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E I Du Pont De Nemours And Co. (DD) met our $68.00 initial upside target earlier this month, on April 2nd, which was first mentioned in our August 5th 2013 Keys To This Week, to capture a $8.41 per share, 14% advance in the stock in a little more than 8 months.
Per our August 2013 report, we were particularly interested in DD because of its tight and stable positive correlation to the Materials Sector SPDR ETF (XLB), which at that time was also historically under-invested according to our own asset flow-based metric, and amid favorable conditions for upcoming strength and relative outperformance.
During that same 8 month period XLB has coincidentally risen by 18% and has outperformed the S&P 500 SPDR ETF (SPY) by 6%.
Noe that profit-taking driven corrective declines often emerge once major upside targets like this one are met.
Almost 3 weeks ago John Kosar, our Director of Research, was invited to appear on Yahoo! Finance’s Talking Numbers segment on CNBC to discuss the future prospects for the direction of Technology bellwether Apple Inc. (AAPL), following rumors that the tech giant would be releasing a large screen iPhone 6 as soon as September. The video from that interview is available below, or by clicking here.
During the interview John said:
“I’m not so sure I want to jump into the pool right now. The stock is overbought on a monthly basis. “My inclination is to wait a few weeks. Wait for a pullback towards $500 – you have some major support there around $502 – and then watch for that stock to get a little traction again and then enter. I think larger picture, we take a run at those highs at $583 to $595.”
AAPL closed at $537 the day of the interview, and has since collapsed by $26 per share or -5% into the $511 April 16th lows.
The chart below shows that this decline has positioned the stock just above its 200-day moving average, a widely-watched major trend proxy currently situated at $509 per share. We view this as an opportunity to consider closing out the near term shorting opportunity that we discussed on March 28th for a nice profit within just a few weeks.
Since AAPL comprises 13% of the Technology Sector, and Technology tends to lead the US broad market both higher and lower, we are now watching the stock’s reaction to this major support level very closely — in addition to monitoring our own ETF-based asset flow metrics for the broader Technology sector — as a potential coincident or leading indication of the US broad market’s next one to several month trending phase.
Asbury Research subscribers can access our latest research on these topics by logging into our Research Center.
Interested investors can request further information, including research samples and pricing, by contacting us via email by clicking here or via phone by calling -1-888-960-0005.
AAPL’s 5% April Decline: Buying Opportunity Or More Pain Coming?:
April 16th, 2014 at 10:15 am
The graphic below is slide 7 of a 12-slide presentation that I made in front of a group of Asbury Research clients and potential clients during my trip to New York last week. It highlights our own metric, which tracks daily US market sector-related asset flows via the 9 Sector SPDR ETFs. Asbury Research clients receive updates on these data, and their directional implications, every week.
The chart on the left side of the slide shows that the percentage of all sector ETF-related sector bets allocated to Energy expanded from 9.6% on February 18th to 11.3% on March 4th, which indicated that an already under-loved sector was starting to attract some new money.
Our trend model, which utilizes the inputs from this metric, shifted to overweight in Energy on March 3rd. Since then, the sector has outperformed the S&P 500 SPDR ETF (SPY) by 3%.
The chart on the right side of the slide shows that the percentage of all sector ETF-related sector bets allocated to Health Care contracted from 12.9% on March 19th to 11.8% on March 31st, which indicated that investor assets were leaving an already over-loved sector — presumably for other areas of the market.
Since March 19th and through the close on April 9th, the sector has underperformed the S&P 500 SPDR ETF (SPY) by 3%.
Although these ETF asset flows need to be monitored closely to stay on top of existing and emerging trends in investors flows, our metric tends to coincide with or slightly lead near to intermediate term trends in relative sector outperformance or underperformance.
Professional investors can request a copy of our entire NYC presentation by Clicking Here and typing “NYC PDF” in the subject line and your full business contact information in the body of the email.
Our US Financial Market Chart Book and accompanying video is one of 8 reports that we produce for Asbury Research subscribers throughout the month, and one of our most popular.
It is a monthly collection of key charts that focus on a broad array of financial asset prices and related data that collectively convey our best investment ideas for the next one to several months in the US stock market and sectors, US interest rates, the US Dollar, and in economically influential commodities. In the accompanying video, Director of Research John Kosar discusses the implications of each chart and how they are likely to affect the direction of asset prices.
The following are some excerpts from our January 16th report:
U.S. Stocks: “…for the time being, near term momentum remains positive, fear gauges like the VIX and corporate bond spreads are benign, and retracement theory suggests the potential for an additional 3%-5% advance in the major US indexes over the next month or so, before a correction emerges.”
Since that report, the market-leading NASDAQ 100 has risen by 4% as expected. The bellwether S&P 500 has risen by 2% during the same period.
US Interest Rates: “…favorable conditions (exist) for a significant 1st Quarter rebound in mid to long dated US Treasury prices as the yield of the benchmark 10-Year Note eases back toward 2.55%.”
Since that report, the iShares 20+Year Treasury Bond ETF (TLT) has risen as expected, by 4.30 or 4%, while the yield of the 10-Year Treasury Note coincidentally declined by 26 bps to 2.60%.
Gold: “An historic least-hedged extreme by commercial hedgers in COMEX gold represents an aggressive bullish intermediate term bet on higher gold prices by the smart money. Watch for a potential buying opportunity in Barrick Gold (ABX).”
Since our report, ABX rose by $3.24 per share or 18% into the late February highs before pulling back recently.
Asbury Research subscribers can view our latest US Financial Market Chart Book by Clicking Here.
Interested investors can request further information, including pricing options, by contacting us at email@example.com or 1-888-960-0005.
The graphic below is one of 18 charts that comprise our US Financial Market Chart Book for March 2014 (access requires subscription), which was distributed to Asbury Research subscribers earlier today. “Chart Book” is a collection of key charts, data and intermarket analysis that convey our best investment ideas as we head into, and during, Q2 2014 for the US stock market and sectors, US interest rates, the US Dollar, and gold prices.
It includes an accompanying video in which John Kosar, Director of Research, discusses each chart’s implications for upcoming US financial market direction.
From that report: “The latest data suggests the potential for an additional 3% rise in the US stock market between now and mid q2 2014. However, we also suggest that investors pay particular attention to a short list of our key near term metrics over the next several weeks for signs of an emerging correction, and to have a defensive plan already in place, because current extremes in some data series’ warn that the US market environment could potentially turn negative in a hurry.”
Asbury Research subscribers can view the entire report, which includes a our latest analysis of the gold market and its expected effect on other financial asset prices, by visiting our Research Center.
Contact us at 1-888-960-0005 or firstname.lastname@example.org to request further information including pricing, and to request a trial.
“John Kosar at Asbury Research has provided us with timely research and has helped us to avoid making bad decisions at market turning points. I use “Keys” (To This Week) as a part of my decision making process in equities and fixed income and eagerly wait for it on Monday mornings Well worth the cost.”
Investment Committee Partner, Registered Investment Advisor, Wisconsin
“As a comprehensive financial advisor to affluent middle-age and retired individuals, I have to stay on top of many different aspects of financial planning. Asbury Research saves me significant time by providing the current state of the markets with a concise report every week, which gives me great talking points for clients and key input for my investment strategy, especially on deciding when to hedge. I have come to rely on it.”
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“I have managed money for almost 20 years and have seen and used a lot of research. Asbury’s research can be quickly integrated into anyone’s investment decision process to determine technical support of conclusions drawn from other analysis. Asbury’s process is very comprehensive and provides invaluable insight into financial market trends and reversals, especially during periods of high uncertainty.”
James R. Oswald, CFA, Investment Management Firm, Chicago
The following (green highlights) is a brief excerpt and one of 23 charts from this month’s Global Seasonal Analysis report.
Global Seasonal Analysis, one of 8 reports that we produce for subscribers throughout the month, displays and analyzes annual, quarterly and monthly seasonal trends for 17 global asset prices including equities, benchmark interest rates, foreign exchange, and key commodity prices based on historical data going back to the 1950s.
Excerpt From: Global Seasonal Analysis
Asset Class: Gold
Topic/Title: Gold Monthly Seasonal Pattern Since 1977
Date: March 4th 2014
The green bar on the chart below identifies March as the seasonally weakest month of the year for gold prices (London PM fixing) since 1977. It represents a significant one-month decline from February, the 7th strongest month, and is the second of a 5 month period of seasonal weakness in gold prices that runs through June and includes 5 of the 6 weakest months of the year.
The depth of the teal bar on the chart indicates that, on average since 1977, gold prices have declined by 1.04% in March. The red line shows that, also on average since 1977, gold prices have posted a negative monthly close in March 57% of the time, which is its second highest incidence of a negative monthly close (after October) during this period.
At first glance, the chart above looks like a major red flag for gold investors. However, keep in mind that gold prices have already risen by $174 per ounce or 15% since the beginning of the year and are probably due for a correction.
We began getting long term bullish on gold prices back in July 2013 due to a very unusual unhedged condition by gold producers that we noticed back then, just as gold had ticked down to $1180 per ounce. We talked about it in our July 23rd Research Excerpt entitled Gold Prices Test Their First Upside Obstacle: Watch The Smart Money.
Gold prices subsequently exploded 22% higher to $1434 by the end of August before collapsing back to the $1180 area again by year end — just as the gold producers reverted back to their July unhedged position in the futures market. This series of events made it pretty clear to us that the smart money not only identified $1200 area as a value area for gold, but were willing to stake lifting the hedges on their physical holdings of gold on it.
We most recently updated our outlook on gold prices in our February 24th Commentary entitled The 2014 Gold Rally: The Real Deal, Or A Flash In The Pan? Non-subscribers can view a Research Excerpt of that report by clicking the title.
So, understanding how the smart money is positioned in the market, as we head into what has historically been the weakest month of the year for gold prices, can go a long way in identifying whether this is where gold bulls should cash in their chips, or consider using whatever weakness this month as an opportunity to add to an already profitable position.
Asbury Research subscribers can view our latest analysis of the gold market, and its expected effect on other financial asset prices, by visiting our Research Center.
The following (green highlights) is an excerpt and 2 of 10 charts from our February 21st Commentary, entitled The 2014 Gold Rally: The Real Deal, Or A Flash In The Pan?
Our Commentaries, 1 of 8 different reports that we produce for subscribers, are strategic in nature and provide a comprehensive analysis of specific areas of the US financial landscape looking one to several quarters out. Our Commentaries identify emerging intermediate term investment opportunities in specific financial assets, often before the actual new price trends become apparent.
Excerpt From: Market Commentary
Asset Class: Gold, US Interest Rates, US Equities
Topic/Title: The 2014 Gold Rally: The Real Deal, Or A Flash In The Pan?
Date: February 21st 2014
Gold prices first found their way onto our radar screen back in July 2013 because of some unusual investor positioning data from the Commodity Futures Trading Commission (CFTC), which we first displayed and discussed in our July 23rd report entitled Gold Prices Test Their First Upside Obstacle: Watch The Smart Money.
These data showed that in late June/early July gold producers collectively moved to an essentially unhedged position the futures market for the first time in more than a decade. This rare, unusual positioning indicated that the smart money was collectively convinced that gold was undervalued at $1200 per ounce. Unbeknownst to us at the time was that gold prices actually bottomed for the year just a few weeks earlier, at $1180 on June 28th. Prices then proceeded to spike higher to $1419 by the end of August, a $239 per ounce or 20% advance in less than 2 months. However, prices then subsequently collapsed right back down to $1180 by the end of the year, convincing many investors that this was just a bounce in a bear market, and that the larger 2011 bear market had resumed.
Then something interesting happened at the end of the year: the gold producers moved right back to that unhedged status in the futures market, just as gold prices dipped below $1200 an ounce. This further identified the $1200 area (at least to us) as a value area by the smart money. So far in 2014 gold prices have again aggressively rebounded, rising by $151 per ounce or 13% just since the beginning of the year.
In today’s report, we display and discuss a number of different market metrics including investor asset flows, investor sentiment, relative performance, price and trend structure, and intermarket relationships in an effort to answer the following questions:
- Is the 2014 rebound in gold prices just another correction with the 2011 bear market, or is this a sustainable new bullish trend?
- How much higher can gold prices realistically go? Where are the next upside targets?
- How long can the 2014 price advance potentially last?
- What’s the better place to be for bullish investors: outright gold or gold miners?
- How is a sustained rise in gold likely to indirectly affect the prices of other US financial assets?
Investor Asset Flows
The red line in the upper panel of Chart 1 below displays the data series that first shifted our focus to gold prices back in July 2013, the Commercial Hedger category of the Commitments of Traders data. Once per week the CFTC breaks down futures open interest into three categories, Commercial Hedgers, Large Speculators, and Small Speculators, and makes the data available to the public via their website.
As the name suggests, Commercial Hedgers use the futures market to hedge the value of their physical holdings in a commodity, and thus they atypically accumulate a net position against the trend.
One of the first things that you notice when you look at this chart is that the hedgers are almost always net short, because they are holding the physical asset. The green vertical highlights between both panels show that least net short (least hedged) extremes in December 2001, February 2005, and November 2008 all coincided with important intermediate to long term bottoms in the price of the gold contract (lower panel). The most recent of these extremes took place in July and December 2013, just as gold prices moved below $1200 per ounce, which identifies this as a value area for the smart money.
Since December, the hedgers have become collectively a bit more net short, at 72,654 contracts as of the latest data. However, this still qualifies as an historic least hedged extreme that, assuming history repeats, suggests that significantly higher gold prices are in store over the next one to several quarters.
Chart 2 takes a more near term look at investor asset flows via the daily total assets invested in the SPDR Gold Trust ETF (GLD), which is plotted along with its 21-day (1 month, red line) moving average in the upper panel.
The green highlights point out that expanding total daily assets during August 2013 and most recently since January 17th, above their 1 month moving average, coincided with the two most significant periods of rising gold prices since July 2013. This chart tells us that, in addition to the smart money establishing value near $1200 over the past 9 months, enough investor assets are now moving into gold on a day-to-day basis to establish and fuel a positive price trend. As long as these assets remain above their moving average, we will expect the current 2014 price advance to continue.
Chart 3 below measures investor sentiment according to a daily survey of near to intermediate term oriented individual futures trader bullishness on gold prices, which is plotted by the blue line in the lower panel.
Asbury Research subscribers can view the entire report by Clicking Here.
The following (green highlights) is one of 12 charts and accompanying analysis/commentary that were featured in Tuesday’s (February 18th) Keys To This Week report.
Keys To This Week is a bullet-pointed list of key market metrics, data series, and corresponding charts pertaining to the US stock market and market sectors, US interest rates, the US Dollar, and economically-influential commodities that we believe are the most potentially influential to upcoming US financial market direction over the next one to several weeks, and includes our broader market forecast 1-2 quarters out.
We utilize a comprehensive list of market metrics including intermarket relationships, investor sentiment, seasonality, relative performance, investor asset flows, market breadth, and price patterns and trends to formulate an “under-the-hood” analysis and forecast of the US financial landscape that tends to be more forward-looking than the typical Wall Street approach.
Excerpt From: Keys To This Week
Asset Class: The US Stock Market
Topic: Market Breadth in the Russell 2000
Date: February 18th 2014
Chart 6 below plots the small cap Russell 2000 daily since 2012 in the upper panel, with the percentage of the index’s constituent stocks trading above their 200-day moving average plotted by the blue line in the lower panel.
The bent green arrow in the lower right edge of the chart shows that this metric has been rising from an historic low extreme of around 20% since February 4th. The green vertical highlights between both panels show that previous instances of this have coincided with every significant near term bottom in RUT during this period. A near term rise in RUT would be expected to lead a similar rebound in the US broad market.
The small cap Russel 2000 led the S&P 500 higher between mid April 2013 and January 22nd, outperforming the US broad market index by 10% during this period. The major topic being discussed right now is whether the US broad market can continue grinding higher in the 1st Quarter, on the heels of a 30% advance in 2013 and amid record cold weather- and Fed tapering-related headwinds.
Relative performance is one way to determine if the 2013 uptrend still has legs — simply put, if the leaders that got us here can still lead. The chart above tells us that, at least from a market breadth standpoint, this is where small cap should start to lead again. If it doesn’t, the market is going to have problems.
Asbury Research subscribers can view our entire February 18th Keys To This Week report by Clicking Here.
We begin our analysis of sector-related asset flows with a pie chart (below), our own metric that determines what percentage of the sector pie each sector currently comprises.
We then compare that chart with one that shows the daily historic average composition of the “pie” (not shown) based on these data. This comparison reveals which sectors are currently at over-invested or under-invested extremes versus their historic norms. Moreover, these extremes define potential opportunities to underweight or overweight particular sectors, in anticipation of them eventually migrating back to their historic norms within the “pie”.
One important distinction to make pertaining to our metrics described here today is that they are based on a “zero sum game” within a defined pool of sector bet-related assets. This means that, for example, if Technology comprises 20% of the sector pie this week, up from 18% last week, that additional 2% is coming out of one or more other sectors.
At the beginning of the year we introduced a new, proprietary indicator based on these asset flow data, a line chart that plots the day-to-day percentage of the sector pie that each particular sector comprises. This indicator, as plotted by the black line in the lower panel of the chart below, confirmed our suspicions that, in the vast majority of cases, a growing “slice” of the sector pie will coincide with relative sector outperformance as investor assets leave other sectors to participate in that particular sector.
Beginning this week, we are introducing another way to view these sector-related asset flow data, a table (below) that displays what percentage of the sector pie that each sector has comprised at various time intervals over the past three months.
Note that the “Now” column is color-coded, to highlight the two sectors with the greatest inflows (green, based on the percentage change) and outflows (red) from a week earlier.
This past week, the two sectors with the biggest inflows were, in order, Materials (6.45% of the sector pie from 6.17% last week) and Health Care (11.91% from 11.67%). The two sectors with the biggest outflows were Technology (17.86% from 18.02%) and Consumer Staples (6.87% from 7.08%).
Look for this new table in our weekly Keys To This Week report, our monthly Sector Watch report, and in additional reports as appropriate. Questions, comments welcome.
The following (green highlights) is one of the 13 charts and the accompanying analysis/commentary that were featured in Monday’s (February 11th) Keys To This Week report.
Keys To This Week is a Monday morning, bullet-pointed list of key market factors, data series, and corresponding charts pertaining to the US stock market and market sectors, US interest rates, the US Dollar, and economically-influential commodities, that explains how they are likely to influence US financial market direction during the upcoming week and over the next several months.
It utilizes a comprehensive list of market metrics including intermarket relationships, investor sentiment, seasonality, relative performance, investor asset flows, market breadth, and price patterns and trends to formulate an “under-the-hood” analysis and forecast of the US financial landscape that tends to be more forward-looking than the typical Wall Street approach.
Today’s chart and analysis focuses on our own proprietary metric, which analyzes historic asset flows in US market sector ETFs to determine which sectors are attracting, and losing, investor assets.
Our work shows that this follow-the-money approach is what ultimately drives relative performance.
Excerpt From: Keys To This Week
Asset Class: US Stock Market Sectors
Topic: Investor Asset Flows, Consumer Discretionary Sector
Date: February 10th 2014
The long red vertical rectangle on the right edge of Chart 7 below, which is one of our new sector-related metrics, shows that the daily percentage of the “sector pie” that Consumer Discretionary comprises collapsed to just 6.8% through the end of last week, from 9.7% on December 5th.
This frantic exodus of investor assets out of Consumer Discretionary really accelerated last week, as the percentage of all sector bets that the sector comprises declined from 8.0% on January 31st. As long as the percentage of the pie that Discretionary comprises continues to shrink, recent relative sector underperformance is likely to continue.
However, another factor to consider is that last week’s flush of assets out of the sector suggests a capitulation that could eventually led into a rebound/recovery.
Our metric, plotted in the lower panel of the chart above, declined below its 63-day (one business quarter) moving average in mid December, indicating that the percentage of all sector bets within the universe of Sector SPDR ETFs being allocated to Consumer Discretionary was shrinking from a quarterly standpoint. The Consumer Discretionary SPDR ETF (XLY) actually peaked in relative outperformance versus the S&P 500 SPDR ETF (SPY) 2 weeks later, on January 2nd, and has subsequently underperformed the broad market index by 3% through the end of last week.
Consumer Discretionary outperformed the S&P 500 by 9% during 2013. However, if you were overweight Consumer Discretionary heading into January, you gave back all of the relative outperformance you had accrued since mid August in just 5 weeks.
More broadly, our asset flow metrics indicate that investors moved out of Consumer Discretionary and Consumer Staples last week, and into Materials and Technology.
Asbury Research subscribers can view the entire report by Clicking Here.
Interested investors can get further information including services and pricing, or request a Free Trial, by Clicking Here or by calling 1-888-960-0005.