Two days ago, Merrill Lynch Research downgraded many of their peer group companies due to exposure to credit market problems, and yesterday Lehman Bros reciprocated, citing quality of asset and marked-to-market issues. Traders knew the bloom of the prior day’s +250 Dow point rose was over.

By the end of the day, the DJIA (-50.6 points), S&P 500 (-6.1 points), and Nasdaq Composite (+2.1 points) were mixed, but largely on the weak side.

Strength in the Tech sector, which held up the Nasdaq, came after the Commerce Department reported that the US economy (GDP) for 2Q07 grew +4.0 pct and that annualized after-tax corporate profits grew by +5.4 pct. The increase was said to be due to strong business spending and overseas sales.

The Financials-heavy DJIA struggled on the Lehman (LEH $53.77 -1.21 pct) reduced outlook for Goldman (GS $171.38 -1.35 pct), JP Morgan (JPM $43.97 -0.36 pct), Merrill Lynch (MER $72.18 -1.27 pct), and Bear Stearns (BSC $106.70 -0.37 pct).

In the Year-to-date, these stocks have been hammered: LEH -31.6 pct, GS -14.6 pct, JPM -8.5 pct, MER -22.9 pct and BSC -34.5 pct.

More losses on the earnings front: Sears Holdings (SHLD) reported net income fell to $176 million; Freddie Mac (FRE) Q2 net income plunged -45 pct to $764 million; and H&R Block (HRB) announced a net loss of $302.6 million. YTD, these stocks have also been hammered: SHLD -15.2 pct, FRE -11.5 pct, and HRB -14.5 pct.

Overall, I think traders can expect to see more losing quarters from corporations as either slowing top-line revenue or rising costs are hurting many companies. Ultimately, I believe it will be the loss of earnings momentum and concerns about recession that will set the conditions for a Bear, but the trigger will be insolvency/bankruptcy of more house-builders, mortgage companies, other lenders, and some smaller broker-dealers.

Yesterday, long-term Treasury prices advanced (ie, yields lower) after traders (i) looked for sake-havens from equities after seeing the Lehman downgrades of their peers, and (ii) saw an unexpectedly high rise in the weekly jobless claims (+9000), which was the highest since April.

Crude Oil ($WTIC) traded down a bit, but held above $73/bbl, while Natural Gas closed up almost +1 pct. $GOLD was quiet.

October eMiNY Crude Oil is trading up almost to 74, but this three-week run may be running out of legs.

Precious metals spot prices this morning are showing modest losses from yesterday because the USD is strong against the Euro. If Prof Bernanke is going to make any indication of a move to lower rates, I think there will be an initial push to hold the line on the $USD (resulting in softer gold). That will not stick. If the are lower rates, there will almost surely be a lower dollar at some point in the not-too-distant future.

Asian markets finished today strong. Europe is also strong, but not quite up to the record-setting pace in the Far East.

As I alluded to, traders this morning are speculating whether Chairman Bernanke’s speech will address the Fed's intentions regarding interest rates. He is speaking at 10am ET at the annual Kansas City Fed-sponsored conference held in the Jackson Lake Lodge in the Grand Teton National Park, Wyoming.

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International Economics Review

US Economic Calendar

Another excellent Economic Calendar is provided by BMONesbittBurns.

Econoday Weekly International Report

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The Cara Global 100 Stockwatch

Here are the Wednesday session Cara 100 gainers.

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Here are Cara 100 losers from Wednesday.

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There were no Cara 100 stocks that hit 52-week intra-day highs or lows in the Wednesday session.

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Here are the Cara 100 stocks that had extreme volume changes.

It pays to watch the price and volume extremes, ie, Money Flow, especially when markets start trending.

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Key Stocks plus Cara 100 In Focus

S&P upgraded China Telecom (CHA $56.68) from a Sell (1-star) to a Hold (3-star) with an increase in the 12-month Price Target from 57 to 61.

There are various sources for up/down grades by broker-dealers. One is at Briefing.com. Traders ought to check everyday for ratings changes. That website is updated later in the morning.

I am appreciative to the folks at KNOBIAS, Inc for providing the Cara 100 summaries.

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Relative Strength Index (RSI) analysis of the Cara 100 company stocks .

Notice that for a second day there are only two stocks with RSI-7 > 70 (ADBE and VIP) and one < 30 (LLTC). Also note the small number of stocks with excessive volume (ie, > +25 pct over 50-day volume MA). The omission of extremes is a good sign for the market as there is room to move either way before an over-bought or over-sold condition can be said to exist.

RSI > 70 (2)

RSI < 30 (1)

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If available later in the day, I will insert the Cara 100 stocks that traded Thursday with the highest and lowest RSI-7, sorted by (i) daily and (ii) monthly values:

“Chris,” used BillCara2.com data that is unsmoothed, unlike the data from Worden used by “David”.

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US Equity Markets Review

DJIA (interactive) chart

The DJIA lost -50.6 points (-0.38 pct) to close at 13238.7.

After a couple days of extreme volatility, the DJIA has not moved an iota in five days. The one-year chart shows that there is technical resistance with the 50-day MA (13445) and support with the 200-day MA (12892). As volume, volatility and RSI-7 studies also show a quiet market, it is fair to say that the market is waiting on Prof Bernanke to play his cards.

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NASDAQ Composite (interactive) chart

The Nasdaq Composite lifted a minimal +2 points (+0.08 pct) to close at 2565. The 50-day MA (2595) and 200-day MA (2509) represent resistance and support. The tech-heavy index is rising.

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International Equity Markets Review

Asia-Pacific

The indexes across Asia-Pacific equity markets were all very strong today. Fresh new highs were set in Shanghai and Hong Kong. Trader enthusiasm cannot be held back throughout the region.

Here is the latest session data for the Asia-Pacific stock exchanges.

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Here is the latest chart for the Japanese Nikkei 225 index.

The Nikkei Dow was up +2.57 pct at 16569, after the prior day’s gain of +0.88 pct.

The Yen was a little weaker this morning. Yen strength hurts Japanese exporters, including the auto manufacturers. Recently, I wrote that I would bottom-fish the top quality Japanese auto makers, but only if, as, and when the Yen appeared to be starting a weakening trend, which it seems to be doing with the Bank Of Japan liquidity injections, and a return (for now at least) of the Carry Trade.

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Here is the latest chart for the Singapore index .

Today, the Singapore STI was up +2.16 pct at 3393. Yesterday, I noted that the index “has now consolidated recent volatility. This index looks ready to move higher.”

Indonesia gained +2.03 pct to 2194.

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Here is the latest chart for the Shanghai Composite index .

The Shanghai Composite gained +0.99 pct to 5219, which is a fresh new record high.

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Here is the latest chart for the Hong Kong Heng Seng index .

The Hong Kong market gained +2.13 pct to close at 23984, which is a new high. The index has gained about +4.3 pct in two days.

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Here is the latest chart for the India BSE 30 index .

Today, the Bombay Stock Exchange BSE 30 Sensex index gained +1.23 pct to 15305.

I continue to be impressed by the Indian equity market, and the confidence shown by traders in the domestic economy. A record high is just over +3 pct away, which I think is inevitable.

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Here is the latest chart for the Australian All Ordinaries index .

The All Ordinaries index of Australia gained +1.80 pct today to close at 6248.

“I continue to believe that a new rally will take the Aussie bourse to a return to July highs (6469). For that to happen, however, the Basic Materials sector will have to take the lead.”
I continue to believe it will.

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Europe>

Here is the latest session data for the bourses of Europe.

There are higher prices today (5:40am ET) across Europe, just like across the Asia-Pacific markets. Traders everywhere are anticipating that Prof Bernanke will be indicating that the Fed will soon be reducing interest rates in order to relieve the credit market problems.

Here is the latest chart for the UK FTSE 100 index.

The FTSE is up +0.51 pct at 6143 today in mid session.

I do not think that the FTSE will return quite to the former high of 6754 before the start of the next downwave in global equity markets. My thinking is predicated on the fact that London is a leading banking center in the world, and, with New York, at the heart of the credit market problems.

I am thinking that Asia-Pacific will now have one more intermediate-term wave to new highs before their equity markets turn bearish (ie, into a new primary Bear), but that the US and Western Europe will resume their Bear with the next peak of the intermediate-term cycle. The money center banking problems will drag down these markets ahead of the Far East (and Brazil), which are still enjoying the benefits of huge capital investment and consumer purchases from the West.

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US Dollar Review

Here is the chart of the recent trading.

The trade-weighted USD is down and falling early this morning at 80.703, after more volatile moves. It is marginally stronger against the Yen (good for gold or broad equity prices) and weaker against the Euro (also good).

Traders are anticipating a softer, gentler Bernanke will speak today at the Jackson Hole Wyoming Fed-sponsored gathering.

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Oil Review

Interactive Chart of Weekly Crude Oil:

Here is the e-miNY Oct-07 Crude Oil chart.

It is presently (about 5:30am) at 73.70, a bit stronger. There was a big move yesterday morning as Oil zipped to almost 74.

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Gold & Precious Metals Review

Here is the Recent Spot Gold chart.

Spot gold is presently (about 5:50am) at 666.6, a small increase over yesterday morning.

Gold traders are looking for a weaker USD (say below 80.50) before rallying the bullion. I think they are soon to get it. I’ll be surprised if Prof Bernanke comes on as the bad cop at Jackson Hole today.

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Here is the Recent Spot Silver chart.

Spot silver is stronger today (6:00am ET), presently at 11.84.

I think silver will trade above 12 in the near future, then 13… 14, but it needs a weaker USD to do that.

I like the Kitco.com charts btw, but also need the ones at Yahoo Finance, StockCharts.com, BillCara2.com and ADVFN.com before making any opinion.

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Chart of US Goldminers Index $XAU :

The $XAU goldminers index pulled back a bit to 137.17 yesterday.

“Equity market rallies will continue to be led by Precious metals miners, I believe. And when the glitter goes away, so too will equity prices. Goldminer stocks are usually the last to pack it in as the Bear market starts.”

The $XAU will likely have a good run to the upside today, but the index needs to lift above the 50-day MA and the 200-day MA (into 143) before it clears the hurdle and starts to really rally. Should Prof Bernanke depart Jackson Hole WY today in a helicopter throwing money to the crowd, the gold traders will be a happy bunch.

The next rally (above 143) will likely take $XAU up to a level between 160 and 171 (prior cycle highs). When you look at the gains potential of the big caps in this industry (Barrick, Newmont, Goldcorp, Gold Fields, and so on), calculate the percentage difference between the index ($XAU) today 137 and 160-171 to see that there will likely be gains of between +16 pct and +25 pct. For the smaller cap stocks in the group, I expect the gains will be +25 pct to +33 pct.

Should the $USD fall into the 70’s and $GOLD move above say 725, I’ll re-assess my opinions. As of today, I expect this rally will be a seasonal September rally mostly, with some push due to USD weakness. The time I expect $GOLD to have a serious run to numbers above $800 will be when I hear of General Agreement on Currencies discussion by the G-20.

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Wrap-up

In addition to blogging, book writing and setting up a professional securities trading business in Bahamas, I am working up a deal to take control of a gold producer in Guyana, close to the Venezuela border, where I shall become managing director. This will be a private deal for qualified investors, and will not trade on a stock exchange. Investors who are seeking precious metal physicals, to be maintained in a gold bank, may be interested, but as I said, this will not appeal to traders of securities prices.

In the near future I will be making myself more accessible by phone, starting with skype.

If setting up a private Swiss banking account is of interest, I can help individuals and companies do that at EFG Bank & Trust Bahamas. EFG Group is the 3rd largest banking group in Switzerland, and the private bank EFG International ranks about 9th. Here is some research to consider. You’ll see why I made the choice of EFG. They are growing the fastest, and are true private bankers (ie, no corporate finance, and no trading against the client, etc).

Download report on EFG International.

Download report on Swiss private banking.

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