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January 21, 2006
Week #03 (2006-01-21) in Review
This week, as the Fed reported Thursday at 4:30p ET, the money supply growth boomed again. But the money did not go into equities as prices were down substantially.
For the quarter ending Jan-10-06 (last figures available), the growth of M3 was +7.6 pct, which is a gain for the corresponding week earlier figures of +7.5 pct. And compared to the quarter ending Jul-11-05 money supply growth was +9.1 pct, which is up from +9.0 pct from a week ago.
With money supply growing at about three times GDP growth, month after month, I believe the U.S. Administration is trying to boost (reflate) the economy at the same time that the Fed is in a negative credit cycle (with a policy of raising short-term interest rates.
In my view, this is the major reason the traders of gold are presently buying. (I don't think the Don Coxe perspective on M3 growth is accurate, but I'm not certain.)
Gold (Feb-06 contracts) traded on Friday (Jan-20) as high as $568.10 before closing at $554.50. "Point & Figure" chartists gave this the ominous sounding name of "Triple Top Breakout," which sounds good to me.
I recommend you spend some time trying to understand the Point & Figure methodology, which is carefully explained at StockCharts.com.
As for the broad equity market, which had a very bad week, it appears that 2006 is starting out the year pretty much the same as 2005, except that this year the long running Bull probably has run out of steam and the downside potential is much greater.
Overview:
International Equities: Last week I wrote: "Topping markets are usually characterized by extreme volatility as the bulls try to prevent the bears from winning. The fight continues but we're in the final hours."
Ole! This week, the major international equity markets stumbled to their knees. Fear is palpable. Japan (down "6.1 pct), and U.K. (down (-2.0 pct), which mirrored the broad U.S. markets (down between 2 and 3 pct this week).
U.S. Equities : All U.S. broad markets were down W/W: the Dow 30 (down "2.7 pct), S&P 500 (down "2.0 pct) and Nasdaq (down "3.0 pct).
Dow 30: 5 up and 25 down. This was an ugly scene for the Bulls with 13 of 30 Dow stocks down more than "3.0 pct on the week, and only 5 up at all.
U.S. Sector ETFs: 2 up and 8 down. XLE and XLU saved a whitewash.
10: Energy (XLE): Over-weighted: huge winner this week +4.8 pct
15: Basic Materials (XLB): Over-weighted: recession fears dropped all the sub-groups
20: Industrials (XLI): Market-weighted: 8th worst performer "2.4 pct W/W
25: Cons. Discretionary (XLY): Under-weighted: down "1.8 pct without ‘tickee'
30: Cons. Staples (XLP): Market-weighted: down "1.5 pct without ‘tickee'
35: Healthcare (IYH): Under-weighted: down "1.6 pct W/W; despite PFE +0.5 pct
40: Financial (XLF): Under-weighted: down "3.7 pct; now dead due to flat yield curve
45: Technology (SMH chips): Market-weighted: worst performer, down "6.7 pct W/W
50: Telecom Services (IYZ): Market-weighted: down "1.3 pct W/W but 3rd best
55: Utilities (XLU): Market-weighted: back to 32.75 to test 5 week ago high @ 32.75
Bonds: Big Monday as well as Friday pm as fear set into equity market
Commodities: The index was up +2.5 pct W/W based on crude oil that closed the week up +4.6 pct
Oil & Gas: NY Crude oil gained +4.58 pct W/W to 67.37, probably due to fears over Nigerian and Iran supplies
Gold: Gold jumped still more to set a fresh 25-year intra-day high on Friday at $568.10, but closed on the week down $2.74 after a sell-off later in the day
Goldminers: $XAU closed the week down "1.30 pct to 140.13, but Friday's loss was "1.23 pct! And the TSX: XGD closed down "1.36 pct W/W after a Friday afternoon loss that closed this index down "1.44 pct on the day!
Forex: The trade-weighted USD this week was up exactly the same as a week earlier +0.05 pct, which is quite flat. But there was a major shift from USD to Euro on Friday again this week, as USD went down "0.46 pct and the Euro (in USD) went up +0.36 pct
Sector ETF:
Here are the ETF charts I follow for the ten sectors of the U.S. equity market:
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)
55 (utilities: XLU)
Here is the weekly performance of my favorite ten Sector Index Funds. The table is sorted by price performance Week over Week (W/W), i.e. 1W%N, but is otherwise unsorted.
| Symbol | Close | Net | %Net | 1W %Net | 2W %Net | 4W %Net | YTD %Net | 3M %Net | 6M %Net | Yr %Net |
|---|
This week, it was 2 up and 8 down. I told you last week that the same thing almost happened then too.
Sector 10 (energy: XLE, IYE, VDE, OIH, PBW and IXC)
Here's the XLE Weekly, Daily and Hourly data charts:
XLE Weekly data:
XLE Daily data:
XLE Hourly data:
XLE was up +4.81 pct W/W to close at 56.41. I think it is wise to scale back positions by selling into this strength.
Yes, crude oil in NY (Light Sweet Crude) at $67.37 is almost back to the late August 2005 cyclic highs of 70.85 on the weekly data. But there is a fair probability that the current price rally may end once the Nigerian situation is put under control.
This is usually a good time to write covered calls to take in options premium, and allow in your portfolio to possibly have the XLE taken away from you at record high prices. That's not to say I'm bearish on XLE; it's merely to say that customers are storming the doors of your store, and XLE is the most desirable of your inventory.
Sector 15 (basic materials: IYM, XLB, IGE and VAW)
Here's the XLB Weekly, Daily and Hourly data charts:
XLB Weekly data:
XLB Daily data:
XLB Hourly data:
For good reason, the analyst downgrades on some of the quality stocks in this sector have pulled down the XLB by "1.31 pct W/W to 30.11. Still it was the 4th best of the 10 ETF's.
This chart shows what happened on Tues. and Wed. morning at the open.
Sector 20 (industrial: IYJ, XLI, VIS, and IYT)
Here's the XLI Weekly, Daily and Hourly data charts:
XLI Weekly data:
XLI Daily data:
XLI Hourly data:
XLI was down "2.43 pct W/W to 30.96. It was the 8th worst performer of ten. GE was down "4.66 pct W/W.
Do you recall a couple weeks ago that I warned that the market's "General" GE would be the leader on the big down day to signal the start of the 2006 Bear Market? Take it from me, the Bull is dieing, and smiley Jeff Immelt is sitting astride the Bull. I hope it doesn't roll over on him. :-)
Sector 25 (consumer discretionary: XLY, IYC and VCR)
Here's the XLY Weekly, Daily and Hourly data charts:
XLY Weekly data:
XLY Daily data:
XLY Hourly data:
What can these consumer stocks when the supposedly wealthy middle-class American has no tickee for Wal-Mart? XLY was down "1.82 pct W/W to 32.95.
A week ago I wrote: "(Last week) was a continuation of the Dead Cat Bounce " at least until Wed. The bounce is over... GM rolled out a concept Camaro this week at the big auto show. GM is not a pretty picture, and the Dodge Camaro (LOL) is the icing on the cake... Next maybe we'll get to see a Ford Hummer."
Should I be sitting today in shock and awe with the whole top-of-fold of the Toronto Star business section being a photo of (drum roll please!) a Ford Hummer.
Oh, management calls it the "Ford Fairlaine Concept Vehicle" but just like General Motors a week ago rolled out the "Dodge" Camaro, make no mistake that this is the Ford "Hummer".
I suppose if Ford and GM had all the answers they wouldn't be losing billions a quarter. Desperate times leads to desperate solutions, or attempts at them, I suppose.
But you must admit that even Hollywood can't write a script this good.
Maybe Ford sees a market for the Fairlaine Ambulance or Hearse? Do you think?
Sector 30 (consumer staples: XLP, VDC, RTH and IYK)
Here's the XLP Weekly, Daily and Hourly data charts:
XLP Weekly data:
XLP Daily data:
XLP Hourly data:
XLP (Consumer Staples) was down "1.45 pct W/W to 23.17. Yah, "same old, same old, and it ain't going to change for a while... Credit, credit, who's got any credit?"
While the rich can afford discretionary purchases, they do not need any more staples. But the middle class cannot afford either.
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 Hourly data:
IYH (Healthcare) was down "1.56 pct W/W to 63.55.
There are semi-blind U.S. politicians loaded for Bear who will now, like Mr. Magoo, shoot the Healthcare Bull by (their) mistake. Actually I think they ought to shoot these lobbyists rather than take their money.
And how about cutting the period of patent protection in half, which would give a lot of Little Pharma entrepreneurial companies a chance to flourish, which would create new jobs?
Sector 40 (financial: IYG, IYF, XLF, VFH, IXG, VNQ, RWR, IYR, and ICF)
Here's the XLF Weekly, Daily and Hourly data charts:
XLF Weekly data:
XLF Daily data:
XLF Hourly data:
A week ago the Financial ETF (XLF) was up +5 cents, which I told you was a deception based on a high close that Friday. Voila. This week, XLF closed down "1.20 to 31.32 (-3.66 pct).
There were more "downgrades in the Financial sector this week, which is to be expected as the Treasury yield curve has now flattened from the 10-year notes to the 3-month bills. Banks can no longer borrow short and lend long, at a profit, so now they have to make their profits by trading against their clients."
You must be getting tired of the same old, same old?
And how about the "global consumer units"(what a name!) of 800-pound gorillas like Citigroup (down "6.81 pct), AIG (down "5.05 pct), JPM (down "4.76 pct) and American Express (down "4.01 pct) this week?
Oh man, there are so many billions of dollars going down the drain that not even Larry Kudlow (the Great American) can stop the flow.
Sector 45 (technology: IGM, IGV, IGW, XLK, VGT, IYW, IGN, IXN, MTK and SMH)
Here's the SMH Weekly, Daily and Hourly data charts:
SMH Weekly data:
SMH Daily data:
SMH Hourly data:
Technology is ubiquitous. That means we see it every day. And that means we know when we have stopped buying things that have semi-conductor chips in them. Which, to bring this full circle, is a good reason few of us are surprised that Intel was crushed "16.21 pct THIS WEEK.
SMH (the chip ETF) went down "6.65 pct W/W to 37.35. It's a beautiful clear day in Toronto, and my crystal ball is showing me inventory problems ahead.
True story: my wife came into my home office this morning and asked why I was hanging a silver-plated horseshoe on the blinds, and I said that it was for good luck for the Little People. They're going to need it if they can't see that Jeff Immelt is the Pied Piper.
Sector 50 (telecom: IYZ, VOX and IXP)
Here's the IYZ Weekly, Daily and Hourly data charts:
IYZ Weekly data:
IYZ Daily data:
IYZ Hourly data:
The Telco Service ETF (IYZ) was the 3rd best ETF out of ten, but it was still down on the week "1.28 pct to 23.21. How's that for mud in your eye?
Ma Bell is not the place to be positioned when the next Bull market starts, but there are plenty of small and mid-cap companies with exciting digital communications technologies. I see that bandwidth will now absorb the audio and video applications of the Internet, and this whole space will converge to become one of the most exciting for traders.
Just stay away from the big companies that still have to write off mega billions related to their fixed-line and other legacy technologies.
Sector 55 (utilities: IDU, XLU, and VPU)
Here's the XLU Weekly, Daily and Hourly data charts:
XLU Weekly data:
XLU Daily data:
XLU Hourly data:
XLU (Utilities) was up +2.38 pct W/W to 32.71, which is amazing since the next best performing ETF was a loser this week.
A week ago I noted that I like pockets of this sector but that "a price correction is needed before these prices become attractive. Longer-term, I have to think that water utilities, and wind and nuclear-powered utilities are going to be favored. With crude oil at very high prices (staying above 55 going forward), I also think that the natural gas utilities will continue to do well for traders in the equity market."
I guess so!
But, I wouldn't chase them here.
Bonds:
The message here continues to be: "If there is going to be a recession in the U.S. in 2006, which is an indication of a flat to inverting yield curve, then bonds ought to relatively out-perform equities. Still I would not expect too much. Total return from bonds in 2006 will likely prove a disappointment."
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 3 Month | 4.14 | 4.16 | 4.11 | 3.79 |
| 6 Month | 4.26 | 4.25 | 4.00 | 4.15 |
| 2 Year | 4.36 | 4.31 | 4.36 | 4.39 |
| 3 Year | 4.31 | 4.26 | 4.33 | 4.39 |
| 5 Year | 4.30 | 4.26 | 4.33 | 4.39 |
| 10 Year | 4.36 | 4.33 | 4.40 | 4.46 |
| 30 Year | 4.53 | 4.51 | 4.58 | 4.65 |
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 2yr AA | 2.99 | 2.99 | 3.02 | 2.98 |
| 2yr AAA | 2.96 | 2.97 | 2.98 | 2.98 |
| 2yr A | 3.08 | 3.10 | 3.06 | 3.07 |
| 5yr AAA | 3.09 | 3.11 | 3.15 | 3.25 |
| 5yr AA | 3.10 | 3.11 | 3.18 | 3.29 |
| 5yr A | 3.21 | 3.18 | 3.27 | 3.34 |
| 10yr AAA | 3.44 | 3.45 | 3.54 | 3.65 |
| 10yr AA | 3.43 | 3.44 | 3.52 | 3.64 |
| 10yr A | 3.51 | 3.53 | 3.58 | 3.87 |
| 20yr AAA | 3.93 | 3.92 | 4.02 | 4.08 |
| 20yr AA | 3.88 | 3.89 | 3.99 | 4.05 |
| 20yr A | 3.96 | 3.95 | 4.11 | 4.30 |
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 2yr AA | 4.46 | 4.43 | 4.51 | 4.53 |
| 2yr A | 4.55 | 4.52 | 4.54 | 4.58 |
| 5yr AAA | 4.49 | 4.55 | 4.63 | 4.65 |
| 5yr AA | 4.63 | 4.59 | 4.63 | 4.71 |
| 5yr A | 4.71 | 4.66 | 4.70 | 4.78 |
| 10yr AAA | 4.98 | 5.02 | 5.15 | 5.15 |
| 10yr AA | 4.94 | 4.92 | 5.02 | 5.02 |
| 10yr A | 5.06 | 5.01 | 5.08 | 5.13 |
| 20yr AAA | 5.39 | 5.43 | 5.54 | 5.54 |
| 20yr AA | 5.76 | 5.65 | 5.59 | 5.68 |
| 20yr A | 5.60 | 5.57 | 5.57 | 5.65 |
This week, the U.S. bonds had a great day Monday and a rally Friday afternoon after bond traders could feel the fear in the equity market. But, on the whole, not much happened this week.
A few of the bonds like TLT did marginally ok, but not so for the rest, which were marginally down. For example, over the course of the week, yields moved up from 1 to 4 basis points.
So the big picture was yields slightly up and prices slightly down, and within that the biggest move was out of 2-year T-Notes, which moved the yield up +4 bp, and the yield differential with the 10-year T-Notes to be ZERO.
Interest rates and bond yields.
US Bond Funds -- Monthly Data Charts
SHY Monthly data series chart:
IEF Monthly data series chart:
TLT Monthly data series chart:
AGG Monthly data series chart:
LQD Monthly data series chart:
TIP Monthly data series chart:
US Bond Funds -- Weekly Data Charts
SHY Weekly data series chart:
IEF Weekly data series chart:
TLT Weekly data series chart:
AGG Weekly data series chart:
LQD Weekly data series chart:
TIP Weekly data series chart:
US Bond Funds -- Daily Data Charts
SHY Daily data series chart:
IEF Daily data series chart:
TLT Daily data series chart:
AGG Daily data series chart:
LQD Daily data series chart:
TIP Daily data series chart:
US Bond Funds -- Hourly Data Charts
SHY Hourly data series chart:
IEF Hourly data series chart:
TLT Hourly data series chart:
AGG Hourly data series chart:
LQD Hourly data series chart:
TIP Hourly data series chart:
Last week I asked for the economy bulls to "please give me the latitude to at least say that an inverted yield curve does not represent the picture of a healthy economy. I believe the Fed is now forced to either slow or stop short-term interest rate hikes and to watch the USD decline and gold really take off. If they continue to raise the overnight commercial bank lending rate, then mortgage loans and other asset-backed loans will have to be priced higher, which will soon reach a tipping point where loan demand will fall, bad debts will rise, and the price of the mortgaged assets will start to deflate."
I also said: "Consumer finance equities continue to enjoy a piece of the 4Q05 reflation rally that is now topping out (I think)... One sign to look for when stocks go into distribution is (i) a brief power boost that takes the stock price quickly to higher levels, followed by (ii) slowly declining prices, ending on (iii) a slight price gain on the week to give the appearance of bullishness. Have a look at the charts (a week ago) for FNM, FRE and SLM for examples of what I mean."
This week, home mortgage finance company CFC was down "7.2 pct, while Fannie (FNM) was down "2.3 pct, Freddie (FRE) was down "2.8 pct, and SallieMae (SLM) was down "4.8 pct W/W. And the Weekly and Daily RSI's are all pointed down to boot. So these interest-sensitive stocks are pointed south.
Interestingly, CIT, which is industrial loan based, rallied for most of Friday, which usually precedes the others here. Normally that's a bullish indicator, but traders have to look hard at the final two-hour sell-off in Freddie (especially) and also Fannie. That was ominous.
Consumer Finance -USA -- Weekly Data Charts
Consumer Finance -USA -- Daily Data Charts
Consumer Finance -USA -- Hourly Data Charts
Commodities:
Four weeks ago, with the index at 326.31, I wrote: "$CRB seems to be basing for another run at the cycle top of 341.53, which could be the high for many months to come, especially if Crude Oil settles down here." A week ago I added, "I still feel that."
Last week I added, "(Now) we're almost there!... $CRB actually did hit 340.65, and would have hit 341, but since I was vacationing in nearby Bahamas I couldn't get the weather in Florida any colder without spoiling my holiday. LOL"
This week the Commodities Research Bureau (CRB) Index was up +2.47 pct W/W at 345.15, and Friday was strong (+1.12 pct) due to strength in the oils. In fact the oils are almost back to late-August 2005 prices!
I am really disappointed to see $CRB be called the Reuters/Jeffries Commodity Research Bureau Index. That's just as sacrilegious as naming the Yankees the JPM New York Yankees or the Red Sox, the Fidelity All-Star Red Sox.
It's an insult. When does this branding nonsense stop? I'm pissed.
Soon it'll be "Nasdaq Powered by Google" or the "Trump Bank of America". How about "Apple Sweet Crude Oil"?
As for the NY Sweet Crude price zooming from 64.42 to 67.37 this week, yes, I'm waiting for the summer weather to clear from Toronto in January, so I can break into the cognac. No more Margaritas until next month (hint!).
Gold:
This week, after reaching a high of $568.10 (Feb-06 contracts), gold closed the week at $554.50. That's a pullback of sorts, although it happened very quickly. We'll all have to wait until Monday to see if there is any selling follow-through.
The goldminers will continue to do well this year because -- if they haven't sold their production forward at today's prices (or previous ones -- the higher bullion prices presently and in the future will go straight to the bottom line. The presently high PE's (ttm) will continue to fall as earnings rise.
Weekly Gold EOD Continuous Contract Index:
Daily Gold EOD Continuous Contract Index:
This interactive chart shows the recent trading for the Gold Bullion index.
Two weeks ago I wrote, "$Silver was up +3.60 pct W/W to 9.13. I thought silver would top out about the 9.00 level (for the short-term before consolidating). On Friday alone, $SILVER was up +4.47 pct! That's pure speculation, and cannot be sustained."
Then I thought silver might rally a bit, but this week it closed down "24 cents to 8.88, a loss of "2.60 pct. Friday alone was down "2.20 pct. So maybe I was right two weeks ago?
And yes, I do have a silver-plated horseshoe. Wait for it!
Weekly Silver EOD Continuous Contract Index:
Daily Silver EOD Continuous Contract Index:
This interactive chart shows the recent trading for the Silver Bullion index.
A week ago I wrote: "Platinum closed up +3.84 pct W/W at $1,035.10, which is a huge move. Platinum is part of the precious metals complex that has broken out to the upside again." Well after Friday's loss of -12.50 (-1.20 pct), PLAT actually closed down on the week "7.50 (-0.71 pct) to 1027.70.
Weekly Platinum EOD Continuous Contract Index:
Daily Platinum EOD Continuous Contract Index:
This interactive chart shows the recent trading for the Platinum metal index.
Palladium was down -5.89 (-2.07 pct) to 278.57, although Friday was flat. The loss was taken earlier in the week, which means that PALL was a leading indicator of the precious metals pullback on Friday.
Weekly Palladium EOD Continuous Contract Index:
Daily Palladium EOD Continuous Contract Index:
This interactive chart shows the recent trading for the Palladium metal index.
$Copper was down for the first time for many weeks "2.50 to 207.62 for the continuous contracts. The prior week's close of 210.12 was an all-time record high weekly close.
Last week I had some very positive comments about Phelps Dodge. The Billiton BHP was acting good but PD was continuing to be depressed, so I was looking for a place to initiate a new short-term trading position on the long side. PD did not do well.
At least I warned with my final comment: "But watch the RSI."
Longer-term the golds and coppers will track more closely. Where they deviate is when the economic picture looks weak, which hurts copper. For that reason I continue to look for growth in the emerging economies.
Still, you have to watch RSI.
Weekly Copper EOD Continuous Contract Index:
Daily Copper EOD Continuous Contract Index:
This interactive chart shows the recent trading for the Copper metal index.
The Philly goldminer index ($XAU) had a down week, falling "1.30 pct to 140.13.
You must admit I was sounding somewhat cautious last weekend. Remember, I wrote: "I'd like to say it takes nerves of steel to play the gold market, but that's too corny even for me."
What happened is that $XAU rallied to 144.03, before falling down on Friday where in one day the index dropped "1.23 pct.
The XGD Toronto Exchange-listed goldminer iUnits S&P/TSX Capped Gold Index ETF TSE:XGD was down "1.36 pct W/W to 68.22, after hitting a high of 70.48 on Monday.
On Friday, XGD dropped like a stone off the open, and then stabilized for the day, which is a good sign for next week.
And entrepreneur and outside Peter Munk controlled Barrick (NYSE: ABX) has completed its take-over of Toronto white-shoes controlled (along with their lawyers and accountants) Placer Dome Group (NYSE: PDG). Most people don't see it that way, but trust me if this was the 1960's in the Deep South, the Barrick boys would be sitting at the back of the bus.
It's amazing to see how time and money changes social habits. LOL
Here are the Weekly, Daily and Hourly data charts for the TSX Goldshares (XGD) index:
For an interactive look, here are links to the Hourly data charts of three groups of proven goldminer stocks. You can click on the tabs for the Monthly, Weekly and Daily data charts.
Forex:
The trade-weighted USD index was flat on the week, up marginally +0.05 pct W/W to 88.95. A week earlier it was also up a nickel (or is that a nickle?). We need a universal English for bloggers!
The same thing happened this week as last. Even though the USD gained on the week by +0.05, on Friday it was down "0.46 pct (vs "0.65 pct the week earlier on Friday). There is major support at 88.73 going back to early Oct-05. That's not far off.
The current price is below the 50-day MA (90.76) and barely above a rising 200-day MA (88.57).
I continue to this quarter the USD will pierce support because I believe the Chinese Yuan and Japanese Yen are headed higher.
The Euro (priced in USD) was flat on the week, but did rally Friday +0.36 pct to 121.37.
The $XEU is sitting above the 50-day MA (118.88) and just below the falling 200-day MA (122.12), so the cross-over is close at hand.
Later in the year, I see the $XEU moving closer to 130. I believe the U.S. monetary and fiscal problems will come front-and-center to the attention of traders unless Ben Bernanke decides to act out of character.
A week ago I wrote: "For the last few changes of Fed chairmanship, within a few months there has been a major currency crisis, and this one sure looks likely."
Weekly Euro Dollar Index, priced in USD:
Daily Euro Dollar Index, priced in USD:
International Equities:
This week was mostly a case of buyers not having to pay up for equities because those who hold them long were offering them for sale at much less prices. You know of course that money doesn't go from one pocket to another when stocks get sold?
Think about a $500,000 house that the owner decides to sell for $400,000 because he/she cannot find a buyer. Trust me, $100,000 didn't go into anybody's pocket.
That's going to be the story of 2006. Price Earnings multiples will fall because expectations will fall as economic and corporate earnings growth rates decline. The same thing happens when interest rates rise.
Compare that to the real estate buyer traffic on your street, which when it falls, so too do home selling prices. And when mortgage rates increase, selling prices of homes drop then too.
So this was a week when traders all over the world decided to drop their prices.
Japanese equity market ETF: EWJ
Two weeks ago, I wrote: "The EWJ was up +5.0 pct W/W... This is pure speculation by American traders. Sure the Nikkei and TOPIX have been strong, but that rally is unsustainable in my view."
Since then, EWJ (Japanese stock market index ETF in USD) is down seven pct. Just think how much capital that represents.
This week, EWJ dropped "6.11 pct to 13.21. Like I thought, it has been following the U.S. market down.
Here is the Japanese (EWJ) equity market ETF Weekly, Daily and Hourly data charts:
U.K. equity market ETF: EWU
Two weeks ago, the U.K. ETF (EWU) was also up sharply +5.44 pct on what I called "an unsustainable run". Since then EWU is down about "2.2 pct to 19.16, which was a loss this week of "2.04 pct.
Here is the United Kingdom (EWU) equity market ETF Weekly, Daily and Hourly data charts:
EWU Weekly data:
EWU Daily data:
EWU Hourly data:
Canadian equity market ETF: EWC
The Canadian (EWC) equity-market ETF was up +0.53 pct W/W to 22.75, which was probably caused by interest in the capital gains taxes relief slated by the Conservative Party that is likely to be elected to a (majority?) govt on Monday.
The Liberals under Paul Martin continue their attack-dog ads on TV, but this will be the former Prime Minister's swan song.
Oh it hurts to think about Paul Martin in terms of my Trumpeter Swans. I'd rather see him in the bullring awaiting the voters' Estoque de descabellar. Ole!
Here is the Canadian (EWC) equity market ETF Weekly, Daily and Hourly data charts:
EWC Weekly data:
EWC Daily data:
EWC Hourly data:
(Japan, Taiwan, Hong Kong, Singapore)
(U.K., Germany, France, Italy)
(Canada, Mexico, Brazil, Australia).
U.S. Equities:
The major U.S. equity indexes were hammered down this week. The Dow was down "2.67 pct; the S&P 500 was down "2.03 pct; the Naz was down "2.99 pct; and the Russell small cap index down 0.54 pct, all W/W.
If you look at the 60-Minute price data charts and draw a trend line down from Thursday am Jan-12 through Friday the 20th, you see just a single aberration. And on that day, Thursday, I'd like to point out the humungous cheerleading job done by the U.S. Administration.
I can say that because on my three monitors simultaneously on Thursday there yammering away were (i) the President, (ii) the Vice President, and (iii) the Treasury Secretary. The only thing missing were the blue sweaters with a big USA emblazoned on the front. And of course, the skirts.
The spinning and jumping through hoops these political people do is enough to put a college cheerleadering team to shame.
Anyway, on Friday we all got back to reality " not that some people like it.
Here is the Monthly data chart of the Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Weekly data chart of the Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Daily data chart of the Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Hourly data chart of the Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
The following table shows the weekly price performance of the Dow 30 stocks, which I sorted by 1-week price change.
| Symbol | Close | Net | %Net | 1W %Net | 2W %Net | 4W %Net | YTD %Net | 3M %Net | 6M %Net | Yr %Net |
|---|
This performance chart of the Dow 30 shows 5 stocks up and 25 down this week.
Lets take a look at what happened:
The only winners this week:
MCD, up +3.08 pct: maybe they'll buy Wendy's after the Tim Horton spin-off
HPQ, up +2.29 pct: after being up +5.49 pct a week earlier
XOM, up +1.49 pct: after being up +2.59 pct a week earlier
PFE, +0.53 pct: more lobbyists?
DIS, up +0.31 pct: An apple for the teacher?
The six biggest losers out of 25 Dow losers this week:
INTC, down "16.21 pct: after being down "1.98 pct a week earlier
C, down "6.81 pct: a lot of lost capital over "global consumer unit issues"
HD, down "5.59 pct: half the number of new stores next 5 years vs past 5
AIG, down "5.05 pct: insurance is tough business in this cycle
JPM, down "4.76 pct: banking is tough business in this cycle
GE, down "4.66 pct: a lot of lost capital period
Here are the links to interactive 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 Jan. 20 Value Line report on AA: next one is due Apr. 21)
(AIG) (AIG) (Here is the Nov. 25 Value Line report on AIG: next one is due Feb. 25)
(AXP) (AXP) (Here is the Nov. 25 Value Line report on AXP: next one is due Feb. 25)
(BA) (BA) (Here is the Dec. 23 Value Line report on BA: next one is due Mar. 24)
(C) (C) (Here is the Nov. 26 Value Line report on C: next one is due Feb. 25)
(CAT) (CAT) (Here is the Oct. 28 Value Line report on CAT: next one is due Jan. 27)
(DD) (DD) ( Here is the Jan. 20 Value Line report on DD: next one is due Apr. 21)
(DIS) (DIS) (Here is the Nov. 18 Value Line report on DIS: next one is due Feb. 18)
(GE) (GE) ( Here is the Jan. 13 Value Line report on GE: next one is due Apr. 14)
(GM) (GM) Here is the Sep. 2 Value Line report on GM: next one is due Dec. 2)
(HD) (HD) (Here is the Jan. 6 Value Line report on HD: next one is due Apr. 8)
(HON) (HON) (Here is the Oct. 28 Value Line report on HON: next one is due Jan. 27)
(HPQ) (HPQ) (Here is the Jan. 13 Value Line report on HPQ: next one is due Apr. 14)
(IBM) (IBM) ( Here is the Jan. 13 Value Line report on IBM: next one is due Apr. 14)
(INTC) (INTC) ( Here is the Jan. 13 Value Line report on INTC: next one is due Apr. 14)
(JNJ) (JNJ) Here is the Sep. 3 Value Line report on JNJ: next one is due Dec. 2)
(JPM) (JPM) Here is the Nov. 25 Value Line report on JPM: next one is due Feb. 25)
(KO) (KO) (Here is the Nov. 4 Value Line report on KO: next one is due Feb. 3)
(MCD) (MCD) (Here is the Dec. 9 Value Line report on MCD: next one is due Mar. 10)
(MMM) (MMM) (Here is the Nov 18 Value Line report on MMM: next one is due Feb 18)
(MO) (MO) (Here is the Nov.4 Value Line report on MO: next one is due Feb. 3)
(MRK) (MRK) ( Here is the Jan. 20 Value Line report on MRK: next one is due Apr. 21)
(MSFT) (MSFT) (Here is the Nov. 25 Value Line report on MSFT: next one is due Feb. 25)
(PFE) (PFE) (Here is the Jan. 20 Value Line report on PFE: next one is due Apr. 21)
(PG) (PG) (Here is the Jan. 6 Value Line report on PG: next one is due Apr. 8)
(SBC/T) (SBC/T) (Here is the Dec. 30 Value Line report on T: next one is due Mar. 31)
(UTX) (UTX) (Here is the Oct. 28 Value Line report on UTX: next one is due Jan. 27)
(VZ) (VZ) (Here is the Dec. 30 Value Line report on VZ: next one is due Mar. 31)
(WMT) (WMT) (Here is the Nov. 11 Value Line report on WMT: next one is due Feb. 11)
(XOM) (XOM) (Here is the Dec. 16 Value Line report on XOM: next one is due Mar. 17)
A week ago I wrote some prescient advice: "For this week's reports, (note that) GE and INTC are also Cara 100 companies. And like HD (the prior week), I feel these are a little overpriced right now..."
I'll accept your applause now because this week, these three stocks were 3 of the 6 biggest losers in the Dow. So not only did I warn you that the Dow was going to have a bad week, I zeroed in on the components that would and did do it.
Home Depot (NYSE: HD) was down "5.59 pct (~ -5 billion); General Electric (NYSE: GE) was down "4.66 pct (~ -$16.5 billion); and Intel (NDQ: INTC) was down "16.21 pct (~ -22 billion) W/W.
You see, I could have saved you about $44 billion there alone.
Moreover at 7:59am ET on Friday, I wrote about the second worst performer this week in the Dow, Citigroup (NYSE: C). I told you there would be serious downgrades based on the quarterly report from the world's biggest financial services company. And later in the day, C fell "4.69 pct (about $12 billion in market cap) for a loss on the week of "6.81 pct (~$16.2 billion).
So there's $60 billion. Man, am I hot! LOL
In addition I explained that financial services companies should never be held long in a credit tightening cycle, at the end of a short-term bullish phase in stock prices. That's when bad things happen to the stocks of good companies. This week JP Morgan (NYSE: JPM) and AIG Insurance Group (NYSE: AIG) were down "4.76 pct and "5.05 pct respectively W/W. But I won't bore you with the numbers. :-)
This week's new Value Line reports for the Dow 30 components are AA, DD, MRK and PFE. This, by the way, is excellent info, which ought to be studied closely.
Wrap up
On the infamous crash of Black Monday Oct-19, 1987, the previous Friday was of the kind we experienced this week. To make a bad pun, Black Monday-87 almost came out of the blue. We'll just have to see how the world's traders react on Monday Jan-23, 2006.
Many are now wondering if this coming Monday will be Black, Blue or Orange. There are few who believe it will be Green.
You have to know that the Bull has lowered its head. That's not to say it knows it's about to die, but the fear is starting to show in its eyes. I am now standing by with my Estoque de descabellar, and deciding whether I should take the tail as well as the ears.
Oh, the primal instinct of screaming out "Ole!"
Ole! Ole!
Posted by Posted by Bill Cara on January 21, 2006 05:58:56 PM | Category: Cara Week in Review
Discourse
The P&F Chart for $Gold also had a bullish price objective (revised) $712.
This also sound good.
Posted by: davidtr4 ![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
January 21, 2006 10:30 AM [link]
In a day like yesterday the money was flowing OUT. The question to me is where did holders have confidence to stay long. On that score energy held pretty well in my book. As did gold, some minerals/miners and bonds. In a strong decline being 'held back' is understandable; however positions which were hit harder than the market should be considered suspect. Unlike some other recent declines, I saw my relative spread increase into the close rather than decrease, that is ecouraging.
I need to do some work over the weekend but I like the natural gas stocks and would like to add some more exposure there. The season turns positive for energy next week. COT data appears to favor gas over oil.
Don't know that I'd be anxious to buy the open on Monday. I want to see what the news does over the weekend, especially relative to our friends in Iran. How about those comments out of France on nukes and 'rogue nations'?
Surprisingly little cash was raised on Friday so we'll have to give the traders a chance to do that next week. We need a good rally and reversal down to really bring the fear in. We are not there yet.
From a money management perspective I am most concerned with guarding against a large draw down right now. So I will be focused on short term trend line breaks and support lines to lock down gains and limit losses. IF there is strength (big IF)I will be looking for opportunities in the other direction.
Posted by: stockman at
January 21, 2006 10:37 AM [link]
stockman-
Some good thoughts there. I also like NG here but I like the whole complex in general right here. I am going to look at the sector by sector v market performance also. If sentiment turns more negative I am looking at TLT for the safe haven bid.
That was quite a show wasn't it? Man were they scrambling on Market Day.
Posted by: MarkM at
January 21, 2006 10:57 AM [link]
I think a buy can be made at open if we see a good chart pattern on the DJIA intraday.
Posted by: FirstConsul at
January 21, 2006 11:23 AM [link]
I received this message last evening from another investor who focuses on the PM market. Any comments on his analysis?
What bothered me was the rambling that gold stocks were strong relative to the SM. That is nonsense. The XAU 135-140-145 fly was on and it closed right where it should have closed. Therefore, the strength in the miners was ARTIFICIAL.
Perhaps you could pass that along to the faithful that now is simply not the time to add, there is considerable weakness ahead IMO. Launch starts in early to mid FEB.
Remember, gold is a paper market and in the event of a global debacle, it is possible, no, likely, that gold would get crushed in a sell-off. Here is the logic. If the QUAD fund is long 75 M of paper gold and the rest of their LEVERAGED positions are getting crushed in the market, they would be met with a margin call. I have seen enough margin calls to know that everything is sold.
In the event this happens, $gold would most likely recover very quickly but today's downdraft should be a warning to all that gold is paper until it isn't.
Posted by: JB at
January 21, 2006 11:25 AM [link]
JB-
I do not understand all of the author's terminology frankly. What is the "XAU 135, 140, 145 fly"? However, I did not interpret the gold market's action as particularly bullish. g034?
Posted by: MarkM at
January 21, 2006 11:55 AM [link]
Mark M:
I'm very new at all this and much of the terminology and abbrievations are difficult for me. I don't want to ask dumb questions and have been looking up what I can which has been an education in itself using Bloomberg's glossary etc. but could not find things like: SM or IMO could you direct me to a good site to look this stuff up?
Thanks
Posted by: C.Note at
January 21, 2006 1:13 PM [link]
C.Note-
Investopedia.com has a great glossary too. But SM, in the above author's usage, I took to mean "Stock Market". IMO is shorthand for In My Opinion. (IMHO is short for In My Humble Opinion.) (IMO of course is also Imperial Oil, a great stock which board members are absolutely itching to find a buy point for, but not as used above.) Hope this helps. There's a site with all the email and Internet Messaging (IM) shorthand but I don't have a URL for it (Uniform Resource Locator).
Mark
Posted by: MarkM at
January 21, 2006 3:35 PM [link]
http://searchcrm.techtarget.com/sDefinition/0,,sid11_gci211776,00.html
for those who care
Posted by: BCara at January 21, 2006 3:51 PM [link]
First Consul-
If you are talking about Friday's action, it is basically a straight line from top left to bottom right with NO visible strength/support ANYWHERE. I have never seen a chart quite like it. There were minimal attempts to rally support. They lasted all of about 30 minutes- one at noon and one at 2pm- and quickly collapsed. There was a dying gasp before the bell to get the loss under 200 points and that collapsed also.
Posted by: MarkM at
January 21, 2006 3:56 PM [link]
JB/MarkM/CNote: "Old" people like me remember when communications were actually clear and simple and whole words were used instead of acronyms. I am pretty sure that I know what is being said in the message, but I probably am not exact.
>PM = Precious Metals.
>gold stocks were strong relative to the SM [Stock Market, probably the S&P]. This is true on a % basis (3months) and on a chart basis (XAU looks like a rocket launch while SPX had an internal 6wk flag range followed by 1 good wk up but ended at the same place as it was on 12/05/05.
>XAU = Gold Miner Stock (ie including miners who might hedge) Index
>The XAU 135-140-145 fly was on and it closed right where it should have closed = The HUI index ended the week at around 140 after barely going into the next strike levels at 135 or 145. This is a common action during Expiration. I am a little confused, though, because I do not know of any contracts on the XAU directly, so I suspect that the intended meaning that was that because all optionable miners are routinely manipulated to end within a certain strike, then the index would most likely end at some midpoint between outreaches [and it did].
>IMO = In My Opinion
>Launch starts in early to mid FEB = I'm not sure whether he is referring to "seasonals" on Gold but my source says that the Seasonal upmove on Gold will start close to the FIRST of February.
> gold is a paper market and in the event of a global debacle, it is possible, no, likely, that gold would get crushed in a sell-off = Gold is held mostly by traders in the form of derivatives (paper/bytes), and during a debacle (meaning deflationary/depression/K-wave time) ALL assets will be crushed (remember Gold goes up in inflationary times).
>If the QUAD fund is long 75 M of paper gold and the rest of their LEVERAGED positions are getting crushed in the market, they would be met with a margin call. I have seen enough margin calls to know that everything is sold. = My best guess here is that if a hedge fund (which is structured to have paper assets in the four basic allocation areas: cash, bonds,precious metals, or equities} were to be caught over-exposed during a draw-down period, then the margin calls would sink the Gold along with everything else.
Thus, be careful!
My comment: Timing is always a big question for remarks like this. Will the "debacle" occur next week, nest year, or sometime in our lifetimes? Until it does happen, I think the only recourse to the loss of M3 (money print) data, is to use Gold as the proxy, and trade it and the Miners, purely by charting (meaning that I plan to follow the track of the Money People) until it doesn't work any longer.
Have some fun!
Posted by: spot at
January 21, 2006 4:55 PM [link]
Aha! I've found the Option Chain for HUI Index on this site:
http://www.schaefersresearch.com/streetools/options/option_montage.aspx?click=jumpto
Posted by: JWilkins at January 21, 2006 6:54 PM [link]
MarkM,
I think an oversold bounce on Monday is likely, but only tradable if a good pattern forms on the intraday on Monday(in any of the major indices). Then a short term speculative trade could be made on the index futures. Of course, with tight stops in case something goes wrong.
Anyone ever thought of this? To make the yield curve normal, the US govt spends as much as possible and hits a new record budget deficit.(Somewhere around $600 or maybe $800 billion.) Then issue that many T-bonds, drive the long term rate up... and giving the Fed some more breathing room.
Lots of things could cause such a huge increase in the budget deficit, i.e. a skirmish with Iran.
Posted by: FirstConsul at
January 22, 2006 7:41 AM [link]
FirstConsul-
That is a lot of risk. The bad news should continue next week with DD missing, GM and F coming in and TI probably missing as well. Add in continued deterioration in housing data, a slower GDP number for 4Q, and perhaps Gold jumping, Iran rattling, and oil doing who knows what and I don't want to be long under any circumstances and I bet Everyman out there doesn't either. Maybe you get a S/T Monday rally good for a few bucks but I think I will sit it out. (Not nimble enough as I've proven time and time again.)
Posted by: MarkM at
January 22, 2006 9:00 AM [link]
Some great posts here and the last few months.
I run a "Quad" fund, although I am unleveraged, and I have a few thoughts with respect to gold.
I have only been trading/managing money as a professional since 1988, so Bill has the actual experience of the 1970's commodity markets. My experience is through reading about it.
Sure, margin calls on a fund would force liquidations that may push the price of "paper" gold down in the near term. But I don't view any derivative that tracks the price of gold as "paper". It is "paper" for a trader, because you don't take delivery of the physical metal, but in my mind, it is "physical". If I am trading any commodity, I can take delivery on the physical.
So, let's say that a hedge fund is blowing up on some large trade and has to liquidate all of it's positions to meet margin calls, including selling out of it's oil contracts WHILE war breaks out in the Middle East. The fundamentals of the oil market will drive the price of oil UP regardless of the failings of some leveraged manager. That is extreme, but in any market, if the fundamentals lead to a firm bid at certain levels, that bid will absorb the liquidation. This past month, there was a firm bid in the gold market when "it should go down because it is overbought". Where was the bid coming from, a fundamentally strong market that takes TA and tosses it out the window? Or maybe a short squeeze in the Japanese markets?
Back to my readings. It is my understanding that a key component to the gold bull in the 70's was a lack of confidence in "paper". Meaning a lack of confidence in stocks, bonds etc. So if the stock market does indeed start a new Bear leg down, that will only bring more strength to the gold market. Make no mistake about this; mining stocks like Newmont, Gold Corp. etc., will most likely be pulled down with the stock market, so don't treat those holdings as gold, they are paper. In the 1970's the miners had truly unbelievable returns, and will again in a long term gold bull, but they will get thrown out with the bath water if the stock market falls dramatically.
This premise has pretty much held true for my portfolios. Gold has held them up as stocks have fallen.
Now my guess; the powers that be, aka "Plunge Protection Team", will continue to inject liquidity at a high level to stave off any stock market collapse, or, in actuality, an asset bubble collapse. This will continue to raise M3, pushing money into gold. If this happens, the gold stocks will probably decline as gold (GLD, IAU) rises. Eventually the gold miners will play catchup.
One other thing, if you believe that the broad stock market is starting to decline, then you think that the majority of stocks are going to fall. Why try to pick ANY stocks if the headwinds are that severe. Easier to just wait until all stocks are cheaper. This includes energy stocks that may sell off due to the recession concerns that will come about due to the stock market and yield curve being indicators of the future.
If you want gold, buy it, not the miners.
Posted by: g034 at
January 22, 2006 9:47 AM [link]
MarkM,
I finally received a reply to my inquiry concerning part of the language used in the comments from another trader ("XAU 135, 140, 145 fly") I presented in my last post. The person who forward it to me answered:
"... I think he meant that it was at resistance and headed down right where it was supposed to."
which was pretty much what spot concluded in his analysis of the comments.
Thanks for everyone who commented on those thoughts.
Posted by: JB at
January 22, 2006 2:46 PM [link]
COT data (oil) + the Rydex data (oil services)= caution on energy
The hottest area is services, too hot IMHO. About the only long side sector capturing flows Friday- energy services. That asset chart looks a little like that Japan chart did a weeek ago.
Gas on the other hand has had a hard pull back and COT data looks positive. They appear to have a chance here, IF the market isn't in a melt down.
g034 makes a solid point for individuals in that last paragraph- 'One other thing....' Question is how certain is your/our expectation of a market decline. For me I know that what I expect (or want) and what I get are often different- especially in the short term. So looking for good 'relative' opportunities for some dollars while staying relatively defensive overall is my plan.
Posted by: stockman at
January 22, 2006 5:52 PM [link]
stockman - we are all individuals with different situations, goals and feelings about trading, so we do things differently. Personally, I have no expectations of which direction the stock market is going to go next. I let the market tell me what to do and I position my portfolio for that.
Please don't think I was directing that last statement towards you, you have made some great trades the last few months. My statement was really directed towards those who don't have much experience and may make a silly mistake, like "trying to catch a falling knife".
Posted by: g034 at
January 22, 2006 7:50 PM [link]
stockman-
g034 was probably directing that comment at ME! :) He's probably shaking his head that I would on the one hand preach patience and then on the other go and stub my toe trying to skim a few dollars on AAPL and YHOO.
Signed,
Chief Falling Knife
Posted by: MarkM at
January 22, 2006 8:37 PM [link]
Hey Chief,
I don't hear any overweight singers yet...
Posted by: g034 at
January 22, 2006 8:52 PM [link]
To MarkM and others:
Thanks for all the help. Trying to prepare for the opening and read what you guys have to say about the market. BTW: Picking up on what you all have advised, my portfolio is: Bonds/Cd's/Cash=64%, Equitys=12%, Medical Devices=5%, Gas&Oil=6-1/2%, Gold Basket=2-1/2%, Annuity=10% and with that mix I was able to make $ last week so again thanks for tips and words of advise.
C.Note
Posted by: C.Note at
January 23, 2006 6:55 AM [link]
All-
I listened to Don Coxe's latest call. Great info on PD's stupidity in selling forward copper @.96. Only price action, as stockman pointed out, will likely confirm whether they have rid themselves of this "problem".
But regarding his views on M3, this would only make sense if the large deposit receipts as repatriated to the U.S. were not counted as a bank reserve. If they are, the bank can lend against them, thereby expanding credit. If they are not, they act merely, as Coxe put it , as a form of "savings". I will look into this. It may be that these deposits are intended to be moved shortly by the owner into U.S. investments in plants, infrastructure etc and therefore do not affect the banks lending ability. The banks may just be a conduit under those circumstances to repatriate the monies.
Regarding gold and "running through traffic" here, as Bill has said many times, once a bull move starts in gold, the technical overbought indicator is not reliable. It can stay in S/T "overbought" condition for weeks or longer. Corrections are not as sharp and usually do not reach oversold levels. That is why Bill said a couple of weeks ago during the December retracement that he "wasn't going to let it get to 50" on the RSI. Look back through the archives under Gold for September and November. Bill says this a couple of times. For reinforcement look at Martin Pring's books on the use of these indicators. They say the same. The one caveat I have been pointing to is a blow-off top. That is usually folowed by a sharp decline. g034 has been pointing these things out also when he says he breaks the normal rules for gold.
Could it correct here to an oversold (30) level? Sure. But that would be really good news for everyone who doesn't have much of a stake or no stake. That would mean that the real bull run is still coming up. JMHO.
Guys, this should be an interesting day and an interesting week.
Posted by: MarkM at
January 23, 2006 6:55 AM [link]
Wondering about small cap miners... These small cap stocks (R2000) continue to look better relatively speaking. Which makes me wonder about the possiblilities in small cap miners. It strikes me that most managers who might have reluctantly gone into some miners as an outperformer in 2005 went to the largest companies. But could the small and mid caps be the place to be in 2006?
I own small positions in a dozen small caps I have purchased over the past 6 months. This is a 'basket' including some silver, gold, paladium, titanium, etc. Over the past 2 years these stocks as a group have significantly underperformed the XAU. In the past 30 days however that was not the case. Some are beginning to show some real nice action. Is this a January effect or the start of something longer lasting? Need to leave it to Bill to get into names that he feels might be worthy on company specific data and management. But the pattern of large caps moving first then the smaller fish following makes sense to me if this going to be THE YEAR OF THE METALS.
Insiders- I find it interesting the free pass people give for major company insiders dumping shares. See GOOG as an example... oh they need to diversify; pay for kids college; get a divorce, it's just good financial planning. So, then I look at CHK and CWEI (both independent oil & gas companies). Both stocks up 2-300% off their 2 year lows and the most senior level executive buying stock in SIZE when they already own a BIG STAKE. They apparently need a financial planner to explain the merits of diversification, right? For those that might say they are just an exception, many energy insiders are selling... TRUE. But why are there NO EXCEPTIONS IN TECHNOLOGY? I don't recall any major insider accumulation in a while in TECH land in ANY company. And there are a lot more tech companies than energy. I am betting that these two stocks outperform GOOG over the next 12 months (long CHK and CWEI).
g034- Thanks and nothing personal taken at all. I agree with your comment but for some reason had to add my 2c ;-) I have appreciated your comments as those of a seasoned professional. We are all indeed unique in our trading- for personal and professional reasons. As much as I pride myself on reaching my own conclusions I do find value in the notes from others- even when my style is significantly different. Thanks for your contributions here.
Posted by: stockman at
January 23, 2006 7:48 AM [link]
All-
If you haven't seen this article yet on the December Low Indicator it's well worth reading. It's at Ritholtz' site.
Posted by: MarkM at
January 23, 2006 8:19 AM [link]
All-
I promised a little research on the Homeland Investment Act. Here is a good article from JPMorgan. A couple of things to note. First, the window for repatriation closed at the end of 2005. Second, that Congress underestimated by half the amount of money that would be repatriated, approximately $350B according to JPM. Third, JPM expects that the effect of the act would serve to increase the GDP by 1% annually for 2 years(!) Fourth, the repatriation "will have an indirect impact on equity markets", although JPM, at least in this PUBLIC piece, doesn't tell you what they expect it to be. Finnally, the money must, by regulation, find its way into worker hiring and training, infrastructure, R&D, capital investment, marketing, M&A, and debt reduction. It cannot be used for share buybacks (although if it is used to finanace these other activities, by implication money is freed for this purpose-Ed.)
The reason I highlight the effect on GDP is that separate authors have estimated the effect of mortgage equity withdrawals and subsequent consumer spending at a minimum of 1% of the approximate 3.5 to 4% GDP growth in the last few years. If HIA and MEW have provided 2% of the GDP growth, where is growth going to come from in the next few years?
Posted by: MarkM at
January 23, 2006 8:53 AM [link]
Sorry, I omitted the link: http://www.jpmorgan.com/cm/ContentServer?cid=1133530809217&pagename=jpmorgan%2Fwss%2FTS_Content%2FGeneral&c=TS_Content
Posted by: MarkM at
January 23, 2006 2:16 PM [link]
stockman-
Where was the money flowing late yesterday afternoon as the market continued to weaken? Gotta think that could accelerate if Monday opening looks weak. I noted the market's extreme weakness was even holding back the energy shares, at least it looks that way to me.
Posted by: MarkM![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
January 21, 2006 8:49 AM [link]