If you control it, you get to make the rules. Like Richard Grasso did until Eliot Spitzer rained on his parade. But, isn't that the nature of the capitalist system " or the communist system, or every other hierarchical system?

And isn't that why I preach the need to replace hierarchies with the Entity Relation Model (i.e., many-to-many structures), which empowers all of us?

After all, it's our capital. We on Main Street own the capital; so why are tiny boardrooms full of people calling the shots on Wall Street?

Anyway, that was last week. This week it was about whether Phil Purcell finally gets the knife in the back from his own friends on the Morgan Stanley board. You see, for many years Philip Purcell has been calling the shots at Morgan Stanley (NYSE: MWD), which is a global powerhouse that employs maybe 60,000 skilled people; but now a few cronies want to take that power for themselves.

Morgan Stanley chart:

Judging by the added volume this month, and the pop in the stock during the Maria Boardroom-inspired rumors on Friday afternoon, I'd day the probabilities of a Philip Purcell coup this weekend are high. Other than one Purcell, just a few million others will be affected.

Financial services organizations are not democracies. Trust me.

You see, the clients and staff of Morgan Stanley have for years been drinking lemonade from Purcell and friends, and now they are waiting to see the new chefs in the kitchen.

Let me see; is it going to be pink or yellow, sweetened or unsweetened?

It's still lemonade.

This week, there were some on Wall Street, like James Cramer, who were touting (highly competent) individuals like Bob Rubin or Senator Jon Corzine, to take management control at one of the most powerful financial services companies in the world, AIG.

You see, like Grasso at the NYSE, AIG's Greenberg has been removed by Eliot Spitzer, and now some ex-Goldman guys are angling to have one of their own get into a power position there.

That's their way of "being in the room, and in the game".

And that's what happens in the securities industry when stocks are headed south, and people are starting to lose control. The blood flows " front, middle and back office. Control groups come and go.

For me, I happen to be just an observer " an outsider who preferred (during my time in the industry) to use his own independent and objective approach to trading capital markets, which, let me tell you, is a heck of a lot different than trying to control clients, as does the financial services industry.

The biggest problem I had in the securities business was with my associates on the sell-side of the industry. I never had a problem with the buy-side client.

I had problems like, "Put this piece of garbage into every (client) account you can find in the next two days, because we own it and it's got to be sold." Or, how about, "I want to see one more trade a day from you people (35 of us), or that secretary sitting outside this door gets fired next month because this department can't carry the overhead."

The only problem with the latter example is that I was working for (RBC) Dominion Securities Investment Management at the time, and portfolio managers were supposed to be above all that stuff. At least, that's what our clients were led to believe was the case.

Actually, I told a white lie; both those incidents happened while I worked there " for the biggest and most respected financial services company in the country.

And, because of industry rules that prohibited our money managers taking down for discretionary accounts our own company's underwritings, we simply took down our biggest competitor's underwritings, and they took ours.

You see, if there is a rule in the financial services industry, there is a way around it.

I was just maybe one to two years into my career on the Street when I sized it up accurately as being one of control. You take control, you set the rules, you make the money, and to hell with the client.

I'm not saying anything here that many of my readers " those who worked for the big wirehouses (as they used to be called) " didn't come to experience. It's the reason so many good people quit the business.

Client-centric people simply don't want to be in boardrooms like at Morgan Stanley this weekend putting the knife into an associate's back.

But every bear market is the same. Like the Serengeti Plain during dry season, it's survival of the fittest, where the most aggressive predator wins.

I tell you all this because in capital markets there is no place for control by the financial services industry. The conflicts of interest between financial services and capital markets are so ubiquitous, so potentially malevolent, that ultimately, in bear markets, only bad things flow from that ill-advised system to the owners of capital.

During bear markets, the owners of capital are going to be abused more than helped. That's because too many people in the financial services industry are scrambling for control of the casino.

The system is broken and needs to be fixed.

2005-04-30 Report

---

Bill's Portfolio:

I must admit that when Stochastic indicators are bouncing off zero, it is a tough time being in cash or being short the market. But, in spite of a sudden 70-point rally for the Dow Industrials over the span of a few minutes late Friday afternoon, I continue to urge caution.

Actually, the late Friday spurt was all about booster rockets being lit under just three sectors: Finance, Utilities and Healthcare.

American Express (NYSE: AXP) was certainly a winner. Although the chart started strengthening right from Monday morning, AXP certainly finished off the week strongly.

American Express chart:

It's shocking to see the outcome of manipulation by a few people in just a few stocks; More about that later.

First let's review what happened the previous Friday, April 22. Here's what I wrote at the time: "I believe that for a period of about five minutes Friday afternoon just before 3:30pm EDT, the U.S. equity market was about ready to completely collapse. I could see fear in the eyes of the CNBC anchors. I'm talking about a level of fear not seen by me since Black Monday October 19, 1987, or by those who were around in the Crash of 1928-1932. For about five minutes, the Dow and Nasdaq were in free fall and the Cramer's and Bartiromo's and Mathisen's were talking about North Korean nuclear missiles being pointed (somewhere). These people " our window to the market -- were unable to get a grip " not because of events that may or may not have been occurring 13,000 miles away at the time " but because they were stunned to see the equity market about to give up a solid 206-point Dow gain the day before."

In other words, that was a phoney rally, pulled off late in the afternoon on Friday so that Mom and Pop wouldn't spend the weekend worrying about their personal wealth tied into equities that were collapsing in price.

You see, it was late October, last year, right after the GOP polls in America showed their man to be the convincing winner a day or two hence, that the Gnomes started this promotional game. The bull market was long in the tooth, and those in control had no intention of drinking their own lemonade.

First they managed to put every Wall Street stooge they could find " at least the beggars of the lot " to go to Financial Entertainment TV to sing the gospel that the equity market was ready to lift off, which Mom & Pop didn't want to miss.

This was the old ‘fear and greed' routine.

I call it shtik. Shtik is an entertainment routine or gimmick that is helpful in getting one's attention.

Vaudeville had lots of shtik, but when you add up all the money made on Broadway, it couldn't compare to the ‘Fleecing of the Lambs' on Wall Street. You see; this sell-side comedy is somebody else's tragedy.

So I watched through November and December as many of the big Nasdaq and Dow stocks topped out to the tune of people like Bob Froehlich urging the CNBC audience to buy more, buy more! I found it laughable, and started calling these people clowns in my Trader Wizard blog.

Look New York is a tough place. Ask Richard Grasso, or Hank Greenberg or Phil Purcell.

Wall Street is not Disneyworld; and the NYSE is not Cinderella's Castle.

The mantra is ‘So what can you do for me tomorrow?" And if the answer generates a response like "Pardon?" you can start to pack your bags.

You see, scripts are already written in the Big Apple. You make big money for the Gnomes, or else.

So, again, right after the false rally last Friday, I wrote: "Can you imagine just how much all the CNBC newsreader scripts would have to be changed, how all the hard work done by the sell-side to get you into a buying mentality, and so forth, would have to be thrown out the window? The changes would have been tantamount to a sudden John Kerry election win late in the night, last November 2."

The equity market can be a fair place only if you recognize one fact; it's the sell-side's job to make money, and they do that by transferring risk from them to you.

It's your job to stick them with the risk.

Last week I told you, "By understanding and applying the principles of investment analysis, you can (minimize the excitement and) better manage that risk. As I like to say, you stop being played by the market."

This week, I'll say it again, be cautious. Don't chase stocks. This is not a bull market.

That's (been) my story, and I'm sticking to it.

---

Sector ETF:

Before I start into my observations and analysis of the equity market sectors, I want to say that I continue to believe there is more downside to come in equity prices across all sectors. But there may be a trade before the bear continues to sink in its claws, and I'll explain why.

Last week I noted: "The U.S. PPI/CPI/Fed Beige Book data we received is clearly indicating that price inflation is a problem. If next week's objective analysis of the U.S. GDP data (i.e., the best measure of aggregate economic activity) that will be reported Thursday is disappointing, then next week will bring lower equity prices. In 4Q04, the U.S. GDP expanded at a 3.8 pct rate with strong gains in consumption and investment spending. But 1Q05 GDP growth will likely be down to 3.5 pct (which is consensus) if consumer spending (e.g., Wal-Mart, auto's, and household appliances) is an indication. Also, the widening U.S. trade deficit is a reflection that U.S. purchasing agents are spending more abroad, and U.S. manufacturing operations are being outsourced or moved abroad. Some economists have even estimated 1Q05 GDP growth as low as 2.5 pct annualized, but my view is that the big drop in GDP will come in 2Q05. January and February data was much stronger than for March."

So what happened? U.S. GDP came in at +3.1 pct, which was shocking to everybody except the scriptwriters on Wall Street.

Last week I wrote, "Housing starts dropped significantly in the latest report, and I'm focused on the foreclosures data now because house prices might have peaked, and demand lessened somewhat in that industry. If this trend continues, along with continued Fed tightening and high commodity prices (which represent high costs to manufacturers and consumers), then I can foresee a 2Q05 GDP increase of just 2.5 pct annualized, following on a 1Q05 increase of say 3.5 pct. "

So the picture is worse than I thought. Let's see what's happening to the homebuilders for confirmation.

It's been a tough eight weeks for the homebuilders stocks, as one owner/manager after another of these companies has been paraded in front of CNBC cameras to help their Wall Street friends get you to stop selling. But, even with the recovery in the past couple days, these stocks are mostly off 15 to 35 pct since I called a cyclic top to the market on March 2.

Here is where the deceit is really about to set in.

There will be a recovery, I believe, in this sub-industry group for a couple weeks, while the Gnomes dump the remainder of their long positions on the misled, and unsuspecting, public. What you are about to witness in the homebuilder stocks is going to be so shameful there will be books written about it.

The cover story is already out there. You see; somebody or some thing has to be the take out. In this case, you are about to be told there are insufficient numbers of serviced lots for the homebuilders to construct enough buildings to meet your needs.

The culprits will never take responsibility for the bubble they helped cause. They'll blame government. They'll blame Greenspan. But they'll never want to be accountable.

So much for background, and forewarning. For the past week -- Week #17 -- what happened to the Sector ETFs?

For the ten top sector ETFs I follow in these pages, there were six up and four down, which is the same as a week ago.

But, while a week ago, Energy (XLE) was the big performer, up +5.81 pct, this week XLE was the big loser, down "3.54 pct. In addition, the Consumer Cyclicals (XLY) were down -0.93 pct, the Basic Materials (XLB) were off "0.25 pct, and the Industrials were down a touch at "0.10 pct.

The big winners on the week were the three interest-sensitive sectors: Financials (XLF) at up +2.52 pct, Telecom Services (IYZ) up +2.00 pct and Utilities (XLU) at up +1.49 pct.

Now, for you to believe this rally has serious legs, you have to believe that interest rates are going to fall, mortgage rates are going to fall, economic activity is going to pick up, and the Fed is going to stop tightening.

And if you truly believe that, I've got a castle near Kissimmee to sell you.

If you believe in that Goldilocks economy ("not too hot, not too cold") crapola, then you and Cinderella really ought to be getting together in Disneyworld. Obviously you don't live in the real world.

Here are the ETF charts for sectors 10 (energy: IYE), 15 (basic materials: IYM), 20 (industrial: IYJ), 25 (consumer discretionary: XLY), 30 (consumer staples: XLP), 35 (healthcare: IYH), 40 (financial: IYG), 45 (technology: IGM, IGV and IGW), 50 (telecom: IYZ) and 55 (utilities: IDU).

The hourly data ETF charts in the following interactive links are for the 10 industry sectors. I have taken a screen shot of some of them.

10 (energy: XLE, IYE, VDE, and IXC)

XLE closed Week #17 at 40.55, down "3.54 pct on the week, and that was in spite of XLE being up +1.30 pct on Friday because traders were so happy the price of crude oil was collapsing???

Wow!

Here's the XLE chart:

Last week I noted: "It's hard to contain my cynicism, because these (oil) companies are enjoying the best cash flow months (and year) in their history, but the stocks are moving sideways because (1) investors fear the commodity price game might be coming to a peak, and/or (2) the global economy might be stalling, and/or (3) PE multiples might be in the process of ratcheting down in the face of fair solid prospects for rising interest rates this year."

Pretty soon, Exxon, which reported net earnings for the first quarter of almost $8 billion, could use its chump change to buy every company not included in the (U.S.) S&P 500, and almost any of those in it. Do you realize that what money Exxon made in the past three months exceeds the market cap of all but the top 812 companies in the recently published Forbes 2000 list. I looked it up.

That's because in the 3rd or 4th quarter 1999, after a terrific run in the market by MSFT, I also looked up the fact that Bill Gates had a personal net worth that grew in a single month more than the GDP of Portugal THAT YEAR.

But, as I like to say, who's counting? Wall Street has you all too busy lining up with Super Bowl winning quarterbacks at the gates of Disneyworld. Where's the reality?

Well, here's the reality. It's in the snapshot of the XOM chart.

Tell me, if Exxon operations were so great, and earnings so humungous, why was the stock in virtual free fall, down almost 12 pct in eight weeks? And why was industry number two, CVX, down in price that much in just four weeks?

Here's the XOM chart:

You can dream along with certain THs who tell you to buy the oils, but I put my words into writing. And I stand by them.

Week #11 (March 19): "So the Fed is in a difficult spot here. I think they will try to support the falling dollar by making some lame excuse like, ‘It would appear that government leaders have seen the errors of their ways and just maybe they can get the spending/debt issues under control, and (ahem) the economy looks like it's showing signs of coming out of the doledrums (yada yada).' But they sure don't have much ammunition left, so I suggest everybody keep their powder dry. Don't chase the oils, if they start to run. The risk is clearly to the downside."

15 (basic materials: IYM, XLB, and VAW)

The XLB made a huge move up +2.69 pct to 28.01 on Friday, but that was still down 0.25 pct on the week. So, along with the big move Friday in the interest-sensitives, there was this huge move at the same time in the most economically sensitive sector, the Basic Materials.

So what is it Wall Street?

I suspect you don't know, and you don't care. But I wonder how everything can be so wonderful when factual economic data on so many fronts is pointing traders south?

20 (industrial: IYJ, XLI, VIS, and IYT)

The XLI was down 0.10 pct this week to 29.32. That's just three cents. And Friday saw the XLI up 1.2 pct, so those who are long are hopeful.

Actually, hopeless. This sector, like the Energy and the Basic Materials is headed south.

The only hope is for the Bush administration to gear up to take on Iran or Syria or North Korea, because that would help HON, UTX, BA and GE.

Actually turning dollars into pennies, would help these companies export more because foreigners could then afford to buy Dreamliners, and such, for funny money. And after the BA workers finish spending their hard-earned USD on discretionary items that'll soon end up in yard sales, China and India will be using those planes, trains and elevators to create real wealth for many years to come.

But U.S. college professors just don't get it.

Let the Mexican illegals pick the tomatoes and grapes in California vegetable fields and vinyards in order to ship the raw products to Mexico to be sold back into California as value-added salsa and grape juice " at prices that are escalating by the way " all because the landowners in CA are waiting to sell that land at ridiculous prices to the homebuilders so starter homes to Americans have to get sold for $600,000.

Yes, that makes sense.

To an idiot.

When you see these things, you have to know that cynics abroad are saying, "Only in America."

25 (consumer discretionary: XLY and VCR)

And, speaking of consumer discretionary spending (XLY), I guess it's still a case of ‘no tickee, no laundry' at Wal-Mart. The world's biggest retailer (NYSE: WMT) was finally enjoying a positive week, up 33 cents to close at $47.14.

Actually, as I see it, Americans still don't have tickee for laundry because as at mid-day Friday WMT hit a new low of $46.20. Ouch.

XLY was still down "0.93 pct on the week, to 31.05, which included a gain Friday of 0.23 pct.

For all my negative talk here, XLY is now over-sold, and could be ready for a rally next week. Wouldn't that be something if GM and your friendly Maytag repairman MYG were to lead the charge down Wall Street?

As a child I read that story: "The Pied Piper marched on and after him danced the happy little children" It was a story of the little boys and girls last retreat.

"On the Twenty-second of July,
Thirteen hundred and seventy-six:
And the better in memory to fix
The place of the children's last retreat,
They called it, the Pied Piper's Street -
Where anyone playing on pipe or tabor,
Was sure for the future to lose his labor.
Nor suffered they hostelry or tavern
To shock with mirth a street so solemn.
But opposite the place of the cavern
They wrote the story on a column,
And on the great church-window painted
The same, to make the world acquainted
How their children were stolen away,
And there it stands to this very day.
And I must not omit to say
That in Transylvania there's a tribe
Of alien people who ascribe
The outlandish ways and dress
On which their neighbors lay such stress,
To their fathers and mothers having risen
Out of some subterraneous prison
Into which they were trepanned
Long time ago in a mighty band
Out of Hamelin town in Brunswick land,
But how or why, they don't understand.

So, Willy, let me and you be wipers
Of scores out with all men - especially pipers!
And, whether they pipe us free from rats or from mice,
If we've promised them aught, let us keep our promise!"

Isn't that so appropriate?

30 (consumer staples: XLP and VDC)

Consumer Staples (XLP) finally had a good week, barely. It was up +0.71 pct. But it didn't move much on Friday (not sexy enough?), and looks weak for next week.

35 (healthcare: IYH, XLV, VHT, IXJ, and IBB)

Healthcare (IYH) was up 1.02 pct, to 60.49, which seems pretty good until you see that the last hour or so on Friday was more than all of that. With Friday's end-of-day rally, the IYH was up 1.41 pct on the day.

So that was a false rally. Or do you feel like chasing biotech stocks that are devoid of earnings in a market that is seeking earnings to recover from the savage bear attack?

40 (financial: IYG, IYF, XLF, VFH, IXG, VNQ, RWR, IYR, and ICF)

The Financials (XLF) had a terrific week, up 2.52 pct. And the late-day Friday rally lifted XLF +1.54 pct on the day. So, the majority of the good news for traders who are long financials happened in an hour or so this week. We've seen the swing; now well just have to see what happens with the follow through.

Greenspan is still tightening, but he might just remove a word from his usual text to give some hope to the birdbrains who think he's going to relax his policies, and push inflation even higher.

But if you tell a story with a gleam in your eye and a lilt to your voice " something like Froehlich " I suppose a lot of suckers will listen. They didn't call it ‘snake oil' for nothing!

45 (technology: IGM, IGV, IGW, XLK, VGT, IYW, IGN, IXN, and MTK)

A week ago, the SMH HLDRS in the Technology sector had a great week, up +2.37 pct to close at 30.65. As I noted: "Monday, Tuesday and Thursday were real good days. But, last time I checked, most trading weeks include a Friday. And that's the rub. You see, SMH couldn't stand up in a wet paper bag. On Friday the SMH dropped "2.05 pct, which just goes to prove once again that a week isn't over til its over."

This week, SMH had more of the same. Oh, it was up +0.55 pct on the week, but Friday told the real story as SMH could muster a gain on the day " amid the spectacular fireworks elsewhere " of just 0.13 pct.

So, it appears to me that SMH is headed south again next week.

Those North Korean nukes must still be aimed at those Taiwanese chipmaking factories.

50 (telecom: IYZ, VOX and IXP)

The Telecom Services sector (IYZ) finally had an up week, up +2.00 pct, to 22.97, due I suppose to a lot of focus on whether MCI is going to go this way or that way. Make up your mind already.

Last time I talked to serious players, however, they didn't give a darn about fixed line anything.

55 (utilities: IDU, XLU, and VPU)

The Utility sector (XLU) finally broke free of the Energy sector. XLU had a great week Friday afternoon. On the week, XLU was up +1.49 pct. But I guess with a late-day rally, taking XLU on Friday up +1.42 pct, I'm under whelmed.

Traders are getting sucked into a bear trap with the Utility sector, I feel. If bond yields start to rise, the prices of Utility stocks will fall along with bonds.

---

Bonds:

There was more strengthening this week in the bond market.

I can't understand why yields continue to fall, and yield spreads narrow. I have had a few people try to tell me, but I just don't get it.

From the U.S. Fixed Income (Bonds) Yield Table at Yahoo Finance, the 30-year T-Bond is now yielding 4.51 pct, down in a week from 4.57 pct, down from 4.84 pct about five weeks ago. The major drop in yields is continuing.

This week even the T-Bill yield dropped to 2.74 pct from 2.76 pct.

In the last couple weeks, the spread between 30-year T-Bonds and 3-month T-Bills has dropped from 194 basis points, to 181 bp to 177 bp. The more important indicator, which is the spread between the 10-year and 2-year T-Notes, has fallen from 76 bp, to 65 bp to 57 bp.

Could it be that the bond market picked up the problems in the U.S. economy last summer, and started to move the market in this direction, and that soon we could all be looking at a flat or inverted yield curve?

When that happens, the expression "cash is king" is, let's just say, more than an expression. Values in real estate and most financial assets will then start deflating faster than good American jobs moving to India. That's a heck of a price to pay for commodity price inflation that the Fed is trying to hold back.

But if that Greenspan finger in the PPI/CPI dike gets pulled, then those Americans who still have jobs will start striking for more pay, sending inflation soaring. And, lest you forget, those unfortunate souls who don't have jobs " not even below-the-line service industry and part-time jobs " have always a 38 Special to turn to, and the homebuilders will then be put back to work building even taller walls on those gated communities.

What goes around, comes around. I say meet the needs of society today, and we can all enjoy a nice life tomorrow. But, hype their expectations and get them chasing their tails in the pursuit of greed, and " I think " we can all see that picture.

---

Commodities:

Commodity prices fell this week by 1.16 pct, including 0.22 pct on Friday. After having fallen for several weeks, the CRB rose a week ago by +2.83 pct .

If crude oil prices continue to collapse like they did Friday, then there is some hope the USD will strengthen, cutting commodity prices across the board. That will stem the rapid decline in equity prices, for a while anyway.

For two months I have written, "In my database of the energy sector (GICS 10), I have 59 oil & gas stocks broken into six sub-industry groups. As the oil market is shifting gears, I will continue to post these charts in the Week In Review until oil becomes less of a market driver:"

Then a week ago I noted: "After this week, I have to watch them here a little longer. That's because, if oil prices get back to $58, I predict a major crash in equity prices. Traders will see the most highly bifurcated equity market in history. There will be the rich (Energy sector) and the poor (everybody else except maybe the utility sector as those companies will be able to price their products just under the high water mark or should I say scum left by the oil companies). I'll really start to worry when XOM and CVX starts to put out bids to acquire IBM or HPQ " for diversification purposes " which they could do out of their chump change these days, and may even try if Goldman Sachs " which is likely to recommend anything these days " puts them up to it."

That was just a little shot at Goldman Sachs for talking up $100+ oil, and playing all the cards in the NYSE-Archipelago game. The truth of course is that GS is a pretty smart group. It's too bad they work so closely with the Gnomes.

Nevertheless, a little more Oil sector watching is in order. Remember, it's oil prices up, corporate earnings down, stock prices down, and vice versa.

10101010 Oil & Gas Drilling Drilling contractors or owners of drilling rigs that contract their services for drilling wells.

10101020 Oil & Gas Equipment & Services Equipment manufacturers, including drilling rigs and equipment, and providers of supplies and services to companies that drill, evaluate and complete oil & gas wells.

10102010 Integrated Oil & Gas Integrated oil companies engaged in the exploration & production of oil and gas, as well as at least one other significant activity in either refining, marketing and transportation, or chemicals.

10102010 additional list.

10102020 Oil & Gas Exploration & Production Companies engaged in the exploration and production of oil and gas not classified elsewhere.

10102020 additional list.

10102030 Oil & Gas Refining & Marketing Companies engaged in the refining and marketing of oil, gas and/or refined products not classified in the Integrated Oil & Gas or Independent Power Producers & Energy Traders Sub-Industries.

10102040 Oil & Gas Storage & Transport Companies in storage and/or transportation of oil, gas and/or refined products. Includes diversified midstream natural gas companies facing competitive markets, oil and refined product pipelines, coal slurry pipelines and oil & gas shipping companies.

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Gold:

Gold had another good week, under the circumstances, closing at $434.91, up 0.07 pct. Actually, gold had a terrible day Wednesday, and a good one Friday. On Friday, gold was up 0.89 pct. The XAU was up 1.68 pct on Friday, and the Toronto XGD was up 1.78 pct that day.

Gold is hanging in there with the USD sitting absolutely at just under resistance levels. See the forex section of this report.

This interactive chart shows the basically flat week for the Gold Bullion index. closing.

The Philly Gold & Silver stock index (XAU) had more weakness, falling on the week to 83.51, down 5.52 pct, as traders are getting a mite nervous as they watch that USD hovering right at the technical resistance line.

I still think inflation is a problem. And I still think the USD is headed south for at least one more vacation. So, with fingers and toes crossed, I'm hanging in with gold positions. In fact, it's a good time to pick up goldminer stock call options real cheap as most traders are throwing away their stocks in this sub-industry group.

But I have always been a believer that the Basic Materials sector can move in a sideways pattern, based on weak economic data, but the USD be falling because of inflation realities.

The Toronto Exchange-listed goldminer iUnits S&P/TSX Capped Gold Index ETF, which trades under the ticker symbol TSE:XGD was down 3.58 pct this week to 44.69. A week ago, XGD had been up +2.41 pct. The good news is that on Friday, XGD traded up +1.78 pct.

The XGD, however, seems to be getting further away from a re-test of the 58 - 62 level this summer, which I have been writing about. Still, I don't quit unless the market gives me a reason to. And right now, the USD action is telling me to hang in.

At least, the USD is saying, "Don't throw in the towel on the goldminers just yet."

Here are the interactive charts of the leading goldminers on the board.

List #1

List #2

List #3

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Forex:

The U.S. Dollar strengthened again this week. Consternation.

As I observed the upper resistance (40-week MA) fall from 85.19 to 85.10 to 85.03 down to 84.94 in recent weeks, to 84.82 this week, and the USD index was not pushing up through it, I was thinking there was not much strength left to the USD rally.

At 84.44, the USD index rose 1.13 pct this week, and is becoming too close to the falling 40-week Moving Average (technical resistance) for me not to feel the heat. I really have to say that this is the time that the real traders walk the talk. The chickens leave the game.

The $XEU closed at 128.58, which is a long way off last week's close at 130.53; down 1.49 pct in fact. Ouch!

Moreover the 40-week MA in the XEU (Euro:USD pair) index, now at 128.42, is perilously close. Too close. If this were a poker game, now would be a good time to powder my forehead, pull down that baseball cap, and fog up my shades.

We seem to be a long way away from that test of the 134.73 cycle bottom that I have been talking about.

Wasn't it just last week, I suggested: "First step, which I think will be taken out early in the week, will be the 50-day MA for the XEU at 130.87. It's only a heartbeat away."I regret I didn't say you need a strong heart to play this game.

---

International Equities:

Japan (EWJ) was up 1.18 pct on the week, to 10.25, which makes it 1.8 pct for the past two weeks. But EWJ just had a great Friday, up 1.69 pct, and funny thing, it all happened when the Japanese people were mostly sound asleep at 3 am in the morning.

But Goldman Sachs has a way of doing that for its best clients.

A couple weeks ago I happened to catch the Australian morning trading on television after a particularly bad day in New York markets. And what to my surprise did I hear the local Sydney-based commentator say to the audience? "Goldman Sachs tells us it's going to be a solid day in the market today!"

So, guessing that GS staff was on the phones doing likewise in Hong Kong, Singapore, and so forth, I braced myself for a next day rally in New York. And do you know that somehow the early equity futures in New York were remarkably strong the next morning.

It was as if someone knew.

The U.K. (EWU) and Canada (EWC) did not fare so well this week, although the Brits must have enjoyed their Guinness on Friday evening at the local pub when they saw what GS (excuse me, the NYC traders) did to their EWU, putting it up 1.02 pct on Friday, so that on the week it was down just 0.56 pct.

Those Yanks can be real friendly people sometimes.

When they need you.

Japanese equity market ETF: EWJ

Yes, so the EWJ was up +1.18 pct on the week, including up +1.69 pct in the last couple hours Friday. Was this a continuation of the prior week when the EWJ was up 0.60 pct, but then went down 0.78 pct on Friday, mostly in the last two hours?

If the whole complexion of markets can change in one hour at the end of the week, why bother trading the rest of the week?

U.K. equity market ETF: EWU

The EWU was down 0.56 pct this week after being up (guess what?) 0.56 pct the previous week. And this week, EWU moved up 1.02 pct on the late-day rally, whereas the prior week EWU fell 0.94 pct on Friday, mostly in the last two hours, but still closed up on the week.

This is a classic definition of the trading concept called "whipsaw" and it is an element introduced by the Gnomes whenever they want to spin you so hard you don't know whether you're coming or going.

Hint for the sleepy: you're going.

More to come.

Canadian equity market ETF: EWC

The EWC was up 1.98 pct the previous week, but this week, just to fool the majority, EWC was down "1.94 pct, and even when Canada was on its knees at the start of the late-Friday rally in New York, the Yanks wouldn't let them up.

Must have something to do with a bad conversation over steak and Molson-Coors at a ranch near Crawford TX.

Either that or maybe indigestion when the Yanks saw that Canadian Prime Minister Martin had decided to go to bed with the socialist party (NDP if you're keeping score) and drop those planned corporate tax cuts in favor of spending money on those friendly pigs at the trough in Ottawa.

What some people will do to stave off an election.

Anyway, world traders voted with their money, and the EWC had a bad week.

Oh, I suppose it had something to do with falling prices in the Energy and Basic Materials sector. I was also going to say the Industrial sector, but Canada gave that one away to the Americans a long time ago. Technology (our famous Blackberries) is next to go.

Thankfully, Canada does have a solid fiscal and monetary policy in place that will see them through the bad times. But if the Loonie doesn't pick up soon, much of the western Canada oil fields and tourism industry is going to be owned by Beijing.

And for those smart people who think China is going to stop growing whenever the PRC get around to releasing the USD albatross, you had better think again. They plan to use those inflated Yuan to buy up Canada, and they already have about half of Vancouver ready to meet their brethren at the airport. Mr. Zhou (Joe) told me so.

Besides, the Chinese are net importers, and a stronger Yuan helps, not hurts, China.

Although I shouldn't say this, I have to hurry up this article because I'm expecting a LD call from Mr. Xiaopeng (his real name) at 2:00 pm EDT. (He'll laugh when he reads that, I hope.)

Let's now have a look at the hourly data charts of the various international equity markets as represented by the U.S.-listed and dollar-denominated ETFs:

(Japan, Taiwan, Hong Kong, Singapore)
(U.K., Germany, France, Italy)
(Canada, Mexico, Brazil, Australia).

I suspect most of these markets will be under pressure in the weeks to come.

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U.S. Equities:

Here is the 60-minute data chart of the Dow, S&P 500, Nasdaq Composite, and Russell 2000 (small cap) indexes.

In looking at the weekly performance for the individual Dow 30 stocks to see where the big money is moving, the Dow was up +1.22 pct, and the top five performers were AXP (Alwaleed Xpressly Pleased) up +5.80 pct, VZ +5.11 pct (shareholders hoping MCI gets lost), KO +3.11 pct, IBM +2.92 pct and BA +2.83 pct.

Last week's winner, (+7.61 pct), CAT, was down -1.96 pct. And, second winner a week ago, XOM (+5.75 pct) was this week's big loser "4.02 pct.

The other losers this week were DIS "3.30 pct, MCD "2.50 pct, and DD "2.06 pct.

It was not a better week, even with 17 Dow stocks up and 13 down. The truth is that without the late day rally Friday, a lot more Dow stocks would have been down this week, than up.

The following table shows the price performance of the Dow 30 stocks, which I sorted by 1-week price change.

You can do this table yourself by copying the following list of the Dow 30 stocks and entering them in the window for "Summaries" at Investertech.com.

AA AIG AXP BA C CAT DD DIS GE GM HD HON HPQ IBM INTC JNJ JPM KO MCD MMM MO MRK MSFT PFE PG SBC UTX VZ WMT XOM

After you bring up the list, click on the Performance tab. To sort for the relative price performance for any recent period, you just need to click on the column header of the period that interests you.

By sorting the list, you can see that, for example, that, while AXP was up 5.8 pct this week, it has been down 5.7 pct year-to-date. And VZ, while second winner on the week, up +5.11, has been down 11.6 pct YTD.

IBM, up 2.9 pct this week is actually down 15.6 pct over the past four weeks.

Don't be fooled by these stats. It's not where the stocks have been that counts most; it's where they're headed. So you have to analyze each.

Sometime there are sector-based rotational trends, and sometimes not. This week's losers, XOM, DIS, MCD, and DD are all over the board, so it's a little hard to figure things out. That plus the late day rallies or declines on Friday's makes your task even harder.

I'm in that same boat.

Here are the Dow charts from Investertech.com that I broke into groups of ten, which you can add technical indicators for as well. (list one) (list two) (list three)

I have noted that on March 2, I wrote that, to me, observing the technical indicators was like watching the market roll over, and I could see a waterfall in my crystal ball. That became apparent to everybody later.

I think the economic data is starting to pile up now hat give us a good picture that the economy is not growing as fast as most people would like, and PPI/CPI is growing a little faster than most would like. The real estate bubble is not going away (and won't unless mortgage costs start to escalate), and traders are getting more nervous (as seen by the VIX and VXN indicators).

I continue to feel that stagflation is an issue, and probably will be until after the Chinese authorities free the Yuan from its USD peg. That ought to slow the Chinese economic growth, which would slow the price increases in commodities like crude oil, copper and steel.

Last week I wrote more about how this problem is not a Greenspan creation, and I'm not surprised that whenever I write along that line, I get a small torrent (ripple?) of mail in the negative. For some odd reason, people hate that guy.

I'll just leave it that I think he's done a good job over 20 years, in my view. End of story.

I'll say this again, that "You can play with yourself and friends like Cramer by buying up GOOG from the insiders and friends of Wall Street, but prepare for more shock in some of the following charts:"

(AA) (AA) (Here is the Apr. 22 Value Line report on AA: next one is due Jul. 22)

(AIG) (AIG) (Here is the Feb. 25 Value Line report on AIG: next one is due May 27)

(AXP) (AXP) (Here is the Feb. 25 Value Line report on AXP: next one is due May 27)

(BA) (BA) (Here is the Mar. 25 Value Line report on BA: next one is due Jun. 24)

(C) (C) (Here is the Feb. 25 Value Line report on C: next one is due May 27)

(CAT) (CAT) (Here is the Apr. 29 Value Line report on CAT: next one is due Jul. 29)

(DD) (DD) ( Here is the Apr. 22 Value Line report on DD: next one is due Jul. 22)

(DIS) (DIS) (Here is the Feb. 18 Value Line report on DIS: next one is due May 20)

(GE) (GE) (Here is the April 15 Value Line report on GE: next one is due July 15)

(GM) (GM) (Here is the March 4 Value Line report on GM: next one is due Jun. 3)

(HD) (HD) (Here is the Apr. 7 Value Line report on HD: next one is due Jul. 8)

(HON) (HON) (Here is the Apr. 29 Value Line report on HON: next one is due Jul. 29)

(HPQ) (HPQ) ( Here is the April 15 Value Line report on HPQ: next one is due July 15)

(IBM) (IBM) ( Here is the April 15 Value Line report on IBM: next one is due July 15)

(INTC) (INTC) ( Here is the April 15 Value Line report on INTC: next one is due July 15)

(JNJ) (JNJ) (Here is the Mar. 4 Value Line report on JNJ: next one is due Jun. 3)

(JPM) (JPM) (Here is the Feb. 25 Value Line report on JPM: next one is due May 27)

(KO) (KO) (Here is the Feb. 4 Value Line report on KO: next one is due May 6)

(MCD) (MCD) (Here is the March 11 Value Line report on MCD: next one is due Jun. 10)

(MMM) (MMM) (Here is the Feb. 18 Value Line report on MMM: next one is due May 20)

(MO) (MO) (Here is the Feb. 4 Value Line report on MO: next one is due May 6)

(MRK) (MRK) ( Here is the Apr. 22 Value Line report on MRK: next one is due Jul. 22)

(MSFT) (MSFT) (Here is the Feb. 25 Value Line report on MSFT: next one is due May 27)

(PFE) (PFE) ( Here is the Apr. 22 Value Line report on PFE: next one is due Jul. 22)

(PG) (PG) (Here is the Apr. 7 Value Line report on PG: next one is due Jul. 8)

(SBC) (SBC) (Here is the Apr. 1 Value Line report on SBC: next one is due Jul. 1)

(UTX) (UTX) (Here is the Apr. 29 Value Line report on UTX: next one is due Jul. 29)

(VZ) (VZ) (Here is the Apr. 1 Value Line report on VZ: next one is due Jul. 1)

(WMT) (WMT) (Here is the Feb. 11 Value Line report on WMT: next one is due May 13)

(XOM) (XOM) (Here is the March 18 Value Line report on XOM: next one is due Jun. 17)

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I could go on here, but I have to get ready for a LD call from some smart guys from Beijing. Then I'm headed out of town.

It's been another challenging week in more ways than one. One of these weeks, I'm going to take a break before I break.

Have a good weekend. Who knows what next week will bring!

BCara@BillCara.com