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April 28, 2007
Week #17 (2007-04-28) in Review (FINAL)
It has been that kind of week as the Dominion continues to reject Trader entry to Delta Quadrant. In other words, with all the conflicts aboard Deep Space Nine, we may have to return our beloved space station to earth.
Back on Planet Earth there was a meeting of the G-7 Collective that started April 12, which requires me to post some addition log entries.
There had been “news” that the $USD would be protected from further devastation, but indications from forex markets came as early as the post-Easter return to markets of the Global Christian Federation of Traders. Following that G minus China meeting of important finance ministers and central bankers, the $USD continued to exit Gamma Quadrant and gain entry to Beta Quadrant.
The Value Line Reports this week are on USS S&P Industrials: Caterpillar, Honeywell and United Technologies (CAT, HON and UTX), which typically sell more product (with pricing power) as the $USD declines.
Essentially, the message is that if the $USD falls to zero, all the foreign buyers need doing is to sign the delivery receipt for the gift package from America as well as to ensure they haven’t broken any laws for handling the goods, which had better be checked in the case of Honeywell. I assume that construction equipment from Caterpillar and elevators from United Technologies is ok on that score.
Come to think of it, with the crashing $USD, nothing brings home to foreigners the concept of “free ride” better than the gift of an elevator from America. I wonder, also, if the Chinese have to pay “List”.
Until the G-20 Collective gets their Yuans and Yen in order, traders are in for more volatility in all capital markets. After all, hot money now moves faster than snail mail as the late-great Baring’s Bank shareholders discovered. Rolling in $USD one morning; out of business in the evening.
America sent up some rockets this week in their industrial conglomerates known as the GICS 20 sector: The big winners this week, on the back of that falling $USD, were Honeywell (HON +6.8 pct #2 performer W/W in the Dow 30), 3M (MMM +4.9 pct #3), General Electric (GE +4.9 pct #4) and Caterpillar (CAT +2.7 pct #7).
Markets don’t move randomly; they are pushed by sell-side institutional account managers selling themes. The theme this week was how the lower $USD and the share buy-backs would boost the US exporter conglomerates.
But maybe there was more to the story than that. Maybe these mega-cap concerns are now into proprietary trading rooms that deal in the currency plays? After all, their operating cash flow and profitability is materially affected by currency swings over which they have no control.
So maybe Honeywell, 3M, GE and Caterpillar were booking their profits on the Euro trades (and buying $USD) in advance of the Fed changing its policy? We all know that higher profits would mean higher share prices, right?
I’m speculating here, obviously, or I’d pull out the evidence. But, maybe some researcher could look into the quarterly financials to see if they can determine if these so-called industrial firms are playing Forex Made Easy? (LOL)
After all, we were told Enron was primarily an energy utility when, in reality, it was Amaranth before we learned of Amaranth. Everybody, it seems, has to “get theirs” and the best way is to gamble Other People’s Money, and get your departmental year-end bonus when you win and a pink slip if you lose big enough that somebody in HQ takes notice.
And if that’s the case, do people like GE’s Jeff Immelt have to excuse themselves from Fed board meetings, which he attends as a member? Or how about those HB&B seats on the Fed board. Are they blind and deaf, and/or honorable too? Does a policy change discussion at the Fed go in one ear and out the other or does it pass through lips and fingers via phone and Blackberry direct to the home office proprietary trading desk?
I ask because I don’t know.
Although I think you know what I suspect.
In any event, the US industrial conglomerates this week took off on a moonshot.
Whatever it takes to drive the Dow to 13,000! At least the Bulls are happy. For now.
Global Market Summary
International Equities: A week ago I said, “Still some catching up to do if you can believe that the push in US markets on late Thursday plus Friday is sustainable.” This week, more push from the US and more pull from abroad. Across either pond, most markets were losers.
U.S. Equities : The broad indices in the US all gained. The Russell small cap 2000 only gained +0.10 pct W/W though, after it took a big hit Friday. A few positive earning stories, higher dividends, share buy-backs and take-over deals pushed the Dow up +1.2 pct, the S&P 500 up +0.7 pct and the Nasdaq Composite up +1.2 pct.
Dow 30 : The Dow 30 average lifted +1.23 pct to 13,121. Can you believe that after a long history of running blue chip enterprises, the market cap of HON rocketed +16.0 pct in two weeks, and CAT +10.2 pct. I say, this is not a sustainable rocket. The small caps are not doing as well because nobody is lending them the money to do the buy-backs and issue dividends that in total greatly exceed free cash flow.
U.S. Sector ETFs: Seven of 10 US sector ETF’s were up this week, although on Friday there was only XLI up, which happened because of a HON of a deal.
First segment: most influenced by global commodities, forex and capex spending
10: Energy (XLE): #3 (+1.6 pct); #1 over past 6 days
15: Basic Materials (XLB): #4 (+0.7 pct); Miners down however
20: Industrials (XLI): #2 (+2.2 pct); Share buy-backs & dividends
Second segment: most influenced by U.S. consumer spending and economic growth
25: Cons. Discretionary (XLY): #9 (-0.4 pct); Friday killed a good week
30: Cons. Staples (XLP): #8 (-0.3 pct); Friday hurt
35: Healthcare (IYH): #7 (+0.2 pct); Slowdown after 3 huge weeks
Third segment: most influenced by U.S. interest rates and general economic health
40: Financial (XLF): #6 (+0.5 pct); Digesting the earlier gains
45: Tech (SMH chips): #1 (+2.3 pct); Two weeks #1, but chips still dip
50: Telecom Service (IYZ): #10 (-1.0 pct); T down -3.1 pct thx to Whitacre
55: Utilities (XLU): #5 (+0.6 pct); Be wary of Fri (-0.83 pct)
Bonds: “The US Bond market sank a bit. US Treasury Yields increased from +2 bp to +4 bp W/W.
Commodities: Crude oil gained +2.35/bbl, with metals down, and so $CRB was up a bit (+0.7 pct), closing the week at 314.20.
Oil & Gas: $WTIC futures jumped +3.7 pct W/W to 66.46. This is now above the upper end of OPEC’s 55-65 comfort zone, but I don’t hear them complain. Iran is even suggesting they’re cool with the nuke deadline in May. But, traders are watching.
Gold: The Precious Metals dropped out of bed. $GOLD was down -14.00 (-2.0 pct W/W) to 681.80. $SILVER (-2.7 pct), $PLAT (-3.6 pct) and +PALL (-3.4 pct W/W) were worse, but not so bad considering the recent run-up. Profit taking and Euro bank selling too. Not sustainable.
Goldminers: The goldminers went down again with the $XAU dropping about -2.8 pct.
Forex: Yet again, the $USD dropped, this week by -0.2 pct and the Euro gained +0.3 pct. The $USD has fallen from 83.30 to 81.49 in five weeks. There was a small gain on Friday.
Economic calendar for next week.
Cara 100 Stockwatch
Here are the Cara 100 gainers on Friday.
Interactive chart of the top 12 Watch List gainers
Somebody recently applauded me for 93 gainers of 100. Fame is fleeting. But, remember the Cara 100 represents a watchlist of high-quality companies, not booming stocks, although that sometimes happens too.
Here are the top Cara 100 losers for Friday.
Interactive chart of the top 12 Watch List losers (Interactive link)
There were no stocks of the Cara 100 for Friday that hit 52-week intra-day highs and lows.
Sector ETF Summary
The tables I show are for ten (GICS) Sector Index Funds (ETF’s) only.
Seven of the ten sector ETF’s I follow here were up this week. But on Friday there was just a single one that lifted (XLI). And with that one the story about the falling $USD helping the mega-sized US exporters (gain profits) is true but a little long in the tooth.
The following table is sorted by price performance Week over Week (W/W), i.e. 1W%N.
Table 1: Cara ETF List
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
You can do this table yourself by entering the following string into the Summary window at Billcara2.com and then clicking on the link for Performance. XLE XLB XLI XLY XLP IYH XLF SMH IYZ XLU . You can also add more ETF’s – up to 30 in total.
For a list of components to any ETF, simply go to the AMEX.com web site, and click on ETF’s. I do that frequently because the list of ETF’s growing incredibly fast.
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)
Individual Sector ETF Review
Sector 10 (energy: XLE, IYE, VDE, OIH, PBW and IXC)
This week, XLE gained +1.63 pct. A week ago Friday XLE was up +1.84 pct, so that is a gain of +3.5 pct in six sessions, which makes XLE top performer over that time.
Here’s the XLE Monthly, Weekly and Daily data charts:
XLE Monthly data:
XLE Weekly data:
XLE Daily data:
Table 2: Senior oil & gas equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Big Oil has been a powerhouse over six days.
ExxonMobil (XOM) gained +0.8 pct on top of the gain of +3.0 pct a week ago. ChevronTexaco (CVX) lost some ground (-0.5 pct W/W).
On Friday, PetroBrazil (PBR -1.2 pct on the day) was hammered, closing the week at a lose of -1.6 pct.
There were some impressive moves in the Canadian oilsands stocks on Friday: Suncor (SU +1.3 pct), Imperial Oil (IMO +1.4 pct) and EnCana (ECA +0.3 pct), but over the whole week, the gains were much smaller.
Oil & Gas Exploration & Production -Canada
Sector 15 (basic materials: IYM, XLB, IGE and VAW)
The Basic Materials ETF (XLB) gained +0.67 pct W/W to close at 39.34.
YTD, XLB is #1 with a gain of +13.7 pct, ahead of Utilities (XLU +13.6 pct) and Energy (XLE +13.3 pct). Compare those results to the Financials (XLF +1.0 pct YTD).
Here’s the XLB Monthly, Weekly and Daily data charts:
XLB Monthly data:
XLB Weekly data:
XLB Daily data:
Table 3: Senior metals and steel equities:
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
A week ago I wrote, Gerdau (GGB +2.1 pct) and Alcoa (AA -2.1 pct) showed that steel and aluminum were going in opposite directions. This week they switched back as AA gained +4.7 pct and GGB lost -2.3 pct.
Other big steelmakers lost this week too: Mittal (MT -2.2 pct), and NuCor (NUE -4.1 pct W/W).
The metals and gold miners were also soft again because of metal prices getting hit. BHP (BHP -3.0 pct), CVRD (RIO -2.5 pct) and Rio Tinto (RTP -1.0 pct) led the way down the shaft. $COPPER was down 2.4 pct.
Meridian (MDG -4.4 pct), Newmont (NEM -3.9 pct) and Goldfields (GFI -3.6 pct W/W) were big losers as $GOLD and $SILVER prices were down -2.0 pct and -2.7 pct respectively.
Because of operating leverage, when the metal futures prices drop, the share prices of the miners drop more, and when the metal prices rally, the share prices gain even more. Usually.
The problem today, in my view, is a slow economy in the US and Europe, which means that the copper price ought not be so strong, but is probably because the four big miners (BHP, CVRD and Rio Tinto plus Xstrata) have a lock on the market. As China is growing so quickly, and demanding so much copper, the Big Four producers can get their price by withholding sales, slowing production, etc. Traders on the other hand can figure that this price squeeze cannot last, and that the miners costs are increasing quickly, so they won’t give the same high PE multiple on the stock. The PE’s will contract.
It always surprises me to see a well-known investment analyst point the TV audience to a miner with a PE of 3 or 4 as being a terrific buying opportunity, which is what I heard on Friday on BNN. A PE of 3 this late in the cycle is usually a peak for the stock price because earnings are likely at the top of the cycle and traders are not willing to pay up for the stock. What almost always happens is that as the metal prices top out, those stocks are then sold by the fund managers.
The best time to buy the miners is when there has been a down cycle for both the metal and the share prices, and the metals inventory is low, and the economy also bottoming out, which likely happens every four or five years. An economic renewal will soon create demands for metal that will send the price higher, but there is always a lag time before the miners can effectively meet the higher demand. So with pricing power and growing production, traders will start bidding the shares higher.
As I say, today’s pricing power is coming from an oligopoly situation. The Big Four got in that position by buying out the competition in recent years, at inflated valuations. They took on a lot of debt, which they need to pay down asap. By squeezing the metals prices, their profitability is running at a maximum rate, and their share prices are high. Into the cycle peak for share prices, these miners need to be selling new shares to pay down their debt. If they wait too long, interest rates will start to rise – either because the central banks want to put downward pressure on inflation and speculation caused by the rising metals prices – or the artificially high metals prices will put downward pressure on economic growth, which will slow demand for the metal.
China, being the demand source at present, and with the ability to pay, is the significant player. As soon as copper production ramps up from China’s mines that are not under control of the Big Four, guess who the loser is. So this pricing anomaly is not sustainable.
In the precious metals market, the significant player is the G-7 central banker. Gold and silver is currently being sold to use the proceeds to buy $USD to help stabilize it. So in the case of gold, the oligopoly power wants the metal price lowered.
You might ask, why support gold when central banks – a much bigger powerhouse than the Big Four metal miners – want gold prices down, and the Big Four want base metal prices (of which copper is the most important) to go up? The reason is what Kaimu is saying every day, which is that governments are running up debts and central bankers printing money much faster than the goldminers are discovering and producing gold or (at present anyway) the private sector is creating net new wealth.
A lot of the wealth being created today by leading Dow 30 companies (Boeing, Honeywell, United Technologies and General Electric) may help their bottom line but is actually being built to be destroyed, eg, armaments and war planes. At the end of the day, war causes inflation because it costs money, which needs to be printed, and is therefore a debt, without the offsetting asset.
Without war, which is decided by governments, there would never be an inflation problem. If you doubt that statement, simply look at a 250 year chart of inflation and in every case you will link the cycle to a war. Outside of wartime, increased productivity and intellectual property discoveries is a killer of cost and a creator of wealth.
So, when there is no war, the best investments are securities (stocks and bonds, and especially those of the economically-sensitive and interest-rate sensitive stock sectors) and not commodities (or stock sectors that benefit from rising commodity prices like Energy, Metals, Gold) and (like, eg, Industrials HON and UTX) war.
After Sept 11, 2001, the nature of the capital market changed to favor commodities and companies in the US industrial-military conglomerate group.
If the Democrats gain the White House and regain control of both Houses of Congress, there will likely be an end to international hostilities for a while, which will then favor the Consumer sectors (discretionary and staples spending and healthcare) and the economically-sensitive and interest-rate sensitive Banks, Techs, Telephony/Telecom, and Utilities.
As traders watch for signs that the Dems would take full control politically, and the Chinese authorities would re-focus on cost controls after the Summer 2008 Olympic Games, they are thinking ahead to the strategic decisions that have to be made in their portfolios.
Sector 20 (industrial: IYJ, XLI, VIS, and IYT)
A week ago, the Industrials and Transport sector ETF (XLI), aka capital goods producers, rocketed +2.11 pct. This week the rocket became a moon shot, up a further +2.23 pct, to close at 37.64.
XLI closed March at 35.54, so the present level (37.64, four weeks later) is a gain of +5.9 pct.
Only the ETF’s for semi-conductor chips (SMH +10.4 pct) and healthcare
(IYH +7.5 pct) have performed better in April.
Here’s the XLI Monthly, Weekly and Daily data charts:
XLI Monthly data:
XLI Weekly data:
XLI Daily data:
Senior capital goods makers and transportation:
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
A week ago I wrote, “The movers and shakers this week were Honeywell (HON +9.3 pct) and Caterpillar (CAT 7.53 pct). Actually, these two moved up +4.8 pct and +4.7 pct respectively on Friday. Sometimes seeing is not believing, though.”
Maybe I should have believed! This week, HON gained +6.8 pct and CAT +2.7 pct. In six sessions, HON is up almost +12 pct and CAT about +7.5 pct. That is spectacular.
What it reminds me of, in a sense (common sense actually), is of Black Monday Oct 19, 1987. You have seen how fast these stocks have gone up this past week. Now look to see how fast they can come down in a week, or even a day!
And, just maybe that’s why I don’t believe. On Monday Oct 19, 1987, I sat at my trading desk in the penthouse of the Toronto Stock Exchange tower. I didn’t believe what my eyes were seeing that day either, but it was happening as I stared at my monitors, speechless.
For anybody who, twenty years ago, had a position of responsibility for the wealth of others, that was a personality and career-defining day. Many owners and managers of capital quit the capital markets that day, and many on the sell-side walked away too.
Since I have been on the firing line when blue chip stocks plunged -25 pct in a day, it’s like water off the duck’s back when somebody says I am missing out on these +1 pct rally days.
Thankfully, I have never had to wear to a war theater my military uniform from student militia days (42nd Medium Battery, 7th Toronto Regiment). But I recognize the experience of those who have and who are.
Close to 0.5 pct of my readers are coming from US military servers, so I feel uncomfortable even making reference to war and death, other than to pay tribute to the soldiers who are carrying out their duty. And I hope my readers recognize the experience that some of us earned on Black Monday – I can’t mention names but g034 is one.
A week ago, I wrote, “I cannot deny my surprise that FDX and UPS have joined the rally.” Now I can say I don’t think I get fooled often, as the Daily and Weekly charts below for FDX and UPS show.
Sector 25 (consumer discretionary: XLY, IYC and VCR)
The Consumer Discretionary sector ETF (XLY) had a loss of -0.35 pct W/W to close at 39.43. But on Friday, the loss was -0.66 pct.
The US Consumer Confidence, GDP, and Employment data was released. It didn’t look good for consumer spending regardless of any Talking Head spin. ALERT.
Econoday wrote: “Friday offered a mixed batch of data that have raised talk of stagflation. First-quarter growth GDP was a soft 1.3 percent while prices rose a very steep 4.0 percent. The wage component of the employment cost index, released at the same time, rose 1.3 percent in the first quarter for its biggest jump in six years. Rising wages at a time of slowing growth could be trouble, implying that productivity gains may no longer be sufficient to absorb inflation pressures.”
If the US consumer is key to the direction of the global stock market, and I still believe that is the case, then trader be wary.
Here’s the XLY Monthly, Weekly and Daily data charts:
XLY Monthly data:
XLY Weekly data:
XLY Daily data:
Table 5: Senior consumer discretionary equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
There are some stories that involve deals, dividends or share buy-backs that are pushing certain stocks north, but many are heading south.
Carnival Cruise (CCL +3.1 pct) was a winner, especially when tacked on to the prior week’s gain (+4.3 pct), but CCL is still down -6.3 pct over three months.
Toyota Motor was up the prior week (+3.6 pct), but dropped -3.1 pct this week, and is down -7.3 pct in three months and -9.8 pct YTD. Ouch!
Starbucks had a big week a week ago (+3.7 pct), but was down this week (-0.5 pct), which makes it -10.6 pct YTD. That’s cold coffee, and rising commodity and labor costs.
Whirlpool (WHR +17.6 pct W/W, +19.9 pct over 2 weeks, and +25.9 pct over 4 weeks) makes me look good I suppose because Whirlpool is a Cara 100. But this week, Whirlpool reported a -1 pct profit decline for 1Q07.
"I think the big news was the resumption of the share-repurchase program -- half a billion dollars -- plus their integration with Maytag is going extremely well and their outlook looks pretty good" for the current quarter, an analyst said.
The share buy-back says it all. The shorts are being squeezed.
Sector 30 (consumer staples: XLP, VDC, RTH and IYK)
The Consumer Staples sector ETF (XLP) was down 7 cents (-0.25 pct W/W) to close at $27.50. But Friday’s loss was -0.22 pct.
But, don’t let the flat market fool you. There was lots of volatility here this week.
Here's the XLP Monthly, Weekly and Daily data charts:
XLP Monthly data:
XLP Weekly data:
XLP Daily data:
Table 6: Senior consumer staples equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
A week ago, Wal-Mart (+5.0 pct) led the parade, but this week WMT dropped -2.9 pct.
The other Wally, Walgreens (WAG -1.7 pct W/W) lost it all and some on Friday (-1.8 pct).
A week ago Coca-Cola (+4.4 pct) was a leader as the ‘$USD makes foreign profits, which are repatriated, which looks good at home’ story ran out of steam. KO dropped -0.1 pct this week.
The big winner was Whole Foods Market (WFMI +3.5 pct W/W and +7.2 pct over two weeks) as news that the company’s offer of $671 million to buy competitor Wild Oats (NDQ:OATS) has been held up again by the Federal Trade Commission.
WFMI stock (47.51) is still down -26.6 pct over six months. It was good for a short trade in January (at 43) when it got down to the Cara Accumulation Zone where Monthly-Weekly-Daily RSI-7 was at or below 30, and the Daily RSI-7 was crossing back up through the 30 line. Could have been sold at 52 less than a month later.
Sector 35 (healthcare: IYH, XLV, VHT, IXJ, and IBB)
A week ago I wrote,
After being the number one ETF performer in my list of ten for the second consecutive week, the IYH healthcare ETF was still rolling along, up +2.03 pct to close at 71.50. That’s over +7.0 pct in three weeks.Now we are being told that the litigation issues of Merck are inconsequential, and we ought to be recognizing the “new” Merck.
These story-tellers from HB&B can really lay it on thick. But with a Daily RSI-7 up at 88.3, it is starting to smell like horse manure. I know the Dems are having an open house with free bar, but isn’t this going overboard?
IYH did gain 17 cents this week, but that’s a gain of just +0.24 pct. The M-W-D RSI-7 is presently 79.8/75.0/79.2 so why would anybody want to buy it here. There may be some individual healthcare stocks that still look good, however.
Here’s the IYH Monthly, Weekly and Daily data charts:
IYH Monthly data:
IYH Weekly data:
IYH Daily data:
Table 7: Senior healthcare equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Merck (MRK) was down -1.1 pct on Friday. GSK dropped -2.4 pct on the week, JNJ -1.5 pct, PFE -1.3 pct. So Big Pharma was soft.
Sector 40 (financial: IYG, IYF, XLF, VFH, IXG, VNQ, RWR, IYR, and ICF)
The Financials ETF (XLF) came back to earth (+0.5 pct W/W) to close at 37.30. The week previous was an unbelievable one, going up +4.0 pct.
This week showed some way up and others way down.
Here’s the XLF Monthly, Weekly and Daily data charts:
XLF Monthly data:
XLF Weekly data:
XLF Daily data:
Table 8: Senior financial company equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |