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Friday, April 1, 2011

Finance Friday : Gold, Oil, The Halloween Indicator, and Bearish Signs

GOLD

In  'The Impending Collapse of the Gold Bubble ' , SEEKING ALPHA's Chart Prophet blogger warns that " the herd-like behavior and highly speculative participation in Gold is pointing to a huge bubble that poses severe risks and may soon collapse. "

OIL

MARKETWATCH's Myra P. Saefong cautions, 'Oil ETF buyers, beware'.   Saefong spells out the risks inherent in oil-related ETF's that are futures-based--and therefore exposed to 'tracking error' through contango and backwardation, which she clearly and succinctly explains--as opposed to equity-based

And in her piece, 'No More Storage in Cushing; WTI Will Be $90 in a Month' ,  Dian L. Chiu  reasons that since the Cushing, Oklahoma storage facility is nearly close to capacity,  consumers are cutting back, and refiners are responding to reduced consumption by paring production, the price of oil-- WTI, that is--is headed for a fall.

HALLOWEEN INDICATOR ('Sell in May and go way')

Mark Hurlbert explores two apparently profitable variations on the 'Halloween Indicator' in his MARKETWATCH article, ' Should you sell in April and go away ?'.

BEARISH SIGNS

That's what SEEKING ALPHA's Financial Sense blogger perceives in his piece, ' Still Bullish, But Economic Indicators Are Beginning to Show Warning Signs',  excerpted below.

While there are plenty of bullish developments, leading economic indicators are beginning to diverge and wave a red flag. At major turning points for the stock market, we’ve seen the Economic Cycle Research Institute’s (ECRI) Weekly Leading Index (WLI) diverge with the S&P 500. In 2000, the S&P was hitting new highs, but the WLI failed to match the S&P 500 and was warning of a major market peak. Conversely, the WLI bottomed well in advance of the S&P 500 during the 2000-2003 bear market and was hinting that the bear market was coming to a close.

Yet again, the WLI provided early warning of a coming market peak as it failed to confirm the new high seen in the S&P 500 in 2007. Currently, a divergence has been developing between the two again as new highs haven't been confirmed by the WLI. At a minimum, this speaks of becoming more selective in the sectors to invest in as the potential of a market top in the next 12 months is a distinct possibility.

Another warning sign to watch out for is a lack of confirmation between new 52-week highs of individual stocks and the major exchanges. As you can see from the charts below, new highs have begun to grow fewer in number while the market has continued to appreciate. Simply put, this means the bull market is beginning to become more selective as fewer and fewer stocks are participating.

If a topping process is indeed taking place, the sectors that outperform the market the most near the end of a bull market are defensive sectors like health care (XLV), consumer staples (XLP), utilities (XLU), telecommunications (XTL), and also late-stage cyclicals like industrials (XLI) and energy (XLE). Going forward, investors should become more selective in sector allocation as well as putting on their risk management hats..  

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