First of all, Happy New Year everyone!

I want to thank all of you who have inquired about the absence of my radio show this week.  I appreciate all your nice comments and apologize for being unable to exit more formally.  After several years on the Biz Radio Network, I recently decided to make some changes in various aspects of my personal career as a trader/advisor and I’m taking some time to work on my future business objectives.  I chose to initiate this change quickly and was unable to notify you over the airwaves.

I will continue making blog posts on http://www.karleggerss.com and hope you will stay tuned to my site since keeping you informed regarding the market and my future plans is of utmost importance to me.  I look forward to a continued relationship and thank you again for all the wonderful e-mails and comments.

This is just the tip of the iceberg on the global water crisis.  Long water & long ag commodities.

Click here for video.

Airlines do much better when oil prices fall.  This is a common theory that makes sense on the surface.  After, airlines buy a ton of fuel to run those planes all over the country and world.  When oil prices are high, consumers don’t travel that much.  This all sounds logical.  The problem is you can’t buy or sell airline stocks based on these facts.  In 2009, oil is up over 66%.  If some of these theories were correct, the airline index would be down.  But, it’s not.  Airlines are up over 32% as a basket.

In fact, the chart below is comparing oil and the airlines and their respective correlation.  For most of 2009, there has been a pretty significant POSITIVE correlation, not negative.

Even gold and the dollar which have been moving completely opposite of each other this year don’t always do this.  Before you make an investment decision based on theories, go test them to make sure they hold up over time.

There are times when you have to be a contrarian to invest successfully.  Other times, the herd is correct and you need to join them. In a bull market, the overconfident investors are correct.  They are right.  Selling because people are optimistic in a bull market is the wrong move and you should buy from those that are temporarily scared.  On the flip side, a bear market fear is the right mood.  Those who are selling because they are scared is correct.

On the chart below, I have my crazy investor indicator which I post every once in a while.  The middle line is the actual indicator and the bottom line is the S&P 500.  You can see that being scared (middle line at the top) in the fall of 2008 and selling was the right move.  It was not correct to buy the dip as you would have done in a bull market.  Conversely, the summer of 2009 produced a very confident mood on the part of investors (middle line at the bottom) and the market continued higher.

It’s been interesting the last few weeks as the S&P 500 has moved sideways in a tight range the Crazy Investor Indicator has been pretty erratic.  If you squint your eyes, you can see the very right side of the graph shows that we have a lot of confidence on the part of investors (similar to the May June time frame) right now.

This is telling me one of two things:  Either this is a great time to sell because in a struggling market you sell to overconfident people.  Or, things are so good that we’ll simply move higher and the overconfident people are correct.  Because I’m giving you a 50/50 scenario, that means my portfolio is heavy on cash right now.  I need more of an edge than I’m getting.

The internals of the market haven’t been bad.  They’ve been pretty mediocre but I see nobody willing to sell at these prices.  That’s encouraging.  On the negative side, the demand isn’t there either.  It’s a stalemate.  So, when I see overconfident people and a 50/50 scenario, I’m cautious.

There are still plenty of things to buy right now but make sure you have an exit strategy.  I think the turn of the calendar might bring some extra volatility simply because periods of no volatility are usually followed by more than usual volatility.

The stock market has been moving sideways for over a month now and has basically bored me to death.  We’re either breathing before moving higher or about to roll over.  When I can’t tell, I watch from the sidelines which is what I’m doing right now.

Generally when I’m looking to buy equities, I’m focusing in on a few different areas.  Areas I think have long-term growth and demographics to match.  However, in the last few weeks, there have been some stocks performing very well that aren’t generally in my comfort zone to buy.  Some of those areas are airlines, autos, financials, etc.

I’d consider these trades rather than long-term investments.  But, really, nothing in my equity portfolio can be considered a long-term investment.  We’re just not in that type of environment.  We’re in a “I love it until I don’t” environment.  Remember, the fundamentals are one thing.  But, the prices of stocks are controlled by emotional greedy investors.  That’s why a company like Goldman Sachs goes from $200 to $160 in short order.  So for now, I’m focusing on individual names in various industries for trades.  I’ll get back to my comfort areas of growth when the market makes up its mind on which direction it wants to go.

Everyday, I receive some comment either in an e-mail, a comment on this blog, or a comment on my radio show regarding future inflation.  When will it come?  What will it look like?  Why hasn’t it started already?

The Fed has injected more money in the system (along with other governments) than we’ve ever seen.  The monetary base (basically the amount of money in the system) which goes up about 6% per year has risen over 130% in just the last 12 months.  TIPS have risen in price.  Gold has risen dramatically this year.  Other commodities have followed suit.  So, why is everyone still worried about deflation?  I think it’s interest rates.  Interest rates have stayed low for some time while all of these other inflationary indicators have been rising.  They have been artificially held down by the Fed through their bond purchasing program.  Remember, when bonds are purchased, rates go down.  When bonds are sold, rates rise.  The Fed is slowing down their purchasing of all different types of bonds from treasuries to mortgage bonds.  In addition, they’ve started testing reverse repos to remove some of the liquidity.  We’ve seen rates begin to slowly rise.

On Tuesday, there were several pieces of economic data released.  the Producer Price Index was much higher than anticipated.  We knew these numbers would be high because they are being compared to an abnormally low number last year at this time.  But, they were even much higher than the estimates.  This caused rates to move up even more.

You can see above that we’ve broken the downtrend that had been in place since early summer.  This may be the beginning of rates rising at a faster pace.  Once this starts, I believe it’ll be like a freight train.  It’s going to be very hard to stop.  This is the time to look in the portfolio and see how much is in interest rate sensitive securities.  This could not only put a damper on bond prices but equity prices as well.

This post published at www.karleggerss.com

None of the content on this page can be reproduced without permission from Karl Eggerss & www.karleggerss.com

The pullback that the bears were hoping for and the bulls were dreading has happened in gold.  In five days, gold fell approximately 9% from its recent high of $1,227.  The great debate right now though is whether it’s simply taking a breather or was that the peak in gold.

I believe gold is still in the early innings of a long-term run.  The recent move did get ahead of itself.  I commented recently on my radio show that you simply can’t buy a chart that is heading straight as gold was in late November.  Now is the time to re-evaluate since we’ve had the correction.  Below is a picture of gold through the ETF streetTRACKS Gold Trust Shares (GLD).

The uptrend since the summer time is clearly defined here with the blue line.  Based on this, gold could continue seeing more selling pressure to roughly the 1090 area (equivalent to roughly $107.50 on GLD).  That would also be around the 50-day moving average as well.

The numerous reasons investors are buying gold from a fundamental standpoint haven’t changed.  In fact, the reasons are growing as we speak.  Therefore, I believe gold can move much higher over the next several months with pullbacks very similar to what we’ve seen so far.  Eventually, it will become a bubble.  But, we’re not there yet.

The S&P 500 has been stuck around the 1110 are for the past month.  Some will say we’re just churning around and pausing before we move higher.  But, while the stock market has been moving sideways, the negative divergences have been building.  Below is a picture of the S&P 500 SPDRs (SPY) which correlates with the S&P 500.  For months now, the RSI (the indicator at the top) has been moving lower making lower highs while the S&P is making new highs.  This is called a negative divergence and a warning sign.  It shows the intensity of the rally is going away.

In addition, we’ve recently seen some of the leadership like Goldman Sachs (GS) and Apple (AAPL) showing some real relative weakness.  This is another warning flag to me.  There are still pockets of strength like REITS & semiconductors.  But, for a healthy market, all sectors must participate.  It’s not good enough to simply see rotation like we’ve seen the past few weeks.  I can’t get excited about buying financials for example without Goldman Sachs (GS) participating.  Now, the reason we haven’t seen an all out drop in equities is the fact that there simply isn’t enough selling pressure.  Not many people willing to sell at these prices.  They are simply locking in profits in one area and moving it to another.  In addition, demand for stocks has definitely fallen.  As I mentioned above, the intensity in the buying has gone away.  But without selling pressure, equities will continue to bounce around.  With no commitment by buyers and sellers, that means it’s a stock pickers market for now.

I’m choosing to be very cautious right now because of all the negative divergences I continue to see.  The trades I am making are in a small way.

[youtube=http://www.youtube.com/watch?v=hJqfAzCBkj4]

[youtube=http://www.youtube.com/watch?v=A8x7lnHgyHo]

Lately, all the talk has been about the dollar.  It’s almost 100% inversely correlated with just about everything else.  When the dollar is down, gold’s up, oil’s up, stocks are up, emerging markets are up, etc.  So, perhaps we really can’t get a huge sell off unless the dollar spikes.  It’s had a few days where it appeared as though the trend was changing.  But, then down it went to new lows.

To me, it’s all about the 50-day moving average.  Until we break above the 50-day moving average, the downtrend is still intact.  Take a look at the picture below.  The green line is that 50-day moving average.  Keep an eye on this green line and that may give you a better idea on the direction of the stock market.

Television

I’ll be on CNBC Asia this evening at 5:10 p.m. CST & Fox Business tomorrow morning at 8:10 & 8:30 a.m. CST.  Make sure you tune in.