But when Greenspan gives us an opinion of this kind, experience tells us the poop might not hit the prop for a long time. His irrational exuberance" opinion was in fact first spoken in December 1996, and the equity market didn't peak until 1Q2000.

I suspect the fall-out in the housing market, that some people are fearing, will not happen suddenly, i.e., no bursting of a bubble, and that Greenspan, in making reference to it this week, was merely clearing his conscience in this his grand farewell tour.

At the very least, he was setting up an iron-clad guarantee his legacy earned after a sparkling 18-year career would be protected.

Tell me, who else thinks AG looks like Woody Allen, minus the hair?

But I digress.

Oh, oh. That tells me I'm going to go into overtime again in getting this Report written.

Last week I stated: My antenna tells me that Energy, Basic Materials, and Industrials will lead the way, and that the inflation cycle will continue, until market forces dictate otherwise." I still feel that way, but it will take some time for the market to shake out.

In the meantime, lower equity prices, and threatening clouds over the housing market, are causing people to blame Greenspan.

Alan Greenspan is merely the referee. We are the players.

Occasionally, when we get off side, Greenspan will send us to the penalty box in the form of higher central bank rates. But Greenspan's Fed is not so big they control interest rates or bond yields, the USD or equity prices.

Fortunately there is a free capital market at work. And, that is us.

Unfortunately, as the case may be, Greenspan has sent out a letter this week to some of us", requiring their attendance at an important meeting on September 15 at the New York City offices of the Fed. Those in attendance will be the senior officers of the 14 largest financial institutions in the world that trade in the credit derivatives market.

Because this is not a laughing matter, the bankers obviously would have preferred the invite have come from Allen.

In a word, and I'll leave it for you to ponder, Alan is concerned about the possibility of systemic" failure to the global capital market should these institutions not do a more effective, and efficient, job of managing their trading in credit derivatives.

Bill's Portfolio:

The ALTR Dec 2005 22.50 put (LTQXS.X), bought July 28 at 1.50, was $1.80 bid, offered $1.90 for most of Friday Aug-26. It closed at $1.75 bid, offered 1.85).

I'll stick with the trade because I think the semi-conductor stocks are not in good shape right now, which ought to continue for a couple weeks.

Still, there are better chip stocks to be playing on the short side than this one.

Let's have a look at the most prominent mid-cap chip stocks: Semiconductors -Midcap USA.

Actually, next to Utilities this week, the chip stocks performed best. Most of the rest of the sector charts looked like well-groomed ski hills.

Yesterday, I purposefully made a reference to Hamburger Hill" of the 1969 Vietnam era because that's the way this equity market appears to be going, as we see in the next section.

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Sector ETF:

Here are the ETF charts for sectors 10 (energy: XLE), 15 (basic materials: XLB), 20 (industrial: XLI), 25 (consumer discretionary: XLY), 30 (consumer staples: XLP), 35 (healthcare: IYH), 40 (financial: XLF), 45 (technology, semiconductor: SMH), 50 (telecom: IYZ) and 55 (utilities: XLU).

Here is the weekly performance of my favorite ten Sector Index Funds. The table shows the list sorted by price performance Week over Week (W/W), i.e. 1W%N, but the Net and %Net columns show the Friday net change and pct change from Thursday.

I always look at Friday changes vs the rest of the week. The last couple hours of trading on Friday's can be (1) flattening positions for the weekend, especially when in doubt (e.g., Katrina this week), (2) the so-called "witching" effect of the time-based futures and options contract markets, (3) "window-dressing", and (4) etc.

You can do this table yourself by inserting the following string into the window called "Summaries" at www.investertech.com, and then clicking on "Performance". After the table comes up, you can click on various table headings for different time frames:

XLE XLB XLI XLY XLP IYH XLF SMH IYZ XLU

For the week, once again just two of these popular Sector ETFs were up and eight were down. The two that were up -" XLU (+1.61 pct) and SMH (+0.14 pct) -- were up much less than the two worst ones. XLB (-2.95 pct), which followed last week's loss of "2.73 pct, and XLF (-2.5 pct) were ugly, and they had company.

Last week you laughed when I wrote: Kudlow last evening said: The Spring/Summer Rally is still intact (whereupon he mentioned the market being up +10 pct) ...If things are so bad, why was today so good?" Same old; same old. All I can say is that (1) Kudlow suffers delusions, and (2) he ought to get down off that Bull before he gets hurt. What we need is more Truth In Media, like we get from CNN (yuk, yuk)."

The fact is that since March 30 (about 148 days), the Dow 30 has moved from 10,540.93 to 10,397.29 (a LOSS of "104 pts or "1.0 pct).

So, Larry, who's your Daddy?

Alas, I will say it once again, The sector ETFs were mostly down on the week because this was another crummy week in the market " four five in a row. At what point does x in a row" determine a trend?"

Now, if you take a two-week view, you'll see that the whole ETF picture is just as bad.

Or, how about the four-week view? Even worse!

If Larry continues to talk dirty, we'll just have to put soap in his mouth. :-)

Sector 10 (energy: XLE, IYE, VDE, OIH, PBW and IXC)

This week XLE was down "3.97 pct, wiping out the previous week's spectacular gain of +3.68 pct. XLE closed Friday at 48.18, which is not unexpected when Crude Oil prices came down.

Here's the XLE Weekly and Daily data charts:

XLE Weekly data:

XLE Daily data:

Last week I wrote:

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This week, the RSI has gone negative for the Weekly AND the Daily data, so the 50.55 high set the Friday a week ago was the cycle top in my view. I think it's downhill from here, not just for XLE, but because XLE has been leading the broad U.S. equity market higher, I think the Dow 30 is now turning bearish. On Friday, the Bulls made an attempt to rally the Dow in the morning, taking XLE up +1.71 pct on the day, but by 11:00 am ET, XLE rolled over, taking the whole market with it. It was left to MRK (and a Texas jury award of $253.4 million to the widow of a man who died thinking he was poor) to deliver the coup de gras.... But that's another story."

---

XLE closed this week down "0.39 pct W/W to 47.99. Is this not called giving you the news in advance?

That loss is not much admittedly, and without Friday's loss of "1.13 pct, my forecast would have been off the mark.

Moreover, if some oil traders (at the close of the futures market on Friday) not dumped oil contracts, I would have been wrong because next week I now think both crude oil and the XLE are going to re-test the cycle high.

You see, those oil traders decided that the path of Katrina-Petrina would probably go north and hit the Florida panhandle, thereby missing almost all the Gulf oil industry. They saw the storm tracking south and west, and getting stronger, making Katrina a real threat to the oil rigs, but they also saw a lot of profits in their trading accounts so they rang the cash register.

However, Katrina has at this time of writing become a major 115 mph hurricane, still growing in intensity, and still moving due west toward the Gulf oil rigs. So, we'll know by Monday morning of course, but it looks like serious problems ahead for local production. And the refiners too are right in the path of this storm now when it eventually turns north as the NOAA hurricane center predicts.

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HURRICANE KATRINA ADVISORY #17 /NATIONAL HURRICANE CENTER MIAMI FL
10 AM CDT SAT AUG 27 2005
AT 10 AM CDT...1500Z...THE CENTER OF HURRICANE KATRINA WAS LOCATED
NEAR LATITUDE 24.5 NORTH...LONGITUDE 85.0 WEST OR ABOUT 405
MILES... 655 KM...SOUTHEAST OF THE MOUTH OF THE MISSISSIPPI RIVER
AND ABOUT 200 MILES... 325 KM...WEST OF KEY WEST FLORIDA.

KATRINA IS A CATEGORY THREE HURRICANE ON THE SAFFIR-SIMPSON
SCALE. SOME STRENGTHENING IS FORECAST DURING THE NEXT 24 HOURS...
AND KATRINA COULD BECOME A CATEGORY FOUR HURRICANE."

---

This could be a monster storm, which is still tracking toward the oil rigs in the Gulf. Therefore, crude oil contracts on Monday am will likely go through the roof, and the oil & gas stocks should follow at the 9:30am ET market open.

So traders long XLE will get another kick at the can next week.

Then, depending on the amount of damage Katrina leaves behind, the high XLE prices might be sustained another week or two.

But, longer-term " say six weeks out (given no more Gulf hurricanes in this area) " I think that the U.S. economic slowdown that has been brought on by these high energy costs (and high food and housing costs) will directly impact crude oil prices and also serve to scare traders out of XLE. You see, if you have a neat profit in XLE, which is my only sector index fund that is up over the past four weeks, you would be hard pressed to give it back to the broad equity market, which is turning bearish.

Yes, XLE is the only winner over 4 weeks: it is up all of +0.82 pct. When your biggest winner " correct that, your only winner " is up only about a 10 pct annualized rate " then you are getting nervous.

It has been a tough summer; but I think it's going to get worse. XLE may not show leadership on the way down, but it should soon be part of the pack.

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

Here's the XLB Weekly and Daily data charts:

XLB Weekly data:

XLB Daily data:

XLB is the absolute worst performing sector ETF fund over four weeks (-4.78 pct), which is not surprising.

This week, XLB was down "2.95 pct W/W, following last week's loss of "2.73 pct, closing Friday at 27.27. A week ago, XLB fell below the 40-Week Moving average, and this week it fell much further as M40 is now 28.95.

You were warned. Last week I wrote: Besides, the Weekly AND RSI for XLB is negative, so traders who want to go long XLB, as they see a strong economy, ought to be prudent.... Short-term, if only the Basic Materials sector did not include the Chemicals, Paper & Forest Products, Iron & Steel, Base Metals and Industrial Minerals, which all thrive when the global economy expands. That would leave just Gold, which interests me.... The rest of the Basic Materials also interest me for the long-run, just like the Industrials (which I review next), because that's the kind of long cycle I think we're in (to be confirmed by the President's choice for Fed Governor)... Ultimately the fast growing global economy will start to take off again, caught up in economic expansion of China, India, Russia and Brazil. But for now there are hiccups, particularly with consumer spending in North America and Europe, which of course is driven by jobs, many of which are being sent to the emerging economies where costs are lower."

These kinds of things don't change much in a week.

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

Here's the XLI Weekly and Daily data charts:

XLI Weekly data:

XLI Daily data:

The Industrials ETF (XLI) were again a loser on the week, down "1.43 pct W/W, to 29.62. It had been down "0.73 pct the prior week.

Two weeks ago I wrote that XLI appears ready to point down." which I said a week ago was fair warning.

Last week I wrote: Note that the M40 is now higher at 30.23, and the RSI for both the Weekly AND the Daily are negative. Like many of the others, that's a double whammy...
Traders (the successful ones at least) are typically net short at times like this."

Over four weeks, XLI is third worst of 10 sector ETF funds I follow. It has been down "3.0 pct over that time. And you'll note that for every jobs report issued monthly by the U.S. govt, I look to the additions or subtractions in full-time manufacturing jobs. And every month, that picture is a bleak one.

Meanwhile Wall Street Talking Heads are telling you the U.S. economy is firing on all cylinders.

Maybe it is -- if you are looking at a two-cylinder Briggs & Stratton lawnmower engine. But if you are looking for a big Detroit eight cylinder job to drive this economy, you'll have to look back to Tim Allen's Tool Time.

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Sector 25 (consumer discretionary: XLY, IYC and VCR)

Here's the XLY Weekly and Daily data charts:

XLY Weekly data:

XLY Daily data:

Consumer Discretionary Spending stocks (XLY) had another hit this week as it is becoming more obvious that the Middle Class of North America and Europe is rapidly disappearing. The retail stores of the relatively rich and famous are doing well. But the retailers who serve the rest of us are quickly finding that Bill Cara knows of what he speaks when he has been saying for months now that WMT is proving that the majority of their customers have no tickee for laundry."

Just look at the nation's (correct that, the world's) biggest retailer to free-spending consumers. The stock is now down in the 45's. If it keeps going south, why even GOOG, now the world's biggest media company (at least for now), might soon have a comparable market cap.

Actually, if you happen to be a market Bull (I'm not, at least for now), then I think you ought to park the family jewels in a Wal-Mart parking lot. WMT is likely to rally here by maybe six to eight pct over a couple months.

Yes, I think WMT has been beaten into the mat, and will soon get up and back into the ring to assume it's leadership role. Wal-Mart is, after all, the industry's 800-pound gorilla.

Some people will call this forecasted move a dead cat bounce, or in this case a gorilla bounce. But, WMT ought to bounce. The only thing stopping it would be for crude oil prices to go over 70, and for Mr. Joe of the People's Bank to decide now is an appropriate time to raise the value of the Yuan a second time.

Those hurdles would (1) make it harder for consumers to drive to Wal-Mart, and those that do would have fewer USD to spend, and (2) Wal-Mart purchasing managers would have to spend more of those USD to buy tee-shirts in China.

Oh, the auto lots may be busy for a while longer " the Big Three management have decided that even 2006 models ought to qualify for the second round of employee pricing. So now you have a double pump, which could be why credit rating agencies are now putting the auto bonds deeper into the bottom of the barrel.

So Ford management is trying to offload Lincolns to McDonalds' workers, and then stiff them with an orphan as they later pull the plug on manufacturing Lincolns. Those burger flippers can't catch a break.

A week ago I wrote that there will be car buyers just as long as the manufacturers were giving them away. But will the public ever accept anything other than employee pricing in the future? I don't think so, but then again maybe those manufacturing employees will be in places like China and India, and we'll be told that we cannot expect to get the same deal on a car made by an employee who earns $5,000 a year!"

Last week I pointed you to a single retailer stock, the once great Sears (now Sears Holding Corp " NDQ: SHLD) " going from $163 to $135 in five weeks, as the popular James Cramer was blowing that paper up you know where.

Well this week the stock rallied by some 39 cents (+0.29 pct). Next week; not so lucky.

I kind of smell a few problems with New England hedge funds being into long positions here, but having to unload. No proof. Just call it market sense. You see; SHLD is not about retailing. It's about a hedge fund guy called Fast Eddie " Cramer's buddy.

BTW, there was news of a major hedge fund in Stamford CT closing its doors recently. I know the people, and hope the situation works out the best for all. These people were going to be involved in my plans to move offshore. Alas, now the State authorities, and probably the SEC, are investigating them.

So, Mr. Regulator, don't call me. I visited -- that's all. I'm a Colonel Klink Hogan Hero: I saw nothing. Nothing!"

So my personal offshore plans have now moved on to plan B, C or D, as I wrote before all this stuff was unveiled to my complete shock and amazement this week. Call me lucky or unlucky as the case may be.

Still, I extend all my good wishes to all who are, or may be, involved in any of these hedge fund problems. We're going to hear more of them. The fourteen largest financial executives have not been summoned to the Fed offices Sept 15 for no good reason....

BTW, the XLY, at 33.45, is now below the M40 (33.53). Be careful, even if I do suggest that WMT might be a bouncing gorilla in the weeks ahead.

---

Sector 30 (consumer staples: XLP, VDC, RTH and IYK)

Here's the XLP Weekly and Daily data charts:

XLP Weekly data:

XLP Daily data:

The Consumer Staples (XLP) ETF was a week ago the best performer of the ten I follow. And as I said a week ago, But it all happened in a couple hours on Thursday. Thursday's bump in XLP took the Daily RSI positive, but Friday was weak, and the Weekly RSI is negative, so I'd be careful if you are long."

XLP closed Friday at 22.95, down "1.0 pct W/W to 22.95, which is now below the M40 (23.13). Additional caution is urged as XLP, as well as XLY and also XLF, dropped below their M40 prices this week.

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

Here's the IYH Weekly, Daily and Hourly data charts:

IYH Weekly data:

IYH Daily data:

IYH 60-Minute data:

A week ago, I wrote: IYH was down "0.88 pct W/W. As I wrote last week: I'd be surprised if the (IYH) cycle topping process does not unfold through August". But little did I know at the time of a Merck loss in a Texas courtroom, to the tune of -$253.4 million in the first of several trials over deaths alleged to be attributed to Vioxx.... This Big Pharma situation is going to turn real ugly, and traders in the space have to exercise prudence and stand aside.... This story "- a quarter of a billion dollars awarded to a widow -" is not over by a long shot. It was not a class-action lawsuit. Traders who are long MRK saw the stock collapse in the minutes following the decision. Next week, traders who are long other Pharma stocks are going to have serious doubts about staying long. So kiss this baby goodbye."

This week, IYH was down "1.30 pct W/W to 61.46. Oddly, the biggest healthcare losers in the Dow do not include MRK. This week, PFE was down "2.58 pct, and JNJ was down "2.56 pct, W/W.

Is Cramer still touting JNJ? I wouldn't know because his screeching finally got to me. I've probably caught three minutes in three weeks.

But a couple months ago, in addition to SHLD, Cramer was all over JNJ like a dog in heat. But one look at the chart shows just who got screwed.

Haven't you seen enough of these stocks, like SHLD, JNJ, YELL and CFC, to also see that it is quite unwise to listen to people who are close to promoters? These are all (now or in the past) great companies " in fact JNJ is on the Cara Global Best 100 Companies list; but there is a time to be buying them, and that time is NEVER when you hear it from a TH, or a barber or a cab driver, etc.

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

Here's the XLF Weekly and Daily data charts:

XLF Weekly data:

XLF Daily data:

You know I have been warning about XLF.

In case you don't, here is what I wrote a week ago: XLF still looks weak to me, but this week XLF did move up +0.13 pct W/W (i.e., 4 cents), to 29.75. The M40 is 29.48."

This week, XLF dropped below the M40(29.47) to close at 29.14. That's a drop this week of "2.05 pct W/W. And on Friday alone, XLF was down "1.05 pct, which was the second worst on the day.

Wall Street is getting nervous. They don't like reading WSJ headlines about failed hedge funds (at least not those of close to a half trillion in size), and they certainly don't like ever being called by the Fed and told to attend a private meeting of urgent issues".

We'll hear more of both these stories. Traders of the XLF also may be in for a real problem if, as and when the living yield curve turns negative. It was close this week for the 10-year to 2-year money. And if the two-year money gets to be more costly than the ten-year money, say goodbye to your money if you parked it in XLF. It will have died and gone to money heaven.

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

Here's the SMH Weekly and Daily data charts:

SMH Weekly data:

SMH Daily data:

A week ago I warned that SMH had been falling too quickly and I suspected a small rally this week, but not a sustainable one. I was right on both scores.

SMH was up this week +0.14 pct W/W to 36.29. That's not much at all, and on Friday SMH was down "066 pct.

Here's a look at the leading chip stocks. They still bear watching, if you catch my drift.

A week ago, I wrote: At the risk of beating a dead horse, here is the 30-Minute data price chart for INTC. I have repeatedly said it was back in May that I sold INTC at 27.39 Well look at INTC now. Intel has dropped to 25.65, down "6.4 pct in three months."

So this week INTC was down another "1.0 pct to 25.41. And if the economy is really weakening as I suspect, and retailers and pc and auto manufacturers are not doing so well, then its the volatile chip group that will get hit further.

Same old, same old. But, it's true.

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Sector 50 (telecom: IYZ, VOX and IXP)

Here's the IYZ Weekly and Daily data charts:

IYZ Weekly data:

IYZ Daily data:

A slowing economy has to be felt by the telecommunication services players. And the old guard will soon be losing trader dollars to the Vonages and the Skypes of the world, which will be the next hot new thing in the IPO market (which I'll write about next week).

IYZ closed this week down "1.59 pct W/W to 23.52. It was the third worst performer on the week. And the bad news is still to come because the M40 (23.46) sits just below the closing price on Friday. Ka-boom!

As I say, I like mobility, and certain foreign mobile operators in Russia and China.

And soon I will like Skype and Vonage in the post-IPO era, when they start trading like BAIDU. ;-)

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Sector 55 (utilities: IDU, XLU, and VPU)

Here's the XLU Weekly and Daily data charts:

XLU Weekly data:

XLU Daily data:

XLU was up +1.61 pct W/W to 32.15, making it the ONLY winner over the past two weeks.

The strength in XLU comes from the strength in the bond market, as yields have dropped from 4.42 to 4.17 on the 10-year U.S. T-Notes.

That phenomenon will not likely go on forever. Moreover the pipeline business will also likely to slow down as energy prices peak.

Even though XLU was down on Friday, it was still the best ETF performer on the day.

---

Bonds:

Interest rates and bond yields, which had been in a constant rising state, then took a bit of breather for a couple weeks, now actually have come down quite a bit. this week was no exception.

So, the bond market performed relatively well again this week.

Weekly data charts:

Daily data charts:

Hourly data charts:

From the U.S. Fixed Income (Bonds) Yield Table at Yahoo Finance, the 10-year T-Bond is now yielding just 4.17 pct, down from 4.20 a week ago, and from 4.38 pct the prior week. At the same time, the 3-month T-Bill yield has stayed in the same 3.34-3.35 range, as it has been for a couple weeks, although at 3.37 pct on Friday it might be moving higher. The 30-year T-Bond yield dropped a lot from 4.57 pct two weeks ago to 4.41 pct a week ago to 4.36 pct last week.

The yield spread continues to narrow. The gap is now down to just 99 bp on the 30-year to 3-month spread, and to just 12 bp on the 10-year to 2-year spread. These are new lows for the past couple years, and, as I wrote a week ago: regardless of the THs talking stupid these days, this is a serious indication of economic problems. The market is saying there is no more risk buying long bonds, and yet there is no corresponding increase in capital projects underway. So corporations are in a state of contraction. Is that because they fear more terror, or more domestic problems caused by job cutbacks (via outsourcing or a dry-up in consumer demand), or just the lack of pricing power?"

The terror problem escalates, and the U.S. President's voter satisfaction ratings continue to fall. To make matters worse, the new Iraqi government cannot resolve a stalemate over the Constitution issue. Civil war, I suppose, is possible " if that's not the case already.

So I do see additional risks in global capital markets, but the bond market seems not wanting to price in a risk premium. Could it be that the major domo of bonds " the king himself " thinks we're headed into global depression?

If so, then he would be betting that equity players would then be forced out of the game, handing in their remaining chips to the bond traders on their way out the door, or out the window, as the case may be.

I have written that if the spread stays as flat, or flattens even more, and (if) the yields are simultaneously moving higher, that is always bad for equities. That is the condition known as stagflation that neither government nor Wall Street want to talk about. They'd rather tell you about Baidu.... For the U.S. economy to head back to good health, I continue to say the yield spread must widen. But the only way that is possible would be for short rates to collapse, which is not going to happen under Greenspan. And if the long rates rise, the mid rates will follow, causing " at some point " a melt down in the real estate market. That seems to be what's in store for Americans, and I don't see a way out. Some say oil prices could come off significantly, but if they do, that will mean the U.S. economy is quickly losing its strength, which again is bad for U.S. equities."

Three weeks ago, I started to monitor the crucial interest-rate sensitive securities, and will continue to do that.

US Bond Funds -- Monthly Data Charts

US Bond Funds -- Weekly Data Charts

US Bond Funds -- Daily Data Charts

US Bond Funds -- Hourly Data Charts

But what's in store for bonds here? I don't know; however I'm still betting that the economy is not as bad as some people think and that oil prices will soon peak. Then yields will start to rally again, taking bonds down.

I also think the U.S. government twin deficit issue will be given more (needed) publicity as Congress gets back to work. That ought to weaken the USD, putting more pressure on those foreign investors who have been buying U.S. treasuries. Gold should continue higher, as interest rates move up the line, and the USD trails behind.

Same old. Same old.

I also warned a week ago: On the consumer finance side, Fannie Mae took a mid-week beating a week ago, and that continued this week across the whole group. I think this industry sub-group is headed lower, mainly on weakness that I perceive is happening in the real estate market. Any more weakness of the economic data, like we've had in recent weeks, will more than likely pull down these stocks further. It's time to stand aside, if you are still long."

Well, these stocks continued their journey south.

Consumer Finance -USA -- Weekly Data Charts

Consumer Finance -USA -- Daily Data Charts

Three weeks ago in the Week #31 (2005-08-06) in Review I wrote these words, when Countrywide CFC had closed the week at $35.01:

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"What irks me though is that a Larry Kudlow can think he's got an ounce of credibility when he trots out the Countrywide story every few days. Yes, I too agree that Countrywide Financial is (or was) one of the best-managed financial companies. But, their business hit the wall in early 2Q04 as short rates started to fly. And now, it seems, they're hitting Wall Street for a bump in promotion.

Sure, the Countrywide growth rates in revenue, income and dividends are very high, but the Return on Equity (ROE), Return on Assets (ROA), and Return on Capital Invested (ROCI) have started to decline for the past five or six quarters, and the company is very highly leveraged.

These latter points are important ones, in my book. So, I'd stay clear. Let Kudlow buy up your shares. ;-)"

---

You could have waited three days into the week, at a point when the Hourly data RSI hit almost 90 (reflecting Larry's promotion), to hand him back all the stock he needed, at $35.80. This Friday, just 12 trading days later, CFC hit an intra-day low of $32.52, closing the week at $32.93.

So there was Larry a week ago pulling your chain about a ten pct gain in this Summer rally. All I'd say to Kudlow is How are you going to make money for me now? You keep promising that result, and you keep bringing onto your popular CNBC show the so-called best experts in the world" to help, but we get to LOSE almost 10 pct in CFC in less than three weeks.

I finally figured out what the guy does. He's an alchemist in reverse. He takes gold and turns it into (dust).

Well you know the old joke: I'm going to make you a million. Give me two to start."

That one applies to Kudlow from what I can see.

All kidding aside; I think Larry's one of the most skilful communicators on television. He clearly understands the subject of economics. I just wish he understood capital markets.

Then again... :-)

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Commodities:

The $CRB commodity index was up +0.61 pct W/W to close at 317.10.

During the week I posted graphs/charts of the PPI/CPI data in the U.S. because it is a fact that we are in an inflation cycle where commodity prices are rising. Some days and weeks they may fall, but generally the $CRB is headed higher.

Although many traders think crude oil prices are going to 70-80-100, I think otherwise. More likely, I think that $WTIC is likely to fall back into the 50s in the 3Q05.

But I am concerned that the long-term average price for crude oil is now going to be in the 50s, and not the 20s or 30s. Part of that has to do with a falling USD. It seems that OPEC doesn't want to take wooden nickels, so they intend to keep the price very high until the USD price starts to stabilize at higher prices.

At that point, and not til then, do I think oil prices will fall to the 40s, which is still extremely high by any historical measure.

And please do not price oil in 1970 USD etc. Oil is not like gold. Gold is a storehouse of value because it is not consumed. All the oil in the world will eventually be consumed, and then replaced by alternative energy sources.

So, oil is a consumable, and has to be priced like a consumable. Got it?

This week, the $WTIC crude oil index (continuous contracts EOD) closed Friday at 66.13, up +0.52 pct W/W, which was in spite of a drop of "2.02 pct on Friday. The hurricane Katrina played a big role this week, as it will next.

In the face of losses a week ago, I wrote: As I'm guessing some of those traders are hedge funds, I'm questioning how many were properly hedged, and if they can effectively work out of major loss positions before the owners of that capital start pulling the plugs."

This week, the poop was starting to hit the hedge fund prop. From this point forward, I think that oil traders will more quickly take their profits and run.

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Gold:

Gold and the goldminers, as forewarned, did not enjoy a stellar week. The stocks, in fact, lost a little glister.

The bullion ($GOLD) was up a hair, by +0.03 pct W/W to 437.70. No big deal unless of course you look at the extremely narrow trading range. Shocking really.

It's called Central Bank Control" " but as I continue to say, central banks are not bigger than capital markets, and as we" are the capital market, we will prevail.

I think that we" want the price of gold to dip a little here to test the M40, which happens to be 431.10 EOD on the continuous contracts.

Then, we" want to take the gold market higher " much higher " into the 475-525 range. And to heck with traders, including central bankers, who dare stand in the way.

The only issue I have with that statement is that I know the central bankers are playing with our" money. It's not theirs" to lose.

This interactive chart shows the recent trading for the Gold Bullion index.

The $XAU (Philly gold stocks index) closed this week at 93.87, down "2.44 pct W/W, following a week of losses earlier, down "3.74 pct.

So when I forewarned two weeks ago about falling goldminer share prices, I suppose it paid to listen.

But, and here's the ultimate touch: the goldminer shares are going up again soon.

Not to worry. Just wait until the technical support levels are tested.

The Toronto Exchange-listed goldminer iUnits S&P/TSX Capped Gold Index ETF, which trades under the ticker symbol TSE:XGD was likewise performing as I forecasted.

TSX: XGD was down this week to 49.55, which is a loss of "2.71 pct W/W.

In fact Wednesday trading looked like a cycle bottom to me, but now I'm not so sure. There could be another test in the next day or two.

What I do know is that the important XGD has gotten into the most amazing circumstances. The Monthly, Weekly and Hourly data RSI is virtually flat across the 7, 14 and 21 period horizons. Only the Daily data RSI is pointing down, i.e., where the RSI 7 is the weakest.

Now here is a true story: My late Dad would always say to me that whenever there appeared to be zero observable movement in the outdoors, somewhere in the world there would be an earthquake starting. That's kind of like the calm before the storm" kinda thing.

Laugh as you may, I always believed my Dad.

So, if he didn't lead me astray " and he didn't " then gold is now ready to rock and roll.

Here is the Hourly data price chart for the TSX Goldshares index.

Here is the Daily data price chart for the TSX Goldshares index.

Here is the Weekly data price chart for the TSX Goldshares index.

Here is the Monthly data price chart for the TSX Goldshares index.

Here too are the interactive charts of the leading goldminers on the board. This week we'll still look at the Hourly data charts because something big is going to happen here this week or next.

Two weeks ago, I wrote: I hope the conservative longer-term trader is not going to be shaken out of any near-term pull back." Then a week ago, I added, This might continue, so hang in."

Well, for the two major goldminer share indexes to be off again this week, -2.44 pct and "2.71 pct, respectively, I have been right so far.

And if you do hang in, you too will be right on the money, as they say.

List #1

List #2

List #3

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Forex:

$USD was down this week "0.82 pct W/W to 87.87. M40 (85.18) is getting closer to being taken out. The returning Washington VIPs will help the cause.

I thought it was just Texas, but it seems that on further deliberation there are many more military bases they want to keep spending taxpayer money to support.

The $XEU closed up +0.99 pct W/W to 122.89. The M40 (127.72) is safe for another week.

Sad to say; but if the Europeans would spend a little less than eight weeks for summer vacation, they might be around long enough to repair a very weak economy.

Why even in the U.S. and Canada, workers don't take the full holiday time allotted to them. They'd rather work, than play.

Take me for instance. I never take a day off. But, then again, I don't consider this work.

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International Equities:

The Canadian equity market and the Japanese, for different reasons, were strong this week. The Brits were sad to hear that the Royals were not misled in the first place about the death of Dianna. It seems there was no conspiracy, no chase, no nothing except bad driving.

Anyway the FTSE was down on the week, and the weather's been terrible in London I hear.

Japanese equity market ETF: EWJ

Japan (EWJ) was up +1.28 pct W/W to 11.06. This move is consistent with the recently stronger Yen.

The EWJ is now trading well over the M40 (10.47), and many are predicting smooth sailing ahead for the Bulls. I don't think so, unless the U.S. govt decides to slap ridiculous tariffs on Chinese goods, which will immediately give Japanese (and Korean and Taiwanese) manufacturers additional pricing power.

I think the softening economy in Europe and North America will slow the growth in Japan, and if you recall the latest GDP numbers were a disaster there.

So, while I do watch share prices first, the jury is out.

Hourly Data for EWJ:

U.K. equity market ETF: EWU

The U.K. market (EWU) was also down again "1.18 pct. A week earlier EWU was down "1.84 pct W/W.

EWU now stands at 18.47. The M40 (18.11) is not far below.

Before the latest two weeks of price hits to the EWU, I wrote: I remain mildly negative on EWU. A week ago I wrote the technical indicators for EWU are not strong for the Extra-Year Trader. There is plenty of time ahead to accumulate stocks at better prices, as I see it. Same story; in spite of the nice rally over the past several weeks."

Since I wrote that piece (two weeks ago), EWU is down over "3.0 pct.

Regrettably for the Brits, they don't produce commodities, and they are not next door neighbors to China.

Hourly Data for EWU:

Canadian equity market ETF: EWC

A week ago, the EWC suffered a serious pullback, down "3.21 pct W/W. This week, there was a partial recovery of +1.17 pct to 19.81. That was in spite of Friday's shellacking when EWC dropped "1.10 pct on the day, based on concerns of oil, softwood, metals, and Enron losses of some of the major banks.

The biggest Canadian bank, Royal Bank of Canada (NYSE and TSX: RY) reported a terrific 3rd quarter, with profits up +32 pct. Wow!

But then, you do know that RY (as well as MFC) are two Canadian financial institutions I rate as world-class. In fact, they are both on the Cara Global Best 100 Companies list.

Hourly Data for EWC:

For an interactive look, here are 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).

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U.S. Equities:

I now think the probability of a long-term equity bear market happening now, and through into at least the 4Q05, are probably 60:40. If the Dow 30 index were to drop another 100 or so points, I can't see how it would not stop before hitting around 9,800, and then about 9,200, and possibly at a cycle bottom in the high 8000s.

I'll discuss that call in a different article because I'm rushing to get out of town for a day.

A week ago I wrote some of my reasoning for such a negative outlook:

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I continue to warn that the following charts for the Weekly and Daily data series of the broad U.S. equity market indexes indicate that RSI and Stochastic data values (both are similar calculations by the way) are at very high levels, which typifies the topping out of an intermediate-term bull market cycle.

It might get worse, and proceed to a full long-term bear market, but traders will have to look to the power of the key market drivers (i.e., commodity prices, interest rates and consumer buying decisions) to make that call.

This week, oil prices (costs to consumers) were down a little, but not at the fuel pump, consumer spending down again, the USD trying to recover before it gets beaten down by VIPs in Washington, and equity prices coming off even though interest rates were on the decline this week.

I hope you can see that the broad U.S. equities are not moving higher. There are no drivers in place to make that happen.

If oil prices contract, that means the economy is slowing even more.

If the economy speeds up, so too will inflation, and interest rates. That ought to be the killer of the real estate market.

Armageddon on Wall Street gets a little closer month by month, so I continue to advise readers to protect your portfolio. At the very least, do not chase stocks higher on rallies."

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

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

For the week, the $DJX (Dow 30) was down "1.53 pct W/W to 10,397.29. The Nasdaq Composite down "0.69 pct to 2120.7. The S&P 500 was down "1.20 pct W/W to 1205.09. The Russell small cap index was also down this week "0.59 pct W/W to 648.64.

Last week I wrote: The U.S. equity market is dead in the water" and I chided THs like Larry Kudlow for stating we were in a Summer Rally.

As I noted a week ago two weeks ago, and for a few weeks more: So why bother buying U.S. equities or bonds or real estate today when tomorrow there will be many bargains to choose from?"

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

You can do this table yourself by entering the following string into your browser and then clicking on the link for Performance.

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.

This week, in the Dow 30, it was just 5 up and 25 down. And, once again, the big losers were bigger losses than the winners were up for the week. Weakness persists, but this week it got worse.

The five biggest winners this week: HPQ, up +1.96 pct (after being +10.24 pct a week ago); GM, up +1.88 pct; MSFT, up +0.94 pct; PG, up +0.77 (after being +1.85 pct a week ago); and MCD, up +0.30 pct.

These five were the ONLY winners.

For the 25 Dow losers this week, AIG led the pack, down "3.17 pct. Then AA, down "2.88 pct (after being "5.45 pct a week ago), IBM, down "2.88 pct, UTX, down "2.80 pct, and PFE, down "2.58 pct. Just for good measure, JPM was down "2.58 pct and JNJ was down "2.56 pct.

I haven't had much time to follow the news this week, so I can't tell you much about why some of these stocks were up or down. Obviously GM was up on news of extended employee pricing. That's not a good deal for employees or shareholders, in the long run. And for HPQ, I see I was quoted this week in ComputerWorld Magazine as referring to the accounting tricks of the company.

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)

(AA) (AA) (Here is the Jul. 22 Value Line report on AA: next one is due Oct. 21)

(AIG) (AIG) (Here is the Aug 26 Value Line report on AIG: next one is due Nov. 25)

(AXP) (AXP) (Here is the Aug 26 Value Line report on AXP: next one is due Nov. 25)

(BA) (BA) (Here is the Jun. 24 Value Line report on BA: next one is due Sep. 23)

(C) (C) (Here is the Aug 26 Value Line report on C: next one is due Nov. 25)

(CAT) (CAT) (Here is the Jul. 29 Value Line report on CAT: next one is due Oct. 28)

(DD) (DD) (Here is the Jul. 22 Value Line report on DD: next one is due Oct. 21)

(DIS) (DIS) (Here is the Aug. 19 Value Line report on DIS: next one is due Nov 18)

(GE) (GE) (Here is the July 15 Value Line report on GE: next one is due Oct 14)

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

(HD) (HD) (Here is the July 8 Value Line report on HD: next one is due Oct 7)

(HON) (HON) (Here is the Jul. 29 Value Line report on HON: next one is due Oct. 28)

(HPQ) (HPQ) (Here is the July 15 Value Line report on HPQ: next one is due Oct 14)

(IBM) (IBM) (Here is the July 15 Value Line report on IBM: next one is due Oct 14)

(INTC) (INTC) (Here is the July 15 Value Line report on INTC: next one is due Oct 14)

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

(JPM) (JPM) (Here is the Aug 26 Value Line report on JPM: next one is due Nov. 25)

(KO) (KO) (Here is the Aug. 5 Value Line report on KO: next one is due Nov. 4)

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

(MMM) (MMM) (Here is the Aug 19 Value Line report on MMM: next one is due Nov 18)

(MO) (MO) (Here is the Aug. 5 Value Line report on MO: next one is due Nov. 4)

(MRK) (MRK) (Here is the Jul. 22 Value Line report on MRK: next one is due Oct. 21)

(MSFT) (MSFT) (Here is the Aug 26 Value Line report on MSFT: next one is due Nov. 25)

(PFE) (PFE) (Here is the Jul. 22 Value Line report on PFE: next one is due Oct. 21)

(PG) (PG) (Here is the July 8 Value Line report on PG: next one is due Oct 7)

(SBC) (SBC) (Here is the July 1 Value Line report on SBC: next one is due Sept 30)

(UTX) (UTX) (Here is the Jul. 29 Value Line report on UTX: next one is due Oct. 28)

(VZ) (VZ) (Here is the July 1 Value Line report on VZ: next one is due Sept 30)

(WMT) (WMT) (Here is the Aug 12 Value Line report on WMT: next one is due Nov. 11)

(XOM) (XOM) (Here is the Jun. 17 Value Line report on XOM: next one is due Sep. 16)

The two new Value Line Dow 30 reports this week were AIG, AXP, C, JPM and MSFT. I hope you read them.

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After the hurricane called Karina-Petrina passes by, there will be other storms " both weather related and capital markets related. But, on second thought, aren't all things from mountains to molehills a part of the capital market landscape?

Life takes strange twists, like a hurricane in the Caribbean that decides to head south. Or like a powerful CT hedge fund that a week ago caused me to change my own Caribbean plans, but now stands to face a change of scenery of its own doing.

We all go round and round, caught up in our own vortex, but some of us get to step down " and away from the maddening crowd, if we're lucky. And there is always a cost in doing that.

Still, I figure you have to work hard to be lucky, and take whatever life dishes out.

Right now I have to head to the country to look after some real estate, which a year later finally got an offer to purchase. We just had to drop the price "22 pct, and throw in the family furniture to try to get this deal.

It seems there really are not many people out there who want a second home in the country, an hour east of Toronto, complete with 25 wooded acres on a vista point overlooking Lake Ontario, tennis court, indoor pool, spa and sauna, all for a price that was hardly a King's Ransom to begin with.

But, my parents are gone now; a little like this market: ashes to ashes.

It's time for the family to get off the treadmill, and move on with our own lives.