| TSG Weekly Market Watch June 13, 2007 |
|
|
|
| Written by Matt Blackman | ||||||||||||||||||||||||||||||||||||
| Sunday, 15 June 2008 | ||||||||||||||||||||||||||||||||||||
|
TSG Stock Market LetterWeek Ending June 13, 2008Topics Discussed This Week:* Stocks lose ground, down on the year… * As leaders gain marginally * Earnings drop for another quarter * Pending sales surge, but foreclosures continue to soar * Oil prices and the Lisbon Treaty
Stocks close down Crude was again the big story over the last two weeks as surging oil prices again took a toll on stocks. Stocks did bounce back after the big drop last Friday but as we see from the above table, they are still well off where from they were two weeks ago. It is interesting that over the last two weeks, emerging market stocks have been the biggest losers. Technically Speaking Leaders marginally higher This week Dan Zanger included 13 stocks in his Sunday picks that included Apple (AAPL), Research in Motion (RIMM), MasterCard (MA), Amazon (AMZN), Agrium (AGU), Potash (POT), Mosaic (MOS), Monsanto (MON), Massey Energy (MEE), Energy ConvDev (ENER), Peabody Energy (BTU), CF Industries (CF) and Chemical & Mining (SQM). Here is how Dan’s pix compared to the major indexes over the last five days (see below). As we see, they led the major indexes with a weekly gain just shy of 3% compared to basically flat for the Dow Jones Industrial Average and a drop of nearly 1% for the Nasdaq. Figure 1 –Five-day 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. This week volumes on the NYSE, Dow Transports and Nasdaq were closer to average but with the exception of the Dow Jones Industrials which were flat on the week, prices fell across the board. Volumes have jumped as the indexes have fallen and that is bearish. On the other hand, rallies occurring without strong volume are suspect because it means that there is a lack of commitment from buyers but a lack of volume on down weeks is mildly bullish. Volatility spiked again as the Market Volatility Index (VIX) hit 23.75 last week before dropping slightly to end this week at 21.22. This compares to just above 18 two weeks ago and 16.47 four weeks ago. Meanwhile, the 17 commodities that make up the NYFE CRB Index gained more ground closing the week at 571.90 from 541.30 two weeks ago. But gold has struggled as it closed at $873.40/oz from $891.71/oz two weeks ago. Gold is getting near the end of its strong seasonal performance period between the end of January and end of June so this early weakness is a concern for goldbugs. But the dollar has continued to show strength and that is good news. The U.S. Dollar Index closed the week at 74.46 from 72.86 two weeks ago. This is well off the multi-year weekly low of 71.76 and the chart looks to have put in a bottom, at least for the time being. After closing just below $140/bbl last week, crude took a bit of a breather this week as the NYMEX crude oil contract ended the week at $134.40 compared to $127.66/bbl two weeks ago. It was the fifteenth consecutive week that oil has remained above $100. The bad news for consumers is that the oil chart looks to be putting in a bullish flag pattern which often portends higher prices. The U.S. prime rate held again this week at 5% and the Fed funds target rate remained at 2%. The 3-month London Interbank Offered Rate (LIBOR) rose to 2.81% from 2.68% two weeks ago and 2.695% four weeks ago. LIBOR is the benchmark for $900 billion in subprime mortgage loans which typically adjust to it every six months. According to data company Dealogic, corporations around the world have the interest rates on roughly $9 trillion in debt pegged to LIBOR and rates on more than $380 trillion in derivative interest rate swaps also are based on LIBOR. Freddie Mac mortgage rates strengthened again to 6.32% (from 5.98% two weeks ago) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) rate moved up to 5.09% from 5.06% last week. With the number of mortgages resetting over the next year, stubbornly high mortgage rates will continue to exert a downward pressure on property sales (and prices) both here in the U.S. and around the globe. Earnings Earnings dropping As Q1-08 earnings season drew closer to an end this week, we learned with 4112 companies having reported (4002 companies two weeks ago), earnings remained steady again at -29% (from -28% four weeks and -26% five weeks ago) compared to the same quarter last year. Earnings have shown a consistent negative trend over the last two quarters to fall as more companies have reported and this is bearish. Looking at past seasons, there was a drop of 57% for final Q4-07 (3900 companies), a 21% drop (4205 companies) for Q3-07 and a 13% jump for Q2-07.
Figure 2 – Chart showing changes to quarterly corporate earnings for the more than 4000 companies tracked by the Wall Street Journal. The (black) trend line says it all. Economic Reports
Chart 1 – We learned this week that pending home sales, an indicator the National Association of Realtors touts as leading, showed an increase in April of more than 6% over March. Even though it does not take into account cancelled contracts, the most recent number data shows the biggest jump in more than two years, which will have the bulls again claiming that the worst of the housing crash is over. The only problem with this view is that foreclosures in May were up 48% from May 2007 and bank repossessions have doubled in the last year (see article “Foreclosures” below) – both of which do not bode well for the burgeoning inventories of unsold homes across the country. Next Week Here are the reports we’ll be watching next week. - Monday, April Treasury International Capital Flows (previous $54.2 billion), June NAHB Housing Market Index (previous 19). - Tuesday, Q1-08 Current Account Gap (previous $172.9 billion), May Producer Price Index (previous 0.2%), PPI ex-food & energy (previous 0.4%), May Housing Starts (previous 8.2%). - Wednesday, June Philadelphia Fed Business Index (previous -15.6). Oil and the Lisbon Treaty Oil and stock prices for the most part continue to move in opposition directions. This is a concern considering that oil has continued to move higher in spite of a higher dollar. In Europe, Spain has experienced riots protesting high oil prices and in the UK, officials were concerned that a Shell tanker driver’s strike might have similar effect. Every week that oil prices remain high drains more money from global economies. According to oil magnate T. Boone Pickens, the U.S. now imports 72% of its oil (up from 24% in the 1970s) and ships more than $600 billion out of the country each year to pay for it. This is clearly not sustainable nor in the best interest of our country. But an event this week has bullish implications for the dollar – the resounding defeat by the Irish on the referendum for the EU Lisbon Treaty (see article below). It is a complex document but clearly shows that the Irish (the only country to put the issue to a public vote) are clearly not happy about adding yet another layer of bureaucracy to an already heavily burdened and costly political process. It is a document that was heavily promoted by the leftist government of Germany’s chancellor Angela Merkel (who craftily constructed it to avoid referendum in Germany according to the Guardian) together with France’s President Nicolas Sarkozy (the next EU president) and as far as I can gather, the only folks that really benefit from it would have been the ‘Eurocrats.’ It is a complex document that was clearly designed by politicians for politicians. It would undoubtedly required higher taxes to fund the increased bureaucracy. Its defeat shows that the Irish don’t trust the document’s promoters as far as they can throw them and who can blame them, especially given the fact that France has the highest tax misery index in the world and Germany has a moribund corporate sector and economy (see http://www.forbes.com/global/2008/0407/060.html ). EU member states Belgium, Sweden, Austria, Italy and Finland are in the misery index dubious top ten. As well as high personal and corporate taxes, Europeans already pay some of the highest consumption taxes in the world with a Value Added Tax (VAT) averaging above 20%. Ireland’s 12.5% corporate tax rate is one reason why that country has been so successful in attracting Foreign Direct Investment (FDI) and the country has an economy that is the envy of Europe. Why chance granting greater powers to European bureaucrats who would like nothing more than to reduce Ireland’s competitive position? This latest event follows a rejection by the French and Dutch on the EU Constitution and effectively puts further EU expansion and constitutional “reform” on hold.But this trend comes on the heels of something more disturbing – global protectionism (see article “Free-Trade Era”). We're back from our whirlwind trip of Europe that included Greece, Venice, Switzerland and London and what a trip it was. But now it's time to get back on track and into a regular schedule. Stories of interest this week… Foreclosures Rise 48% in May as U.S. Bank Repossessions Double Oil's 697% Rally Tops Dot-Com Bubble Free-Trade Era May Be Nearing End Amid Food, Growth Concerns S&P, Following Moody's, Finds Errors in CPDO Ratings Models U.S. Economy: Consumer Prices Rise, Sentiment Slumps Irish voters rejection of EU Lisbon Treaty another blow to Eurocrats EU Faces Gridlock After Ireland Rejects Lisbon Treaty Dollar Heads for Biggest Weekly Gain in Three Years U.S. Banks Reduce Dividends at Fastest Pace in Five Years ---------------------------------------------------------------------------------------------------------------------- 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; |
||||||||||||||||||||||||||||||||||||
| Last Updated ( Saturday, 21 June 2008 ) | ||||||||||||||||||||||||||||||||||||
| < Prev | Next > |
|---|