Risk Back On - World Equity Markets Are Breaking Out

The post-Brexit vote equity selloff didn’t last long as most world markets have rebounded strongly and are breaking out. From a technical standpoint, it appears (for now) as if investors are favoring stocks. To illustrate this point, all my posts this week will focus on some interesting and exciting opportunities. 

The first being the emerging markets (using EEM as my proxy). As you can see in its chart below it peaked in mid-2014 and declined some 35+% bottoming in January of this year. It has since taken back 50% of that loss and has formed and broke out from an (in blue) inverse head and shoulders bottoming reversal pattern. If this pattern plays out to completion its upside target is some 20% higher. With RSI momentum in the bullish zone and rising and price above a rising 200 day moving average, you can’t ask for a nicer opportunity setup.

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.