« Cara's Commentary & Community Chat, Sat., Feb. 9, 2008, 11:38am ET | Main | Cara's Commentary & Community Chat, Mon., Feb. 11, 2008, 7:35am ET »
February 10, 2008
Week in Review #6 (2008-02-10)
A week ago I opined that the Bear still roars. That position has been a constant for a couple months. For today, you will not hear much different.
(WIR#5 (Feb 2) I still hold the opinion that the equity market Bear trend exists and that any intermediate and short-term rallies are counter-trend. Despite several trillion dollars of lost wealth in the equity market since October, the primary Bear is just half over. There are too many Bulls and too much hope for the condition referred to as capitulation to (have already happened).
This week, all equity indexes were down significantly, from 3- to 5-pct or more, and the economic reports out of the US and elsewhere were most alarming. The G-7 finance ministers and central bankers who met in Tokyo yesterday (Saturday) must have been on the edge of their seats.
As Econoday opined in this week’s report,
”Investors are looking to avert risk and for a safe haven in which to invest. In times of economic uncertainty, it is normal that asset allocation flows shift out of the equity and credit markets and into government debt.”
The woes are more than economic weakness. With regard to money and banking, there are different issues at the forefront: (i) the G-7 hopes to see China continue to strengthen the Yuan against all currencies, not just the USD, (ii) the ECB thinks the Euro is too strong and wants it down, and (iii) banks still need to come clean as to their unrealized trading losses, and settle the mountain of litigation that is building.
I think by now most people see that the global banks and investors of real estate and securitized debt that is collateralized by real estate are in a death spiral as worthless assets on their books are being written off in the trillions of dollars. Liquidity in the banking system is drying up, and the credit ring amongst banks and other lenders is being broken (although the public is not being told that), while the major players with the most at stake are stepping in to buy out the ones that have broken down. Now the financial guarantor companies that propped up the whole financial system that went berserk over the past couple years (as I and others like Nouriel Roubini shouted unheeded warnings) are also failing. Rating agencies are being sued. Banks and other securitizers of worthless so-called asset-backed paper are also all being sued. Even governments and their agencies are suing.
What an incredible mess.
Now, the people who caused this mess, and their shameless supporters, are stooping to call people who merely reported it, names like Chicken Little and Goldilocks Basher.
The perpetrators of our dysfunctional society would gladly have you and I go down the tubes with them. Sorry, but I have chosen a different life to lead, one that has taken the high road where independence, objectivity, transparency and fairness in capital markets are the bricks under my feet. And when I see so-called leaders and “personalities” trying to crack that foundation, I scream bloody murder.
I hope you join me because this Bear market will be a bloodbath before it’s over. It will be over when the perpetrators and interventionists capitulate.
In the meantime they continue sticking more chewing gum into the holes in the dike. So I am anticipating one more attack against the inflation-sensitive energy and basic materials sectors – things like higher margins required by commodity exchanges, and more selling of government holdings of oil and gold reserves, and the like.
I won’t even be surprised at this point to see the confiscation of physical gold. It’s been done before by the US Government. Of course, before that happens, you can be sure that the movers and shakers who pushed the new laws into effect would have moved their gold to safe-havens.
With respect to the recent huge move in precious metals, I believe the $USD will continue strengthen, which will stop the parabolic rise this week in Platinum, (to a lesser extent in) Palladium, and the upward spike in Copper, Silver and Gold. Friday was a counter-trend move, I believe.
The Europeans clearly want to see a weaker Euro. This statement came out of the G-7 meeting in Tokyo this weekend.
European Union Monetary Affairs Commissioner Joaquin Almunia said the euro's broad trade-weighted value "has reached a level we can consider is above equilibrium level."
At the meeting, the delegates approved the sale of Gold by the International Monetary Fund, starting April.
While the entire financial world seems to be falling apart, traders must be careful not to fall into a mindset of excessive bearishness (or, at times, bullishness for that matter). One reason is that capital market prices lead the economic data by several months, and we don’t want to miss the trend and cycle reversals.
But we also don’t suffer credulity syndrome either, so we study the econ data to explain what has been happening to market prices. Not only are we looking for confirmations, but anomalous data as well.
There are clues in the data that we need to keep looking for.
Global Economics Review
Econoday International Report (Feb 8). Econoday reported:
“The spate of negative numbers regarding the U.S. economy (and those overseas) interspersed with the occasional positive number has more forecasters believing that the U.S. is on the cusp of a recession rather than a period of slow growth. (A recession is commonly defined as two quarters of negative GDP growth). Slow growth can be defined as below trend growth — and in the U.S. that means anything below an annualized rate of 2.7 percent and in the UK, under about 2.5 percent on the year…market participants look for new approaches to stem global financial turmoil emanating from the U.S. sub-prime mortgage crisis.
Whether the case is negative or very slow real economic growth, the fact is that global inflation is now in the 3- and 4-pct range by even the most positively-biased calculations, so investment returns from dividends and short-term debt instruments and money market funds is clearly negative. Moreover, as equity prices are falling, the total returns from most stocks are negative.
In summary, wealth is being destroyed by the trillions, month after month. One of the reasons is that the economy is in a downswing.
It is important to review the following reports published this past week on the US economy that continues to worsen. The positive news is now infrequent.
The US Factory Orders data for December.
The very troubling US Non-Manufacturing Business Activity data for January.
The weekly report for US same-store sales of general merchandise in January.
The report on US productivity and costs for 4Q07.
The weekly US oil inventory report, showing an inventory build as purchases are down.
The US Chain Store Sales Report.
The Bank of England rate cut on Thursday as required by a slowing economy.
The inflation concern-based decision by the ECB not to cut rates.
The report of growing weekly unemployment claims in the US, showing a worsening labor market.
So much for last week. Let’s look ahead.
US Economic Calendar for next week.
Along with many weekly reports, the big three monthly reports to come next week are as follows:
US Consumer Spending for January, which covers 2/3 of the GDP.
US Industrial Production for January, which accounts for 20-pct of the US GDP.
Industry and Cara 100 “Impulse” Review
Applied weekly to major industry groups, the “impulse system”, based on the excellent work of Dr. Alex Elder, gives a sense of market internals.
“Jock” reports:
THIS WEEK closed with 1 GREEN industry (mining) and 18 RED’s, compared to last week's 3 green and 4 Red.Last week, all 31 major industries rose in price (from 1.94% for computer software/services to 9.97% for specialty retail.).
This week, all industries FELL, (from -1.79% for energy to -7.53% for materials and construction).
13 Cara100's were GREEN and 52 were RED. (Last week's count was 33 to 30.)
Ticker Name Score
-5wksScore
-4wksScore
-3wksScore
-2wksScore
-1wksScore
-0wksABB ABB Ltd. +0 -2 -2 -2 +0 -2 ABV COMP DE BEBA AM ADS +2 +2 -2 -2 +2 +2 ABX Barrick Gold Corp. +2 +2 +0 +2 +2 +0 ADBE Adobe Systems Inc. -2 -2 -2 -2 -2 -2 AET Aetna Inc. +0 +2 +0 -2 -2 -2 AMAT Applied Materials Inc. -2 -2 +0 +0 +2 +0 ATVI Activision Inc. +0 +0 +0 +0 +0 +0 BA Boeing Co. +0 -2 -2 -2 +0 +0 BBBY Bed Bath & Beyond Inc. -2 -2 -2 +0 +2 +0 BBD Banco Bradesco S.A. -2 +0 -2 -2 -2 -2 BC Brunswick Corp. -2 -2 -2 +0 +2 +0 BDK Black & Decker Corp. -2 -2 -2 +0 +0 +0 BHP BHP Billiton Ltd. -2 -2 -2 -2 +2 -2 BMY Bristol-Myers Squibb Co. -2 +0 -2 -2 -2 -2 CCJ Cameco Corp. +2 +0 -2 -2 -2 -2 CCL Carnival Corp. -2 -2 -2 +0 +2 -2 CEO CNOOC Ltd. +0 +2 -2 -2 -2 -2 CHA China Telecom Corp. Ltd. +2 +2 +0 -2 -2 -2 CHL China Mobile Limited +0 +0 -2 -2 -2 -2 CHRW CH Robinson Worldwide Inc. +0 -2 -2 +0 +2 +2 COST Costco Wholesale Corp. +0 +0 -2 -2 +2 -2 CSCO Cisco Systems, Inc. -2 -2 -2 -2 +0 -2 CTSH Cognizant Technology Solutions Corp. +0 -2 -2 -2 +0 +0 CVX Chevron Corp. +2 +0 -2 -2 -2 -2 DB Deutsche Bank AG +2 -2 -2 -2 -2 -2 DELL Dell Inc. -2 -2 -2 -2 +0 +0 DEO Diageo plc -2 -2 -2 -2 +0 +0 DIS Walt Disney Co. -2 -2 -2 -2 +0 +2 DOW Dow Chemical Co. -2 -2 -2 +0 +2 +0 DNA Genentech Inc. -2 +0 +0 -2 +0 +0 ECA EnCana Corp. +2 +0 -2 -2 +2 +2 ERJ EMBRAER - Empresa Brasileira de Aeronáutica S.A. +2 +2 -2 -2 +0 -2 ERTS Electronic Arts Inc. -2 -2 -2 -2 -2 -2 EXC Exelon Corp. +0 +2 -2 -2 -2 -2 GE General Electric Co. +0 -2 -2 -2 +0 -2 GFI Gold Fields Ltd. +0 +2 +0 -2 -2 -2 GG Goldcorp Inc. +2 +2 +0 +2 +0 +0 GGB Gerdau S.A. +2 +2 -2 -2 +0 -2 GOL GOL Linhas Aéreas Inteligentes S.A. -2 -2 -2 -2 +0 -2 GOOG Google Inc. +0 -2 -2 -2 -2 -2 GRMN Garmin Ltd. -2 -2 -2 -2 +0 +0 GS Goldman Sachs Group Inc. -2 -2 -2 -2 +2 -2 GSK Glaxosmithkline plc -2 +2 -2 -2 -2 -2 HBC HSBC HLDGS PLC ADS -2 -2 -2 -2 +0 -2 HDB HDFC Bank Ltd. +0 +0 -2 -2 -2 -2 IBKR Interactive Brokers Group, Inc. IBN ICICI Bank Ltd. +0 +2 +0 +0 +0 -2 IMO Imperial Oil Ltd. +2 +0 -2 -2 -2 +2 INFY Infosys Technologies Ltd. +0 +0 -2 -2 +2 +0 INTC Intel Corp. -2 -2 -2 -2 +0 -2 JCP J. C. Penney Company, Inc +0 -2 +0 +0 +2 +2 JNJ Johnson & Johnson -2 +0 +0 -2 -2 -2 KB Kookmin Bank -2 -2 -2 -2 +0 -2 KO Coca-Cola Co. +0 +2 +0 -2 -2 -2 KSS Kohl's Corp. -2 -2 -2 +0 +0 +0 LEH Lehman Brothers Holdings Inc. -2 -2 -2 -2 +2 -2 LLTC Linear Technology Corp. +0 -2 -2 -2 +0 +0 MBT Mobile Telesystems OJSC +2 +0 -2 -2 -2 -2 MFC Manulife Financial Corporation -2 -2 -2 -2 +0 -2 MICC Millicom International Cellular SA +0 -2 -2 -2 +2 -2 NKE Nike Inc. -2 -2 -2 -2 +2 +0 NOK Nokia Corp. +0 -2 -2 -2 +2 -2 NTES Netease.com Inc. -2 -2 -2 -2 -2 -2 NUE Nucor Corp. +0 -2 -2 +0 +2 +2 ORCL Oracle Corp. +2 +0 -2 -2 -2 -2 OXPS optionsXpress Holdings, Inc. +2 +0 -2 -2 -2 -2 PAYX Paychex Inc. -2 -2 -2 +0 +0 +0 PBR PETROLEO BRASILEIRO +2 +0 -2 +0 +2 +0 PDA Perdigao S.A. +0 +2 -2 -2 +0 -2 PG Procter & Gamble Co. +0 +0 -2 -2 -2 -2 PTR PetroChina Co. Ltd. -2 +0 -2 -2 -2 -2 QCOM QUALCOMM Inc. -2 -2 +0 +2 +2 +2 RIO COMPANHIA VALE ADS +0 -2 -2 -2 +2 +0 RIMM Research In Motion Ltd. +2 -2 -2 -2 -2 -2 RY Royal Bank of Canada -2 -2 -2 +0 +2 +2 SBUX Starbucks Corp. -2 +0 +0 +0 +0 +0 SLW Silver Wheaton Corp. +2 +0 -2 +0 -2 -2 SNDK SanDisk Corp. +0 -2 -2 -2 +0 +0 STO StatoilHydro ASA +2 -2 -2 -2 +0 -2 SU Suncor Energy Inc. +2 +0 -2 -2 -2 -2 SWK Stanley Works -2 +0 +0 +0 +2 +0 TCK Teck Cominco Ltd. +0 +0 -2 +0 +0 +0 TEF Telefonica SA +0 +2 -2 -2 -2 -2 TGP Teekay LNG Partners LP. +0 +2 +0 -2 +0 +2 TGT Target Corp. -2 +0 +0 +0 +2 +0 TM Toyota Motor Corp. -2 -2 -2 +0 +2 +2 TOT Total SA +2 +2 -2 -2 -2 -2 TS Tenaris SA +0 -2 -2 -2 +0 +0 TT Trane Inc +2 +0 +0 +0 +0 +0 UBS UBS AG +0 +0 -2 -2 +0 -2 UTX United Technologies Corp. +2 -2 -2 +0 +2 -2 VCP Votorantim Celulose e Papel S.A. +0 -2 -2 -2 +2 +2 VIP Vimpel-Communications +2 +0 -2 -2 +0 -2 WAG Walgreen Co. -2 -2 -2 +0 +0 +0 WBK Westpac Banking Corp. -2 -2 -2 -2 +2 -2 WFMI Whole Foods Market Inc. -2 -2 -2 +0 +2 +0 WHR Whirlpool Corp. +0 -2 -2 +0 +2 +2 WMT Wal-Mart Stores Inc. -2 +2 +0 +0 +2 +0 XOM Exxon Mobil Corp. +2 +0 -2 -2 -2 -2 YHOO Yahoo! Inc. -2 +0 -2 -2 +2 +2 Summary: (+2/-2/other) 24/42/33 18/51/30 0/80/19 3/69/27 33/31/35 14/54/31 Net: (+2)-(-2) -18 -33 -80 -66 +2 -40 ÂAll the major US stock indices fell from neutral to RED. The Bombay, Shanghai, and Hong Kong and Tokyo indices were also RED. The US$ and CRB indices closed GREEN.
GOLD stocks stayed neutral, while SILVER stocks fell from neutral to RED.
BOTTOM LINE: Last week, after the 2nd cut, the "net green" count (greens minus reds) moved from -25 to -1. This week, the count slid back to -17.
Jock
NOTE: Alex Elder’s “impulse system” considers both the “inertia” in prices (where prices stand vs. their 26 wk. moving average) and their “momentum” (the rate their 13wk. and 26wk. moving averages are converging or diverging).
When both indicators (EMA and MACD-H) tick up, the reading is “green”; when both decline, it’s “red”. Applied weekly to major industry groups, indices, and their components, a sense of market internals emerges.
US Equity Markets Review
DJIA stockcharts.com chart
This week, for the Dow 30 stocks, only 2 were up (DIS and MCD) and 28 down. The DJIA lost -4.4 pct this week, putting the blue-chip stocks down by -8.2 pct YTD. I saw it coming and advised selling into strength.
A week ago, following another rally, I wrote, “The Interventionists are pumping hard to put life back into a dead Bull. But, traders are nervous, and I still believe that the Bear lives. The big movers were the Financials (C up +11.5 pct W/W and +19.0 pct over 2 weeks!!) (JPM up +10.6 pct W/W and +20.5 pct over 2 weeks!!) (But) Even with all the help from their friends in Washington, these banks did not solve their problems.”
This week the biggest losers in the Dow 30 were banks and companies that have a huge financial component: C -12.3 pct, GM -11.0 pct, AXP -9.3 pct, JPM -9.2 pct, AIG -9.1 pct and, after a few others, GE -6.4 pct. These are humungous hits in a single week, and clearly are correcting the recent gains in the market, which had been mostly short squeezes.
NASDAQ Composite ino.com chart
NASDAQ Composite stockcharts.com chart
A week ago I wrote: “Some of the moves this week were incredible (SNDK up +8.3 pct on Friday), and corresponded with our recent Buy Alerts. However, I think that the Semi-conductors had one good day – Friday.”
This week, the Nasdaq Composite dropped -4.4 pct, putting the index down -13.1 pct YTD. The semi-conductors, like I warned, were hammered. SMH dropped -6.91 pct W/W, and Intel (INTC) lost -6.9 pct.
Several weeks ago I wrote in this space, “Here is the list of the ten highest-weighted non-financial stocks in the Nasdaq Composite. Put them in a watchlist (see Google Finance Portfolio) and watch them like a hawk:
AAPL MSFT GOOG QCOM RIMM CSCO INTC ORCL GILD EBAY” I said that the Techs would lead the market one way or the other, and you know which way I was indicating.
Daily RSI-7 for the Nasdaq 100 Big-10
Weekly RSI-7 for the Nasdaq 100 Big-10
Monthly RSI-7 for the Nasdaq 100 Big-10
The US equity market Sector ETF Summary
The tables I show are for ten (GICS) Sector Index Funds (ETF’s) only, but they cover the full spectrum of the US equity market.
A week ago, the scoreboard read ten up and zero down. This week was the reverse. More to come.
A week ago, the best performer was Financials (“again”) and this week the Financials (XLF) plunged -8.3 pct. UBS -12.4 pct, C -12.3 pct, CS -11.3 pct, MER -10.6 pct, MS -10.5 pct, GS -10.0 pct, JPM -9.2 pct and LEH -9.0 pct, which are most of the biggest ones in the club I call Humungous Bank & Broker, were smashed.
A week ago on the back of that huge rally in the Financials, I wrote, “Volatility means traders must use prudence as in a Bear market, there are many confounding whip-saws.”
Table 1: Cara ETF List is sorted by price performance Week over Week (W/W), i.e. 1W%N.
| 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, go to the AMEX.com web site, and click on ETF’s.
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)
Here’s the XLE Monthly, Weekly and Daily data charts:
XLE Monthly data:
XLE Weekly data:
XLE Daily data:
The Energy sector ETF (XLE), did not get pumped up by Crude Oil contracts that jumped +2.81/bbl. In fact, as a continuation from the previous Friday when XOM and CVX pulled back, which I said was a warning.
(last week) A week ago, XOM on Friday dropped -2.40 pct. This Friday XOM dropped as well, and so did CVX. Yes, XLE was up +2.51 pct on Friday, but those Big Oil stocks dropped Friday. Warning.
Traders need to be watching the tells.
XLE this week dropped -2.10 pct, and the gain on Friday of +1.47 pct helped keep the W/W loss to a minimum.
But XOM (-4.9 pct to 81.71) and CVX (-3.9 pct) led Big Oil down. Isn’t it nice when a plan (ie, “sell XOM at 94-95”) works out?
The 200-day Moving Average of $WTIC is up to 80.07 from 79.46, up from 78.81, up from 78.30, which continues to rise. But, the 50-day MA is now at 91.74, down from 92.55 down from 92.69, down from 93.21, and falling.
A week ago, the Cdns, ECA (+7.2 pct W/W and +10.0 pct over 2 weeks) and SU (+6.2 pct W/W) were winners. This week, IMO +2.1 pct, SU +2.9 pct and ECA +2.6 pct were also winners. I haven’t been watching why. Maybe it’s because the Nigerian and Venezuelan imports to the US are being halted and the US needs to ramp up production from Canada.
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 |
Oil & Gas Exploration & Production -Canada
Sector 15 (basic materials: IYM, XLB, IGE and VAW)
Here’s the XLB Monthly, Weekly and Daily data charts:
XLB Monthly data:
XLB Weekly data:
XLB Daily data:
Basic Materials (XLB -2.66 pct W/W) dropped this week despite a gain of +2.29 pct on Friday. I gave the warning a week ago.
(Last week’s WIR) XLB (Basic Materials) was up +6.45 pct W/W from 38.44 to 40.92. There was a gain of +2.43 pct on Friday. Over the past week, the winners were RTP +19.3 pct (+28.4 pct over 2 weeks), BHP +16.2 pct (+21.5 pct over 2 weeks), and RIO +14.2 pct. These stocks are all in play for M&A. These trades are not based on operations data or financial results. Ultimately BHP will take over Rio Tinto (RTP), it appears, and Vale [CVRD] (RIO) will buy Xstrata (whose shares trade in Europe). Huge steelmaker Mittal (MT) did well, but most of the big golds were actually down, mostly due to the -14.50 sell-off Friday in $GOLD.
The Cara system gave Sells recently on Barrick, Goldcorp, Kinross, Goldfields, etc. I continue to believe the goldminers, like the oil producers, are headed south, along with the broad market. Rallies that take place over a day or two or even a week or two don’t impress me unless they are driven by factors other than Intervention and short-covering.
The whole group took a hit this week, but BHP was especially down (-10.7 pct) after its plans for a Rio Tinto takeover did not go well.
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 |
Sector 20 (industrial: IYJ, XLI, VIS, and IYT)
Here’s the XLI Monthly, Weekly and Daily data charts:
XLI Monthly data:
XLI Weekly data:
XLI Daily data:
Table 4: 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 |
XLI (Industrials) dropped -4.44 pct to 36.17 after having moved from 35.80 to 37.85 the prior week.
The sector losers among many this week were ABB (_9.8 pct), GE -6.4 pct and FDX -5.8 pct.
Sector 25 (consumer discretionary: XLY, IYC and VCR)
Here’s the XLY Monthly, Weekly and Daily data charts:
XLY Monthly data:
XLY Weekly data:
XLY Daily data:
Consumer Discretionary (XLY) dropped -4.15 pct to 31.44 after having moved from 30.86 to 32.80 a week ago.
I wrote four weeks ago in the WIR, “I can’t see US shoppers returning to the stores and malls until the gasoline price drops at the fuel pump. Right now, they are tapped out according to the credit card companies.”
Politics aside, the Crude Oil price lifted +2.81/bbl (+3.16 pct) this week, and traders feel that’s a negative for consumers. Also, the data on consumer spending is not looking good.
DIS and WHR lifted +4.8 pct and +3.9 pct respectively in a bad week. BC (-10.5 pct) and CCL (-8.9 pct) plunged. BC manufactures boats and CCL operates 3,000-passenger cruise ships. The deals to Nassau are really sweet I should say. :-)
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 |
Sector 30 (consumer staples: XLP, VDC, RTH and IYK)
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 |