Just for the Smell of It

The Hard Rock Café Hotel in Orlando pumps out artificial scents of sugar cookies and waffle cones that act as “aroma billboards” to draw people to their ice cream shop in the basement (increasing sales by 45%). The marketing company ScentAndrea attached chocolate artificially-scented strips to some vending machines in California, tripling Hershey’s sales. The Hershey’s store in Times Square uses artificial scent machines that blow the scent of chocolate into their store. Disney reportedly applies an artificial “grilled scent” to their frozen burgers to make them smell fresh, along with strategically placed scent machines in the bushes that disperse scents of cotton candy, popcorn, or caramel apples. According to the Scent Marketing Institute, when the smell of fresh baked bread was pumped into a grocery store, sales in the bakery department tripled. A grocery chain in New York (Net Cost) admittedly places scent machines that release scents of chocolate and baking bread to make customers hungry, and sales jumped.

Even subtle changes in operations can trick our noses and make a big impact on increasing food sales. For instance, Panera Bread recently moved its baking time to daytime hours so that customers smell the bread all day long and their New Haven, Connecticut location has a small “show oven” without a hood, so the smells vent into the restaurant. This is the same reason that Subway places their bread ovens up front in their restaurants, so that smell hits you when you walk in the door. Starbucks has an “aroma task force” to make sure their stores smell like coffee and not the cheese from their breakfast items

So don’t be surprised the next time you drop into our office and feel rich as we are working with the SF Federal Reserve to capture a new, “crisply minted $100 bill” scent for use in our Glade “office fresh” dispensers.

July 2016 Charts on the Move Video

July brought a welcome relief to the markets as most US indexes broke out to all time highs. For some that is all that is needed to jump all in, for others prices are too high so its time to take some chips off the table. Where do you stand?

https://youtu.be/CbhUDukKjN8

Put it in Perspective

I know I spend way too much time on market research, living every peak and valley and have come to realize the hard way it is a distraction for the things that matter most in life. There has to be balance but finding it can be a struggle for me. As such sometimes I find it good to put it in to perspective and this chart helps me do that. Maybe it can help you - - -

“The 7 cardinal rules in life”

The Case for Platinum

If you are like me and see enough supporting evidence the precious metals markets have turned the corner and are not yet fully allocated, I want to make the case for some exposure into platinum. Gold and silver are what first come to mind for most people when discussing or investing in precious metals. They are the most liquid and have the greatest availability in both physical and financial instrument form and as such many forget about platinum. But based upon what I see in the charts right now, platinum provides the potential for greater forward returns of the big three.

Let’s take a look at the last two year performance chart of platinum and gold. Historically they move in lockstep (what occurred prior to 2016 is what you would expect) but since the start of this year gold has substantially outperformed platinum creating a huge divergence. This divergence is what is creating the potential out-performance opportunity. I expect returns to eventually turn back to pre-2016 days and as such either gold has to fall to platinum’s level or platinum has to rise to catch-up with gold. Or a little of both.

Taking a 40+ year look at the monthly ratio of platinum to gold in the chart below we see it ranges between .7 - 2.5. The upper boundaries have provided a good time to sell platinum and buy gold. The .7 level, on the other hand which was hit in Feb of this year provides excellent opportunities to sell gold and buy platinum.

Changing the view once again, this time to a 5-year weekly look at the platinum to gold ratio we can see, while it has not yet confirmed, we are closing in on forming a w-bottom with bullish positive RSI momentum divergence. Looking to the left you can see this exact same pattern formed (from higher levels) in early 2012. Those that took the signal and switched to platinum at that time outperformed gold by more than 35% peak to trough. It looks like we are setting up to do the exact same thing again but with more upside potential.

There is more than enough technical evidence here to suggest platinum, at least for the intermediate term future is the better precious metals investment candidate. For those who are leery of the metals, a pairs trade of long platinum and short gold should provide very low risk, good return reversion to the mean opportunity.

The Fabric of Our Lives

Unless you have access to the futures market, there are some investments that are not really accessible to the retail investor. I consider cotton to be one in that category as the only tracking vehicle, BAL, trades on average less than 20k shares per day. I have talked ad nauseam on the perils of illiquidity so I will not go down that path again but remember if you want to sell an illiquid investment and the market is falling, good luck trying to find a buyer at your price … and possibly at any price. I bring this up because of the strength of its chart, I wanted so desperately to add it to client accounts but refused to violate my investment rules regarding illiquidity.  In spite of that it is still worth reviewing the chart as these setups, when available, provide both a high probability of successful pattern playout and big upside potential.

Cotton formed an interim top back in April of 2014 at just above $95. From that point a waterfall decline transpired as it lost almost 40% in the next 9+ months bottoming in Jan of 2015. Since then it has been consolidating and range-bound bouncing between $56-$68. This sideways action continued for 2 boring years (this is exactly why these setups work so well all the sellers have left and only the smart money is left … to buy). One of my mentors drilled into my head the old adage of “the bigger the base the higher in space” so it should be obvious why cotton had my interest.  I prefer to see a minimum of at least 6 months so the fact it was working on 2 years was just that much more interesting.

As you can see it finally broke out last week on incredible volume, a classic textbook dream setup for much higher prices. This week (so far) it appears as if price is consolidating and digesting its gains but setting up for its next leg higher.  The fact that both patterns that have formed (double divergent low bottom and bull flag) have similar targets, I expect a high probability the $83 range will be hit. Even though I was unable to capitalize for clients, once this cotton move has played itself out, I will circle back around with a follow-up post as successful pattern setups are a great learning tool and go a long way towards out-sized gains.