Adam Smith, btw, was a Scot who in 1770 wrote a book called On the Wealth of Nations. Goodman, however, was an American novelist and screenwriter who also had been editor of Institutional Investor magazine. He was a beautiful writer (what else can I call it?); I recommend you read any of his work.

On the web, I also found the following references (anon), which are interesting:

The Gnomes of Zürich:
One of the most plausible (?) theories I have heard on the Kennedy assassination relates to a speech JFK made shortly before his demise, in which he said he was going to expose "the gnomes of Zurich". The "gnomes of Zurich" is a euphemism for the ultra-secretive and powerful "Illuminati", a group of very, very rich and powerful businessmen. They are supposed to have incredible control of the World Bank and the IMF (International Monetary Fund). They are strongly linked with the Masons (not all Masons, you understand, but within the highest levels of that organization). The theory is that the Illuminati had Kennedy killed before he could expose them.

Who are the Gnomes of Zürich?
A disparaging term used in the U.K. for financial speculators based in the Swiss city. The term came to prominence in 1964 when Britain was forced to adopted harsh economic policies when the pound came under pressure from speculators. The term reflected the increasing interdependence of western nations and the tipping of the balance of power away from politicians to stateless business interests. British Prime Minister Harold Wilson once blamed the "gnomes of Zurich" for the sterling crises that dogged the U.K. in the 1960s.

An interesting description of the Gnomes is in this link to a paper written by a Richard Douthwaite of Ireland, which describes the British currency fiasco as happening in 1956.

Okay, so much for the Gnomes.

If you ever do read Goodman's works because you heard of him here, I'll be happy for having brought up the name. But, the (personal) Douthwaite paper also has an interesting slant as the writer is trying to say that the Gnomes of the 1950's who brought down the Bank of England are returning now to do the same to America. Shudder to think about that!

It pays to have an open mind about these things.

I know, but can't say any more because, really, I've been sworn to secrecy. ;-)

Now, before I start this report, I want to say that I mistakenly sized all the screen shots. Since I have no time to recapture them today or tomorrow (I'm leaving town now), I had to change the output parameters to make them large enough to read. Unfortunately, they are not as clear. Sorry, but tht's the downside of being a one-person blog.

2005-05-21 Report

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Bill's Portfolio:

It's nice to ring the cash register.

Three weeks ago (in Week #17 in Review), I gave you the heads up that XLY had been oversold, and that two stocks in the durable goods manufacturing sector (consumer discretionary spending stocks) were looking good.

"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?"

So let's follow up:

GM April 29 close: $26.25
GM May 20 close: $32.98

Gain in 15 trading days: 25.63 pct
Annualized gain = 444.4 pct

MYG April 29 close: $9.69
MYG May 20 close: $14.40

Gain in 15 trading days: 48.61 pct
Annualized gain = 842.5 pct

Tell me; are you happy to have found the Bill Cara blog?

Actually, I can't wait til my programmed trading models start taking on this challenge. That's because for the (many) times I'm wrong, I could then just say the computer made me do it!

I absolutely love capital markets when a plan comes together. I occasionally play chess; I do crossword puzzles daily; but nothing beats the capital market when you are on your game. Nothing.

Oy vey! If life were so simple!

Well it's not rocket science either. Let's see what I did to come up with the GM and MYG idea.

First you go to the Consumer Discretionary (GICS sector 25) ETFs and run the same analysis as I do every week in my Week in Review.

You look for extreme weakness in the Monthly and Weekly data series, because those are more important than the Daily or Hourly or Semi-Hourly data series charts.

When you see an RSI (which is the Relative Strength Index indicator) that has fallen below the 30-line, you say to yourself, this baby is in the Cara Accumulation Zone. Then you start watching the Hourly and Semi-Hourly data series charts for the same.

So far, it's simple.

When you start to feel reasonably comfortable, you next look to the mass media for their typical smear job as each well-known corporation hits its cycle bottom.

I don't want to make this personal, but our old friend JJC was heard on his well-known CNBC show as screaming (does he do anything else?) that GM has "never done a thing for America", yada yada. (I know because I let you read it on these pages, figuring this buy situation was coming.)

Now in a bear phase of the broad market, you can go long only for Intra-Month Trades (i.e., 18 trading sessions or less, hoping for >5 pct gain on your trade over that time horizon. Got it?

I hope so, because this is not rocket science.

Now here's the deal. It comes with experience, so listen up.

In 18 trading sessions, not much is likely to alter the landscape for a big cap stock. Oh, the USD may go up or down a tad, in a way you didn't anticipate, or interest rates might go the same, or a major economic report (PPI/CPI/Jobs/etc) may be truly unexpected, but for the most part, there isn't going to be a World War break out, Osama isn't likely to get captured, a key political leader assassinated, and so forth.

So the capital market is going to move along in its normal trend and cycle flow " and you are dancing to the rhythm. Ok?

Now, it is my experience that some people who know important things (like possible takeovers, or home mortgage applications drawing a blank, or auto dealer lots unable to move product, or whatever) will tell these things to other more important people (in return for some consideration).

Then the really important people " let's call them the Gnomes -- will let the world think that exactly the opposite scenario is unfolding, i.e, the soldiers didn't know the location of Saddam's (cave); the South African goldminers are going to strike; the drill rigs in the Gulf have gone missing after the hurricane; and so forth.

This is fraudulent misrepresentation, but hey, who's ever going to find the source of the rumors? The Gnomes are clever, and they have deep pockets.

Maybe if you could have seen that $7 million check to Hill & Knowlton, you'd know that the pretty little girl telling Congress about Kuwaiti babies being tossed out of incubators by Iraqi henchmen was really telling lies, and that she was also the young daughter of the Kuwaiti ambassador to the U.S.

But by then a War had started.

Things happen. People know in advance.

It's my experience over 40 years of observing these things that it's never as bad or as good as somebody has led you to believe. And therein lies your opportunity.

At least, there is an opportunity for all persons who don't suffer credulity syndrome; You know, there are actually people out there who believe everything they hear on CNBC. "I heard Joe Kernan say it!" Duh!

You give me 30 days with any of the Gnomes, able to closely observe their tactics and strategies, and I'll tell you what they are going to do in a certain situation five years from now. I speak from experience. :-)

A person's M.O. doesn't often change. It's the old saying that a leopard can't change its spots.

So after 40 years of observing the Gnomes, I can say that the same tricks are used repeatedly to fool the majority. It's the reason these people like to control -- or be close to -- the mass media (and why they are so worried today about independent bloggers).

That's because in order to fool you into making a decision you otherwise wouldn't, they need to tell you a story. It has to sound good.

You know, a story like Wal-Mart can't sell t-shirts anymore, and their stores "feel" like the former Soviet state Glavny Universalny Magazin in Moscow. But, I'm here to tell you that when Cramer is telling you WMT is worse than GUM and nowhere near TGT " and he did " you can take it to the bank that WMT is nearing or entering the Cara Accumulation Zone.

I'll say that I can be wrong; but my sniffer is right at least 90 pct of the time.

You can learn too. Try this; the next time you see a popular stock with an RSI moving ABOVE the 80 or 90 line on the Daily price series data, try to count how many times you read or hear some puffery about the company or the stock. See if there is at least 1 in 20 (or 1 in 50 even) who don't rave about it. Then watch the stock fall in price.

Do the same in reverse when a stock falls below the 20-line for the Daily series; then be on the lookout for somebody who actually likes that stock. If you find 1 in 20 THs who are urging you to buy, I'd be surprised.

Now look down the S&P 500 list " all of them " and for the Monthly and Weekly charts that rise to the 70-80 level or fall to the 20-30 level, note how often that happens. It's a lot.

In the future, try writing a diary of the notes you read/hear from THs on the companies you happen to like (i.e., sound financial structure and operating performance relative to its industry peer group). You'll be surprised at the bad-mouthing at the 20-30 level, or the hyping at the 70-80 level.

Why do they do that, you ask? They do it simply because they are blowing off stock at the top, and buying it at the bottom.

I guarantee this: every time your favorite company is smeared, the stock will be in the Cara Accumulation Zone. Every time the stock is hyped to extreme, it will be in the Cara Distribution Zone.

I am not being cynical here. I have formal made presentations to the Senate Banking Committee and to chairs of the Provincial Securities Commissions (CSA) in Canada, but nothing I say here, I would not have also said there. Believe me; I'm just speaking from experience.

So, let's bring this lesson to a close:

On Week #17 in Review (Sat. April 30), GM and MYG were in my Accumulation Zone. It did not surprise me that Cramer called GM a good-for-nothing corporation, or that smart-alec Pisani referred to MYG as Mayday! Mayday!

Neither company happens to be on the Cara Global 100 Best Companies list, but I'm talking securities trading (i.e., the stock and nor the company) when I mention Accumulation/Distribution Zones. All stocks sooner or later enter these zones.

When I ALSO talk about the Cara Global 100 Best Companies entering the Accumulation/Distribution Zone, and the stars happen to be aligned correctly, i.e., the broad equity market is bullish and the "zone" also happens to be Accumulation, then that is a long-term "buy" trade for me, not a flip.

Long-term in my books is either Intra-Year (>18 but <250 trading sessions, seeking a 40-pct annualized gain) or Extra-Year (>250 trading sessions, seeking >30 pct annualized gain).

Yes, the longer I hold a stock, the less I expect for the return; that's because a lot of mistakes become long-term holds " but that's a story for another day.

Well you've suffered long enough; here are the Monthly data series charts for (1) GM and (2) MYG.

Note the RSI that had recently extended below the 30-line. In fact, note how the RSI in each case has just set a new low for the eight-year data series of these charts.

If you wish, you can also go to the Weekly Data charts to see the same result.

It was when I saw the Daily and Hourly data charts doing the same that I started in my blog to quote the fable of the Pied Piper. You see, at that point, I figured my probability of earning a profit of >5 pct within 18 trading sessions (i.e., less than 1 month) were somewhat in the 90-percentile level (my guess, based strictly on experience).

But like I say, my call was based on more than simply RSI. I looked at what the media were saying, and how they were saying it. I looked at the sub-industry peer groups. I looked at the current financial summaries. I reviewed the recent corporate news.

After a while you get a feel for these things. It's like closing your eyes and listening to Bocelli. It's music. Beautiful music.

And then you get to ring the cash register.

And sometimes you don't.

GM gain in 15 trading days: 25.6 pct
MYG gain in 15 trading days: 48.6 pct

This time: ka-ching!

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Sector ETF:

Many of the bears have fallen off the wagon, and joined the bull side this week. All it took was for ten out of ten sector ETFs (that I follow) to be up on the week.

But it was not just a case of being up a little bit. Seven of ten ETFs were up over 3 pct week over week (W/W), and one was up almost 5 pct, and only one of them was up less than 2 pct. Wow!

That is a bullish picture that sad-sack equity traders have not seen since last October. Now, for sure, we have to look at the individual sector ETFs to see where the action really was in Week #20 because in Week #19, there were nine ETFs DOWN and just the one was UP.

So, maybe last week was a flash in the pan. Do you think?

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.

Last week, I decided to add an extra chart for each ETF because I was anticipating a cyclic change. I had thought that maybe the previous week's selling was quite overdone.

Here's what I wrote a week ago: "Actually this week, due to the importance of the short-term cyclic reversal, I decided to publish both the Hourly and Weekly price data charts." After you see the rally moves that the broad equity market made this week, you might acknowledge the insight of that statement.

In any event, this week, I decided to switch from the extra weekly chart to an extra daily data chart, simply because next week may not be so positive as the past one. You will want to keep a closer eye on equities going forward.

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

Here's the XLE Hourly and Daily data charts:

XLE closed Week #20 at 39.65, which is up +2.16 pct on the week. XLE had been down "5.57 pct the prior week; so I boldly stepped forward with an Intra-Month buy recommendation.

The question now is, did I just catch the proverbial dead cat bounce?

What happened this past week was that from Monday noon to Friday morning, XLE was up +5.3 pct, but U.S. inventory levels were found to be very high, so Friday had XLE down "0.75 pct on the day.

My sense is that traders will play the energy stocks up and down as Crude Oil trades in a range of $45 to $50 a barrel (Lt. Sweet). Politicians would like to tell you that crude oil is headed to $30 and below because that will allay the public's inflation fears. And, the equity bulls will tell you that at $45 oil, the oil companies will make a ton, the rest of society can handle the high price, and the economy is going to grow nicely with oil at that level.

In other words, it's all about selling one's best-case scenario. This is synthesis, not analysis.

You can ignore it.

You can also ignore Greenspan's remarks on Friday that energy prices are under control, yada yada. My thinking, when I hear a prominent central banker speak like that, is "hello politics, so long intellectual honesty".

That speech was not worth the napkin he disposed of after lunch.

We have to watch oil prices carefully and make some objective assessments. If the price goes up here (when there is plenty of inventory on hand), that is speaking to (i) higher inflation, and/or (ii) higher growth prospects for the economy. If it goes down, it's a sign that there may be (i) deflation on the way, and/or (ii) a slowing economy likely to unfold.

Hourly data:

Daily data:

Here's the XLB Hourly and Daily data charts:

The fourth big winner (tied with Telecom) in the past week was the Basic Material ETF, XLB.

Hourly data:

Daily data:

Two weeks ago, all the Basic Material ETF's were a mess, but there was some recovery this week. Actually there was a lot of recovery.

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

Last week I wrote: "XLB finished the week at 27.01, down 6.22 pct. Friday; XLB was down 1.96 pct, to where it looks oversold on the short-term chart, like the Oils (XLE), which were off 1.50 pct on Friday, which followed a big hit Thursday as well. The prior three weeks had been good ones for the XLB, so you can either interpret this as a normal correction, or like me take it that investors are starting to worry about an economic slowdown in China, which will hurt the Oils and Basic Materials stocks."

This week, XLB was up +3.26 pct W/W to 27.89. Still, I'm not impressed. The week's advance took place in maybe five trading hours, from Tuesday afternoon to Wed. noon. Then nothing; and XLB was down "0.64 pct on Friday.

XLB will go north when the USD goes south, at this point.

Here's the XLI Hourly and Daily data charts:

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

The Industrials ETF (XLI) was the second strongest of my ten ETFs under review, up +3.74 pct W/W to 30.26.

There appears to be new-found strength in some of the U.S. manufacturing companies, like Boeing. This is to be expected from (i) the decline of the USD until some six or seven months ago, making it easier to sell U.S. made goods abroad, and (ii) a lag effect on the recent rise in the USD on big ticket sales (because of the longer sales cycle involved). With a strong U.S. Dollar, let's see if that trend continues.

Friday was down just "0.03 pct, which is nothing, on a down day for the Dow, so maybe there still is some strength in this Industrials sector (GICS 20) going forward. Actually, I'm probably calling it too fine here, but I think next week or two will be a down week for XLI, then another rally, the final one before XLI goes bearish.

Traders in this Industrials sector, like the Basic Materials sector, have to be closely watching the USD action in the next month.

Hourly data:

Daily data:

Here's the XLY Hourly and Daily data charts:

25 (consumer discretionary: XLY and VCR)

As for Consumer Discretionary Spending stocks, XLY was the big winner of the week, up 4.65 pct to 32.87. Actually, trading in XLY this week was solidly up from Monday morning to Thursday's close. On Friday, XLY was down "0.33 pct, which is not much.

I feel that with the push of Wall Street and Financial Entertainment TV (CNBC), XLY is probably the place to make some money on the long side in the next month.

Hourly data:

Daily data:

More than worrying about PPI/CPI, or what the Fed might do, the consumer just started to spend, which showed up in the prior week's monster Retail Sales report. That's the power of mass media.

That retail spending can be sustained only by more jobs or higher personal disposable income, however. So, the jury is out for XLY in the July-August period.

Here's the XLP Hourly and Daily data charts:

30 (consumer staples: XLP and VDC)

Consumer Staples (XLP) was up +3.02 pct on the week to close Friday at 23.52. After a period next week where I believe XLP has to consolidate gains made this week, I expect to see a couple more weeks of rally.

I was recalling XLP during the awful bear of 2000. As Nasdaq high-tech was getting trashed, and most of the other sectors were breaking down as well, XLP had a terrific run to the upside. You see, even during the darkest times, there are places to find sunlight " if not in the U.S., maybe abroad.

Hourly data:

Daily data:

Here's the IYH Hourly and Daily data charts:

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

Healthcare (IYH) was up +1.38 pct to 61.70, which follows several fairly good weeks. But the jig is up. Be wary.

IYH had just two strong trading hours the whole week. Friday was mildly down (-0.16 pct), but did you see Merck (NYSE: MRK)? That was the ONLY Dow 30 component that was negative on the week, and it was down "2.51 pct.

But, IYH was not just rolling over ready to die because of Merck. Did you see JNJ? You know, Cramer's favorite in the healthcare sector (and mine too actually, but who's going to shout that after JNJ was up just +0.15 pct, and the Weekly data chart looks like a fish hook with the barb pointing down.

I'll have to look into MRK and JNJ a lit more carefully in the next few days because to me, the IYH chart looks like the sports announcer screaming, "It's over. It's over, ladies and gentlemen; it's over."

I can almost hear the late Howard Cosell: "Down goes Frazier! Down goes Frazier!" Not yet maybe. But soon. And it bothers me to feel this way and not have a sense why the IYH charts look like this.

You see the securities analysis and trading paradigm closest to my heart is called "cause-and-effect" and it bothers me when I just don't get it.

Hourly data:

Daily data:

Here's the XLF Hourly and Daily data charts:

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

The Financial XLF was up +3.61 pct to 29.25, which was the third best move on the week for the ETFs. So that was quite a recovery from the previous week.

Actually the rally spanned just three hours only " Monday's open and Tuesday's close. That's not enough to get me excited, but XLF is finally back to its 40 Week MA (29.20), so technically it could break through resistance here or bounce back down. I don't have a confident opinion.

The cross-currents re the USD and interest rates are so overwhelming, it's hard to make sense of the flow of the price action in the financials. Every time, I think the XLF is going south lately, there seems to be foreign (probably Japanese/possibly Chinese) buying of the 10-year U.S. T-Notes, and the bond market goes for a rally, which takes some of the pressure off the Fed.

At times, you just have to stand back and watch.

Last week I wrote something to consider though: "With all the talk this week of hedge fund failures and their impact on some of the big banks like Deutsche Bank (NYSE: DB) the Fed will keep a tight rein on money until something big happens like a major bank getting into financial trouble. Since that is just not likely for quite some time at least, I just have to believe that the Fed is not about to change its game plan. The charts of the XLF show that the long-term bull cycle that began in the 3Q02 is terminating, which is the same for the interest-sensitive Telecom and Utility sectors."

I still believe that, but, honestly, I don't know why the bond market and the USD stays on wheels. I think maybe I'll have another read of that weird paper by Douthwaite that I introduced at the top. Could it be something big is coming down the tunnel and we should all be making sure we don't get trapped inside?

Hourly data:

Daily data:

I continue to think it makes sense to review all the high (interest and dividend) yielding securities like junk bonds, REITs and Utility stocks. Locking in profits might be wise.

Of course, Bond King Bill Gross is telling us he anticipates a 3.00 pct-yielding 10-Year T-Note by year-end, which would make my call a bad one. But, what else is Gross going to say? He's the owner of tens of billions in bonds, and he sure doesn't want to own a problem. He needs falling yields.

Here's the SMH Hourly and Daily data charts:

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

SMH was up +3.08 pct this week to 33.84, after being up +2.53 pct the prior week, and up +3.89 pct the week before that.

SMH is steady as she goes, up. Nothing seems to stop the chip stocks, and it is apparent the recent price action is more than short covering. Even on the down day Friday, when every other ETF was down or up less than +0.10 pct (which is a mere blink), SMH was up +1.08 pct on the day.

This week SMH broke above the 40 Week MA, and next week it could go even higher. Still, I think this rally is now getting long in the tooth.

Traders have played their favorites, and are now starting to look for hidden gems (according to Cramer and others). That's a sign that maybe, after the IBM's and the HPQ's have had their brief run here, that the tech sector starts to roll over.

One of these weeks, I will have to start analyzing a second technology ETF, but for now I don't see a new bull market starting, so why bother?

INTC and the chip stocks did look good.

Hourly data:

Daily data:

Here's the IYZ Hourly and Daily data charts:

50 (telecom: IYZ, VOX and IXP)

The Telecom Services sector (IYZ) was tied for fourth best performing ETF on the week. IYZ closed up +3.28 pct to 23.01.

As I said a week ago, "IYZ actually looks like it is terminating a bull phase that started back in 3Q02."

Hourly data:

Daily data:

Here's the XLU Hourly and Daily data charts:

55 (utilities: IDU, XLU, and VPU)

A week ago I remarked: "I have one word to say about the Utilities (XLU): "TIMBER." These stocks can be labelled Prime Douglas Fir, and marked for cutting."

Well, all I can say is that they have a long life and grow tall in Oregon. XLU was up +2.47 pct W/W to 29.89.

I may be alone on a desert island, but I'll bet you I'll still be hearing that XLU crash.

Those 10-year U.S. T-Note yields are NOT staying down at 4.10 for long.

Hourly data:

Daily data:

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Bonds:

There was significant bullish action this week in the bond market.

But the one point that struck me that W/W, the yields on the 5-year U.S. T-Notes and paper of shorter term all rose (i.e., prices fell on the week). That was a flattening of the yield curve, again.

Depending on which data service you use, the 5-year T-Note yields rose from 3.821 to 3.871, which might not seem significant, but could be. We'll have to see if this week's selling moves up to the 10-year bonds.

Obviously, the 10-year T-Notes this week were strong as they hit an intra-day mark of 4.04, with a lot of resistance at the 4.07 level as well. But by the end of the day Friday, they were back yielding 4.12, which was a slight gain in yield (and drop in price) from the 4.11 pct yield a week earlier.

From the U.S. Fixed Income (Bonds) Yield Table at Yahoo Finance, the 30-year T-Bond is now yielding just 4.43 pct, which is down even from the earlier week's 4.48 pct.

But the T-Bill yield moved up to 2.73 pct from last week's 2.66 pct, and close to the 2.76-pct level of a month ago.

(Note that last week I referred to them as 30-day bills when I meant 3-month bills; I write faster than I think occasionally.)

The movement in the T-Bill yields this week reflects the asset allocation from cash into equities I think.

The spread between 30-year T-Bonds and 3-month T-Bills had dropped from 194 basis points, to 181 bp to 177 bp, up to 191 bp two weeks ago, then back down to 182 bp a week ago. By Friday this spread was down to just 170 bp.

The more important indicator, which is the spread between the 10-year and 2-year T-Notes, had fallen from 76 bp, to 65 bp, 57 bp, 56 bp, and 54 bp in recent weeks. Clearly the trend is down as the spread narrows. This week, the 10-year to 2-year spread dropped down to just 47 bp.

With all the talk of economic expansion, this rapidly flattening yield curve is saying otherwise, which again is one of the factors in my call for continuing bearish equities.

I still don't believe there is enough business borrowing in the system to reflect significant economic expansion, but hey, I'm no economist.

Last week I wrote: "This situation is starting to have a deflation odor to it. At the very least, I'm thinking that inflation is no longer the boogyman on the horizon."

But, I still see enough money in the bank vaults to feed the real-estate speculators, which concerns me, because that means more Fed tightening ahead.

And you know, speculation can exist in the face of deflation. Definitely. Greenspan told us how on Friday, as he mouthed the words, "Tiny Bubbles".

---

Commodities:

Commodity prices stopped falling this week. After declining the prior week -2.20 pct, and before that -1.08 pct and -1.16 pct the previous two weeks, last week was down just "0.19 pct. So, I can say that prices stopped falling.

Last Monday, CRB hit a daily cycle bottom at 292.06 (EOD, continuous contract). The index hung in just above the uptrending 200-day MA (289.19).

By Friday, CRB closed the week at 293.28. The 40-Week MA (289.84) also held, so it will be interesting to see if CRB has a bounce here, which would help the Oils and Basic Materials (and vice versa).

CRB topped out at the start of March just as the equities topped out. Now the equities have had a bounce last week, so it will be interesting to see if the CRB follows through with an upside bounce as well.

Until Crude Oil (of the Light Sweet variety) hits the $45 mark, I think it is still worthwhile to watch the Oil sector because crude oil prices have a major impact on corporate earnings, and inflation, which seem to be the factors most on investors' minds so far this year.

I think I have been printing this list since about Week #8-2005, after I forecasted a topping out of this Sector, but I will continue to do so until another market driver takes the lead. For example, interest rates may be the next key driver for or against rising equity prices.

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 is still churning downward, this week down "$2.82 (-0.67 pct) to $417.60 (EOD, continuous contract). It had been looking better Monday through Thursday, but a week usually has five trading days. On Friday, GOLD was down "0.74 pct.

This interactive chart shows the negative week for the Gold Bullion index.

The Philly Gold & Silver stock index (XAU) was surprisingly up +2.20 pct this week, to 80.73. Hooray!

But that may have been a recovery of an oversold position because the prior week XAU was down "7.80 pct and that followed it being down -2.59 pct the week earlier.

Friday, however, XAU was down "1.19 pct, so I didn't go into the weekend with all smiles.

The Canadians also took the XGD north too, by +0.80 pct to 42.80. However, XGD had been oversold, down -7.07 pct the previous week, including "1.48 pct that Friday. This Friday, XGD was down "0.83 pct as well.

The Toronto Exchange-listed goldminer iUnits S&P/TSX Capped Gold Index ETF, which trades under the ticker symbol TSE:XGD is an interesting chart. I see the index bottoming here.

In fact, let's look at the Monthly, Weekly and Daily data charts from Investertech to look at the RSI that is clearly bottoming. Gold stocks are in the Cara Accumulation Zone, for what's worth after the miserable time I've had calling the USD/Bond markets, which have impacted these goldminers.

There are some pundits who are all over TV these days proclaiming expertise at these gold things, and while they have the patter down nicely, I just tune out. We know the best quality stocks of the bunch (Goldcorp is clearly one of those); and we know the PE multiples are very high, but that is no reason to hold back.

We've taken long positions in the golds for a reason: things are not quite right in the global financial system. Currencies are out of whack. Trade wars are erupting. PPI/CPI are trending out of normally acceptable limits. "Tiny Bubbles" are popping all over the world in various cities from Australia, through China, Europe, and North America. The living yield curve is starting to lie flat.

I could go on. Suffice it to say, there is nothing wrong with a small holding of gold or goldminers today.

As I wrote a week, two weeks, and three weeks ago: "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 XGD 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."

I don't want to sell golds unless and until the USD has weakened. Why should I be selling into my weakness, and not my opponent's weakness?

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 yet again this week. Consternation plus++++. Does it ever stop?

The strengthening USD (86.61), which is up 0.58 pct from 86.11 a week ago is well through the technical resistance line that many traders use. But, you know, some of those traders are losers, so bear with me.

I am hanging in. The longer the USD and the 10-year T-Notes extend their rally, the more likely it is that they will have severe breakdowns.

It's true that the technical chart of the USD shows a higher high followed by a higher low. But there still must be a test of the 83.36 recent cycle low, set I think on (or about) April 22. I also see a test of 81.28 in the offing, because I know how many technical traders trade the USD contracts.

The $XEU closed at 125.45, down "0.65 pct this week, after being down "1.52 pct the week earlier. The 200-Day MA (128.51) is not some distance away. It's not so many weeks ago, that I was anticipating a crossing of the 132.50-bridge on my way to a golden harvest. Oy Vey!

I'm still staying long gold and short the USD until after Mr Joe speaks to the People, although I'm starting to get the picture that just maybe a few deep-pocketed nations are trying to twist his arm, which is hurting me too. The sympathy pains are palpable.

The loss for XEU this week was more than made up by the Friday trades, so there is hope that Monday could see a reversal.

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International Equities:

Isn't it strange how some Americans think their equity market trades in a vacuum? Ain't so.

Let's see how the rest of the world performed this week on the equities front. At least, I am going to look over the three country ETFs I usually do, so that you can follow along week to week.

Japanese equity market ETF: EWJ

Japan (EWJ) was down again this week, by just -0.10 pct to 10.06 for the EWJ. Friday was off -0.98 pct on the day " actually right off the open, which was a disaster.

A week earlier EWJ had been down -3.82 pct, which cancelled out the gains of the previous three weeks.

As I say, I still like the Japanese market, in relative terms, because it's always better to be geographically close to your biggest purchasing agent, China, especially one whose currency is close to getting a boost.

Looking forward to the next couple weeks, however, I don't see a lot of reasons to be bullish.

U.K. equity market ETF: EWU

With a huge day Wednesday, the EWU was up +0.68 pct W/W. Friday was moderately weak, down "0.22 pct.

I do not see reason to be bullish here either.

Canadian equity market ETF: EWC

A week ago, I wrote: "EWC now looks a bit oversold for the very short-term." And just like that, the EWC rallied +1.82 pct W/W. You know, some people can flip a coin and call the result seven times in ten. Do you think?

Actually, since it wasn't oil or metal prices going north, there was another reason: Canada had the good fortune to avoid a surprise Federal election when a key member of the Conservative Party crossed the floor to join the ruling Liberals. That tied the vote, and the Speaker of the House broke the deadlock in favor of retaining the present government.

This was quite a bit of political intrigue. The member who crossed was none other than the runner-up at the recent Conservative Party convention to elect a new leader. In American terms, it would be like a Republic Senator, the Majority Leader himself, when holding a 51:49 majority, deciding he didn't like the lay of the land after running second at the recent Republic Convention to elect the Presidential leader, and crossing over to the Democrats in order to block passage of bills by a 50:50 vote.

To make matters more intriguing, the member who crossed was linked romantically to the former Conservative leader, and now I guess number two, as well as to Bill Clinton on a couple of occasions. In addition, she is the relatively young and quite striking daughter of Canadian billionaire Frank Stronach, who earns more salary than any other Canadian executive, controls one of Canada's biggest and most successful corporations (Magna International -- NYSE:MGA US$7.25 B, and Magna Entertainment -- MECA), and owner of many of America's leading racetracks (e.g., Santa Anita Park in Arcadia, CA and Gulfstream Park in Miami, FL).

With all the buzz going on presently with Hollinger's Conrad Black, and Belinda Stronach, who says Canada is a boring place?

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).

Last week I wrote, in this spot, "I suspect most of these markets will be under pressure in the weeks to come...If I had a paint brush, you could call me a Dutch Master." Then again, you might want to call me something else; I didn't tell you how sloppy I can be.

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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.

Week #20 set a new record with 29 of 30 Dow stocks being up W/W. Last week, it was almost the opposite as just 6 were up.

The loser in the Dow was Merck (NYSE: MRK), down "2.51 pct.

As ugly as the loser board was a week ago, this week the winner board took the cake. In fact five of the Dow 30 Industrial stocks were up almost +5 pct to over +9 pct.

HD was the big winner, up +9.20 pct, and HPQ was close behind, up +9.12 pct. Way down in third place was GM, up an astounding 6.46 pct, followed by CAT at up +5.20 pct, and INTC at up +4.90 pct.

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.

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)

With the possibility that either deflation or rising interest rates as part of our future landscape (take your pick; maybe both for a while), I thought I'd look at the P/E Ratios for the Dow 30 Industrial components. I'm just wondering how this market is going higher.

On Friday, Kudlow & Company enjoyed the company of Elaine Garzarelli of Garzarelli Research, who dangled her latest market call, which is that the Dow and S&P 500 is headed much higher now. As Elaine is touted as a superstar analyst, some people pay attention.

I guess my contention is that (i) if corporate earnings are not going to reverse trend and now head higher, and (ii) PE multiples are not going to expand from these relatively high levels, just how is the broad equity market going higher?

Tiny bubbles, maybe?

Here is the Dow component PE list as at Friday's close:

(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 May 20 Value Line report on DIS: next one is due Aug. 19)

(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 May 6 Value Line report on KO: next one is due Aug 5)

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

(MMM) (MMM) (Here is the May 20 Value Line report on MMM: next one is due Aug 19)

(MO) (MO) (Here is the May 6 Value Line report on MO: next one is due Aug 5)

(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 May 13 Value Line report on WMT: next one is due Aug. 12)

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

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Well, it's been a slice. Actually that was no pun, but the doc did remove a polyp from my colon this week, so it was probably not a good choice of words.

But, I'm now headed out of town. I have some parents to see, and apparently some grass to cut. I'll be back Sunday night, and even though Monday is a statutory holiday in Canada, I'll be back to blogging because the rest of the world will be at work.

Monday in Canada is Victoria Day, the Queen Mother's birthday. And to mark the occasion, Canada has enjoyed the presence this week of Her Majesty Queen Elizabeth.

I may not be a screaming Royalist, but I do kind of like the monarchy system. I think if the Queen was like five times richer than Oprah or Brenda Stronach I might object.

Then again, with this week's experience of staring at the inside of my colon for half an hour, I have to say that all's well that in the end is well, even if I did mess up so many of these illustrations.

BCara@BillCara.com