| TSG Weekly Market Watch December 21, 2007 |
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| Written by Matt Blackman | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sunday, 23 December 2007 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
 TSG Stock Market LetterWeek Ending December 21, 2007Topics Discussed This Week:
Last week
Still waiting for the Christmas rallyWith the exception of the Dow Transports, the major indexes closed in positive territory for the week with the Russell 2000 small caps index leading the pack. After a more than 170 point drop Monday, the Dow rose 65 points Tuesday thanks to a $502 billion cash injection courtesy of the European Central Bank to calm markets. But credit worries surfaced Wednesday and stocks fell again even after a successful $20 billion Fed auction that attracted bids of more than three times the subscription amount that showed strong demand from banks. Stocks then closed back in positive territory Thursday if only by 38 Dow points. Then some better than expected earnings news Friday from Research in Motion which in the wake of similar news from Oracle Thursday was enough to renew hopes for an earning rebound pushed the Dow up over 200 points. Not exactly the much hoped for Santa Claus rally this week but it was better than the loss across the board we got last week. Technically SpeakingLeaders recover and head higherAfter falling last week, Dan Zanger’s Sunday picks gained 0.7% which may not seem impressive but it did so after recovering from a more than 4% deficit Tuesday. However, Zanger’s composites were fourth behind the MSCI Emerging Market EFT (EEM), the Nasdaq Composite, S&P500 and Dow Jones Industrial Average. While it is bullish that they rose, that they are not leading the market is a concern. His picks this week again included Apple (AAPL), First Solar (FSLR), Solarfun Power (SOLF), LDK Solar (LDK), Sunpower Corp (SPWR) as well as Mastercard (MA), Southern Copper (PCU), Google (GOOG) and Baidu (BIDU).
Figure 1 – Weekly performance of Zanger’s market leaders compared to the S&P500 (SPX), the Dow Jones Industrial Average (DJX), Dow Transports (DTX) and Nasdaq Composite (IXIC). Data courtesy of The Zanger Report, performance chart courtesy of VectorVest.com. Weekly trading volumes were above average this week which is bullish given that the market rose and this outlook is compounded by the fact that that small caps, emerging markets and techs led the way. However, the Dow Transports Average again was the hardest hit and remains in a downtrend. That has bearish implications. Volatility settled back a little more again this week as the Market Volatility Index (VIX) closed at 18.47 down from 23.27 last week which is interesting given that it was a rather volatile week. It was another good week for the 17 commodities represented by the NYFE CRB Index which surged to 474.59 from 465.94 last week. This index remained above its upper 2-standard deviation trend channel again this week. But gold didn’t join the commodity party and instead remained in a consolidation pattern closing at $815.80/oz up from $798.10.oz last week and $800/oz. two weeks ago. The U.S. Dollar Index finished its fourth consecutive up week closing at 77.74 up from 77.45 last week which will continue as long as the economy keeps weakening in Europe and the ECB is forced to soften its interest rate stance. Oil gained again this week as the NYMEX crude oil (continuous) contract closed at $93.31 up from $91.55/bbl last week but still well off its weekly high of $98.18/bbl four weeks ago. After taking a hit last week, the MSCI Emerging Market Index ETF (EEM) closed at 153.65 up from 149.69 last week. If it can keep moving higher, it bodes well for the overall market. This week, the U.S. prime bank rate stayed at 7.25% while the 3-month London Interbank Offered Rate (LIBOR) slipped to 4.857% down from 4.966% last week. LIBOR is used in computing approximately 90% of mortgage rates so an important number to watch. Freddie Mac mortgage rates ranged from a high for the 30-year fixed mortgage of 6.14% (up from 6.11% last week) to a low of 5.51% (up from 5.5% last week) for the one-year adjustable rate (ARM). EarningsA total of 4184 companies (up from 4161 last week) have now reported Q3-07 results this week and improvements held steady at -20% versus Q3-06. This compares to an average earnings improvement of +13% for Q2-07. Economic ReportsHere are the reports we were following this week.
Chart 1 – Investor purchases of US Treasuries rebounded in October after two months of declines as well as a downward revision of September from -$14.7 billion to -$32.8 billion. A rebounding US dollar certainly helps make US Treasuries more attractive. Housing market index stays on basement floor Chart 2 – For the third month in a row the National Association of Home Builders housing market index stayed at 19 in December, the lowest reading since the group began keeping records. Readings for the three components of the index were as follows: the index measuring current sales increased 1 point to 19, sales expectations for the next six months rose 2 points to 26 and most ominously, the flow of prospective buyers through show homes and sales offices dropped 3 points to 14. Housing permits and starts fall again
Chart 3 – November housing starts fell 3.7% while permits dropped 1.5% but the chart says it all. No sign of any sort of bottoming yet. Both are off more than 48% from January 2006.
Chart 4 – The final GDP for Q3-07 held steady from the last estimate at 4.9% but that is now old news. The big question is how much this number will decline in Q4 and Q1-08? Next WeekIt will be a quiet week around Christmas. Here are the reports we’ll be watching. · Thursday, November durable goods orders (previous -0.2%).· Friday, November new home sales (previous 1.7%).SynopsisNegative news keeps on coming…Not unexpectedly, more bad news came this week, first on Monday with the Morgan Stanley downgrade of economic bellwether Caterpillar, followed on Tuesday with news that a group of banks said they were committed to launching a ‘super’ structured investment vehicle (SIV) rescue fund to help ease the crisis which fizzled when three of the biggest banks decided Friday that it wasn’t such a good idea after all. Instead, those companies hardest hit are seeking cash injections from the Far East as they search for much needed cash in the wake of a similar move by Citigroup. But while this credit crunch is far from over, investors are hoping for a quiet spell in which to enjoy the holidays. And after a challenging November, hope runs high for that good ole Christmas rally to fill portfolio stockings. It has been a challenging year for us all but we hope you have managed to do well. We at TradeSystemGuru.com would like to wish you and yours a very Merry Christmas and a Happy, Healthy and Prosperous New Year! Stories of interest this week… Banks Drop Treasury-Backed Plan to Bail Out SIVs ------------------------------------------------------------------------------------------------------ If you find this newsletter insightful, please feel free to forward this newsletter and share it with a friend (or simply have them opt-in free from our home page http://www.tradesystemguru.com to be added). DisclaimerTradeSystemGuru.com obtains information from sources deemed to be reliable; |
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