| TSG Week of September 4, 2009 |
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| Written by Matt Blackman | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Monday, 07 September 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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TSG Market LetterWeek Ending September 4, 2009Topics Discussed This Week:Still stuck in neutral Looking forward to September 15 Earnings improve slightly but still anemic Market at a glance Better manufacturing news, but are jobs getting better? The Great Inflation-Deflation Debate (part 2)
Last week
Quotes of the week “These days, it is nearly impossible to avoid the financial propaganda that is constantly spinning things to the positive. One thing I never see mentioned is the fact that a lot of our "recovery" stands only to prove that people will take free money and spend it.” --- Dr Chris Martenson in a September 2 report, Free Money Gets Spent. “Most of all, when you see Ben Bernanke on television, "respectfully" insisting upon the Fed's independence and "gently" warning of the economic consequences of any restrictions upon it, think of Nicholas Biddle — an outwardly mild-mannered fellow who would wreck a whole nation's prosperity in order to cling to power.” --- Lilburne of the Mises Institute from The 19th-Century Bernanke (See article link is Stories of the week below...) Still stuck in neutral This week, the Shanghai Index is now down more than 17% from its July 31 peak and while it enjoyed a few days of gains, has meandered at these levels. This weekly is short as we gear up for next week. Be sure to read the second and final part of The Great Inflation-Deflation Debate recently posted on our website. Meanwhile, we continue to gear up for our news Macro Market Monitor newsletter to be first released Sept 15. If you have any suggestions on topics you’d like to see added, please email us at tradesysmailbag [at] gmail [dot] com If you are an expert and would like to contribute your blend of technical/fundamental market analysis, please email us.
Figure 1 – Daily chart showing performances for the Shanghai Composite (SSE), Indian Nifty (NIFTY), German DAX (GX) and S&P500 (SPX) Index since the March lows in the DAX and SPX and November low in the SSE after which it rallied more than 100%. Chart courtesy of GenesisFT.com Market at a Glance Here is this week’s table of commodity, shipping and interest rates indicators that we are tracking. In the last column, the trend is marked in green if positive for the market, red if negative and black if neutral. If the change from last week is up, the numbers are in green and if down, the numbers are in red. This week, volume for the S&P500 rose but did so on falling prices which is bearish, the VIX slipped, crude dropped again and the Baltic Dry Index, a useful measure of global product demand and trade, also slipped. LIBOR fell again but is clearly being impacted by government and central bank stimulus money being pumped around the globe. Although an accurate indicator of credit stress, may not be all that reliable this time around.
* 52-Week High / Low †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.
Figure 2 – Chart showing weekly prices, average Price/Earnings ratios (blue), earnings per share (blue) and earnings growth (GRT) (not shown) for 8,013 US stocks tracked by VectorVest showing the average PE for the broad range of publicly trading companies. The purple line is the 50-week moving average (MA). Chart courtesy of VectorVest.com This week, earnings for the 8,013 US stocks of the VectorVest Composite Index (VVC) moved up a penny to $0.18/share up from $0.17 last week and $0.16 four weeks ago from an all-time low of $0.13/share in May through early July. This week the VVC PE (not shown on chart) slipped to 120.67 from 128.88 last week. Earnings growth (GRT) remained stuck at 1% again this week, the lowest growth rate on record going back at least 15 years. As the earnings chart shows, we are at unprecedented low levels of earnings performance compared to any time since VectorVest began keeping records. As you can see both earnings per share (EPS) and Growth to PE (GPE) are at levels well below where they were during the last recovery. The VVC Index PE hit an all-time high of 155.58 on June 5, 2009. This compares to the previous peak PE of 60.51 in mid-May 2003 during the last recovery. But the difference is that during that period, earnings growth remained much healthier at 8% and earnings had begun improving nearly a year prior after hitting a low of 3%. In March 2000, the VVC PE was a much healthier 32 and earnings growth was 11%. More good manufacturing news… It was another week of seemingly good economic news. First we learned that both the ISM manufacturing and non-manufacturing indexes continued to move up in August with the former breaking the expansion-contraction threshold of 50 for the first time in a year. The biggest concern is how much of this is due to stimulus dollars being pumped into the global economy and what will happen when the dollar pump comes to a halt…
On the surface jobs news positive but it is really? On Friday, the Bureau of Labor Statistics released data showing that “only” 216,000 jobs were lost in August. However, both July and June were revised lower adding another 49,000 losses to the total. But remove the gimmicks employed in seasonally adjusting the number and the real loss amounted to 300,000 according to ShadowStats.com.
Next we see the more sobering long-term not seasonally-adjusted (NSA) year-over-year changes to the jobs numbers showing a drop of 4.4%, the deepest jobs trough since the 4.9% drop during the 1949 recession.
Another concern is the fact that the average hours worked per week has hardly moved from the lowest number in decades recorded in June of 33 hours which moved to 33.1 hours in July where it remained for August.
Here are some highlights outlining jobs concerns by Gluskin Sheff economist David Rosenberg in a note to clients Friday. “The Household Employment Survey depicts a rather alarming picture of what is happening in the labor market First, employment in this survey showed a plunge of 392,000, but that number was flattered by a surge in self-employment (whether these newly minted consultants were making any money is another story) as wage & salary workers (the ones that work at companies, big and small) plunged 637,000 — the largest decline since March (when the stock market was testing its lows for the cycle). “Second, the unemployment rate jumped to 9.7% from 9.4% in July, the highest since June 1983 and at the pace it is rising, it will pierce the post-WWII high of 10.8% in time for next year’s midterm election. And, this has nothing to do with a swelling labour force, which normally accompanies a turnaround in the jobs market — the ranks of the unemployed surged 466,000 last month. “When all the labor market slack is included, for example, the fact that full-time employment cratered 336,000 and those working part-time for economic reasons surged 298,000, the all-inclusive U6 jobless rate rose to an all-time high of 16.8% from 16.3% in July. Unless the laws of supply and demand have been permanently repealed, this record and growing amount of slack in the labor market is only going to exert more downward pressure on wages at a time when organic personal income is deflating at nearly a 5% annual rate.” Last week, the highest probability pattern in play was a target on the SPX of 1120-1150 in large Double Zigzag (DZ) off the March 6 low. That pattern remains in play on the daily with Wave X looking like it has completed and the SPX to be in the process of beginning Wave X with the highest probability target areas on this wave between 760 and 910 (vertical dark gold histogram). The red arrows show areas of negative divergence with the MACD indicator and it appears that this pattern confirms further downside from here. However, there is always a chance of a short-term rally taking prices above their August peak before the downtrend kicks into high gear.
Figure 2 – Daily chart of the S&P500 showing highest probability pattern. Courtesy of Elliottician.com An alternate count puts us in range of the top of counter-trend rally Wave 2 with the reversal into a powerful impulse Wave 3 having already begun. Since counts have downside targets, the highest probability targets are lower. As we mentioned last week, September has the well-deserved reputation of being the worst month of the year to be invested in stocks according to a number of sources including the Stock Trader’s Almanac. So if we are going to get a melt before year end, it should occur this month if historical probability is any guide. An Elliott Wave trader I know is offering a free webinar on September 12 (Saturday) starting at 11:AM EDT. If you are interested in attending, please email me at tradesysmailbag @ gmail.com (remove spaces when emailing) for directions and the link. On the lighter side… Law of Alienation Nothing can so alienate a voter from the political system as backing a winning candidate. Stories of the week… The 19th-Century Bernanke Kicking Keynes http://www.scribd.com/doc/19424441/Saxo-Bank-Research-Note-Where-is-the-Pentup-Demand Unemployment rate jumps to 9.7 percent http://www.reuters.com/article/ousivMolt/idUSN0415960920090904?sp=true Food stamp list soars past 35 million: USDA For Commercial Real Estate, Hard Times Have Just Begun http://www.nytimes.com/2009/09/02/business/economy/02office.htm Foreign Central Banks Accelerate Rotation From Agencies Into Treasuries http://www.zerohedge.com/article/foreign-central-banks-accelerate-rotation-agencies-treasuries REITs Racing to Bankruptcy ?? http://www.contrarianprofits.com/articles/reits-racing-to-bankruptcy/20199 Beijing's derivative default stance rattles banks http://in.reuters.com/article/oilRpt/idINPEK33016020090829 VIDEO It seems one can never get enough of Charles Biderman. Also, Charles, once again, destroys the money on the sidelines fallacy. Charles Biderman Video http://www.youtube.com/watch?v=IxCBAIp67Jk Disclaimer TradeSystemGuru.com obtains information from sources deemed to be reliable; however, TradeSystemGuru.com does not guarantee the accuracy of any of the information provided. TradeSystemGuru.com makes no warranties, expressed or implied, as to the fitness of the information for any purpose, or to results obtained by individuals using the information. We may or may not be invested in any investments cited above. In no event shall TradeSystemGuru.com be held liable for direct, indirect, or incidental damages resulting from the use of the information found on or distributed through this website. TradeSystemGuru.com shall be indemnified and held harmless from any actions, claims, proceedings, or liabilities with respect to the information and its use. TradeSystemGuru.com does not make specific trading recommendations or provide individualized market advice. All information provided is to be construed as opinions and is intended to be used as an educational information service only. We encourage investors to contact a registered securities representative prior to making any investment or related decisions. Any and all forecasts and opinions expressed herein are for discussion purposes only and are not intended to constitute investment or trading advice. |
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