As long as the very near-term series of higher lows remains intact by prices remaining above 38.60 on any weakness, the integrity of the pattern will remain intact and continue to put upward pressure on key resistance at 39.80-40.20.
A hurdle of 40.20 should trigger upside continuation that revisits 41.00 quickly. Conversely, a break below 38.60 should trigger a retest of the prior key pivot low at 37.69.
By Mike Paulenoff
We've touched on this a few times, but Citigroup's Andrew Howell is back banging the drum on the dirt-cheap Russian stock market.
You might not have noticed, but Russian stocks have been spanking all of the emerging markets over the past several months.
 Image: Citi |
Of course, the country's oil exposure has a lot to do with it:
Image: Citi
And despite the great returns, it's still cheap:
Energy stocks represent nearly 60% of MSCI Russia's market cap, versus just 15% in EM overall. To make Russia's PE more comparable to EM, we have created a new Russia "sector neutral" PE that assumes that Russia's sector weights are the same as in the EM index. Given that the energy sector PEs are so much lower than in other sectors, this increases Russia's overall multiple from 6.9x to 8.7x. Not as cheap as it was, but still a considerable discount to EM's PE at 10.6x.
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Trina Solar (TSL) and most of the solar companies have had a hard time gaining traction recently. With the cost of oil approaching $108 a barrel and the flap over nuclear energy, it would seem that this is a sector that could benefit.
Just a yesterday, Saudi Arabia announced their commitment to a $100 billion project focused on solar and alternative energy solutions.
Recent news:
Saudi Arabia, which holds one-fifth of global oil reserves, aims to pursue renewable energy and nuclear power to help reduce by half the crude and natural gas it burns now to generate electricity.
The country expects domestic power demand to triple over the next two decades and wants to develop a more sustainable mixture of energy sources, Khalid Al Sulaiman, vice president for renewable energy at King Abdullah City for Atomic and Renewable Energy, said at a conference in Riyadh today. King Abdullah City is the agency in charge of developing green energy.
“Saudi Arabia’s demand for petroleum products — demand for energy — is rising at a high and very alarming rate,” Al Sulaiman said in a speech at the Saudi Solar Forum. “Population growth and robust economic development and many reasons drive that demand.” The country currently gets almost all of its energy from fossil fuels, he said.
Below is our take on the stock. Fundamentals are strong and earnings keep on coming in. The main reason that the shares are stuck in a sideways pattern is the concern over the majority of earnings coming from Europe. That may have been true, but we see that will become more diversified as other countries add alternative energy requirements to their budgets.
The next chart includes an overlay of monthly retail gasoline prices, all grades and formulations. The retail prices are updated weekly, so the price series is the more current of the two.
As we would expect, the rapid rise in gasoline prices in 2008 was accompanied by a significant drop in sales volume. With the official end of the recession in June 2009, sales reversed direction ... slightly. But the 12-month MA of volume for the latest month (January 2011) is still about 10.3% below the pre-recession level. The dramatic rise in gasoline prices since last September has yet to be seen in sales volumes because of the 2-month lag. But the average of daily sales for January 2011 was the lowest January number in a decade.
The next chart adjusts the 12-month MA of sales volume for population growth based on the monthly Civilian Non-Institutional Population data from the Bureau of Labor Statistics, via the St. Louis (FRED repository. What we see here is that gasoline sales volume, on a per-capita basis, peaked in September 2009. In fact, our per-capita consumption of gasoline is slightly lower than it was at the end of the Great Recession.
What does this analysis suggest about the state of the economy? From an official standpoint, the Great Recession ended 22 months ago. But if we want confirmation that the economy is in recovery, gasoline sales is the wrong place to look.
The market continues to trend sideways, a bullish act considering the move we have seen the last few weeks. Instead of working off overbought readings by selling off, we are working off these readings by moving horizontally. Add this to the markets continued ability to ignore any remotely negative economic news, and bulls have the best of both worlds.
Also, I have found it interesting how I am becoming, should I say, less surprised, when the market moves up on less than average volume. In a traditional market environment the last two weeks would be a huge flag that a reversal is inevitable. Not in today’s market though. Atleast the distribution day counts are still worth noting…
For those that care about weighting within indexes, check out the WSJ’s breakdown of the NASDAQ 100′s new weighting. In a nutshell, Apple is the sour flavor.
And for gold bulls, today was a beautiful day. Gold broke to fresh all-time highs, which means GLD had a great session. Analysis below. For me, I find individual gold stocks tough to play due to their unpredictable price swings. Personally, I stick to the 1x ETFs like GLD and GDX (gold miners ETF). For those investors who want to get more “in the action” though, consider UGL (2x Gold Bull), GG, EXK, IAG, GOLD, ABX, and EGO.
Stay frosty.
| Trend | Nasdaq | S&P 500 | Russell 2000 |
|---|---|---|---|
| Long-Term | Up | Up | Up |
| Intermediate | Up | Up | Up |
| Short-term | Up | Up | Up |
(+) Indicates an upward reclassification today
(-) Indicates a downward reclassification today
Lat Indicates a Lateral trend
I’m writing on the heels of two trips to China during which I met with senior policy makers, bank executives and academics, just as the government launched its 12th Five-Year Plan, intended to rebalance the long-term growth model. My meetings deepened my own impression and RGE’s long-standing house view of a potentially destabilizing contradiction between short- and medium-term economic performance: The economy is overheating here and now, but I’m convinced that in the medium term China’s overinvestment will prove deflationary both domestically and globally.
Once increasing fixed investment becomes impossible—most likely after 2013—China is poised for a sharp slowdown. Continuing down the investment-led growth path will exacerbate the visible glut of capacity in manufacturing, real estate and infrastructure. I think this dichotomy between the high-growth/inflation pressures of the next couple of years and growth hitting a brick wall in the second half of the quinquennium is far more important than the current focus on a “soft landing” amid double-digit growth. A number of local scholars close to policy circles agree that this is the biggest challenge of the next few years, as we’ve been saying for months.
