Trader’s Narrative

Right now, the bulls are running in Pamplona. The whole town is one giant party with nights and days melding into each other. The locals have long packed up and gone to stay with relatives or to their own vacations, knowing that they will never get any kind of rest if they stay.

Pamplona’s running of the bulls is as close as you are going to get to the total mayhem and debauchery last seen during Roman festivals - which shouldn’t be surprising considering that that is its heritage.

The rules are simple: if you’re going to drink, don’t run. Even with all your wits about you, you’ll have a very difficult time dodging half a tonne of beef barreling toward you, horns first. And if you do run stay well ahead of the bulls and on your feet.

The old cobblestone roads are treacherous and slippery. And I don’t mean just for the human runners. When you find yourself crushed under a mass of mountainous meat, you’ll wish you were merely getting gored by a single horn.

All in all, it is unfortunate that Pamplona is mostly known for the San Fermin festival. Truth is that most large towns in Spain hold annual ‘running of the bulls’. And Pamplona is a beautiful and romantic city which you should visit sometime before July 6th, or after July 14th. But make sure you give the town’s cleaning crew a few weeks time to scrub down the city really well.

Pamplona has amazing restaurants (Caballo Blanco is the only one I still remember), the old part of town has intact ancient wall dating back to the 1500’s, several markets, and much more. If you’re going through northern Spain make sure you take it in.

While the bulls will spend a week running in Pamplona, Wall St. has nary a horn in sight. The last time Wall St. ran with the bulls was almost exactly two years ago.

Perhaps the more apt metaphor for Wall St. right now would be what happens to the bulls after they get to their destination at the bullring.

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Man does not live by bread alone.

And neither is the US stock market the only market out there.

But we usually tend to act as if it was the only one that counts. One of the many lessons I learned from Weinstein’s excellent book: Secrets for Profiting in Bull and Bear Markets, is to monitor global indexes. Cheesy title, but excellent book - if you don’t have it, get it today.

This takes on extra importance at important inflection points - which are difficult to spot in the moment, as you’ve no doubt noticed. While the US market is probably the most important in the world, due to the interconnectedness of our world, it can not decouple from the rest. So by comparing it to the others, we can gain insight into bull and bear markets.

So with that in mind, below is a (not so random) walk through the world’s major stock markets. First, let’s take a look at the European exchanges, then Toronto and the South American Indexes and finally, Asia.

Since looking at so many charts can be dizzying, I’ll keep tabs on a couple of specific technical criteria. For example, the slope of the moving averages as well as whether price is uptrending or downtrending (making a higher high and a lower high or vice versa).

FTSE (England)

• made a new low in March 2009 (still downtrending)
• yet to break above January 2009 highs
• slope of 200 day moving average is down
• 50 day moving average is below price & climbing

CAC 40 (France)

• made a new low in March 2009 (still downtrending)
• yet to break above January 2009 highs
• slope of 200 day moving average is down
• 50 day moving average is below price & climbing

Continue reading ‘A Walk Through World Stock Markets’

Believe it or not… welcome to the new bull market. Calculating from the depths of the November spike down (741.02) the S&P 500 has now rallied 20%+. Which means that technically, we are now in a very young bull market. The bear market lasted around 408 days and cut the index by more than half (52%).

Whether it survives to become a powerful bull or dies stillborn as merely an especially strong counter rally, is another question. One that at the moment no one can truly answer. But we’re seeing more and more signs that things look ok:

• historical 10 year returns
• Ford valuation model
• previous bears coming on board: Fleckenstein, Leuthold, Ritholtz, Kass
• etc.

Here’s another: the McClellan Summation Index has now curled up to form a bottom. And from a level last seen in 1998:

We may get confirmation of this nascent bull market in a few months time from other sources like the Coppock curve. But until then, only the brave (or foolhardy) should apply.

The picture shows one of the famous “Osborne” bulls that dot the landscape in Spain. They were originally used as massive billboards to advertise a sherry made in Jerez (a region in Spain) by the name of Veterano. After a law prohibiting the advertising of alcohol the government tried to take them down but there was an outcry from people who had by then come to see them as a cultural icon. A compromise was reached were the red lettering of “Veterano” was covered with black paint.

Interesting factoid: many of the statues have a couch or mattress directly under them as the folklore goes that couples that um… couple, under the sign will receive the fertility of a bull and conceive a child.

I’ve been keeping a wary eye on the white hot Spanish real estate market for a few years. Each year, as prices keep climbing people stand wide mouthed and shake their head saying it just can’t go up any more. Of course, it does.

A family member bought a penthouse condo in Madrid for 600,000 Euros less than 3 years ago. Now it is valued at more than 1.2 million Euros. What’s uniquely strange to the Spanish property market is a very narrow range of prices. A condo in the worst parts of town, would still set you back atleast 5,000 Euros/m².

Strangely enough, they still haven’t gotten around to updating their legal system to allow for REITs. I was hoping that after the UK moved on this, the rest of Europe would follow suit. So if you want to invest in real estate, your only options are to actually buy property or to buy construction/property companies on the Madrid Stock Exchange.

Not surprisingly, the real estate sector has been one of the hottest in the Spanish market. It has been such a sellers market that the usually reticent wealthy families went ahead with IPOs: Astroc, Fadesa, Riofisa, Renta, and Parquesol. Among these Astroc Mediterraneo (AST), the Valencian real estate company, was the best performer. From its IPO price of 6.40 Euros it ran to a high of 75 Euros in less than a year! Here’s the chart:

It even attracted Spain’s wealthiest man, Amancio Ortega (founder of Inditex). Through his investment company, Pontegadea, he bought 5% of the outstanding shares of Astroc at the beginning of 2007. And for a short time he seemed to be a genius as he doubled his money in less than a month. I don’t think he’s a happy camper now. Not that he would even notice a few million evaporating from his portfolio.

As you can see on the chart, in late February 2007, instead of going up after basing for the sixth time, it actually fell quite abruptly. The party was over. Apparently some funny stuff had gone on accounting wise. There was a related party transaction involving the president and that had juiced last year’s profit making it seem much higher than it really was. The resulting fallout took out not only Astroc but all real estate companies on the exchange. And even spilled over into the wider market.

It’s interesting to look at the chart and notice the beautiful stair-stepping up. How can you believe that the markets are random when you see this price action? Notice how the powers that be pinned price at 45 Euros (red rounded box). And how prices fell much faster than they rose: 7 months of climbing were undone in less than 3.

This hasn’t really effected the property market itself. Although it has finally slowed, I don’t think prices will fall anytime soon. In fact, this sort of panic selling across the board is usually a good time to scoop up some shares for a bounce.

Bolsas y Mercados Españoles (Spanish Exchanges and Markets) debuted today in the Spanish stock market. BME is the holding company for the individual stock exchanges, settlement, clearing and counterparty, the futures and derivatives market, as well data dissemination and the technology that drives the Spanish financial markets. Basically the whole enchilada.

It’s IPO follow in the footsteps of ICE, BOT, CME and NYX but comes a little late to the party. I’m not sure what the investment banks were thinking bringing this to market now. Usually something like this would be postponed.

The offering price was fixed at € 31 but it started trading well below that and closed at € 29.75:

It’ll be interesting to keep a watch on BME as it may become a sort of pseudo proxy for the whole Spanish stock market. Especially if the North American fad of publicly traded exchanges continues.

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