Saturday, November 10, 2012

Hola De Buenos Aires

12:34 PM (5 hours ago)
to dchapman
November 10, 2012
Buenos Aries, Argentina              

Hola from Buenos Aries. Well this is it. The last leg of the trip. Be home on Tuesday. It has been a great experience. This is truly a beautiful country. And we didn’t have time to see Patagonia. Another trip?

Buenos Aries is rated as one of the 20 largest cities in the world. The city itself is listed as an autonomous city meaning it doesn’t answer to a higher authority such as the province or the national government (Toronto, eat your heart out). It is known as the Paris of South America or the Tango capital of the world. The city dates from 1536 although more properly it dates from 1580. So it is also one of the oldest cities (post Columbian) in the Americas. The country ranks high on the Human Development Index (HDI) but also ranks high on the Gini Coefficient a measure of wealth disparity (At between 45-46 Argentina’s Gini is about on par with the USA – the higher the Gini the wider the wealth disparity).

Our boutique hotel is situated in the middle of a huge theatre district. This is a district that includes the Teatro Colon a truly astounding building and rated as one of the 5 best concert venues in the world. The city center is dominated by huge plazas and parks and the Avendida 9 de Julio one of the widest avenues in the world. The Avendida de Mayo rivals comparable streets in Madrid, Paris and Barcelona for its architecture. There are numerous landmark buildings.

The city has its upscale neighbourhoods of Recoleta, Palmero and Belgrano but the city can also be grimy, polluted, and noisy and it has its share of favelas as we witnessed when coming in from the airport. The city can be dangerous as it is noted for violent crime and as a tourist be careful with your camera or it can quickly be gone. Those guys on the motorbikes are quick. Traffic can be awful, noisy and polluting. At times I think New York in the 70’s but then you see the architecture and the parks and avendidas and you think Paris, Rome, Madrid.

Something I posed at the beginning of the trip is given Argentina’s natural beauty, its abundance of resources and European population why isn’t the country on the scale of North America or Europe? It has had a history of problems. The country while a republic style democracy similar to the USA is basically ruled by an elite who appear to run it for themselves while counting their money in Swiss banks. The elite remain in power thanks to vote buying and a very fractured opposition. But protests erupt. On November 8 we got swept up in a huge protest that occupied Avendida 9 de Julio and many surrounding streets. The protest was estimated at over million people according to reports. The populace is quite upset with attempts by President Christine Kirchner trying to change the constitution so she can rule for another term. They are also upset over large underemployment, lack of ability to advance, currency controls, and attempts to limit freedom of the press as well as others. The good news was the protest while loud with considerable banging of pots (apparently a tradition) it was not violent. The police stood by and directed traffic away. Thank goodness or our getting somewhat swept up by the protest could have turned nasty (we were on our way to a restaurant).

Anyway this is a fabulous beautiful country to visit with warm friendly people. Worth putting on your holiday wish list. But if you do, take a few weeks. It is worth it.

Now onto the markets……

The Stock Markets

The big story of the week was the election along with the aftermath of Hurricane Sandy. Obama was elected for another 4 year term and the reaction in the markets was swift. It went down. The S&P 500 lost 2.4% on the week and it might have been more if it hadn’t been for the head fake bounce on Tuesday the day of the election. It was a classic misleading signal. So is this the start of the liquidation that I (and others) had surmised that if Obama was re-elected the markets would fall? It appears it might be so.

It is not going to be an easy 4 years for Obama. He faces the impending so called fiscal cliff and from all appearances at first blush compromise of any sort with the Republican controlled Congress appears remote. While Republican House Leader Boehner was talking somewhat conciliatory the right wing that backed Romney was already raising the rhetoric. If one thought the personal attacks against Obama were bad before the election it has the potential to get worse, even violent such is their unwillingness to compromise and hate for Obama from many quarters. Failure to find a compromise, however, could lead the US off the cliff into another recession or worse. As well the debt ceiling limits are fast approaching. What could quickly change the scenario? A war of course.

Nonetheless from a technical standpoint the S&P 500 broke down under 1390 one of our important support points. The market is currently finding support at the 200 day MA (1382). A breakdown under 1355 a low seen back in early August could send the market to its next support zone from 1320 to 1340. The intermediate trend has turned neutral from up and another sharp down week could turn it down. The weekly MACD indicator has turned down with negative divergences seen at the top. Short term indicators are, however, oversold so a short term bounce could develop here. Resistance is at 1400 to 1410 and the market would need to regain above 1430 to turn positive again.

The sense here is that a top is in and possibly a major top. Oh the market is going to have rebounds but the result should be the classic series of lower highs and lower lows as the market stair steps down. A breakdown under 1265 would confirm that a major top is in. Potential targets for the first wave down of what could be a two year bear market is around 1170 to 1210. A break under 1170 would be more serious and odds would then favour that the 2011 lows at 1075 could fall. Seasonally the stock market is entering a traditionally strong period. Could it go counter to that this year? As noted regaining above 1430 would change the tone and suggest that the market could indeed go higher.

A top may be in on the TSX Composite as well. It fell 1.5% this past week and was held in check by a strong gold market. Materials was only under sub index with gains on the week. The TSX Composite is holding just above support down to 12,100 but under that level further declines should be seen. Under 11,500 the market could confirm that a top is in. The TSX Composite needs to regain back above 12,500 to suggest that a run to the previous highs is possible.

Note that bonds rallied this past week and it is possible that new highs (prices) could be seen. If that were to happen the negative divergences on bonds would be quite pronounced. It could also be a classic three thrusts to highs before a bond collapse gets underway.


If it was a bad week for the markets it was a good week for the gold market. Gold gained 3.3% this past week while silver was up 5.7%. Gold and silver were reacting positively to 4 more years of Obama, gridlock with an intransigent Congress, more QE (despite positive economic signs) and the potential for more deficits. Gold was up on the week despite a 0.5% gain for the US$ Index that closed over 81. The US$ Index is threatening to turn higher and if gold rises despite the US$ it would be a negative sign that trust in all currencies is weakening. Gold is on the verge of making new highs in Euro terms. The US$ is not rising because of it is strong it is more like relative weakness and the perception (as well as numbers) suggests that the Eurozone is weaker. China is also slowing and going through some political difficulties. The Europeans are fighting amongst themselves and the US could be soon fighting amongst themselves as well. Meanwhile the Syrian war continues and it still threatens to spread. Iran almost seems in the background right now but come back to the forefront quickly. Netanyahu is in a tricky place because he so strongly backed Romney to win the Presidency. Now he has to deal once again with Obama with whom he has had a very difficult relationship.

Gold is turning up from strong support levels between $1650 to $1675. Silver is turning up from near $30. Gold has resistance at $1740 but above $1775 odds favour new highs over $1800. Silver has resistance between $33 and $35 but once through $35 again silver could run to $40. Objectives for gold once it is through $1800 is from $2100 to $2500. Strong seasonals are present from now until year end and again in February/March. Last year I believe was an anomaly.

The commercial COT for gold improved again this week rising to 29% from 28%. Short open interest fell 15,000 contracts suggesting that more short covering was taking place. The silver commercial COT also improved to 30% from 29% as long open interest rose 2,000 contracts and short open interest fell 2,000 contracts. The commercial COT is positive for both gold and silver.

The signs were good this past week for both gold and silver given the strong rise for both and going counter to the stock market. The gold stocks also enjoyed an up week as the Gold Bugs Index (HUI) was up 1.4% and the TSX Gold Index (TGD) gained 3%. The TGD was trying to take out resistance at 340 while the HUI has resistance up to 500. Above 350 for the TGD and above 510 for the HUI could send both these indices higher. Preference would have been that the gold stocks led this past week but the stocks may have been held back by the weakness in the broader market.


If it was a good week for gold it was at best a mediocre week for oil. Oil was up 1.4% proving once again that the $85 zone may be a strong support point. But the energy stocks did not fare well and they fell with the market with the AMEX Oil & Gas Index (XOI) losing 2% and breaking important support at around 1225 and the TSX Energy Index (TEN) was off 3.4% and also fell through important support.

Oddly enough oil was helped by a jump in Consumer Confidence to a 5 year high. I guess they aren’t paying much attention to the misery in New York and New Jersey on the coast from effects of Hurricane Sandy. Tens of thousands of people and businesses remain without power and it could stay that way for a lot longer. Many are in shelters or homeless and living in what can only be described as third world conditions. Gasoline is being rationed in New York. Not a pretty situation.

The scares for oil all seem to be in the background as Iran remains under wraps at least for the moment.

Oil appears to be continuing to find support in the $85 area. Resistance would be up to $90. Over $90 the next area of resistance is at $95. Oil still appears to be forming what appears to be a huge multiyear bottom but in order to realize it oil must get back over $100 and over $108 to project up to potential at $146. Only a war involving Iran could do that. Otherwise oil still appears to have solid support at least down to $80 and even $75. The expectation here is that the zone could be tested it shouldn’t really fall below that. The only thing that could change that scenario is no war and the US falling into a more serious recession because of the failure to resolve the impending fiscal cliff.


Next weekend we hope to put out a full report. Irrespective there would at least be a shortened commentary with charts.

Tuesday, November 6, 2012

Politics Is The Dirtiest Business There Is!

My late father was first sent to the Pacific to fight the Japanese. After recovering from a bout with malaria he was sent to General Patton's Third Army and fought in France, Germany, and all the way to what was then Czechoslovakia where his unit linked up with Soviet troops. My dad saw many people die and even toured a German death camp with General Patton. He gave me the following pearl of wisdom: "Son war is not the dirtiest business there is; politics is the dirtiest business there is." He was right!!!

Monday, November 5, 2012

Hola From Puerto Iguazu

Puerto Iguazu, Argentina
November 5, 2012

We finally arrived in Puerto Iguazu home to Iguazu Falls one of the natural wonders of the world. But before we fully explored Iguazu Falls we took off for 4 days to an overlooked natural wonder – The Esteros of Iberia. As we left we were fascinated with the images, stories and destruction of Hurricane Sandy. To Argentinians though it was a curiosity before back to soccer.

The Esteros of Iberia is one of the world’s largest wetlands. It covers some 1.2 million hectares or 13,000 sq. km. which constitutes some 14% of the province of Corrientes in Argentina’s north. Climate and local wise it is probably comparable with Florida. The Esteros, however, is huge compared to the Florida Everglades. The wetlands receive most of its water from the 1,200 to 2,300 mm of rainfall it receives every year. It supports incredible biodiversity of over 300 species of birds, plus numerous mammals, amphibians, reptiles plus flora and fauna. The Esteros once came under threat because of the desire for feathers, leather from the caiman and other demands of the fashion industry. But since 1982 it has been protected as park and nature reserves and many of its animals have come back from endangerment. To the local indigenous people the Guarani the Esteros is known as “glittering waters”.

Getting there was half the fun. We left Puerto Iguazu at about 9:30am in order to reach a transfer point at a town called Virasoro by 3 in the afternoon. We spent the day driving in and out of torrential rains. We arrived right around 3pm in Virasoro to hook up with our transfer driver Jose. We soon learned why we needed a transfer driver. The roads to Carlos Pelligrini where our Posada was were impassable to our little Chevy. The roads were dirt and in the torrential rains they turned to mud and ruts. 150 km and 4 and half hours later in the dark we finally reached our Posada. Our bums were killing us. LOL. But what a drive where we saw the pampas grass plus crossed paths with numerous birds and animals including fox, hare, armadillo, herons and many more. At times the road resembled a river rather than a road but except for one incident where Jose was too close to the edge and he became stuck for a short while (with a worried look on his face I might add). But we kept up constant chatter about the Esteros the wildlife Argentina and we told him about Canada’s wild. Jose who spoke quite good English (he was trained as an engineer but said doing this pays better) was grateful for the constant talk as it kept him alert. He told us that many of his transfer rides are in silence and he admitted to finding that hard to stay alert. Yes good thing he spoke pretty decent English as our limited Spanish can only be described as pitiful or he might have endured another long ride in silence. We also learned about his partner and his 3 year old boy both of whom he would miss that night as he would pass the night at Carlos Pelligrini.

Our next few of days were spent on excursions provided by our Posada into the Esteros. Here we came across plenty of Caiman and Capybaras the former a large alligator like reptile the latter the world’s largest rodent. The two of them coexisted often in quite close quarters. Seems the Caiman doesn’t eat the baby Capybaras as I guess he doesn’t want to mess with the large adult rodents. The Capybaras themselves are quite docile and socialable just standing or lazing around munching on grass and other vegetation. Think of them as big, really big, Guinea Pigs. As to the Caimans well they just lie still in the water or at the water’s edge waiting for some unsuspecting dinner to walk by. We got a thrill as one Caiman was in the rather slow process of engorging a snake. 

But we suppose the real thrill was the birds. They were everywhere morning, afternoon and night. If you couldn’t see them you could always hear them and the variety was astounding as well as their colours and size ranging from hummingbirds to giant storks, egrets and herons.

After the dry mountains and deserts of the wet and the jungles of the Northeast were quite a dramatic change.

There was no internet at the Esteros so I eagerly looked forward to returning to some Wi-Fi so I could find out how the week went. But that wouldn’t happen until another ride back with Jose to retrieve our car. Thank goodness the torrential rains stopped so the roads have dried up and while many of the ruts remain the road is smooth enough so rather than a 4 ½ hour drive it was only a 3 hour drive. And that was enough to treat us to another show of the area’s wildlife with numerous hawks perched on fence posts like sentinels or flying in the air, egrets and herons in wet pampas fields and a herd of rheas scampering onto the pampas.

We stopped on the way back to Puerto Iguazu at San Ignacio for the night in order to see the best preserved of the Jesuit missions. Alas no internet again so will have to await Puerto Iguazu on Sunday night. But the San Ignacio mission proved to be an interesting stop but no we didn’t see Robert de Niro or Jeremy Irons both of who starred in Roland Joffe’s 1986 film “The Mission”. But yes the film was made in and around Iguazu Falls at least for the falls scenes. The film was really about the local indigenous people the Guarani. Oddly they didn’t use them and instead used a tribe up in Colombia where they filmed a lot of the film. Oh well that’s Hollywood for you.  

Now onto the markets…..

The Markets…

Well finally got internet again but it certainly took a while to catch up on what was going on over the past week. I suppose it was no surprise that the markets did very little this past week. With the US markets shut down because of Hurricane Sandy for the first time because of the weather since the late 1800’s and an election tomorrow the tiny gain of 0.16% for the S&P 500 was probably about what to expect. At least it was a gain. And the TSX Composite was up as well gaining 0.65% despite gold and materials being off on the week.

Tuesday is the election and who knows the outcome. Irrespective one thing is for sure. America is a very divided polarized nation and no matter who wins will face extreme opposition from the other side. The right wing is totally irrational (my opinion) in their attacks on Obama much of which is personal. And if Romney wins one of the very rich elite will take charge where he proposes more tax cuts for the rich and even a tax hike for the rest.
The middle class in the US is being squeezed and statistics show it is actually contracting. Meanwhile the wealth divide gets worse. Few democracies can survive an extreme divide in wealth. Usually they become dictatorships of some sort with the rich running the country for the benefit of themselves.

Hurricane Sandy is probably an economic blip despite the $50 billion price tag (and probably even more). Thousands remain without heat or light and their homes are gone. Welcome to the third world in America. This could persist for a while longer and even a year from now thousands will probably be homeless.

The jobs numbers were a surprise. But it is deceptive at best. The actual nonfarm payroll was 171 thousand when they expected 135 thousand. Previous months were revised upward. A cynic of course will say that helps Obama. The headline unemployment rate blipped upward to 7.9% from 7.8% but that’s because more people are now looking thinking they might stand a chance of finding a job. The BLS U6 number did fall to 14.6% from 14.7% but Shadow Stats unemployment number rose to 22.9% from 22.8%. Nothing in fact has really changed much at all. Other numbers such as the ISM manufacturing and other economic numbers are not supporting these numbers. Shadow Stats believes there has been a statistical shift in underreporting in the early part of the year and shifting it to the latter part of the year for the election. In other words manipulation. Other Presidents have accomplished that as well. Yes numbers are approved by the White House. They shouldn’t be of course.

But has the market topped? That has yet to be determined.

1390 remains as support. And so does 1350. If they break then odds favour that a major top is in. The top remains at 1474.51 seen on September 14, 2012. A small series of lower tops and lower lows has been forming. In other words the classic definition of a downtrend developing. Our intermediate trend, however, remains up even as the short term trend is down. So it is possible a lot hinges on the election tomorrow. A Romney win I still believe brings a rally that could last into January. Upside objectives remain at 1525, 1550 and even 1600. An Obama election could on the other hand bring liquidation. At least that is what many are writing.

Technically right now it is too close to call. I could argue either way. Final confirmation that a bear is underway is a breakdown under 1265. However, if the market recovers above 1450 then odds favour those upside objectives.

The TSX remains in a quandary as well. The past 7 weeks has basically been a flat. That is usually good for an upside break. The TSX also remains in an intermediate uptrend and so does the short term trend. With both in an uptrend odds favour a break to the upside. Above 12,500 would confirm the upside break and potential objectives up towards 13,000 resistance. A break under 12100 would not be good. And under 12000 would suggest the market could break down. Confirmation, however, would not come until the market broke down under 11500.


So why is that the market holds up while gold gets clobbered? Gold fell this past week by 2.2%. Silver lost even more down 3.7%. Both were bouncing today albeit small. QE is still in play no matter who wins tomorrow and despite those so called rosy job numbers last week.

The drop in gold has been odd to say the least as I have reported numerous times there is no sign in the physical market. It is the paper market where gold is being hit.

Gold fell into my worst case scenario dropping to about $1670 this past week. The major support zone is $1650 to $1675. So what did the commercial COT do? Well they didn’t cover any more shorts on the last report but they added 8,000 new longs so the commercial COT rose to 28% from 27%. The silver commercial COT was also up to 29% from 28% as 3000 new longs were added and 1000 shorts covered. The commercial COT is indicating to me that this market should soon shift to the upside.

Course the gold stocks were clobbered this past week. The Gold Bugs Index (HUI) dropped 3.4% while the TSX Gold Index (TGD) fell 3.5%. There is considerable support for the HUI in the 460/470 zone which I suspect should hold. For the TGD the big support is in the 310/320 zone.

Despite the drop this past week gold remains in an intermediate uptrend as does the HUI. Silver and the TGD’s weekly uptrend have weakened into neutral territory. The weekly MACD’s have turned down slightly but the fast MACD has not crossed the slow moving MACD which is now pointed up. This is a pattern I have seen many times and as long as the fast moving MACD does not break down under the slow moving MACD (it can touch it or go under very slightly) the pattern in the past as resulted in an explosive move to the upside once this downside correction is complete. There were significant weekly positive divergences on the MACD and other indicators at the lows.

Gold’s seasonals turn positive again in November. As I have stated before the big lows seen last December 2011 and again in May through July appear to be the 34 month cycle low and the 4.5 year cycle low. In looking at past history of gold I had never seen both occur together. Usually it is one or the other but not both. This suggests to me that the next move could well be an explosive move to the upside with potential objectives to at least $2100 and even $2500 for gold and $50 or higher for silver.

Naturally I don’t want to see gold fall under $1650 nor silver under $30 or we would be forced to reassess. But I don’t believe it will happen.


Oil fell 1.7% this past week and closed slightly under $85 support. I had noted the drops a few weeks ago were very suspicious. Others noted it as well. Was oil manipulated down for the election? Anything is possible. Iran is on the backburner and rumours keep popping up that resolutions will be found. Syria is still a mess and Lebanon is being slowly dragged in. The Kurds are restless in Northern Syria, Northern Iraq and in Turkey. Turkey has it hands full with Kurdish uprisings. Iraq appears to be falling into civil war once again and Israel still wants to bomb Iran back to the dark ages for their alleged nuclear weapon program (ignoring the fact that Israel has 100-300 nuclear weapons, has had them secretly for years, but remain unpunished and never signed the nuclear proliferation treaty (NPT) along with other nuclear powers India and Pakistan).   

Hurricane Sandy did not impact the Gulf of Mexico although east coast refineries were forced to close resulting in gasoline shortages. The closing of the refineries was temporary and they are returning to normal so that should soon no longer be an issue. Oil actually fell this past week as it was rumoured that Sandy might actually bolster oil supplies in the US. No sign of that as last week the EIA reported that oil supplies fell 2 million barrels but are 33.6 million barrels above last year’s levels. Doesn’t appear to be any supply shortage.

Technically oil appears to be once again testing that 4 year MA which it tested at lows in June 2012 and last October 2011. Both time the 4 year MA held (even if it dipped under briefly). This should continue to act as major support.

Resistance is at $90 and $95 and again at $98 to $100. As each resistance zone is taken out to the upside the next one should be tested and eventually broken. Oil still appears to be making a large bottom pattern that could explode to the upside in 2013. The major line is still around $108 and if broke suggests potential objectives up to around $146. The only event that would appear to be capable of that is an attack on Iran. The amount of armory in the Persian Gulf, the Straits of Hormuz and the Eastern Mediterranean is large. And on the other side the Russians are there as well. There remains the risk of an accident.

Oil should be at support here. But if it keeps closing under $85 then a drop to $80 and a test of the June lows near $78 is then possible. I don’t believe it will happen but if it does it would just seem to help the huge bottoming pattern that appears to be forming.