Tuesday, July 27, 2010
Maybe Things Aren't So Bad After All (Part II)
It is 5:43 AM. Have a cup of Tuesday Joe and let's feel better about the markets. On July 14 the Report pointed to some signs of improving times (Maybe Things Aren't So Bad After All). I think today is high time to add to our list of happys with the S&P 500 recovering its losses for the year and copper, our favorite canary in the global recovery mineshaft, flying like a proud eagle again.
Mid-July declining copper inventories at the London Metal Exchange (LME) together with strong earnings reports from technology giant Intel and South Korean steelmaker POSCO caused the ole Colonel to smile a little. We were still flying through macro-economic clouds of gloom but our instruments said we may be climbing higher soon. In the last two weeks with more strong earnings reports and the European bank stress tests behind us, the outlook continues to improve.
Doubts about European sovereign debt have weighed on the markets for months and devastated the metals & miners in May and June. There was talk of the euro reaching parity with the dollar and our new Eureka Miner's Index(EMI) hit bottom on June 7th at 50.7. About that same time the falling euro reversed direction and has been gaining on the U.S. dollar ever since (on average). Here is a 3-month plot of the euro (orange) versus the S&P 500 (blue):
Notice that the broader market turnaround happened during the first week in July and now the euro and S&P are trending higher together. In the last 24 hours the euro broke $1.30 although it has retreated slightly to $1.2989 this morning. Another interesting plot is the euro (orange) versus COMEX gold (blue):
Gold, acting as a safe haven play, peaked in late June and has been trending down as the euro trends up for most of this month. COMEX copper has been on a tear hitting $3.232/lb in early trading. It's value with respect to gold (i.e. "how many pounds of copper can I buy for an ounce of gold?") has risen dramatically:
June 7 448.59 lbs/oz (Au:Cu ratio)
July 27 365.10 lbs/oz (Au:Cu ratio)
Another good ratio to look at is gold-to-silver (or "how many ounces of silver can I buy with an ounce of gold?"):
June 7 68.33 (Au:Ag ratio)
July 27 65.01 (Au:Ag ratio)
When economic times are good, this ratio usually falls in the 50-56 range so we're headed in the right direction. Other good signs are the S&P 500 VIX or "fear index" falling below the key 25 level and Freeport-McMoRan (FCX) closing rapidly on its 200-day average (which is now $75.4). The broader markets are open now and FCX continues a 7-day rally to hit $71.76 in early trading. Maybe things aren't so bad after all buckeroos.
Enough bubbly-bubbly talk, let's walk the walk:
The Eureka Miner's Index(EMI) remains above par at 129.77, up from yesterday's 121.24 and a big improvement from the 6/7/10 low of 50.7. Remember an EMI greater than 100 is good times for metals & miners (NOTE: at market close Friday, 7/23, the EMI was 112.61)
4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners remain on shaky but firmer timber with benchmark FCX trading in the low-70s and closing on its 200-day average of $75.4 (our new warning level, 7/27 update), 10-year Treasurys are safely below 4% preserving a low-interest rate environment
The GREEN light is turned back on for Commodity Reflation with copper trading above $3/lb
The GREEN light is turned on for Stable Markets the VIX below the 30 level (what's this?)
The GREEN light is turned back on for Investor Confidence as investors return to equities.
The GREEN light remains turned on our Fuel Gauge with oil below $80
A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
NYMEX/COMEX: Oil is up $0.57 in early trading to $78.86 (September contract, most active); Gold is down $3.1 to $1180.0 (August contract, most active); Silver is down $0.050 to $18.150 (September contract, most active); Copper is up $0.0090 to $3.2320 (September contract, most active)
Western Molybdenum Oxide is $14.00; European Molybdenum Oxide is $14.50; LME moly 3-month seller's contract is $14.29, LME cash seller is $14.08
The DOW is down 14.46 points to 10,539.89; the S&P 500 is up 2.52 to 1117.52. The miners are mixed:
Barrick (ABX) $41.22 down 1.27%
Newmont (NEM) $56.82 down 2.20%
US Gold (UXG) $4.69 up 0.64%
General Moly (Eureka Moly, LLC) (GMO) $3.48 down 0.17%
Thompson Creek (TC) $9.75 up 2.31%
Freeport-McMoRan (FCX) $71.76 up 0.73% (a bellwether mining stock spanning copper, gold & molybdenum)
The Steels are up, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $32.70 up 0.36% - global steel producer
POSCO (PKX) $110.00 up 0.36% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is down 0.45% to $1,395,643.68 (what's this?).
Write Colonel Possum at firstname.lastname@example.org for answers to your questions or to request e-mail updates on the market
Headline photograph by Mariana Titus