Stocks Advance as EU Leaders Draft Framework for Bailout Fund - Here is the opening from Bloomberg's market report:

Global stocks rose for the first time in 11 days and commodities climbed after U.S. Thanksgiving weekend retail sales jumped to a record and speculation grew that European leaders will do more to tame the debt crisis. The euro rose, while Treasuries reversed earlier losses.

The MSCI All-Country World Index added 3 percent at 4 p.m. in New York, snapping its longest slump since 2008, and the Standard & Poor's 500 Index rallied 2.9 percent to halt a seven- day losing streak. The euro strengthened 0.6 percent to $1.3312 after climbing as much as 1.2 percent. Ten-year Treasury yields were little changed at 1.97 percent after jumping as much as 11 points. The cost of insuring European government debt fell for the first time in eight days. Oil rose 1.5 percent.

The S&P 500 rallied the most in a month after the National Retail Federation said yesterday that retail sales climbed 16 percent to a record over the holiday weekend. German Finance Minister Wolfgang Schaeuble urged fast-track treaty changes to tighten budget discipline, while guidelines that finance ministers will discuss this week showed that Europe's rescue fund may insure bonds of debt-stricken countries with guarantees of 20 percent to 30 percent.

"It's a sea of green and nothing is being left behind in this rally," Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion, said in a telephone interview. "Equity prices are being powered higher by the quite good Black Friday sales in the U.S. and reports that European officials are rallying around some form of political cohesion to solve the debt crisis."

My view - There was no major catalyst in terms of news behind today's rally but stock markets became extremely oversold last week. That was sufficient justification for at least a temporary short covering rally but will we see more?

Probably, given some of the technical signals. Europe has been the focal point of global concerns but the Euro Stoxx 50 Index (weekly & daily) has found support above its September lows and recorded a clear upward dynamic today. Upside follow through on Tuesday would suggest a higher low of at least near-term significance. However, a push above 2500 and eventually the declining 200-day MA will be required to confirm a major floor near 2000. Of greater concern is the Euro Stoxx Banks Index (weekly & daily) although it bounced from its September lows today which are also in the region of the 2009 trough. A much stronger rebound is necessary to indicate more than temporary support near the former lows.

Upside leadership is required by the US stock market, given the powerful Wall Street leash effect, and the Russell 2000 Index (weekly & daily) rebounded today. Nevertheless, it will need to push above the October high and the declining MA to break the overall downward bias. A cautionary note is provided by the iShares IBOXX Investment Grade Bond Fund (weekly & daily) which has seen an upside failure and sharp reaction over the previous three weeks. It is short-term oversold and failure to rally from here would suggest concern over corporate finances.

Tim Price: A new golden age - My thanks to the author for his ever-interesting letter, published by PFP Wealth Management. Here is a brief sample, posted without further comment:

The business of investment for at least the past four years has been akin to conducting a detective inquiry: whodunit? Just how did we end up in this mess ? To tackle one's enemy, one first needs to identify it. In the popular conception, a myth gleefully adopted by politicians, it is all down to corrupt American investment banks, poisoning the collective well of global capital with subprime mortgage filth - what Professor Robert Vambery in this week's Economist nicely if grimly refers to as adding three quarts of milk to a quart of sewage and creating four quarts of sewage in the process. And then the poison spread. It is a neat little tale but nowhere near sufficient to explain the extent of our current malaise. We can throw some mud in the direction of politicians, but that is a little like shooting the messenger; they have only been dispensing the bread and circuses and pension and welfare benefits on the never-never that everybody has been clamouring for. The culprit we find the most culpable, and which draws all these disparate threads of blame into one cohesive narrative, is a fundamentally corrupt money system.


Email of the day - On the euro:

"Two things strike me on this. Why pick on Italy? Far better financial shape than UK USA. Even runs primary budget surplus. Why the hysteria about a break up? The Habsburgs separated their currencies the same way as the Czechoslovaks. Some apparatchiks pitched up one Sunday morning (I think it was Sunday) and rubberstamped existing notes with new denominations, OK a few banks probably went bust. So what? Think Northern Rock. The buildings still stand; the staff have not been guillotined. The depositors were protected and, it's back in business. Think too when UK devalued out of Bretton Woods near common currency. And left ERM. Why the hysteria? Meanwhile the Pavlovian lummoxes yet again react to the bell of we're fixing it and pile in. They may be right for the wrong reason per the above. Also Euro shares are I believe good long term value."

My comment - Thanks for the history. I agree on Italy and also long-term equity value, particularly for European dividend aristocrats which export globally.

Singularity - Transcendent Money - Gold - My thanks to a subscriber for this interesting presentation by Hinde Capital, on behalf of Hinde Gold Fund, at the Gold Symposium in Australia earlier this month. Here is a sample slide:

SINGULARITY - GOLD ADOPTION RATES LOW
• Today 0.2% would be worth $1.45 trillion ($1800 troy oz. Au) or 0.7% of Global Financial
Assets (GFA).
• Therefore new investment gold only provided 0.26% increase in % gold holdings.
• In 1968 to 1970 % gold holdings of GFA = 5%, to attain this % at current values of gold
($1,800), $10.4 trillion dollars need to be invested.
• $10.4 trillion is equivalent to 5.8 billion troy oz at $1,800 or 1.2 x gold ever produced.
• 5.8 billion troy oz. is 3.6 x known gold reserves (based on US Geological Survey).
• Clearly not only is public ownership miniscule, but to return to the 70s % holdings requires
too much gold than these prices can handle.
• This transfer of gold will take place at much higher prices.

My view - If you understand that gold has had a monetary value since our species first discovered and learned how to refine the yellow metal, and if you believe that gold will always represent hard money because it is a unique and scarce asset which is no one else's liability, then Hinde Capital's projections for bullion's price make sense.

The only question is: Over what time period? In other words, are we talking about years or millennia?

No one could possibly know the answer to this question so your guess is as good as anyone else's. Also, while the guessing may be fun, it is largely a waste of time. Instead, we should be monitoring technical and behavioural aspects of gold's performance.

For instance, Hinde Capital and other gold fund managers would like more people to buy their funds because they will make more money and rising demand will help to fuel a rising price trend for bullion. Conversely, plenty of other investment managers do not like gold because they think, rightly or wrongly, that its price appreciation could have negative implications for other investments.

Fullermoney has maintained for over a decade that gold was being remonetised in the eyes of investors. This inevitably meant that more people were considering gold as an asset worthy of inclusion in their portfolios, not least as a hedge. However, short-term extremes in sentiment are a contrary indicator. When everyone is bullish and the price is accelerating above its 200-day moving average, as we saw last August, it becomes temporarily overbought. Conversely, when people are more cautious following a pullback to the MA, as we saw in late September, it is probably somewhat oversold within its overall upward trend.

Negative real interest rates (below the rate of inflation) and accommodative monetary policy are tailwinds for gold. Conversely, positive real interest rates (above the rate of inflation) and restrictive monetary policy are headwinds for bullion. Today, monetary conditions are reasonably favourable for gold, although less so than in 2009, due to higher interest rates in growth economies. A flight to cash triggered by a worsening European sovereign debt crisis or any other significant factor would be a headwind. However, in this latter instance gold would probably fall less than a number of other assets, as we last saw in 2008.

Since gold is a monetary asset the strength or weakness of the USD will clearly be a big factor in bullion's performance in that currency. The greenback has been strong recently, as you can see from this chart of the US Dollar Index and the Asian Dollar Index which has fallen, but the US currency has weakened whenever stock markets rallied in recent months.

Lastly, and most importantly, we should consider gold's medium-term uptrend, which I prefer to view on a weekly chart with a 200-day MA. The progression of higher reaction lows evident on this chart are the defining features of the uptrend, which is smoothed by the MA. Accelerations such as we saw in August increase short to medium-term risks because they are unsustainable and followed by corrections. However, we can continue to give the medium-term trend the benefit of the doubt while the price is trading to the left (above) a rising MA and the reaction lows are still rising.

Investors in gold bullion will also want to monitor gold's trend in their local currencies. You will find them in the Relative Charts section of the Library. One of the more interesting of these, and relevant for a number of subscribers, is gold in AUD over 10 years. This has been less consistent than gold in USD during the same period because the AUD has been a strong currency for most of the last decade. Consequently, gold in AUD ranged mainly sideways until the second half of 2005 before surging higher and becoming temporarily overextended. Note the similar sized reactions. When any trend is that consistent, the first reaction which is clearly larger will probably break the short to medium-term momentum. When Eoin conducted TCS in Sydney in early May, there was less enthusiasm for gold in AUD because it had traded sideway for a lengthy period. Nevertheless the lows were still rising and that remains true today.

For additional perspective, here is a long-term chart of gold adjusted for US CPI inflation.

(See also Eoin's comments on gold shares below.)

My personal portfolio - Gold futures longs rolled forward and increased - The first part of this is a delayed report because I was not checking my online trading account every day, although I had planned for my gold (weekly & daily) longs to be rolled forward. For the record, my expiring December contracts were sold at $1695.6 on 23rd November against purchases at $1808.2 on 20th September and $1732.6 on 18th November, and February longs were simultaneously opened at $1699. This afternoon, I doubled this position buying February gold at $1723.2 and $1717.9. These prices include spread-bet dealing costs.

Dealers See Fed Buying $545b Mortgage Bonds - Here is the opening for this topical item from Bloomberg:

The biggest bond dealers in the U.S. say the Federal Reserve is poised to start a new round of stimulus, injecting more money into the economy by purchasing mortgage securities instead of Treasuries.

Fed Chairman Ben S. Bernanke and his fellow policy makers, who bought $2.3 trillion of Treasury and mortgage-related bonds between 2008 and June, will start another program next quarter, 16 of the 21 primary dealers of U.S. government securities that trade with the central bank said in a Bloomberg News survey last week. The Fed may buy about $545 billion in home-loan debt, based on the median of the firms that provided estimates.

While mortgage rates are already at about record lows, housing continues to constrain the economy, with the National Association of Realtors saying in Washington last week that the median price of U.S. existing homes dropped 4.7 percent in October from a year ago. Borrowers with a 30-year conventional mortgage would save $40 billion to $50 billion annually in aggregate if they could all refinance into a new loan with a 3.75 percent rate, according to JPMorgan Chase & Co.

"We need to see a bottom in home prices," said Shyam Rajan, an interest-rate strategist in New York at Bank of America Corp., a primary dealer, in a Nov. 22 telephone interview. "These are not numbers that are going to get down your unemployment rate," which has held at or above 9 percent every month except two since May 2009, he said.

My view - This certainly looks like QE3 to me. Wall Street may like it but there must be a serious risk that Mr Bernanke's deflation fighting measures are increasing the longer-term risk of uncomfortably higher inflation.


Please note - I will be away on Tuesday.



Additional commentary by Eoin Treacy

Santa Claus rally anyone? - Thanksgiving represents the busiest day of the year for US online retailers. Black Friday passed off with the usual scuffles, highlighting the desire of everyone to get in on a bargain as they start their Christmas shopping. Stock markets too have seen prices slashed over the last month.

Sentiment has deteriorated to abysmal levels. Some notable evidence of this has been the increasingly popular fire and brimstone approach to analysis. More than a few "It is God's will" style reports have crossed my desk. When markets fall, blame tends to get sprayed around. Rather the opposite occurs for many as they rise, with self-aggrandisement the predominant trait. Both extremes are to be avoided.

In Comment of the Day last week David and I highlighted how attractive the yield on some stock market indices had become as well as the consistency of relative strength and temporal leaders. Most stock markets and commodities performed impressively during October but gave up much of their gains in November. Short-term oversold conditions are widely observable in stock markets. Concurrently, the US Dollar has become overbought.

We have hypothesised that the October lows represented the bottom of what we described as a short, sharp bear market. If that view is to prove correct, most stock markets will have to hold above those lows. So far this month, the majority have returned to test those levels but today's upward dynamics suggest demand is beginning to return to dominance and at a progressively higher level among the leaders..

This is still a highly volatile, uncertain environment dependent on news flow and the activities of highly leveraged traders. However, that should not eclipse the perception of value where it is evident. A secular bull market is evident in some multinational companies we have described as Autonomies. Many are among some of the best relative and absolute performers in their respective stock markets which supplements that view. Provided last week's lows hold, the upside can be given the benefit of the doubt for at least for the short term and probably the medium-term.

The S&P 500 posted a third lower rally high in late November and has fallen back below the 200-day MA to test the lower side of the August/September range. Today's upward dynamic is the first indication of activity to pressure short positions. Follow through tomorrow would lend further credence to the short-term bullish outlook. A sustained move above 1300 would break the medium-term progression of lower rally highs and confirm a return to medium-term demand dominance. The FTSE-100 has a similar pattern.

During October, Germany's DAX Index rallied from deeply oversold levels to close the overextension relative to the 200-day MA. It encountered resistance and pulled back sharply. Today's upward dynamic suggests at least some short covering is underway.

India's Nifty Index has posted a progression of lower rally highs since retesting the 2008 peak late last year. It rallied well today from the region of the reaction lows and a countermanding downward dynamic would be required to question potential for some additional upside.

Eoin's personal portfolio: Nasdaq-100 long opened - The Nasdaq is home to a plethora of companies oriented towards global growth, that dominate their respective niches and have strong cash flows. The Index has pulled back sharply over the last four weeks but has steadied above the October low and a sustained move below 2130 would be required to check current scope for a further bounce. I opened a long in the December contract this morning paying 2201.4 including spread-bet dealing costs.

Which shares in the Dow Jones Europe Stoxx 600 and the S&P500 are trading above their respective 200-day MAs? - Following a potentially important pivot in stock markets I thought it might be instructive to identify which shares are trading above their respective 200-day MAs.

Following a volatile few months and weak overall environment over the last four weeks, of the 1100 shares in the Dow Jones Europe Stoxx 600 and the S&P500 139 are currently trading above their 200-day MA.

Here is the list segregated by subsector, then country of primary listing then by dividend yield. Shares with utility-like characteristics such as tobacco, pipelines and electricity providers are unsurprising constituents.

The relative strength of a large swathe of the healthcare sector, both among the reliable dividend payers as well as those representing the cutting edge of technology is also observable. Intuitive Surgical has a notably consistent chart pattern.

In the USA, the relative strength of companies leveraged to lower per capita spending remains a dominant theme with automotive parts and discount retailers continuing to exhibit relative strength.

In the technology sector, Cisco Systems continues its march higher from relatively depressed levels.

A pervasive theme across markets remains the relative strength of shares leveraged to the growth of the global consumer. Globally oriented food, beverage, cosmetics & toiletries and luxury goods companies all continue to exhibit consistent trends.

Randgold cuts 2011 output target on Tongon setbacks - This article from Reuters may be of interest to subscribers. Here is a section:

As anticipated, Q3's difficult operating conditions in the pit, due to the wet weather and mining through transitional ore, persisted into Q4," Randgold said of Tongon in a statement on Monday. "The situation was exacerbated by a number of other factors."

Other factors included a work stoppage, a difficult changeover from diesel-generated power to the national grid and a mill closure.

Randgold had said earlier this month it was in "good shape" to meet the bottom end of its 740,000 to 760,000 ounce target for the year. That target had already been revised from 750,000 to 790,000 ounces after abnormal rainfall hit production at its Loulo/Gounkoto mining complex in Mali.

The revised output will still be well above 2010, when the miner produced about 440,000 ounces.

My view - The Amex NYSE Gold Bugs Index has been ranging mostly above the 2008 peak for much of the last year. It found support above 500 today, in line with stock and commodity markets. A sustained move to new high ground would confirm the return of medium-term demand dominance.

GoldCorp, Barrick Gold Corp and AngloGold Ashanti have relatively similar patterns to the Gold Bugs Index.

Newmont Mining Corp rallied well today and has so far held the short-term progression of rising reaction lows and remains above the 200-day MA. A sustained move below $60 would be required to check current scope for additional upside. Yamana Gold has yet to post new highs but otherwise has a relatively similar pattern.

IAMGold has been ranging mostly above $18 for most of the year and rebounded from near that level today. Eldorado Gold, Harmony Gold Mining, Gold Fields and Compania de Minas Buenaventura are also rallying from the lower side of their respective ranges. Coeur d'Alene Mines remains in the region of the upper side of its six-month range and a clear downward dynamic would be required to check current scope for some additional upside.

Following today's downward revision of production, Rand Gold Resources was one of the only shares in the Index to post a negative return. It has now almost completed a reversion towards the 200-day MA and will need to hold above the $95 region if the medium-term upside is to continue to be given the benefit of the doubt. New Gold Inc also pulled back today, extending a fall below the 200-day MA for the fist time since mid 2009. A clear upward dynamic will be required to indicate a return to demand dominance.

Agnico Eagle, Hecla Mining and Kinross Gold all continue to trend lower and will need to break their progressions of lower rally highs to check medium-term supply dominance.

Email of the day (1) - on long-term P/E ratio and Dividend Yield charts for stock market indices:

"Would much appreciate if you can provide the following charts from Bloomberg:

(1) long-term (50 years?) daily or weekly PER graph, and
(2) long-term (50 years too?) daily or weekly DY graph

for each of the following indices:

(a) S&P 500
(b) Nikkei 225 (P/E, DY)
(c) Euro Stoxx 50 (P/E, DY)
(d) FTSE 100 (P/E, DY)
(e) Malaysia's KLCI, with Bloomberg code FBMKLCI:IND (P/E, DY)

"Many thanks in advance."

My comment - Thank you for these requests. As mentioned previously we do not have access to a data feed supplying P/E ratio and dividend yield information. I have attached charts for the above indices from Bloomberg. However Bloomberg does not have 50 years of data for these indices.

Additionally, it should be noted that Bloomberg quotes P/Es based on operating earnings as opposed to reported earnings. The latter are based on Generally Accepted Accounting Principles (GAAP) while the former allow for many more write-offs in the form of "one-off items" Since operating earnings have come more into vogue over the last two decades it is questionable whether long-dated P/E charts are truly reflective of historic market conditions.

The P/E ratio chart for the S&P 500 posted on www.multpl.com is based on Dr. Robert Shiller's data set and uses a 10-year average of earnings which helps to smooth out spikes in individual years. This site also has long-term dividend yield charts.

Email of the day (2&3) - on additions to the Chart Library:

"Could you please add EGP.AU the newly refurbished Sydney casino? TIA."

And

"Can we have the charts for these 2 stocks? -

(i) New World Department Store China Ltd ; Bloomberg = 825:HK

(ii) Beijing Capital Land Ltd Bloomberg = 2868:HK

"Again, many thanks in advance."

My comment - Thank you for these suggestions which have been added to the Chart Library.

The Chart Seminar 2012 - 2011 has been a very successful year for The Chart Seminar with a sell-out tour to Singapore and Australia, as well as our ever popular London events. I am greatly looking forward to a number of venues in 2012.

We are currently taking bookings for our San Francisco and New York dates in April as well as London seminars in May and November. Anyone interested in securing a place at any of our events should contact Sarah Barnes at sbarnes@fullermoney.com.

The date and venues for my seminars so far in 2012 are:

San Francisco - April 16th &17th 2012 Nikko Hotel

New York - April 23rd & 24th 2012 at The Manhattan Club at 800 7th Avenue

London - May 25th & 25th 2012 at the Radisson Edwardian Hampshire

London - November 22nd & 23rd 2012 at the Radisson Edwardian Hampshire

The full rate is £950 + VAT. (Please note US delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires on January 30th for the US seminars. Paid-up Fullermoney subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

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