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Saturday, November 10, 2012

Hola De Buenos Aires


david CHAPMAN
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.

Gold

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.

Oil

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.

D.C.

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