what should we expect? I’m not sure that I see anything different than what we saw coming into the new year. I think the price action so far has confirmed a lot of we expected. Rates continue to fall and I don’t see any evidence yet of a rally. Stocks keep struggling with most of the world down this year. The US has been one of the stronger areas within equities and still can’t seem to rally. I would expect more of nothing out them. And in commodities we can continue to pick and choose as the rotation there continues. But as an equal-weighted group, I would expect to keep seeing them outperform.
If the data changes, then we’ll reevaluate. We have our levels, and if any of those are broken, we’ll adjust. But for now, all systems go.
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