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March 9, 2008
Week in Review #10 (2008-03-09)
Cash was king this week as the companies that have none sank the most and the ones that have strong cash flow at the worst of times outperformed the rest.
One look at the performance this week of the Dow 30 components shows the cash cows Microsoft (MSFT +2.5 pct), Coca Cola (KO +0.7 pct), Wal-Mart (WMT +0.6 pct) and AT&T (T +0.5 pct) were strongest, while bankers and insurers – the ones struggling to find cash – Citigroup (C -11.8 pct), AIG (AIG -8.5 pct), JP Morgan (JPM -7.6 pct) and Bank of America (BAC -7.6 pct) plunged the most as the DJIA (11893.7) dropped below the critical technical support level of 12000.
This was also a week where risk was priced into markets as bond traders switched out of Muni’s into the 2-, 5-, and 10-year US Treasuries. Are Muni’s safe? Traders are showing concern.
Traders who were sellers of equities this week fled into US T-Bills. In fact the yield on the 3-month T-Bill dropped from 1.71 pct to 1.35 pct. Last October at or near the peak of the equity market cycle (WIR #41-07 with the DJIA at 14093), the same yield was at 4.06 pct. So despite much higher inflation, traders are seeking temporary safety in risk-free Treasuries.
Among the worst sector performers this week were the Basic Materials (XLB -4.0 pct on Friday, which resulted in a loss W/W of -3.4 pct) and Energy (XLE -2.8 pct on Friday, resulting in a loss of -3.0 pct W/W). The US Jobs Report than was issued Friday morning has raised serious demand concerns, and so traders sold off shares, for example, in Chevron (CVX -2.9 pct on Friday and -1.6 pct W/W) to 85.26 and Exxon (XOM -2.4 pct on Friday and -5.2 pct W/W) to 82.49.
The continuing string of negative and worsening economic performance in the US has increased the talk of Recession and started some people thinking of a possible Depression, the likes of which have not been seen since the 1930’s. Based on the economic data, a Depression seems unlikely, but a perfect storm scenario seems to be building with the credit markets and bank reserves being in disarray, and inflation on the rise where producers cannot pass along their increased costs because consumers have used up their savings and credit lines and are struggling with record high prices of necessities like food, shelter and fuel.
So, unlike the idiotic Scotiabank TV commercial that claims “You’re richer than you think you are”, in fact your level of financial concern is rising, your jobs disappearing and you are suddenly falling behind in payments for mortgages, credit cards and telephone bills. You stopped buying bigger homes, and big ticket consumer discretionary items like new cars, furniture and appliances some time ago. Last Summer you decided that even the biggest clearance sales at the retailers were not affordable.
Where the credit crunch has hit home the most – the banks, telcos and consumer discretionary sectors – you’ve been selling to raise cash. In fact over the past six and twelve months the price performance in these three sectors is the worst across the broad market: down -16.1 pct and -20.4 pct for Cons. Discretionary (XLY), down -22.5 pct and -29.0 pct for Telcos (IYZ), and -26.3 pct and -31.4 pct for Financials (XLF) over 6 and 12 months respectively.
As a trader you have to ask yourself if conditions are likely to change in the next three to six months to where Mom & Pop start getting ahead financially, start spending again, and start saving and buying equities. You want to ask how the Telcos (and other financial income sources) are going to pay out high returns on capital without it being a return of capital. In addition, you want to know how the Banks can recapitalize their balance sheets without traders somewhere in the world taking on huge debt. Debt inspired by greed, after all, is the cause of the problems today.
There is a ridiculous notion in circulation today that says it’s a good time to lose because you are paying in cheaper dollars. Another is that you can get ahead by buying gold. How insane is that because there is no economic return in holding gold. This is just the same stupid mindset where people bought real estate at the peak because they thought there would never be an end to price increases brought on by speculation. But, at the end of the day, real estate prices were ridiculously priced, bearing no relation to its economic investment value. Same thing will happen to gold, and silver, platinum and palladium.
Precious metals have been a good hedge against the depreciation of all fiat money, particularly the fall of the $USD under an Administration and Congress whose over-spending is out of control and its income deliberately depressed. Without a concurrent increase in growth in wealth from the private sector, the public sector has become an albatross. This hasn’t gone unnoticed by bankers, private equity firms, and the powerful individuals who control the largest corporations, who decided to “get theirs”. Within the rules for the most part, they could and they did. Now look at the result.
These leaders of the private sector are now required to give formal testimony in Congress as to why they did such a thing as to over-spend. Isn’t it obvious? The same people asking the question ought to be looking themselves in the mirror. Next week, there will be a Federal Treasury Budget tabled for February. The deficit will be the largest ever by miles. Washington itself is out of control.
Like him or not, there was a lone individual running for Presidential leadership, Dr. Ron Paul, who for many years placed the blame squarely in the right place, and he has been treated like some kind of crackpot by the movers and shakers in local politics who are needed to build national confidence in a candidate’s electability.
Just like the public watched in the Congressional hearings this week, it’s all about packaging and optics and very little about substance and its use. Traders understand this.
Traders don’t care a whit about reasons behind the success or failure of any organization because they simply trade prices of securities and commodities where they understand and appreciate the fundamental, quantitative, technical and economic drivers. That’s the point I drive home in my book Lessons From the Trader Wizard, which I am told will definitely be published this month.
If the powers to be want to continue on track to expanding debt and weakening the value of money, traders will stay the course too and there will be a monster Bear market leading to Depression if there is no change at the source of the problem.
The situation in Washington, and in all international centers of federal government, is getting more ridiculous by the month. Next I suppose these legislators will be calling in independent traders and demanding to know why we pulled our bids causing a liquidity crisis or why Mom & Pop stopped visiting the stores to pay out hard earned money at the corporate cash registers, and why tax receipts are falling.
Seriously, we have a disconnect here. These politicians preening on camera have got to realize we see them wearing clown suits. There are good reasons why the opinion polls of politicians have them at the lowest ratings in history. They deserve it.
Global Economics Review
Other than the upcoming March 18th FOMC decision on monetary policy, last week’s US economic data reports was the biggest of the month and the results were mostly negative.
I believe the US is now clearly in recession, which I have been saying for many weeks. The weight of the evidence, ie, the economic data, has been piling up and can no longer be denied.
US Manufacturing index.US Construction spending for January, which is a forerunner of consumer inflation.
US Motor Vehicle Sales for February .
US Productivity and Costs report for February.
US Personal Income and Spending Data for 4Q2007 revised figures.
US Durable and Non-durable Goods Factor Orders for January.
US ISM Non-Manufacturing Data for February.
So much for last week. Let’s look ahead.
US International Trade data for JanuaryUS Treasury Budget for February
US Import and Export Prices for February
US Business Inventories-to-Sales Ratio for January.
US Consumer Price Inflation for February.
U of Michigan Survey of US Households to assess confidence in the US economy in March.
The economies of Europe and Japan are almost as bad off as the US and are worsening week by week. I fully expect these economies to go into recession as well, which means that significantly more than 50 pct of the global economy will be in recession at the same time.
The bad news gets worse because, as strong as the growth is in the emerging BRIC economies (Brazil, Russia, India and China), these markets cannot be unaffected by the others. I expect serious declines in the BRIC economic growth rates this year.
Weekly International Economic Report.
As I say, positive news is now infrequent.
Of greatest concern is that the tools of the Fed being used reportedly to solve the inflation problem are the same ones that caused it, which is excessive credit spurred by interest rates that are too low. In fact, the Fed has not embarked on this course to solve inflation, as they say, but to try to save the US banking industry. But the problem is the carry trade; capital that is created in the US banking system no longer stays (for the most part) in the US, but flees to other countries in search of higher returns. Moreover, the Treasury Dept so-called “solution”, which is a cash giveaway to American families to encourage them to spend more is another failure because most of the cash will be used to pay off debts and to make deposits into bank accounts that ultimately be lent to wealthy customers of the banks who will invest a large part of it abroad.
Rather than just letting the economy cycle through a normal credit tightening period, with the usual Bear market damage to stock and bond prices, these interventionists (the Fed and Treasury) are trying to suck and blow simultaneously. They are making the situation worse. Moreover, they are appealing to Sovereign Wealth Funds, which also have objectives that too often are counter to the owners of private capital.
This era of political intervention in capital markets is by far the worst I have seen in 40 years, which possibly could result in a global economic depression and an increase in military conflict within and among nations.
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 2 GREEN industries (energy, and mining) and 24 RED’s compared to last week's 3 green and 4 Red.
This week’s “market tenor” of 23 net RED versus 1 last week.
Nasdaq and NDX stayed NEUTRAL, while the DJIA and SP-500 turned RED. The Bombay Composite was RED, Shanghai NEUTRAL, Brazil’s Bovespa NEUTRAL, Russian RSX Index fund RED. The US$ index stayed RED, while the CRB index stayed GREEN, reaching (though not closing at) an all-time high.
GOLD and SILVER stocks stayed GREEN. In fact, Media General’s gold stock index saw all time highs (data extends back to 1989).
BOTTOM LINE: OUCH ! - Since the week ending February 1, only 3 industries (chemicals, energy, and mining) have “seen green”. Drugs and Health services have been the “reddest”. This tells us where to look for longs and for shorts.
Ticker Name Score
-5wksScore
-4wksScore
-3wksScore
-2wksScore
-1wksScore
-0wksABB ABB Ltd. -2 -2 -2 +0 +0 +2 ABV COMP DE BEBA AM ADS +0 +2 +2 +2 +2 +0 ABX Barrick Gold Corp. +2 +0 +0 +0 +2 +0 ADBE Adobe Systems Inc. -2 -2 +0 +0 +0 +0 AET Aetna Inc. -2 -2 -2 -2 -2 -2 AMAT Applied Materials Inc. +0 +0 +2 +2 +2 +2 ATVI Activision Inc. +0 +0 +0 +0 +0 +0 BA Boeing Co. +0 +0 +0 +0 +0 -2 BBBY Bed Bath & Beyond Inc. +2 +0 +0 -2 -2 -2 BBD Banco Bradesco S.A. -2 -2 +0 +2 +2 +2 BC Brunswick Corp. +2 +0 +0 -2 -2 -2 BDK Black & Decker Corp. +0 +0 +0 +0 +0 -2 BHP BHP Billiton Ltd. +0 +0 +0 +2 +2 +2 BMY Bristol-Myers Squibb Co. -2 -2 +0 +0 +0 +0 CCJ Cameco Corp. -2 -2 +0 +0 +2 +0 CCL Carnival Corp. +2 -2 +0 +0 -2 -2 CEO CNOOC Ltd. -2 -2 +0 +2 +2 +0 CHA China Telecom Corp. Ltd. -2 -2 +2 +2 -2 -2 CHL China Mobile Limited -2 -2 -2 +0 +0 -2 CHRW CH Robinson Worldwide Inc. +2 +2 +2 +0 -2 +0 COST Costco Wholesale Corp. +2 -2 -2 +2 -2 -2 CSCO Cisco Systems, Inc. -2 -2 +0 +0 +0 +0 CTSH Cognizant Technology Solutions Corp. +0 +0 +2 +2 +0 -2 CVX Chevron Corp. -2 -2 +0 +0 +2 +0 DB Deutsche Bank AG -2 -2 -2 +0 +0 -2 DELL Dell Inc. -2 -2 +0 +0 +0 +0 DEO Diageo plc -2 -2 +2 +0 +0 +0 DIS Walt Disney Co. +0 +2 +2 +2 +2 -2 DOW Dow Chemical Co. +0 +0 +0 +0 +0 -2 DNA Genentech Inc. +0 +0 +2 +2 +2 +2 ECA EnCana Corp. +0 -2 +2 +2 +2 +2 ERJ EMBRAER - Empresa Brasileira de Aeronáutica S.A. -2 -2 +2 +2 +0 -2 ERTS Electronic Arts Inc. -2 -2 +0 +0 +0 +0 EXC Exelon Corp. -2 -2 +0 +2 -2 +0 GE General Electric Co. +0 -2 +0 +0 +0 -2 GFI Gold Fields Ltd. -2 -2 -2 +0 +0 +2 GG Goldcorp Inc. +0 +0 +0 +2 +2 +2 GGB Gerdau S.A. -2 -2 +2 +2 +2 +2 GOL GOL Linhas Aéreas Inteligentes S.A. -2 -2 +0 -2 -2 -2 GOOG Google Inc. -2 -2 -2 -2 -2 -2 GRMN Garmin Ltd. +0 +0 +0 +0 +0 +0 GS Goldman Sachs Group Inc. +0 -2 -2 -2 -2 -2 GSK Glaxosmithkline plc -2 -2 -2 +0 +0 -2 HBC HSBC HLDGS PLC ADS -2 -2 +0 +0 +0 +0 HDB HDFC Bank Ltd. -2 -2 -2 -2 -2 -2 IBKR Interactive Brokers Group, Inc. +2 +0 +0 +0 -2 -2 IBN ICICI Bank Ltd. +0 -2 -2 -2 -2 -2 IMO Imperial Oil Ltd. -2 -2 +2 +2 +2 +2 INFY Infosys Technologies Ltd. +0 +0 +0 +0 -2 -2 INTC Intel Corp. -2 -2 +0 +0 +0 +0 JCP J. C. Penney Company, Inc +2 +2 +0 +2 +0 -2 JNJ Johnson & Johnson -2 -2 -2 +0 -2 -2 KB Kookmin Bank +0 -2 -2 +0 +0 -2 KO Coca-Cola Co. -2 -2 -2 -2 -2 +0 KSS Kohl's Corp. +0 +0 +0 +0 +0 -2 LEH Lehman Brothers Holdings Inc. +2 -2 -2 -2 -2 -2 LLTC Linear Technology Corp. -2 -2 +0 +0 +0 +2 MBT Mobile Telesystems OJSC -2 -2 -2 +0 -2 -2 MFC Manulife Financial Corporation +0 -2 +0 +0 +2 +0 MICC Millicom International Cellular SA +0 -2 +2 +2 +2 +0 NKE Nike Inc. +0 +0 +2 +0 -2 -2 NOK Nokia Corp. +2 -2 +0 +2 +0 -2 NTES Netease.com Inc. -2 -2 -2 +2 +2 +2 NUE Nucor Corp. +2 +2 +2 +2 +2 +2 ORCL Oracle Corp. -2 -2 -2 -2 -2 +0 OXPS optionsXpress Holdings, Inc. -2 -2 -2 -2 -2 -2 PAYX Paychex Inc. +0 +0 +0 +0 +0 -2 PBR PETROLEO BRASILEIRO +0 +0 +2 +2 +0 +0 PDA Perdigao S.A. -2 +0 +2 +2 +2 +2 PG Procter & Gamble Co. -2 -2 +0 +0 +0 +0 PTR PetroChina Co. Ltd. -2 -2 +0 +0 +0 -2 QCOM QUALCOMM Inc. +2 +2 +2 +2 +2 -2 RIO COMPANHIA VALE ADS +0 +0 +2 +2 +2 +2 RIMM Research In Motion Ltd. -2 -2 +0 +2 +2 +0 RY Royal Bank of Canada +0 +2 +0 +0 +0 -2 SBUX Starbucks Corp. +0 +0 +0 +0 +0 -2 SLW Silver Wheaton Corp. -2 -2 -2 +2 +2 +2 SNDK SanDisk Corp. +0 +0 +0 +0 +0 +0 STO StatoilHydro ASA -2 -2 +0 +2 +2 +2 SU Suncor Energy Inc. -2 -2 +0 +0 +2 +2 SWK Stanley Works +2 +0 +2 +2 +0 -2 TCK Teck Cominco Ltd. +0 +0 +0 +2 +2 +2 TEF Telefonica SA -2 -2 -2 -2 +0 +0 TGP Teekay LNG Partners LP. -2 +2 +2 +2 +0 -2 TGT Target Corp. +2 +0 +0 +0 +0 +0 TM Toyota Motor Corp. +2 +2 +2 +2 +2 -2 TOT Total SA -2 -2 -2 +0 +0 +0 TS Tenaris SA +0 -2 +0 +0 +2 +2 TT Trane Inc +0 +0 +0 +0 +0 +0 UBS UBS AG -2 -2 -2 -2 -2 -2 UTX United Technologies Corp. +0 -2 +0 +0 -2 -2 VCP Votorantim Celulose e Papel S.A. +2 +0 +2 +2 +2 +0 VIP Vimpel-Communications -2 -2 +0 +2 -2 -2 WAG Walgreen Co. +0 +0 +0 +2 +2 +0 WBK Westpac Banking Corp. +0 -2 -2 -2 +0 -2 WFMI Whole Foods Market Inc. +0 +0 +2 -2 -2 -2 WHR Whirlpool Corp. +2 +2 +2 +2 +0 -2 WMT Wal-Mart Stores Inc. +2 +0 +0 +0 +0 +0 XOM Exxon Mobil Corp. -2 -2 +0 +2 +0 -2 YHOO Yahoo! Inc. -2 +2 +2 +2 +2 +2 Summary: (+2/-2/other) 18/47/35 11/58/31 26/24/50 38/16/46 31/26/43 21/47/32 Net: (+2)-(-2) -29 -47 +2 +22 +5 -26 Are we staring into the abyss? Or will markets “find a bottom” at the January lows? Will gold break out at US$1000/oz. or fail after touching 1000, bringing gold stocks down?
To provide perspective (and comic relief?) here is Nixon’s 1971 speech taking the US$ off the gold standard (credit to themessthatgreenspanmade.com)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: 6 were up, 24 down. The damage was done again on Friday as the economic data (US Jobs Report) was terrible.
After the DJIA dropped -115 points a week ago, this week the loss was -372.7 points or -1.22 pct to 11893.7. Both the S&P 500 (-0.84 pct to 1293.4) and Nasdaq Composite (-0.36 pct to 2212.5) were knocked down less, percentage wise.
The biggest losers this week were those financial stocks that were pumped right before the horrendous AIG report two weeks ago, right before the take-down of the whole Financial sector.
In the Dow 30, the financials: JP Morgan (JPM -7.60 pct), Bank of America (BAC -7.55 pct), Citigroup (C -11.81 pct) and AIG (AIG) -8.49 pct) were trashed.
NASDAQ Composite ino.com chart
NASDAQ Composite stockcharts.com chart
The Nasdaq Composite has dropped from 2321.8 to 2303.4 to 2271.5 to 2212.5 this week. Nothing seems to be working, despite a rally attempt for the Software and Semi-conductor stocks (MSFT, ORCL and INTC).
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 at the time.
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
Two weeks ago, I added charts for the S&P 500 ETF (SPY) as well as put SPY into the expanded sector performance tables so that you can see how each sector is doing relative to the industry benchmark.
This week SPY futures dropped from 133.76 to 129.71. The S&P 500 dropped from 1330.63 to 1293.4.
Here’s the SPY Monthly, Weekly and Daily data charts:
SPY Monthly data:
SPY Weekly data:
SPY Daily data:
The tables I now show are for eleven GICS Sector Index Funds (ETF’s), including two for Technology (XLK and SMH), for a total of ten GICS sectors. They cover the full spectrum of the US equity market.
In the past few weeks, house mortgage rates have lifted, and Muni bond prices drop, going against the grain of US Treasury bond yields that are falling quickly as traders pour into risk-free instruments. The market is now pricing in risk to a greater degree.
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. SPY XLE XLB XLI XLY XLP IYH XLF XLK 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
The only sector in the US market that was up on the week is Semiconductors (SMH +0.28 pct) on the basis of some price advances in key stocks on Friday. The broad Tech sector (XLK) is down -1.48 pct this week.
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) was one of the worst performing sectors this week, which went against the grain of the price trend of the commodity for the second week in a row.
Speculators once again pumped the price of West Texas Intermediate Crude Oil by +2.46/bbl (+3.25 pct) to 105.15, which is an all-time closing week’s record. A week earlier, the same speculation pumped the contracts +3.88/bbl to 102.69 and the price had managed to hold its ground on that Friday, so I expected as much for this week’s rally in the Crude Oil.
Then a week ago, I reported, “But XLE traders decided to take profits in the stocks any way.” This week there was more profit taking, almost all of it on Friday when XLE dropped -2.76 pct to fall -3.01 pct W/W.
What this tells me is that traders are worried that recession will create demand issues that will soon pull the price of oil down. That situation will further depress the price of the oil stocks.
By far the big winners among the Energy stocks I monitor are once again Canada’s ECA, SU and IMO. But this week, Big Oil (XOM -5.2 pct to 82.49) and CVX (-2.9 pct to 85.26) took huge hits to their capitalization. When I see that the MACD for the Daily price series trend data has now turned down, and the cycles-based RSI-7 data for the Daily turned down earlier, I think there will be an ebb tide in the Oils (both the stocks and the crude contracts) this week and next, at least.
I am happy to get you out of the biggest capitalized stock of the world at 94-95 a couple months ago. The share price is likely to soon dip into the 70’s. How many Strong Buy, Buy or Hold recommendations are there still out there on XOM from Wall Street do you think? Well, the answer is 4-SB, 5-B and 8-H, so there are 17 who recommend it and zero who (even today) say it’s wise to sell or that the stock might under-perform the market.
On a scale of 1.0 (strong buy) to 5.0 (sell), the average rating is a solid 2.2. Among 12 firms, the mean Price Target is 97.58 and the median PT is 100.00.
In fact, one firm, UBS, upped the rating of XOM ($82.49) from Neutral to Buy on November 20-07 (when the stock was in the mid-90s). Is it any wonder why the share price of UBS, which happens to be the world’s biggest and most prestigious wealth manager has plummeted -42.1 pct over the past three months and -49.9 pct over the past 12 months?
Moreover, for the past three months (while I told you the stock, which happens to be a Cara 100 company btw, should be sold), three Wall Street analysts even upped their rating from Hold to Buy. What does it tell you when as the stock drops, the highest paid analysts in the world are raising their ratings?
To the clients who are getting ripped off, the so-called professional analyst reportage of these stocks should be an absolute, unmitigated outrage.
This is the reason why some Wall Streeters ought to be going to jail for theft (trillions are dollars are being stolen), rather than receiving parts of the $40 billion year-end performance bonuses they paid themselves this year out of client fees and profits earned by trading against the client order flow. But, I can tell you, it’s not my money they are stealing.
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:
A week ago, Basic Materials (XLB -0.94 pct W/W) was crushed -3.07 pct on that Friday, despite a USD that hardly moved on the day. Not known to most of you, before that day started, I issued a Sell Recommendation on Goldcorp (GG) at $44.71 with a Price Target of $31.50. The analyst median PT was 44.00 and the mean recommendation on the scale of 1.0 to 5.0 is 2.3, which is very favorable.
My report was sent to about 200 of you. Just for the record, on that day, there were 15 analysts reporting on the company (another Cara 100) of which there were 2 who called the stock to Under-perform, 3 at Hold, 8 at Buy and 2 at Strong buy. So, 10 of 15 so-called professionals were at Buy or strong Buy, and I am sure that each and every one of them over the moon with regard to the Gold bullion and futures contract prices almost touching $1,000 (vs $969 when my Sell had been issued about 8 or 9 days earlier).
Well, here is what I published in last week’s WIR, just for the record, which underscores my reasoning for the Sell Recommendation:
Regarding the metals and precious metals, a week ago I pointed out, once again, the parabola that defines these charts. That’s another way of saying INFLATION. HIGHER RATES OR MASSIVE RECESSION TO COME!! TAKE YOUR PICK.I think the two weeks into the March 18 monetary decision of the FOMC will decide the near-term outlook for precious metal prices. I think they are headed down for a couple months as the $USD strengthens. Later, of course, is a different matter because I think, following the extreme volatility, there will be more upside from even the lofty prices of today… GG/G up +10 pct Monday through Thursday and then I put out a negative report. (LOL) GG/G dropped -3.4 pct on Friday.
So, there you have it. Now, I wouldn’t be doing this if I wasn’t in my “proof of concept” mode. Let’s come back in a month or two and see the result.
Btw, following the Rob McEwen fight in court – he was right to fight for the shareholders, but a judiciary panel believed otherwise given they are bed-mates with the lawyers, regulators and so forth -- I happen to have kissed and made up with Goldcorp. I think they have as good or better a management team as the others and very good properties. I even thanked them for the tickets to the Leaf-Devils hockey game. But, I still think the stock is going down to a level where I will be keen to buy it.
At least I follow the company. It could be GM or Sears. (LOL)
This week XLB was, next to the Financials (XLF) the worst performer among the ten GICS sectors, plunging -4.02 pct on Friday, bringing the loss W/W to -3.39 pct, closing at 39.59.
TS, TCK and NUE – all related in some way to energy or steel – were strong early in the week, but hit the wall on Friday as traders started thinking that come a recession the demand for their products will drop.
Steelmakers from Brazil’s GGB (-5.7 pct) to South Korea’s PKX (-5.0 pct) had cooling furnaces by the end of the week.
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) lost -2.22 pct W/W, closing at 35.61. XLI dropped -1.44 pct on Friday.
ABB gained +1.55 pct after being up +4.8 pct and +3.9 pct the two weeks before. UPS gained +2.5 pct W/W.
Some losers here were ERJ (-4.7 pct), UTX (-4.3 pt), and CAT (-3.4 pct). But that’s not all.
Two weeks ago, I wrote: “A week ago, the aircraft manufacturers had a good one with BA +6.9 pct … taking off. Last week I added, “This week the market grounded them again: BA -2.6 pct and those jet engines of GE -2.4 pct. I suppose there was wind of Northrup Grumman’s (NOC) $40 billion win of the Air Force contract to replace tanker planes. I wonder if the votes in California and the Governor Schwarzenegger’s grandstanding (ie, endoresent) for McCain had an iota of involvement here. Yes, I think political chips get called, but I’m not going to waste time thinking about it. If you’re not in the room, you’re not in the deal. We got our own stuff to worry about.”
BA and GE dropped again, -7.5 pct and -2.8 pct. Now they are complaining to Congress. I guess they didn’t pay enough under the table.
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:
After Consumer Discretionary (XLY) was crushed -2.99 pct on the previous Friday, it was down a further -3.21 pct this week.
The Cara 100 winner was WHR (down just -0.8 pct W/W after being up on Friday by +1.7 pct). They were all losers, really: JCP -11.3 pct was the worst of a bad lot. No tickee is the problem.
Higher Crude Oil prices have moved to higher prices at the fuel pump, which is going to hurt the consumer spending. The economic report that was published this week showed that inflation has accounted for all the increase in spending for December and January. Does anybody believe that February or March will be any different?
At $105.15/bbl this week, the Crude Oil price has come a long way in 14 months … $51 to $105… man, that’s inflation.
Who would have thought, just a few years ago, that Americans would have been pushing their shopping cart down the yellow brick road to… a warehouse?
Tell me, how do these Big Box stores look any different than the old Soviet Russian GUM department stores, other than all the goods on the shelves that nobody seems to have the money to buy.
Well, buying and paying for it are two different stories. Depends on whether you are the government or Mom & Pop.
But, you heard all that before.
"Wait, what did you just say? You're predicting $4-a-gallon gasoline?" Bush responded to a reporter who said some analysts expect prices to soon climb that high. "That's interesting. I hadn't heard that. . . . I know it's high now."
The price of Crude Oil set another record this week, but I guess the President doesn’t get out of the limousine much to smell the fumes. (LOL)
Let’s see what the current US Treasury Budget does this week.
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 |