The beautiful thing about the financial markets is that no matter what is going on, whether bullish, bearish or some combination thereof, there is always opportunity somewhere.
Last summer Templeton’s Emerging Markets Income fund (TEI) came on sale and I bought it. I then took profits ‘too soon’ just under the measured target of 17 (and got a nice dividend as well) and mostly used the fund as an indicator the rest of the way; as in, ‘I know we are all supposed to bow down and be bearish in the face of the Euro sovereign debt crisis, the divisive US election and the oncoming Fiscal Cliff, but this sensitive market indicator remains on the bull’.
TEI daily chart
Yesterday TEI declined hard, which is weird because a quarterly ex-div. date is still upcoming. So is this an opportunity to buy the 200 day moving averages similar to November or is it a warning of some sort on the broad markets? I for one am going to look closer.
The NDX led the SPX out of the 2009 bottom. The bottom panel shows QQQ in relation to SPY rolling over since the spring of 2012.
The most recent rally out of the summer was led by the emerging markets. The top panel shows the EEM-SPY ratio threatening to break down.
What’s it mean? Maybe the S&P 500 will just keep going up with a flight to equity safety tout, but as of this moment it is losing its leaders. Oh for a hard correction.
You may recall a post I did last year highlighting what looked like a bottom in the EEM:SPY ratio and speculating upon a would be rally to be led by the emerging markets. The first hint was the stellar performance of emerging market bonds, which I then sold and transferred to positions in emerging equities.
Well, now I have bought back emerging bonds after a recent correction and sold the equities. But I want the equities back and may buy them sooner rather than later, with offsetting protection in a bear or volatility stance against the US market.
Anyway, here’s EEM:SPY as of today.
EEM:SPY ratio at the bottom of a trend channel
Last year the Templeton Emerging Markets bond fund provided great gains. Now Templeton’s Mark Mobius has provided excellent 9% and 7% returns (Plus dividend income) on what are essentially mutual funds. I don’t want to get greedy.
I am still constructive on the Emerging Markets and Asia compared to US markets, but it is time to pare back on some positions now and evaluate. I still hold the Templeton Global Income fund, which is +5% since purchase and spitting off monthly income.
The EEM Emerging Markets ETF broke out of a triangle several weeks ago and is now bumped up against resistance. If (IF) it can clear current resistance, it loads a target of 52.
It would not have been my favored outcome. But it was on radar believe it or not, since early October with the terrible CoT and over bullish sentiment. Then the radar got stronger when HUI lost 460. Then the radar blew out of its control panel when Au lost 1690… now, it’s onward to capitulation.
I try to keep the promotion to a low roar but this just came in from a subscriber and it makes me feel really good. Because it sure doesn’t make me feel real good to have keep setting risk management parameters. But that is what the precious metals have been about for nearly 3 months now. With PH’s permission…
“Very well played my friend. Keep up the EXCELLENT work.” –PH 12.20.12
I have tried to make the point that gold bug sentiment can be very dangerous because standing up and fighting a battle for something you believe in can get you killed in the markets. The market makes the rules.
I hold a bunch of weird stuff like Japan, Emerging, TIPS and some regular stocks to try to act like a regular stock market player (Santa still looks okay with SPX above support and small caps leading) while awaiting the capitulation in the PM’s. But risk management in the PM’s (first through shorting to hedge, and then through raising cash) has been a life saver.
I feel good in knowing that I did the best I could to warn NFTRH subscribers of the risks over the last many weeks while certainly not being smart (or ego centric) enough to predict one damned thing. I can only promise subscribers one thing; you are going to get my honest and best effort every day. For the last 2+ months that has meant manage risk and remain intact FIRST, and then seek opportunity SECOND.
So the capitulation has started, and it is sure going to be interesting.
It’s noisy out there. Really noisy. Commodities look constructive, gold bugs are writhing and confusion abounds as inflation has a chance to perk up in the coming months. NFTRH 217 dials up some monthly charts to get a look at the big picture. Santa is expected to show up shortly, but parameters are in place that would disqualify the man in the red suit.
Whatever you do, have parameters to work with and stick to them. This kind of managed market demands that we work within disciplines.