Friday August 26, 2011

 

Looking past the News

 

Okay, name the most important event of the day.

Hurricane Irene Set to Hit New York City.

Bernanke speaks at Jackson Hole, WY (is QE 3 in the wings)?

Danica  Patrick makes move to Nascar.

Ashton Kutcher to replace Charlie Sheen on Two and a Half Men.

Well one is about as important as another. And frankly, Danica and Ashton are doing a lot better with their careers than Ben Bernanke is with his.

My point here is that you should not be side tracked by the news. Something is always happening out there. But in the great scheme of things, what really matters is the ebb and flow of social mood.

The news media is constantly trying to link some event with what happened in the markets. This past August is a great example. On the days when stocks dumped 400 points, the news decided it must be that investors were worried about Libya or the economics statistic of the week. On the days when stocks soared, well clearly, according to the media, everyone who was worried yesterday took heart in, ah, er,  well the latest laser like focus on jobs, and felt better about things. Such attempts to randomly tie the news to what people are doing is a fool’s errand. Here is what is really going on.

The Emerging Markets of the World like India, Brazil, and China all peaked last November, 2010. They have been falling ever since. The United States markets in terms of broad participation, peaked last February. This became clear with a final peak in May. Since then various other market like silver and oil peaked in May. With fewer and fewer stocks to hold up the averages, all collapsed in July. The Great Tide has now turned from Bull to Bear. The up trend form March, 2009 had ended. The top is in. But, there will be incredible rallies along the way to our eventual bottom I 2012-2013.

Many small investors panicked and exited their 401Ks in July and August. Big mistake, as corporate insiders have been buying like crazy, the most since the fall of 2008.

The S & P hit a low of 1100 in early August, then a higher low of 1125, and as I write , yet another higher low Thursday with a close of 1159. Stop looking at Bearded Ben and start looking at the market, it’s going up.

Other clues abound. Bond prices topped last week and have fallen since. So the money is moving from defensive to offensive, taking stock positions.

What about the oil field?  The XES Energy Service ETF double bottomed at 31, Thursday’s pullback was to shake out the nervous nellies.  Patterson PTEN lost a third of its value from July to now, so I bought a few shares. Yes to make money one has to buy low and sell high, but first you do have to buy. Again, look at the market, not the news makers.

Stocks hit bottom August 8. Crude oil hit $75.71 the next day, August 9. But it closed up that day nearly seven bucks at $82.14. That’s a key reversal day. Since then crude has registered higher lows.  Heating oil and unleaded gasoline exhibit similar patterns.

So while everyone is hanging on to the words of Chairman Ben, the smart money has been buying. It seems reasonable to expect a run back up to say S & P 1240 or so. Crude oil should certainly rise to challenge its longer term moving average at $95. This party should last into October.  Why,  because the market action tells us so.

On the other hand, Danica Patrick is moving to NASCAR, and that’s got to be a positive right?