It's
Spring!
- The half way point is now in the
past in the lengthening-days cycle and
for the next 6 months the daylight hours
will be longer than the the nighttime
ones.
Last week we thought that the Dow would be lower on Friday
than it was on the previous Friday as we expected the pullback. The Fed
disturbed that idea and the Dow closed up 0.8% for the week. First the Fed
maintained its key fed funds rate target unchanged at 0%-0.25% as expected and
the Federal Open Market Committee continues to believe economic conditions
warrant exceptionally low rates for some time. Then on Wednesday they announced
a plan to monetize $1.25 trillion in debt. This is not a surprise as they had
signaled such a plan but the announcement brought in buyers for the market in
general and especially in gold, oil and some other commodities as trades were
thinking of inflation and as the US dollar pulled back which is good for stocks
as it can boosts sales of goods abroad.
The move in gold as an inflation hedge
may have been premature as inflation may
take quite a bit longer to appear. Still
gold may have some room to the upside
and there are a lot of gold stocks in
this case that could run so we made a
page of them to look at and mentioned
later on.
The government is doing many things to try
and kick start the economy and it may help
short term but will cause all kinds of
difficulties later on. Creating money out of
thin air gives no solid support to anything
and it will have to be paid back or go bust.
At the moment the market seems to not care
about the longer range and is happy just to
enjoy the recent relieve from selling. There
has not been massive buying volume which
could indicate a longer term bull but there
probably was enough strength and momentum
started to continue this uptrend for a while
even if the correction moves deeper in the
coming weeks. As shown later we are
calling this a B wave up and it also has
waves. If we were counting this up move as
A-B-C the A may have completed or nearly or
it could drop soon to test the recent lows.
If it does resume the rally next week we
would want to see more volume when it gets
back to the trend lines so it can break
above. If this happens we still think a test
of the lows will unfold but it would be
later on.
The
advances in this rally have been very
similar to the ones we saw after the early October low
and then in the end of October low and
yet again the November low. If the rally
wants to continue for weeks to come it has
to have a greater number of stocks making
new highs and fewer making new lows.
Consumer prices rose 0.4% in
February, adding to the 0.3% gain in the previous month and slightly faster
than economists' expectation for 0.3% growth. Core consumer prices rose 0.2%
compared to the 0.1% growth expected by economists. Housing prices remained
unchanged for a third straight month.
Crude
oil stockpiles rose by 0.7 million barrels in the week ended March 6th.
Distillate fuel inventories rose by 2.1 million barrels, while gasoline
stockpiles declined by 3 million barrels. Refinery capacity utilization
averaged 82.4% over the four weeks ended March 6th compared to 82.1% in the
previous week. The demand side of the equation is seeing an improvement,
with the demand for gasoline averaging 9 million barrels per day over the
last four weeks, up 1.6% from the year-ago period. On the other hand,
distillate fuel demand averaged 4 million barrels per day over the past four
weeks, down 6.1% from the same period last year.
Initial jobless claims in
the week ended March 14th show that jobless claims unexpectedly
decreased compared to an upwardly revised reading for the previous week.
Jobless claims fell to 646,000 from the previous week's revised figure of
658,000. Economists had been expecting claims to edge up to 655,000 from the
654,000 originally reported for the previous month.
.
The leading indicators index rose 0.4% month-over-month in
January following a 0.2% increase in
December. However, the lagging index and the
coincident index fell by 0.5% and 0.1%,
respectively. Five of the ten indicators
that make up the leading index rose in
January, with real money supply, interest
rate spread, the index of consumer
expectations, manufacturers' new orders for
non-defense capital goods and manufacturers'
new orders for consumer goods and materials
contributing positively to the index.
The Philadelphia Fed's survey for February showed that
conditions in the manufacturing sector in the region worsened. The survey's
current activity index plunged to -41.3 in February compared to -24.3 in
January. The new orders index fell to -30.3 from -22.3 in the previous
month. Meanwhile, there was some improvement in the outlook, as the business
activity index for the six months ahead rose to 15.9 from 7.4.
The past weeks major indices.
The top and bottom sectors for the week.
The best and worst performing industries for last week.
This chart illustrates that 12-month, as-reported S&P 500 earnings have
declined over 80% over the past 18 months, making this by far the largest
decline on record (the data goes back to 1936). In fact, real earnings have
dropped to a level not seen since the 1930s and 40s – the back end of the
Great Depression. While earnings have been struggling since Q3 2007, it was
the latest quarter (Q4 2008 the first full quarter following the financial
meltdown), where the real damage was done. During Q4 2008, the S&P 500 came
in with its first negative earnings quarter ever and the amount lost during
the quarter was more than the index has ever earned during a single quarter.
The major indices. From the March 9th low to this
Wednesday the Dow gained 14.4%, the S&P 500 and Nasdaq up 17.5% and the
Russell 2000 up 21.7%. This is about the same percentage move as the past
three rallies in this bear market. Maybe this time though we can make this
into a longer term rally but we have to see how the pullback is met over the
coming weeks. The start of the pullback would not have been easier to
predict as it ran into resistance trend line in almost all majors except the
Nasdaq 100. The Dow closed over its 50-day EMA. All indices are well over
their center Bollinger band so still bullish.
The Dow weekly has a reversal candle after the
pullback the last two days so their may be more backing and filling to come.
The utility averages weekly closed back up over
their broken support.
The transportation average also ran to the trend
line not even making it to the 50-day EMA. The 2400 area would be a
technically nice place to find support.
The Nasdaq, the trend line like all the others,
the index is consolidating now.
The summation index for the Nasdaq NASI still
heading up.
McClellan oscillator did move to over 80 which
usually signals a pullback for at least short term.
Volatility index VIX had fallen under the trend
line but the last two days it has moved back over it showing the fear
factor.
Semiconductor index SOX one of the few indices to
break out over the trend line so when the rally continues this sector may
perform well. The standard ETF for the group is SMH or IGW.
USD is the 2X long and SSG is the 2X short. A break down
back under the 50-day would be a negative.
Nasdaq 100 - S&P 500 ratio chart it had fallen to
the exact support line and reversed showing the larger interest in the top
100 large cap tech stocks over the general S&P.
S&P 500 weekly if major wave A has completed we
are in Wave B up which could last weeks to months and then drop into a
longer term wave C that would take this below wave A and in time complete
the bear market. Quite typically a wave B can retrace 50% of wave A. Now it
is at 1120. Some times they only run to the 38% now at 1010. We say now as
we cannot know for sure yet if indeed wave A has completed. A test of the
low would be helpful in this regard.
S&P 500 daily ran to trend line and it it can move
above it the next higher trend line is at about 850 which could also end
wave B up..
Value Line VLE pierced its trend and now is
a bit lower though stochastics is still over 80. This index is performing
similarly to the S&P but in the 3-year rally into 2007 this did much better
than the general market so we keep an eye on it this time to see if it will
start to act stronger than the S&P.
NYSE same as the others on hitting resistance.
NYSE advance decline ratio chart has not shown
much improvement after the rally.
NYSE percentage of stocks which are trading over
their 50-day moving average moved up to 33% this week.
S&P 400 mid caps did not make it to their
trend line but only a bit higher than the 50-day EMA.
Russell 2000, trend line, pullback.
Financial sector XLF on the 4th touch it actually
went above the trend line and although it failed, it poked a hole in it
which weakens it for the next time it tries. If the insurance sector though
gets hit again like AIG did that would affect the financial group also. HIG
seems to be having many troubles.
Banking index BKX 60-minute shows the break out
and now sitting on the moving averages.
Homebuilders XHB
Commerce Department hurled a surprise by announcing that
housing starts for February rose 22.2% to 5.83 million units. The increase
was mainly due to the upside in multi-family construction, while
single-family starts remained almost flat. Building starts also increased
3%, with an 11% rise in single-family permits offsetting the 10.8% decline
in multi-family permits. There are some ideas mentioned in an article the
Wall Street Journal about a way to help the housing industry. Grant green
cards to to immigrants who come and buy houses. There is already a similar
working arrangement for immigrants who start businesses and hire 10 people.
London FTSE also with trend line overhead.
China 25 index ETF FXI these trend lines and
triangles are international as TA has no problem with language.
Tokyo Nikkei NIKK bounced at its 1980s support.
Russian RTSI index gained more and now up almost
28% for the month. If the Dow gains 28% from its low it will be at 8281.
Templeton Russian Fund TRF has a trend line similar to most US
indices on the daily.
CRB commodities index weekly rallied 7% but is
still below the broken support line.
CRB daily has had a nice break out above the trend
however and is over the 50-day EMA signally an improving atmosphere for
commodities.
Commodity iShares GSG also over the 50-day EMA.
This index is different than the CRB. GSG currently tracks 24
different commodities. It is weighted with approximately 67% invested in
energy, 16% in agriculture, 7% in industrial metals, 7% in livestock and 3%
in precious metals. The spike seems caused by the large move in natural gas.
Crude oil weekly and its move back over the broken
trend line. It may have to drop back lower then come back over to prove
itself.
Crude oil ETF OIL at resistance but over the
50-day EMA.
Gold weekly added 2%. It seemed like more as it
rallied strongly for two days but had been at a multi week low.
Gold daily more clearly shows it over the 3-week
highs.
Gold cloud chart still has the bearish crossover
but support on the green cloud below. Remember that on a cloud chart the
support is not only on top of the cloud but all the way to the bottom of it.
Now at around 860.
Market Vectors gold miners GDX had a gap
and is now under two break out lines on very good volume..
GDX renko 60-min mechanical trading chart on this
run totally made about 6 or 7 points so far. Looking at the Parabolic SAR
you see their may have been a short term short and then a long not indicated
with lines here. CCI had not quite made it over the 100 mark (or did it?) If
you shorted only on the SAR then went long again you would have been about
the same or maybe a bit more gain. It is about the most dependable trade out
there week after week month after month.
GDX on top and the 7-21
EMAs below. The EMAs had crossed over bearishly but the Fed news got all
back into gold stocks and they crossed back over again.
Gold bugs HUI (unhedged
stocks) not to impressive but back to the break out line. The HUI to gold
ratio however (lower section) does have the index outperforming gold which
is bullish for the stocks.
XAU gold and silver (hedged stocks)
closed jut a bit over the resistance with the next level at 153.
Silver also closed over resistance
for 2 days, RSI is turning up and MACD could cross over.
The US dollar dropped under the trend line
UUP US dollar and UDN US dollar short. The dollar is at thee 38%
retrace so could bounce here or drop to the 200-day EMA a bit lower.
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Butch Cooley Market Comments
(Butch is founder of
Leg Up House
and the
Butch Cooley Worldwide
Hunting and Fishing . He has
been an active trader for decades.)
Stock Market Comments
It sure is getting harder and harder
to write this column without looking into the politics
of the week. It's almost like free enterprise has just
stagnated and Wall Street is simply looking at where the
next load of money is coming from the government. Damn
the torpedoes, full speed ahead. The big mess this week
was all about the flap with AIG and the $160 million
paid out in bonuses. I only mention this in part, as it
upset me enough, I did not trade for two days. I have
found over many years of trading, it doesn't pay to get
emotional when it comes to making money. I can remember
when $160 million was a lot of money. That was just a
year ago maybe?? Now it just doesn't sound like a lot
of money. But this is all yesterday's news. What is
coming up ahead is what we need to know to make a gain.
Besides, Congress is on top of this AIG thing,
right??!! It is worth mentioning that I got an email
from one of my Senators, and he claimed to have received
in excess of 100,000 emails on the AIG bonus payouts.
So obviously, I was not the only person who was upset.
I mention all of this regarding AIG and the email from
my Senator, because it has a definitive effect on how
Geithner's Toxic Bailout is going to work.
The news that caught me completely off guard, came on
Wednesday at about 2.15 pm EDT. Chairman Bernanke threw
the markets a curve and committed a whole lot of money
(money the Fed is going to have to print!!) to bail out
mortgage backed loans gone bad and other other toxic
assets. All in all, he committed well over $1
trillion. And the markets loved the news, at least the
herd did, and we took off. Well, I was buying Pro Share
Short ETFs at the time, so I wasn't a happy camper. I,
like others, saw this as an immediate threat on the
value of the USD, oil futures, and started jumping on
gold stocks. But they moved too fast and I only got a
small amount of what I would liked to have had. Then I
just sat back and waited to see how the markets digested
everything.
Thursday looked like we were going to make another run
at a rally. One of ST's morning reports mid week was
dead on, as he was calling for a pull back. And we just
had too many things wrong on the charts, too much "junk"
in the way. So it turned out to be a great bear rally,
but nothing more than that. But news is the fly in the
buttermilk. I believe Secretary Geithner had to change
his plans along about Monday and Tuesday, as it was
becoming very apparent that Congress probably was not
going to be real interested in talking about more
bailout money (billions??) to jump start the economy.
Not after the AIG news. Think of how many emails and
calls all the members of Congress must have received
this week. The money had to come from other sources
now. And that leaves the Federal Reserve Bank and the
FDIC. I have lost track of how much money Secretary
Giethner is talking about, approximately $2 trillion I
think it is. Chairman Bernanke is committing buying US
Treasuries, because it's become more apparent that China
may not. And he's tossing in an extra $300 billion for
toxic assets.
The over all Geither plan is still vague, but it is
shaping up and starting to look like something anyway.
The first part of this plan Part A, is the
public-private "partnership" to buy toxic assets from
private firms. Just how this will work is still a
mystery to me. But we should be hearing news maybe even
this weekend.
Part B would seem that we are going to add some money to
the TALF fund. This was the plan by the Fed to lend
money to investors who are going to buy consumer debt.
This money is suppose to help make available more auto
loans, credit card loans, and student loans. What
Geithner is proposing is to also include toxic assets in
TALF.
Part C would then be to have the FDIC also buy up toxic
loans. My understanding is all of these loans are on
balance assets/debt. I am not sure anyone is getting
into off balance monies yet. (That is another subject I
will attempt to tackle at a later date.)
So, what does it all mean? Well, I'm considered an "old
guy", a brown shoe if you will, and I think the markets
already have this priced in. I think we saw reaction to
that on Wednesday, and the pull back the rest of the
week. The main question I still have is regarding how
much we are going to pay for these assets. If you
recall Secretary Paulson came up with an auction idea.
Sort of like selling junk on eBay. there's an idea,
have the banks sell their toxic waste on eBay! But he
pulled out of that deal. If the private-public
partnership is going to work, it would seem to me, those
toxic assets have to go pretty cheaply. And I don't
believe the banks are wanting to sell them too cheap.
And my next question is $2 trillion enough to make a
difference? Personally, I think it's a drop in the
bucket that has a hole in the bottom. Just a reminder
here, that last June, Citibank reported that it had
$1.18 trillion in off balance sheet debt. This debt is
not regulated well, so who knows how much they have
now? They also report almost $1 trillion in qualified
special purpose entities. Whatever they are. Doesn't
sound good. QSPE are "things" created by banks to go
off balance. I wonder how Citibank values these
"assets"?
So in the end, I held my Pro Share Short ETFs. I even
added when they bottomed. So far, it's looking like the
right play. But we should have some news this week
coming regarding more on the Geithner Toxic Bailout
Plan. Things are still looking just a bit on the bleak
side.
BC
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