| TSG Weekly Market Watch March 13, 2009 |
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| Written by Matt Blackman | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Saturday, 14 March 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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TSG Stock Market LetterWeek Ending March 13, 2009Topics Discussed This Week:
Reversal gains traction Leaders soar with the pack Earnings – Still getting worse Scant economic news, a good thing?
Last Week
Quote of the week "Few doubt the importance of consumer spending on the U.S. economy and its multiplier effect on the global economy, but what is underappreciated is the role of credit-card availability in that spending," – Meredith Whitney in the Wall Street Journal article this week entitled Credit cards are the next credit crunch. Reversal gains traction… After four weeks in a row of losses across the board, stocks made gains and impressive ones at that with the major indexes (except the Dow) making double-digit gains. But there are signs that this brief albeit powerful bear market rally may be running out of gas... Technically Speaking Leaders soar with the pack This week Dan’s Sunday March 8 portfolio of 8 stocks to watch included Amazon (AMZN), Apple, (AAPL), Baidu.com (BIDU), Freeport (FCX), Google (GOOG), Goldman Sachs (GS), Holders Oil Serv. (OIH) and US Oil Fund ETF (USO). This portfolio’s performance was again in the middle of the pack this week except that this time it was a high-performance group.
Figure 1 – Five-day performance of Zanger’s last Sunday pix (green) compared to the S&P500 (SPX), the Dow Jones Industrial Average (DJX), Dow Transports (DTX), Nasdaq Composite (IXIC), Russell 2000 (RUT) and MSCI Emerging Market ETF (EEM). Data courtesy of The Zanger Report, performance chart courtesy of VectorVest.com. Although weekly volumes are at or above average, volumes are falling as stocks rose for the major indexes and that is decidedly bearish. Rallies require steadily increasing volume to remain strong and falling volume demonstrates declining interest from buyers and is usually a precursor to lower prices. Not surprisingly given the rally, the Market Volatility Index (VIX) fell this week to 42.36 from 49.33 last week. Although a falling VIX is generally bullish, that this occurred on falling volume makes it bearish. Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index has been moving higher and it gained more ground this week to close at 354.30 up from 351.55 last week up from 345.94 three weeks ago. Since hitting a high of 611.51 in July the index is still down 42% from its peak.After another the big surge in gold to $1001.10/oz three weeks ago, the precious metal closed at $928.50/oz down from $942.70 last week. As we have mentioned in past weeks, volume and open interest had been declining which is bearish, especially given the recent potential double top two weeks ago. To confirm the double top, gold will have to break down through the pattern neckline at $700/oz so this pattern has little short-term trading value. We see gold falling further in the coming weeks in spite of what the fundamental gold pundits are telling you. After rising for the better part of two months, the US Dollar Index stumbled after hitting a potential double top high last week to close at 87.36 off from 88.59 last week. Since bottoming in July, the U.S. Dollar Index is still up more than 20%. Crude oil futures (April contracts) slipped this week to close at $45.73/bbl, off from $47.56 last week. Oil is down nearly 70% from its mid-summer high of $147.20 and could rally on any supply problems or brighter economic news. The Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, slipped this week to 2122 from 2225 but is still up 220% from its December 5 low. Not only is this bullish for oil (which has demonstrated a habit of following behind the BDI) but for the economy as well as it shows that demand for cargo transport is climbing as long as it continues to rise. The U.S. bank prime rate and the Fed funds target rate held steady again this week at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate slipped to 0.19% from 0.24% last week. Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) jumped again to 1.31563% from 1.2925% last week. This compares to LIBOR 52-week high of 4.81875% last October. Meanwhile Freddie Mac mortgage rates slipped this week to 5.03% from 5.15% last week for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) slipped to 4.8% from 4.86%. *LIBOR is the benchmark for $900 billion in subprime mortgage loans which typically adjust to it every six months. 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. About 6 million U.S. mortgages, including the vast majority of subprime home loans as well as 41% of prime ARMs are linked to LIBOR. Earnings Q4 earnings – still getting worse With a total of 3243 companies having reported so far in the tenth week of Q4-08 earnings reporting season (up from 3028 last week), the net loss on continuing operations widened to ($205.6) billion (from ($200) billion last week) versus +$124.6 billion in Q4-07 which works out to a change of -266% from Q4-07. This compares to -262% last week, -197% two weeks ago and -46% in the opening week of reporting season. The final result for Q3-08 was -62% from Q3-07.
Earnings continue to experience their biggest drops since first turning negative and we expect this trend to continue at least into next reporting season. Economic Reports Slow week with no surprises a good thing… There wasn’t much in the way of economic news this week other than confirming what we already know. We learned Tuesday that wholesale trade dropped 0.7% in January. On Wednesday, it was reported that the federal budget deficit swelled to $192.78 billion in February, up from $83.8 billion in January (!). On Thursday and Friday we learned that retail sales remained weak in February and our trade balance continues to shrink, dropping to -$36.03 billion in January from -$39.93 billion in December. Rally running out of gas? Our timing signal turned red (short) this week which is not a surprise given the falling volume. Bear market rallies can be exciting affairs but they aren’t much fun if you’re on the wrong side when stocks inevitably turn south again. Elliott Wave points lower The Dow Industrial Average has acted as expected and has moved past our 7050 target set last week. As we see from the next chart, it is near the upper limits of the optimal target histogram max just above 7300 in Wave C of a five-wave corrective Flat pattern. Unless this is followed by another sideways corrective pattern, the dominant trend, which is down, should resume soon (please see disclaimer below).
Figure 2 – INDU 13-minute chart courtesy of Refined Elliott Trader by Elliottician.com Stories of interest this week… Depression Dynamic Ensues as Markets Revisit 1930s http://www.bloomberg.com/apps/news?pid=20601109&sid=aNlx.TpHF5W4&refer=home Warren Buffett Says Economy Has ‘Fallen Off a Cliff’ http://www.bloomberg.com/apps/news?pid=20601087&sid=aqQ0WxqDAw3c&refer=home U.S. Stocks Fall on Buffett, World Bank Warning About Economy http://online.wsj.com/article/SB123659458995869643.html#mod=testMod Stocks Post Best Rally of 2009 on Improving Citigroup Outlook http://www.bloomberg.com/apps/news?pid=20601087&sid=a0Ii37swxioo&refer=home Cards Raise ‘Canary in Coal Mine’ Alert in Canada http://www.bloomberg.com/apps/news?pid=20601109&sid=a7p7mebDmYyY&refer=home Japan GDP Shrank 12.1% Last Quarter on Export Slide http://www.bloomberg.com/apps/news?pid=20601087&sid=aqFrDhSR8l1E&refer=home Whitney says credit cards are the next credit crunch http://www.reuters.com/article/newsOne/idUSTRE52921M20090310 South Sea Bubble Survivor Says Dismantle RBS Along With Lloyds http://www.bloomberg.com/apps/news?pid=20601109&sid=aANXHOD12Q2A&refer=home Switzerland eases banking secrecy http://news.bbc.co.uk/2/hi/business/7941717.stm
On the lighter side… If you think nobody cares whether you're alive or dead, try missing a couple of mortgage payments. --------------------------------------------------------------------------------------------------------------------- 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 have it sent to them each week). DisclaimerTradeSystemGuru.com obtains information from sources deemed to be reliable; |
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