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August 31, 2008
Week in Review #35 (2008-08-31)
In markets today, there is a subtle shift of capital flows going on that I have observed and bears watching. As the economies of Japan and Europe are now showing the weakness that I was writing about for months as the untold story, the US Dollar has strengthened along with the US equity market. This does not mean a new Bull market for stocks has started, however.
The fact is that the growth rate of the global economy is rapidly slowing, with large pockets of recession, and the rate of producer and consumer inflation is far higher than the comfort level of any respectable central banker. The major financial services companies (banks, broker-dealers, insurance companies) are still to write down their so-called asset backed commercial paper holdings to market values, which is the reason these companies are illiquid and have limited funds to lend to producers and consumers. This credit crunch leads to a quandary for capital managers, producers and consumers alike. Where capital has been flowing has nothing to do with Bull markets or bullishness and everything to do with a desperate attempt to find safe havens.
Some capital managers are in denial; others are cranking out their excuses because they fear that the Other People whose Money they have been managing improperly are about to become an ugly crowd of litigants.
After the Financials (XLF) peaked on October 5, 2007 at 35.97, before plunging -53.4% to 16.77 on July 15, there were carefully crafted stories of oil shortages, refinery shortages, and the like, which served to move that capital from XLF to XLE (the energy sector). XLE then moved from a low of 62.97 on Jan 23 to a high of 91.42 on May 21. That move kept the major equity market indexes from outright collapse, even though the DJIA index did manage to fall -23.7% from a high of 14198 set on October 11 to a low of 10828 on July 15. The total capital transferred from Financials to Energy was in the mega trillions.
But, today, after a rally of +27.3% in the Financials from 16.77 (July 15) to 21.35, traders understand that the credit markets are still in a major crisis with extreme spreads getting worse, and more banks are failing every week. So they are not chasing the Financials higher, in fact the XLF peaked between late July and early August. That dinner’s been eaten.
Moreover, following the highs in XLE from May 21 through into July, traders now recognize that growth in the global economies cannot sustain crude oil prices in the 120-145 range, and so are knocking the price down, likely into the 80 range this Q4 and 1H09. So XLE dropped from a high of 90.16 on July 2 to a low of 68.35 on August 18. That was a drop of -24.2% in six weeks in what is the industry that has the world’s largest market value, which shows the power of these money flows. Now, just two weeks later, possibly because of fighting between the Russians and Georgians and possibly because of a major threat of Hurricane Gustav to the US oil fields in the Gulf of Mexico, the XLE has recovered +9.2%.
How much longer can money managers hang in behind XLE, knowing that (i) the global economy is in dire straits, (ii) the credit crunch cannot be terminated until the Financials complete their write-offs and restructure/raise more capital, and (iii) the political direction of America is decided following the removal of eight years of Texas oil people in the White House?
In that regard, I think the choice of oil lobbyist, gun-toting, right-to-lifer Alaska Gov. Palin for running mate on the Republican ticket is a clear indication of the GOP stance with respect to their biggest political supporters. That’s not to say I disagree with those positions, although I am surprised with the choice of a political unknown. America has this thing about the star system. I’m sure if Hollywood can make stars of people like Paris Hilton, Gov. Palin ought to be an easy Manolo Blahnik fitting.
Not to make jokes, but if they have already started from the likes of The Daily show and CNN’s lead news anchor Wolf Blitzer nonetheless, this is going to be a tough convention and campaign for the GOP.
Blitzer, soon after reporting that Palin had been chosen as the McCain running mate, was informed by the reporter who broke the story that his digging into her barely known past revealed that Gov. Palin had been an athlete on the high school volleyball team, where she had been known as ‘Sarah the Barracuda’. Said Wolf, in a mocking response, “Our little Sarah was quite the high schooler”.
I think she might be portrayed as a political Rodney Dangerfield by media leaders who are serious about the problems of the country and the steps being taken to turn around the situation. I’d like to say that I find it a bit unfair; but really is it? Texas Senator Kay Bailey Hutchison, one of the most prominent Republican women in the nation was startled at the announcement, while being interviewed at the time on CNN, and admitted she didn’t know Gov. Palin. Many of the CNN long-time reporters also said the same.
So, back to the market. Where are we, if as I say the Financial and Energy stocks, which are by far the two biggest industry sectors in the equity market are going nowhere? (I won’t even argue here that they are going south, although I could, but I just need to figure out what money managers are doing now and let the market move where it wants.)
After Energy and Finance, is capital flowing into Tech (XLK) maybe, since that’s the next biggest sector? No, not there either. In the past three months, XLK has dropped -9.7% and the Semi-conductor group (my leading indicator for Tech) is down -12.8% in that time, and -6.3% in the past two weeks alone while the S&P 500 is down just -1.1%.
Yes, where is the capital flowing? I say it’s going into safe haven places like US Treasuries -- from T-Bills to Bonds. The TLT (average 20-year term) is up +2.5% in the past four weeks, despite inflation data that is rocking and rolling.
Another pocket, although it may turn out to be full of holes, has been the small cap stocks. For instance the Russell 2000 index rallied from a July 15 level at 673.76 to a high of 764.38 on August 15, which was a one-month gain of almost +13.5%, and the current price is still at 739.50.
Driving T-Bill yields down well below short-term rates is not an effective long-term strategy for bullish traders. Some say, it’s nothing more than a panic move. But, really, what else are traders – particularly the ones who absolutely must pursue a long only strategy -- supposed to do other than go to cash?
Doesn’t this present situation go to show that the mutual fund model no longer works? I say that because I believe there are times that traders cannot afford to be 100% long, even with much larger than usual cash positions.
After the close Thursday, up +213 points in the DJIA index and +329 points over three straight days of gains, I opined early Friday that my 10000/2000 opinion (it’s not a forecast; it’s a guess) was still in place. The DJIA on Friday sold down -172 points, most of it in the late afternoon. Traders have not started a Bull market; they are not even bullish. They are scared.
Let’s take a closer look at what happened during the week.
Global Economics Review
For a few weeks now, I have opined “With respect to the US economy that is in dire straits, note that the tone is improving”. So, (i) I am not surprised to be hearing Talking Heads blow as much smoke here as they can find, and (ii) I hope you don’t simply extrapolate higher stock prices ought to result from the present picture. For the latter point, I refer again to how well the Chinese economy was performing over the past year, while the Shanghai Composite Index plunged from a high of 6124 (October 2007) to its present level at 2397.
In any case, there has been a surprising upward revision to the Preliminary Estimate for US GDP. Econoday reported as follows re the data that came out on Aug 28:
Revisions to second quarter GDP blew away any claims of recession for spring. The Commerce Department's first revision to second quarter GDP boosted the quarter's growth rate sharply to 3.3 percent from the initial 1.9 percent. The revised estimate for second quarter GDP beat the consensus forecast for a 2.7 percent gain. The upward revision was primarily due to upward revisions to exports and durables consumption. The second quarter jump followed a modest 0.9 percent increase the prior quarter.
What we look for in these macro-economic reports is for data that could become possible drivers of capital market prices, ie, in stocks, bonds, currencies, commodities, and futures. The interpretation of the changes in the economic data helps us, as a trend-following exercise, to explain the changes in the price and volume data in the capital markets. In other words, we use the economic data, which is full of estimates and covers prior periods and so forth, to support our analysis of fundamental (ie, company related), quantitative (ie both company and market related) and technical (ie market related) data. But, frankly, the only decisions that smart traders make with this economic data is to trade against the reactions of others who happen to be believers in its importance. This is the primary reason that economists make lousy traders.
Do you recall what I wrote in my commentary of May 30 2007 about how the former Goldman Sachs chief economist William Dudley was recruited as head trader of the Fed in November 2006, not long after Hank Paulson the ex-Goldman CEO was made Treasury Secretary, reminding you what I wrote immediately after that hiring?
In November 2006, William Dudley, 10 years the chief US economist for Goldman Sachs was parachuted in to the Federal Reserve Bank to oversee all open market trading operations of the FOMC, a position that was confirmed by the Fed executive on Jan 30-31, 2007. In my article, “Non Trader is now America’s CTO, Nov 29, 2006”, I alerted readers that Mr Dudley was not a trader, and that he often joked about how bad a trader he is… But I suppose he takes instructions well from Hank Paulson.
Please re-read my Nov 29, 2006 blog.
Mainstream media did not want to see any of this stuff in the 2H06 because Humungous Bank & Broker had the Goldman Sachs thing going for them and advertising sales were humungous as the DJIA index was soaring. That was the conflict of interest issue in play.
And when I pointed out where all this was leading the public, I was attacked by other bloggers, including some jerk management consulting firm that is called cxo advisors or whatever that says I am 2nd worst trader of anybody they diligently follow. Being a commercially free blogger, I have been tolerant to this point; but, mark my words, if that crap persists after I commence work as a professional trader, I’ll take action. These cxo management consultants and economists are not only incompetent in the field of capital markets, they are quacks for advancing the notion they understand trading, nevertheless professing rating expertise and the ability to pass judgment on professional traders.
The mind boggles at the crap that masquerades as legitimate service providers in the marketplace today. If professional traders do not perform well, they find themselves out of work or out of capital—at least unless somebody behind the scenes is pulling their strings like a puppet.
Weekly International Economic Report . The weekly report from Econoday dated 8/22/08 was another excellent one by the way. You’ll note how badly off is the Japanese economy and why the BoJ cannot raise rates, which has been helping out the Carry Trade in the Western capital markets.
I encourage everybody to read these reports and discuss them in the Discourse.
Here are the key US economic reports and the Econoday analysis from last week.
US Economic Calendar.US Existing Home Sales for July. Econoday reported: “Existing home sales posted their best headline since February, up 3.1% to a 5.0 million annual rate in July. But the rise didn't cut supply on the market, which remains severely bloated at 11.2 months and up from 11.1 months in June and 10.8 months in May. Bloated supply continues to pressure prices which fell 1.3 percent in the month to a median $212.4 million for a 7.1 percent year-on-year decline. Falling home prices, and related increases in foreclosures, arguably pose the greatest risk to the economy.”US New Home Sales for July. Econoday reported: “Housing starts in July fell sharply as expected after an artificial boost in the multifamily component in June. Starts fell 11.0 percent, following a 10.4 percent surge in June. The July pace of 0.965 million units annualized was down 29.6 percent year-on-year and beat the consensus expectation for 0.950 million units. The drop in starts was led by a 23.6 percent monthly falloff in multifamily starts, following a 41.3 percent spike in June. Single-family starts continued its downward spiral, falling 2.9 percent in the latest month, after declining 3.2 percent in June. July's level in starts was a return to more normal conditions after a change in building code in New York City - taking effect July 1 - led to a run on both permits and starts to grandfather in the less restrictive code… By region, the drop in starts was led by a monthly 30.4 percent decline in the Northeast with the South and West also declining, both by 8.2 percent. The Midwest posted a 10.0 percent gain… Permits also fell in July - by 17.7 percent, following a 16.4 percent surge in June. July's 0.937 million unit pace for permits was down 32.4 percent year-on-year… Today's report shows housing continuing to decline but not as severely as suggested by July's monthly percentage. The point of focus should be the further gradual decline in the single-family component and residential construction has not hit bottom yet. The July numbers were close to expectations and should not have much impact on the markets.”
US Durable Goods Orders for July. Econoday reported: “Durable goods orders in July were surprisingly strong-even after discounting a surge in aircraft orders. And businesses are looking past current weakness in the economy, continuing to invest in the economy. Durable goods orders advanced 1.3 percent in July, matching the 1.3 percent surge in June. New orders in the latest month topped the market forecast for a 0.1 percent advance. Excluding the transportation component, new orders increased 0.7 percent, following a 2.4 percent jump in June. Strength was moderately widespread. July's gain was the largest since a 4.1 percent surge in December 2007. Apparently, exports are still providing support for the manufacturing sector along with moderate a uptrend in equipment investment in the U.S., despite a slowing in consumer spending... Strength in overall orders included primary metals, up 2.2 percent; machinery, up 4.6 percent; fabricated metals, up 0.4 percent; communications equipment, up 2.9 percent; and transportation equipment, up 3.1 percent... Weakness was in computers & electronics, down 1.3 percent, and electrical equipment, down 6.0 percent... Businesses are optimistic about a return in growth in demand, based on their willingness to sink dollars into capital goods. In July, nondefense capital goods orders jumped 6.3 percent, following a 2.6 percent drop in June. Even after excluding aircraft, nondefense capital goods orders rose 2.6 percent in July after a 1.3 percent gain in June... Turning to the key source data for business equipment in GDP, shipments of nondefense capital goods rose 1.6 percent in July after gaining 0.5 percent the previous month. Despite many economists seeing a near flat third quarter for GDP, the business equipment component is off to a good start... Year-on-year, new orders for durable goods declined to down 4.5 percent in July from down 0.7 percent the month before... But in recent months, exports are still providing support for the manufacturing sector along with a moderate uptrend in equipment investment in the U.S., despite a slowing in consumer spending. Today's numbers should nudge interest rates up and provide lift to equities. However, for rates, there is some damping movement from comments by Atlanta Fed President Lockhart, making dovish comments that inflation will be coming down due to lower oil prices and a slowing economy.”
US Personal Income and Outlays for July Econoday stated: “The July personal income report showed a drop off in income tax rebates pulling down overall income. Meanwhile, inflation is outstripping moderate gains in spending. Personal income in July fell 0.7 percent, following a 0.1 percent rise in June. The July number came in far worse than the consensus forecast for a 0.1 percent decline. Within personal income, the wages and salaries component posted a moderate 0.3 percent gain, following a 0.2 percent rise in June… Spending was moderated by a sharp dip in motor vehicle purchases. Personal consumption expenditures in July slowed to a 0.2 percent rise, after jumping 0.6 percent in June. The market had projected an increase of 0.2 percent for personal spending. Strength was in a 0.5 percent boost in services, followed by a 0.3 percent rise in nondurables. Durables fell 1.5 percent… Turning to inflation, the headline PCE price index remained quite hot with a 0.6 percent jump - only slightly down from June's red hot 0.7 percent surge. The core PCE price index held steady but at a pace unacceptable to the Fed, rising 0.3 percent in both July and June. The latest number matched consensus expectations… Year on year, personal income growth fell to up 4.2 percent from up 5.5 percent in June. Headline PCE inflation jumped to up 4.5 percent from up 4.0 percent the month before. Core PCE inflation rose to 2.4 percent from 2.3 percent in June… Today's report shows the consumer sector on increasingly shaky ground as inflation is eating away at income and spending even as rebate checks have fallen off. Real spending actually fell 0.4 percent in July, after dipping 0.1 percent in June. The July numbers take a lot of luster off yesterday's upward revision to GDP. While the news should be a negative for equities, it is unclear about the impact on bonds. The high inflation numbers are likely to have the larger impact, firming yields, but the weaker income and real spending data could send rates down.”
How is next week’s calendar looking? First off, the central banks of Canada, the UK and the ECB are reporting, and Friday is US Jobs Friday, so this will be an interesting week.
US Economic Calendar.US ISM Manufacturing Index for August. For July, Econoday reported: “Production and employment popped higher in the ISM's manufacturing report for July but, in an ominous reading, new orders fell nearly 5 points to 45.0 for the lowest reading since the 2001 recession. Backlog orders also declined, down 4-1/2 points to 43.0 for its lowest reading since early 2003. If there is good news it's that inventories remain thin, with the overall inventory index down more than 6 points to 45.0 and the customer inventory index, which asks respondents to assess inventories at their suppliers, down 8 points to 47.0. Perhaps because of thin inventories, manufacturers, at least in this survey, are adding employees with the employment index up more than 8 points to 51.9 for its best reading since April last year. But the reading contrasts with this morning's employment report where manufacturing extended two years of payroll contraction. Production is solid in the report at 52.9 vs. June's 51.5. The strength in employment and production helped keep the overall index steady at a dead-even 50.0 for the month.”US ISM Non-Manufacturing Index for August. For July, Econoday reported: “U.S. purchasers are reporting declines in new orders, pointing to trouble for second-half growth and employment. The new orders index in ISM's non-manufacturing report fell nearly 1 point to 47.9, the lowest reading since January and the second lowest of the whole expansion. The new orders index in last week's ISM report on the manufacturing side fell nearly 5 points to 45.0 for the single lowest reading of the expansion.”
US Factory Orders for July. For June, Econoday reported: “Boosted by inflationary effects but also reflecting underlying strength, factory orders surged 1.7 percent in June. Factory orders for May were revised 3 tenths higher to a gain of 0.9 percent. Orders for non-durable goods, reflecting price gains for petroleum and coal, jumped 2.5 percent in June following a 1.7 percent gain in May and a 3.5 percent gain in April. These gains reflect the input cost inflation that is plaguing manufacturers who are struggling to pass through these costs to their customers.”
US Jobs Report for August. For July, Econoday stated: “The overall economy may not yet be in recession but the July jobs report shows the labor sector in recession with the seventh consecutive decline in payroll jobs and a rise in the unemployment rate. Nonfarm payroll employment in July declined 51,000, following an equal drop of 51,000 in June and a fall of 47,000 in May… The latest decrease was led by declines in manufacturing and construction with losses of 35,000 and 22,000, respectively. Goods-producing jobs decreased 46,000 as natural resources & mining rose 11,000 in July. Service-providing jobs actually slipped 5,000 after rising 26,000 in June. Revisions to overall payroll jobs in May and June were a net increase of 26,000.”
The US macro-economic data shows that there are pockets of improvement, but the conclusions may be faulty. The credit crunch continues, making it difficult for producers to raise prices (despite rising costs) or consumers to go out and buy houses and cars and other costly durables. In fact, traders today are more focused on the plight of the Financials than they are with macro-economic data, particularly after they saw the same lousy data being reported in the UK, Europe, and Japan.
US Equity Markets Review
DJIA stockcharts.com chart
The cracks in the bullish camp became more visible this week. While the stocks of solid DJIA component companies like General Electric (GE -3.5% W/W), Pfizer (PFE -3.2%), Intel (INTC -2.6%), Procter & Gamble (PG -2.6%) and IBM (IBM -2.6%) were trashed this week, look at what the Dogs of the market did: Freddie Mac (FRE +60.5%), Fannie Mae (FNM +36.8%), Merrill Lynch (MER +12.4%) and Lehman Brothers (LEH +11.7%)!!!
Meanwhile, the DJIA lost -0.72% to 11543.55 from 11628.06, and the S&P 500 -0.73% to 1282.83 from 1292.20. Friday was a killer.
On the week, there were 11 Dow components that were up and 19 down.
At the end of this week, there were 2 of 10 sectors that lifted in price. The winners – for now at least -- were the Financials (XLF +3.2%) and Telecom (IYZ +0.8%).
NASDAQ Composite ino.com chart
NASDAQ Composite stockcharts.com chart
The NASDAQ Composite dropped -1.95% this week to 2367.52 from 2414.71, after dropping -1.54% the previous week. Tech is now out of favor.
Volume was lowest of any week this year.
One of the highlights, as I had indicated might be the case, were small cap stocks. The Russell 2000 index was up +0.3% on the week despite losing -1.1% on Friday. But even on Friday the losses in the other major market indexes were relatively much higher.
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. If you want, add a couple like SNDK and ADBE:
AAPL MSFT GOOG QCOM RIMM CSCO INTC ORCL GILD EBAY
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
This week, there were 2 sectors up and 8 down. On Friday there were zero up.
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.
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 many ETFs, 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:
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 |
Crude Oil ($WTIC gained +$0.87/bbl (+0.76%) this week to 115.46, which was not enough to push the energy stocks higher. XLE lost -0.35% W/W to close at 74.50, losing -0.84% on Friday.
I surmise that there has been a release of Special Petroleum Reserves to control the price heading into what appears to be an emergency condition in the Gulf of Mexico this weekend, with Gustav being a potential Category 4 storm as it hits the oil fields.
Remember, it was just seven weeks ago that $WTIC was $145/bbl, and the economy was thought to be weaker then, and there were no Cat 4 hurricanes in the vicinity of the prime US oil fields and refineries.
This week, the only oil stock that fared well was China National Offshore Oil (CEO +10.4%), which has a two-week gain of +15.9%. SLB and CVX were weakest in my list.
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:
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 |
Basic Materials (XLB -0.25% to 39.60) was pulled down by Friday’s loss of -1.1%.
Steel stocks like MT (+3.3%), TS (+2.9%) and GGB (+2.5%) were the leaders here but so was another steel stock PKX (-3.5%) the loser.
All in all, these stocks sidetracked.
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 |
The Industrials (XLI -0.20% W/W) closed at 35.22, caused by Friday’s loss of -1.23%. Volume was very low, just like in the other sectors, so I wouldn’t make too much of any of this stuff.
Textron (TXT +6.8%) was the big winner; a week ago at -9.1%, it was the big loser.
I wouldn’t make too much of it. Most stocks were quiet. ABB gained +4.3% and GE lost -3.5%.
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:
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 |
Consumer Discretionary (XLY -0.42% W/W) closed down at 30.53. The loss on Friday, with very low volume, was -0.94%.
The big winners moved modestly: BDK +1.8% and JCP and TTM each up +1.7%. NKE was the big loser at -0.82%, which isn’t much.
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 |
Consumer Staples (XLP -1.89% W/W to 28.10) was a loser again this week. The two-week loss is over -3.0%, so this sector has not proven to be too defensive.
PDA gained +1.1% this week as the big winner, but is still down -1.4% over two weeks. The losers in my list are KO -4.2% and SBUX -3.0%. Sounds like no spare change for beverages.
Sector 35 (healthcare: IYH, XLV, VHT, IXJ, and IBB)
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 |
The Healthcare sector (IYH) lost -1.73% W/W to close at 66.48, thanks to a loss of -1.03% on Friday. Still, IYH is down almost -3.0% over two weeks.
GSK at +1.3% and BMY -4.5% were the movers.
A week ago, I noted: “Medtronics (MDT +4.5%) has been on a tear since mid-May, from under 47, hit a high of 56.97 Friday. The Monthly-Weekly-Daily RSI-7 is 69.2/78.8/75.9. If I held the stock, which I don’t, I’d be gone this coming week.” MDT dropped -3.36% this week.
Sector 40 (financial: IYG, IYF, XLF, VFH, IXG, VNQ, RWR, IYR, and ICF)
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 |
The Financials (XLF +3.24% to 21.35) rallied, and traders are wondering why.
Maybe they didn’t like my remarks from a week ago, “Do you know why most banks still own FNM and FRE in their portfolios? The truth is that if they sell them, a major capital loss would need to be taken and most of these banks would lose so much capital their remaining reserves would be underwater. Those banks would be kaput. Toast… You remember these are the same banks that participated in the Liar Loans they syndicated and sold to Fannie and Freddie, taking back their stock. So, let’s start calling these the Habitual Liar Banks when they refuse to write off their investment in Fannie and Freddie.”
One look at the Financials board this week shows what’s up, and it ain’t pretty: the Dogs of this sector did it: Freddie Mac (FRE +60.5%), Fannie Mae (FNM +36.8%), Merrill Lynch (MER +12.4%) and Lehman Brothers (LEH +11.7%)!!!
Meanwhile, the XLF gained +3.2%. Go figure. This result is precisely why we have to day trade this market. The long-term oriented trader, many of whom are making the right decisions, is getting slaughtered.
Deutsche Bank took off the week to prepare for a few rounds of golf at their PGA tournament. Canadian Mike Weir shaved the hockey playoff beard and had an amazing start. DB lost -1.0% on the week. Not bad.
Sector 45 (technology: IGM, IGV, IGW, XLK, VGT, IYW, IGN, IXN, MTK and SMH)
Here’s the SMH Monthly, Weekly and Daily data charts:
SMH Monthly data:
SMH Weekly data:
SMH Daily data:
Here’s the XLK Monthly, Weekly and Daily data charts:
XLK Monthly data:
XLK Weekly data:
XLK Daily data:
Table 9: Senior technology equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Tech (XLK -2.15% to 22.80 and Semi-conductors (SMH -2.23% to 28.50) were dumped again this week. Just like last week they were the worst sector and sub-sector performers.
Two weeks ago I wrote here, “(XLK and SMH) were not in full-out rally mode this week like the previous week, but they were good for the Bulls or the future shorts or whatever.” Then last week: “Thank you. You knew what I meant.”
SMH and XLK are down -3.80% and -6.25% respectively over the past two weeks. The Bulls got taken to the cleaners by the shorts.
Google (GOOG -5.6%) and Research In Motion (RIMM -7.5%) were big losers in Tech.
Among the chip makers, Intel (INTC -2.6%) and SanDisk (SNDK -3.7%) were also losers.
Isn’t it amazing that right after the rumors of two and three weeks ago – the ones I opined at the time ought to be investigated by the SEC – the chip stocks have been killed. The only freebies in markets are the ones the SEC let shysters get away with. With the forensic software the SEC has these days, this isn’t the rocket science portrayed by CSI of Hollywood fame. I believe there was fraud here, but the people will likely never find out. This is why there is a need for a top securities regulator that is independent in all respects from the Administration.
Sector 50 (telecom: IYZ, VOX and IXP)
Here’s the IYZ Monthly, Weekly and Daily data charts:
IYZ Monthly data:
IYZ Weekly data:
IYZ Daily data:
Telecom (IYZ +0.84% W/W) closed up at 23.92.
Verizon (VZ -0.5%) was a loser, but AT&T (T +2.6%) made some ground.
Sector 55 (utilities: IDU, XLU, and VPU)
Here’s the XLU Monthly, Weekly and Daily data charts:
XLU Monthly data:
XLU Weekly data:
XLU Daily data:
Utilities (XLU -0.34% W/W) closed at 37.72, but lost -1.72% on Friday as Gustav’s presence became more ominous for the refiners and distributors in the south.
I keep saying this, but truly as soon as I can get around to it, I’m going to set up new tables for the Dow Utilities and the major Telecom companies, plus key inter-listed stocks on all the Exchanges covered by ADVFN.com, which continues to grow its service.
Bonds & Yields Review
Table 10: US Treasury Yields
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 3 Month | 1.64 | 1.68 | 1.64 | 1.63 |
| 6 Month | 1.88 | 1.90 | 1.90 | 1.84 |
| 2 Year | 2.36 | 2.35 | 2.40 | 2.63 |
| 3 Year | 2.17 | 2.16 | 2.26 | 2.50 |
| 5 Year | 3.09 | 3.04 | 3.13 | 3.36 |
| 10 Year | 3.81 | 3.78 | 3.87 | 4.04 |
| 30 Year | 4.42 | 4.37 | 4.46 | 4.64 |
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 2yr AA | 2.15 | 2.08 | 2.20 | 2.28 |
| 2yr AAA | 2.13 | 2.14 | 2.08 | 2.12 |
| 2yr A | 2.21 | 2.37 | 2.27 | 2.57 |
| 5yr AAA | 2.72 | 2.66 | 2.71 | 3.08 |
| 5yr AA | 2.82 | 2.81 | 2.85 | 3.08 |
| 5yr A | 2.89 | 2.89 | 3.00 | 3.14 |
| 10yr AAA | 3.56 | 3.57 | 3.53 | 3.80 |
| 10yr AA | 3.52 | 3.54 | 3.51 | 3.76 |
| 10yr A | 3.61 | 3.61 | 3.61 | 3.85 |
| 20yr AAA | 4.56 | 4.60 | 4.52 | 4.85 |
| 20yr AA | 4.62 | 4.66 | 4.58 | 4.97 |
| 20yr A | 4.80 | 4.84 | 4.76 | 4.82 |
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 2yr AA | 4.16 | 4.16 | 4.20 | 4.39 |
| 2yr A | 4.83 | 5.09 | 4.72 | 4.90 |
| 5yr AAA | 4.80 | 4.83 | 4.91 | 5.16 |
| 5yr AA | 5.43 | 5.36 | 5.39 | 5.56 |
| 5yr A | 5.69 | 5.68 | 5.60 | 6.08 |
| 10yr AAA | 4.60 | 4.56 | 4.57 | 5.49 |
| 10yr AA | 5.69 | 5.94 | 5.87 | 6.21 |
| 10yr A | 6.05 | 6.02 | 6.20 | 6.23 |
| 20yr AAA | 5.94 | 5.91 | 5.96 | 6.19 |
| 20yr AA | 5.74 | 5.70 | 5.76 | 5.99 |
| 20yr A | 6.19 | 6.16 | 6.21 | 6.45 |
Bond prices were a tad stronger this week, mostly out of the safe-haven move.
For the week, the yields for the US Treasury 2-year, 5-year ($FVX), 10-year ($TNX) and 30-year ($TYX) were down -4 bp, -4 bp, -6 bp, and -4 bp respectively, to 2.36, 3.09, 3.81 and 4.42, but I don’t think the volume was high.
The 20-year TLT closed the week up +0.83% to 93.85. The TIP gained just +0.08% to 106.36.
Here is the $USB 30-year Treasury Bond chart.
Interest rates and bond yields.
Interactive Daily data charts:
Interactive Chart of Interest rates and bond yields.
US Bond Funds -- Interactive 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 -- Interactive 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 -- Interactive 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:
Table 11: Interest-sensitive securities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
So Fannie and Freddie this week gained +36.8% and +60.5% respectively. This wasn’t the work of serious traders or even speculators. This was the work of (i) HB&B, and (ii) gamblers. I say that because if you weren’t in the back room in the deal, then you had to be gambling. No one group in the public, and probably no one at Fannie/Freddie or the Admin/Treasury knows how much more ABCP crap will need to be written off. So, roll the dice.
I am not interested. I have guessed that these Dogs will be permitted to stick around until the Treasury Secretary departs the Admin so he can say their demise happened on somebody else’s watch. Ha!
A week ago FNM dropped -36.8% and FRE -52.0% W/W. Over the course of just ten sessions, the losses were -44.8% and -52.4% respectively. These Dogs have to attract a lot of gamblers to make it through to January when the next Treasury Secretary has to make the ultimate decision.
Consumer Finance -USA -- Interactive Weekly Data Charts
Consumer Finance -USA -- Interactive Daily Data Charts
Commodities Review
The $CRB lost -3.09 (-0.78%) to 391.71 this week. $CRB dropped -0.42% on Friday.
Interactive Chart of Weekly CRB Commodities Index:
Interactive Chart of Daily CRB Commodities Index:
Oil Review
$WTIC (US Light Sweet Crude called West Texas Intermediate) gained +$0.87/bbl (+0.76%) to 115.46. That’s not much, but traders are talking about Gustav and the federal government Special Petroleum Reserves.
I prefer to let it go until we see what happens after Gustav hits, and the feds do their thing.
The 50d MA for $WTIC is now at 127.15, and the 200d MA is 111.17. The latter is quite close to the weekly low price of 112.36, which for the time being is serving as technical support.
Six weeks ago in this space, I wrote, “I feel the market price (then at 129.47) will hit the 200-day MA price (then at 106.58) sometime in the next couple months.” We’re there.
Here is the e-miNY Dec-07 Crude Oil chart.
Interactive Chart of Weekly Crude Oil:
Interactive Chart of Daily Crude Oil:
Gold & Precious Metals Review
$GOLD lifted +$1.70/oz (+0.20%) to 835.20 this week. That’s a tad short of the gain of $41.40/oz a week earlier. But, for some reason the Bulls seem to be thinking it’s on the way to a new record. They even heard that from the President of Newmont this week, which I suppose is like hearing it from a newsletter writer.
Another interesting comment I heard this week was from Peter Munk the founder and Chairman of Barrick, which is the world’s largest gold producer. He said in an interview with BNN that traders took to calling industry experts like him ‘heretics’ for their prudent action in hedging gold. That hedging practice, he said, allowed him to take his company as a predator into top spot. He knew what he was doing at the time; and he knew that the Gold Bugs and Silver Crazies were pissed that he wasn’t hoarding gold. I loved the discussion because it speaks directly to the point I make continuously in this blog that traders must be independent and objective in their analysis. We are traders. We buy low and sell high. We don’t buy and hold.
For $GOLD, the 50d MA is now 895.49, and the 200d MA is 892.90. The 50d MA will soon drop below the 200d MA, which is a crossover that every Gold Bull is dreading. The current price (835.20), being well below the MAs, which themselves are now pointing down, is quite Bearish.
But, at the end of the week, I’d have to say not much happened in the precious metals this week except for a bit of a pop in platinum and palladium, which you will see later I call a Dead Cat Bounce.
Interactive Chart of Weekly Gold EOD Continuous Contract Index:
Interactive Chart of Daily Gold EOD Continuous Contract Index:
Interactive chart of recent trading for the Gold Bullion index.
Spot silver chart for the week
$SILVER gained +$0.12 (+0.86%) this week to close at 13.71. It was $19.55 about six weeks ago, so, no, I don’t see how the Silver Crazies can be happy.
For $SILVER, the 50d MA is now 16.50, and the 200d MA is 16.76. Both are falling, and guess what; the dreaded negative cross-over did occur for $SILVER as you can see, but may have glossed over. Don’t miss these things!
Interactive Chart of Weekly Silver EOD Continuous Contract Index:
Interactive Chart of Daily Silver EOD Continuous Contract Index:
Interactive chart of the Silver Bullion index.
$PLATINUM gained +$48.60/oz (+3.37%) this week to close at 1489.80. The prior week’s gain was +$53.00/oz, so this is quite a bounce.
The problem, as I stated last week, is that a week earlier it was down -$171.40/oz (-10.99%). Besides, the 50-day MA for $PLAT is 1760.37 and the 200-day MA is 1825.41. Both are falling and the 50d MA is crashing, having fallen below the 200d MA, which is that dreaded negative cross-over. Hmm, I’m thinking that because the $USD is still gaining strength, and is likely to remain in a Bull phase, and the Gold (and to a lesser extent Silver) didn’t do squat this week that PLAT/PALL are enjoying what is called the Dead Cat Bounce.
Spot platinum chart for the week
Interactive Chart of Weekly Platinum EOD Continuous Contract Index:
Interactive Chart of Daily Platinum EOD Continuous Contract Index:
Interactive chart of the Platinum metal index.
$PALLADIUM gained +$14.95 (+5.12%) to close at 306.80. A week ago it gained +$5.05/oz. The problem is that a week earlier it lost -46.20/oz, and at the beginning of summer, it was a high of $484.90. That’s quite a plunge, and a small recovery bounce. The 50-day MA is now 386.41 and the 200-day MA is 420.30. The 50d MA is falling faster than the 200d MA and there has been a negative cross-over.
So, I still think, despite the gain again this week, that this is a Dead Cat Bounce.
Spot palladium chart for the week
Interactive Chart of Weekly Palladium EOD Continuous Contract Index:
Interactive Chart of Daily Palladium EOD Continuous Contract Index:
Interactive chart of the Palladium metal index.
$COPPER contracts lost -7.25 (-2.10%) to 338.70. It’s been a tough month, but traders are recognizing the impact of the slowing global economy.
The 50-day MA for $COPPER is now 359.99 and the 200-day MA is 354.40.
I think the world is now in an iron ore market, and not so much one for copper.
Interactive Chart of Weekly Copper EOD Continuous Contract Index:
Interactive Chart of Daily Copper EOD Continuous Contract Index:
Interactive chart of the Copper metal index.
Table 12: Senior gold equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
The Goldminer stock group indexes lifted a tad this week: $XAU +0.26%, GDX +0.13% and XGD +2.50%.
As I pointed out a week ago, “For the most part this was a Dead Cat Bounce, and the start of a cycle bottom process where the final bottom will be found over the next three months I believe.”
The 50-day MA for $XAU is 168.94 and the 200-day MA is 178.13, and both are falling. It was several weeks ago when the negative cross-over occurred that I became a believer that the Bulls had it wrong.
Nobody ever claimed that the junior gold market isn’t exciting, but now we taken things to a whole new level. This video clip is a must-see. This is actually brilliant improv, putting comedy up to the level of tragedy.
As a trader, I seek to avoid both.
To watch the moves in precious metal miners, you will have to monitor the individual stock charts, preferably in real-time, as follows:
NEM ABX AU GFI GG HMY AUY KGC BVN
Interactive Daily data
Interactive Weekly data
MDG LIHRY AEM BGO IAG EGO RGLD GOLD CDE GRS
Interactive Daily data
Interactive Weekly data
SSRI SIL NG KRY UXG GRZ TSE_HRG TSE_GUY TSE_AGI
Interactive Daily data
Interactive Weekly data
NXG GSS MNG DROOY MFN RNO RANGY MRB CLG
Interactive Daily data
Interactive Weekly data
Here are the key Silver miners and the SLV ETF:
SLV SIL CDE HL PAAS SSRI SLW MGN
Interactive Daily data
Interactive Weekly data
Here are the Weekly and Daily Data charts of the indexes:
Interactive Chart of Weekly U.S. Goldminers Index:
Interactive Chart of Daily U.S. Goldminers Index:
The U.S. goldminer share trust ETF trades under the ticker symbol GDX.
Here are the U.S. Goldminer ETF (GDX) index Weekly and Daily data charts:
GDX Weekly data:
GDX Daily data:
The Toronto Exchange-listed goldminer iUnits S&P/TSX Capped Gold Index ETF trades under the ticker symbol TSE:XGD. Yes, just like GDX on the AMEX, you can trade XGD on Toronto.
Here are the Weekly and Daily data charts for the TSX Goldshares (XGD) index:
Interactive Chart of XGD Weekly data:
Interactive Chart of XGD Daily data:
Forex Review
This week the $USD gained +0.50% to close at $0.7731, or if you are looking at the futures market at 77.31.
A week earlier, the $USD pulled back a bit and I opined, “The price had been bullish for five straight weeks and was in need of a pull-back to test the market forces.”
The 50-day MA for the $USD is 74.05 and the 200-day MA is 74.22.
Also as I wrote in this speace a week ago, “As economies in Europe, UK and Japan slow down at a quicker rate than the US, and may go recessive for longer, the $USD will likely continue to rally with higher highs and higher lows. That’s the definition of a Bull phase.”
Interactive Chart of Weekly U.S. Dollar Index:
Interactive Chart of Daily U.S. U.S. Dollar Index:
The Euro ($XEU) lost -0.70% W/W, closing at 1.4678.
The Euro 50day MA is 1.5410 and the 200day MA is 1.5223.
As I wrote in this space a week ago, following a stronger week for the Euro, “The Germans will soon be wishing for the return of the D-Mark as I believe that Friday’s loss of -0.81% in the Euro to the USD is more typical of the future than was Monday through Thursday’s trading.”
This week the European Central Bank (ECB) reports on monetary policy.
Interactive Chart of Weekly Euro Dollar Index, priced in USD:
Interactive Chart of Daily Euro Dollar Index, priced in USD:
The Pound lost -1.56% W/W, closing at 1.8232. As I wrote here two weeks ago, “The UK economy is in difficulty.” Even when the $USD took a nose-dive this week, the Pound was in worse shape because there were so many negatives in the domestic economic data.
The 50-day MA and 200-day MA are at 1.9451 and 1.9767.
This week the Bank of England (BoE) reports on monetary policy.
Weekly British Pound Index:
Daily British Pound Index:
Weekly Japanese Yen Index:
The Japanese Yen ($XJY) gained +1.14% this week to 91.92.
The Yen’s 50-day MA is 92.64 and the 200-day MA is 93.87. The Japanese economy is in bad shape.
I don’t know, but it could be that traders are now buying Yen denominated debt in order to invest abroad again, seeing that the Bank of Japan is in no position to raise rates, while the other central banks seem ready to do that.
Daily Japanese Yen Index:
The Loonie (Cdn Dollar) is quite volatile. A week ago it gained +1.14% to 95.47 US. But this week, it lost -1.50% to close at 94.04.
After the big gain of a week ago, I wrote in this space, “There was a further gain of +0.41% on the prior Friday, so that (+1.14% W/W) is a major move higher. But it was down -0.44% on Friday this week, and I anticipate it will drop lower next week.” It seems I nailed this.
The 50-day MA and 200-day MA is at 97.09 and 98.96 respectively.
This week the Bank of Canada (BoC) reports on monetary policy. I think they might want to take some action before the election call is made by the Conservatives.
Weekly Canadian Dollar Index:
Daily Canadian Dollar Index:
Here is the China Yuan (CNY) chart.
International Equity Markets Review
There were mostly higher prices this week in the global equity markets. Only Shanghai dropped.
UK FTSE moved up from 5505.6 to 5636.6 German DAX moved up from 6342.4 to 6422.3 Aussie All-Ords moved up from 5010.2 to 5215.5 Shanghai Composite moved down from 2405.2 to 2397.37 HK Heng Seng moved up from 20392.1 to 21261.89 India’s BSE 30 moved up from 14383.4 to 14564.53 Japan’s Nikkei 225 moved up from 12666.0 to 13072.87
I did read a report that stated there is a lot of concern for inflation in India at this point and that the syndicated car loans held by banks like ICICI (IBN) are full of non-payers. Do your dd.
There are 16 country index charts from StockCharts.com (with their formal approval btw) because I think it is important to be watching these markets move through a trend juncture together, and in relation to currency and commodity strength or weakness.
I also made some additions to the country-based ETF tables as I intend to focus more on ETF’s in 2008. In time, I will also set up tables and track the domestic market prices. This will come after we switch to the Drupal platform in mid-month.
As I say, “the world is now a very small one in capital markets and international business. No longer are corporations just American, British, French, German, Italian, Canadian or Japanese. Most do business internationally. We need to observe their businesses and capital market prices on a global basis.”
Here is the latest session data for the exchanges of the Americas.
Here is the latest chart for the Brazilian Bovespa stock exchange in Sao Paulo.
Brazilian Bovespa stockcharts.com chart
Here is the latest session data for the Toronto Stock Exchange composite index.
Toronto 300 stockcharts.com chart
Toronto CDNX stockcharts.com chart
Europe
Here is the latest session data for the bourses of Europe.
Here is the latest session data for the London stock exchange FTSE.
FTSE 100 stockcharts.com chart
Here is the latest session data for the German DAX.
Here is the latest session data for the French CAC 40.
Here is the latest session data for the Milan Italy stock exchange MIBTEL.
Italian Milan Index stockcharts.com chart
Here is the latest session data for the Swiss market index.
Swiss Market Index stockcharts.com chart
Asia-Pacific
Here is the latest session data for the Asia-Pacific stock exchanges.
Here is the latest chart for the Japanese Nikkei 225 index.
Tokyo Nikkei 225 Index stockcharts.com chart
Here is the latest chart for the Singapore index .
Singapore Straits Times Index stockcharts.com chart
Here is the latest chart for the Shanghai Composite index .
Shanghai Composite Index stockcharts.com chart
Here is the latest chart for the Hong Kong Hang Seng index .
Hong Kong Hang Seng stockcharts.com chart
Here is the latest chart for the India BSE 30 index .
Mumbai BSE 30 Sensex Index stockcharts.com chart
Here is the latest chart for the Australian All Ordinaries index .
Sydney All Ordinaries Index stockcharts.com chart
Russia (RTS) stockcharts.com chart
Table 13: International equities via an ETF perspective (in $USD)
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Except for India, Russia and Brazil, there were some rallies W/W in some of the country ETFs. China (GXC +2.44%), and Australia (EWA +2.19%) were strong.
India (IFN -5.6% a week ago) was down again -2.3%, and Russia (RSX -5.4% a week ago) was down -2.03% this week. These are denominated in USD.
Japanese equity market ETF: EWJ
Here is the Japanese (EWJ) equity market ETF Monthly, Weekly and Daily data charts:
U.K. equity market ETF
Here is the United Kingdom (EWU) equity market ETF Monthly, Weekly and Daily data charts:
EWU Daily data:
Canada’s equity market
Here is the Canadian (EWC) equity market ETF Monthly, Weekly and Daily data charts:
US Equity Markets Review
The DJIA (-0.72%), S&P 500 (-0.73%), NASDAQ Composite (-1.95%) were all negative again. The Russell 2000 small cap (+0.26%) managed a small gain on the week. All took major hits to their levels on Friday. But, as I say, volume was quite low.
The big movers in the DJIA pulling it up were AIG (+8.15% after being down a week ago -13.6%), Citigroup (C +4.69%), Bank of America (BAC +3.08%), AT&T (T +2.63%) and American Express (AXP +2.29%). These are not bankers I’d count on.
Quality companies like GE, Pfizer, Intel, Procter & Gamble, and IBM saw their share prices hammered this week, which is not a good sign.
Here is a link to a terrific slide presentation made by a disaffected HB&B insider who is pissed by his boss's mistakes and stupidities in the sub-prime syndicating marketplace. It's definitely worthy of a read.
By the way; this needs to be said: When I mock Humungous Bank & Broker, I am not referring to the staff, but only to the regulatory structure, which permits HB&B to operate on a platform of conflict-of-interest, plus the executive management who continuously mismanage because they take a short-term view where they must try to checkmate their peers rather than just manage their own franchise from the top down.
In fact, I continually express my concern for the wealth creators who are employed at HB&B because each of the companies they work for is itself a war zone. During Bear markets, working conditions become impossibly difficult for the true professionals on staff, of which there many in every one of the major firms. My friends in those companies know how I feel.
A dozen NASDAQ stocks to watch.
Here is the Monthly data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Weekly data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Here is the Daily data chart of the Interactive Chart of Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.
Table 14: Dow 30 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 Summaries window at www.billcara2.com and then clicking on the link for Performance.
AA AIG AXP BA BAC C CAT CVX DD DIS GE GM HD HPQ IBM INTC JNJ JPM KO MCD MMM MRK MSFT PFE PG T UTX VZ WMT XOM
Here are the links to interactive Dow charts from Billcara2.com that I broke into groups of ten, which you can add technical indicators for as well. (list one) (list two) (list three)
Value Line Report(s) this past Friday
This week, Value Line reported on two DJIA components, and nowhere better could I explain to you why one is a Cara 100 company and the other will never likely be. The reports are on General Motors and Johnson & Johnson.
General Motors [GICS 25, Dow 30]
(GM: Google Finance file)
(GM: Yahoo Finance file)
(GM: StockChart chart)
(GM: Billcara2 chart)
(GM: ADVFN Financial Data)
(GM: Value Line Report Aug. 29: next one is due Nov. 28)
Johnson & Johnson [GICS 35, Dow 30, Cara 100]
(JNJ: Google Finance file)
(JNJ: Yahoo Finance fle)
(JNJ: StockChart chart)
(JNJ: Billcara2 chart)
(JNJ: ADVFN Financial Data)
(JNJ: Value Line Report Aug. 29: next one is due Nov. 28)
Before looking at either company by itself, let’s look at them together.
To make the Cara 100 quality list, a company needs to be industry leader among peers, and have a strong balance sheet, management that performs continuously with positive results, high Total Return, including Return On Equity, high operating and net margins, among other considerations. To define quality, you need to define it by making comparisons to other companies. In this case, Johnson & Johnson is the hands-down winner.
GM is being killed by competition and bad management decisions alike. Value Line rates its financial strength at C+ versus A++ for J&J. J&J has shareholder equity of close to $50 billion while GM’s is close to a deficit of $50 billion. In the latter case, the word junk comes to mind. In the case of GM, there is a dividend which is a Return OF Capital – the company is being stripped. For J&J, there is a solid dividend averaging 39% of profit, yielding presently about 2.6%, and growing at a +15.5% rate annually for the past five years. In terms of per-share growth of revenues, cash flow, earnings and dividends, every metric for the past 16 years covered by Value Line, and probably well into the future, shows a year-over-year gain. The J&J operating margin and net profit margin are presently +30.8% and 20.3% versus +1.5% and NMF for GM. In the case of the latter, the company is basically giving the cars away in order to keep the plants open and the supplier and distributor lines going, which is the reason the employee purchase deals are now anybody’s purchase deals. For Timeliness, Safety and Technical, Value Line rates J&J a 2-1-2 versus a 5-4-5 for GM.
Having said that, I do like the cars they make today. The workers at various plants have proven they can build exceptionally high quality products. Their workers in North America have made it easy for management to try to pull this company out of the fire despite losing jobs that have been off-shored. What can be done? I think the company does have the capacity to recover, but it needs to remove legacy images like CEO Rick Wagoner, the make-up of the Board of Directors, and that common looking gold shield that is affixed to the front of each car. All vestiges of the past ought to go. A new Investor Relations program needs to be established – not for investors because this company no longer qualifies for the Prudent Man Rule of investing and not for speculators because a company that is insolvent like this one is not a good speculation. No, and I’m being serious here, the answer is to attract gamblers and day-traders. The stock needs higher daily volume so that the serious, well-heeled long-term private Value Fund can take positions. There will be value-oriented family company investors interested because US politicians at the federal, state and city levels cannot afford to see GM fail, and because the company is still, although barely, the world sales leader and, as I say, makes a good product by a solid work force.
But anybody here who reads the Value Line report or any objective analysis of General Motors financials and its stock must admit that GM stock is for gamblers and day-traders only. This stock is not a legitimate trading vehicle; it is not a speculation; and it should not be purchased using Other People’s Money. If the latter is true, I think the SEC should be doing a deep investigation for related front-running by the trading houses that are involved. The pensions of Mom & Pop ought to be kept safe from these charlatans.
I hope I made my point.
As to Johnson & Johnson, closer inspection of the financial data shows this is a large company that is slowing its rate of growth. To compensate, traders will be seeking a higher dividend growth rate from now on. A dividend of $1.80 this year and $2.00 next year would be acceptable, although $2.10 next year would be preferred.
In terms of the desirability of buying or holding JNJ at present ($70.43), I am not the least bit interested. The quality of the company is one thing; the share price quite another. The stock should have been sold at ~$71.50 earlier this month. When the broad market turns down over the next month or two or three, I expect to see JNJ drop into the Accumulation Zone with Monthly-Weekly-Daily RSI-7 values below 30. The price will likely test 60, which would take the dividend yield to an attractive 3.3% (with a nice growth factor in the next couple years). Through effective put writes, the position could probably be acquired at a tad below 60. I think that within 24 months of that, the Price Target might be 110, based on say $6.87 cash flow and a 16 cfps multiple.
Despite being a stock marketed by the sell-side to “conservative investors,” JNJ is not a buy-and-hold stock. The Value Line analysis in the upper right of the page shows 1-3-5 year Total Return. The numbers through July 2008 are +16.2%, +15.1% and +47.6%. That doesn’t come close to my Buffett standard (+26% annual TR). But if you read the yearly high-low going back to 1999 that is published at the top of the Value Line graph, you will see a considerable spread. The point is not that you or I would ever hit that low and high for purchases and sales each year, but that there is some volatility which we can use to our advantage with effective put and call option strategies. That approach to trading goes hand in hand with my ‘simple little’ RSI indicator system. If you are a competent and smart trader, I believe that annual Total Returns matching Buffett’s long-term performance numbers are obtainable with JNJ. That is what this blog is about.
The Dow 30 Company links in chronological order of next reports. I added the Google Finance links, which are superb.
McDonalds [GICS 30, Dow 30]
(MCD: Google Finance file)
(MCD: Yahoo Finance file)
(MCD: StockChart chart)
(MCD: Billcara2 chart)
(MCD: ADVFN Financial Data)
(MCD: Value Line Report Jun. 6: next one is due Sept. 5)
Chevron Corp [GICS 10, Dow 30]
(CVX: Google Finance file)
(CVX: Yahoo Finance file)
(CVX: StockChart chart)
(CVX: Billcara2 chart)
(CVX: ADVFN Financial Data)
(CVX: Value Line Report Jun. 13: next one is due Sep. 12)
ExxonMobil [GICS 10, Dow 30, Cara 100]
(XOM: Google Finance file)
(XOM: Yahoo Finance file)
(XOM: StockChart chart)
(XOM: Billcara2 chart)
(XOM: ADVFN Financial Data)
(XOM: Value Line Report Jun. 13: next one is due Sep. 12)
Boeing Co [GICS 20, Dow 30. Cara 100]
(BA: Google Finance file)
(BA: Yahoo Finance file)
(BA: StockChart chart)
(BA: Billcara2 chart)
(BA: ADVFN Financial Data)
(BA: Value Line Report Jun. 20: next one is due Sep. 19)
AT&T [GICS 50, Dow 30]
(T: Google Finance file)
(T: Yahoo Finance file)
(T: StockChart chart)
(T: Billcara2 chart)
(T: ADVFN Financial Data)
(T: Value Line Report Jun. 27: next one is due Sep. 26)
Verizon [GICS 50, Dow 30]
(VZ: Google Finance file)
(VZ: Yahoo Finance file)
(VZ: StockChart chart)
(VZ: Billcara2 chart)
(VZ: ADVFN Financial Data)
(VZ: Value Line Report Jun. 27: next one is due Sep. 26)
Procter & Gamble Co. [GICS 30, Dow 30, Cara 100]
(PG: Google Finance file)
(PG: Yahoo Finance file)
(PG: StockChart chart)
(PG: Billcara2 chart)
(PG: ADVFN Financial Data)
(PG: Value Line Report Jul. 4: next one is due Oct. 3)
Home Depot [GICS 25, Dow 30]
(HD: Google Finance file)
(HD: Yahoo Finance file)
(HD: StockChart chart)
(HD: Billcara2 chart)
(HD: ADVFN Financial Data)
(HD: Value Line Report Jul. 4: next one is due Oct. 3)
General Electric [GICS 20, Dow 30, Cara 100]
(GE: Google Finance file)
(GE: Yahoo Finance file)
(GE: StockChart chart)
(GE: Billcara2 chart)
(GE: ADVFN Financial Data)
(GE: Value Line Report Jul. 11: next one is due Oct. 10)
Hewlett-Packard [GICS 45, Dow 30]
(HPQ: Google Finance file)
(HPQ: Yahoo Finance file)
(HPQ: StockChart chart)
(HPQ: Billcara2 chart)
(HPQ: ADVFN Financial Data)
(HPQ: Value Line Report Jul. 11: next one is due Oct. 10)
IBM [GICS 45, Dow 30]
(IBM: Google Finance file)
(IBM: Yahoo Finance file)
(IBM: StockChart chart)
(IBM: Billcara2 chart)
(IBM: ADVFN Financial Data)
(IBM: Value Line Report Jul. 11: next one is due Oct. 10)
Intel [GICS 45, Dow 30, Cara 100]
(INTC: Google Finance file)
(INTC: Yahoo Finance file)
(INTC: StockChart chart)
(INTC: Billcara2 chart)
(INTC: ADVFN Financial Data)
(INTC: Value Line Report Jul. 11: next one is due Oct. 10)
Alcoa [GICS 15, Dow 30]
(AA: Google Finance file)
(AA: Yahoo Finance file)
(AA: StockChart chart)
(AA: Billcara2 chart)
(AA: ADVFN Financial Data)
(AA: Value Line Report Jul. 18: next one is due Oct. 17)
Dupont [GICS 15, Dow 30]
(DD: Google Finance file)
(DD: Yahoo Finance file)
(DD: StockChart chart)
(DD: Billcara2 chart)
(DD: ADVFN Financial Data)
(DD: Value Line Report Jul. 18: next one is due Oct. 17)
Merck [GICS 35, Dow 30]
(MRK: Google Finance file)
(MRK: Yahoo Finance file)
(MRK: StockChart chart)
(MRK: Billcara2 chart)
(MRK: ADVFN Financial Data)
(MRK: Value Line Report Jul. 18: next one is due Oct. 17)
Pfizer [GICS 35, Dow 30]
(PFE: Google Finance file)
(PFE: Yahoo Finance file)
(PFE: StockChart chart)
(PFE: Billcara2 chart)
(PFE: ADVFN Financial Data)
(PFE: Value Line Report Jul. 18: next one is due Oct. 17)
United Technologies [GICS 20, Dow 30, Cara 100]
(UTX: Google Finance file)
(UTX: Yahoo Finance file)
(UTX: StockChart chart)
(UTX: Billcara2 chart)
(UTX: ADVFN Financial Data)
(UTX: Value Line Report Jul. 25: next one is due Oct. 24)
Caterpillar [GICS 20, Dow 30]
(CAT: Google Finance file)
(CAT: Yahoo Finance file)
(CAT: StockChart chart)
(CAT: Billcara2 chart)
(CAT: ADVFN Financial Data)
(CAT: Value Line Report Jul. 25: next one is due Oct. 24)
Coca Cola [GICS 30, Dow 30]
(KO: Google Finance file)
(KO: Yahoo Finance file)
(KO: StockChart chart)
(KO: Billcara2 chart)
(KO: ADVFN Financial Data)
(KO: Value Line Report Aug 1: next one is due Oct. 31)
Wal-Mart [GICS 30, Dow 30, Cara 100]
(WMT: Google Finance file)
(WMT: Yahoo Finance file)
(WMT: StockChart chart)
(WMT: Billcara2 chart)
(WMT: ADVFN Financial Data)
(WMT: Value Line Report Aug. 8: next one is due Nov. 7)
Disney [GICS 25, Dow 30, Cara 100]
(DIS: Google Finance file)
(DIS: Yahoo Finance file)
(DIS: StockChart chart)
(DIS: Billcara2 chart)
(DIS: ADVFN Financial Data)
(DIS: Value Line Report Aug. 15: next one is due Nov. 14)
3M Company [GICS 20, Dow 30, Cara US 100 June 25-06]
(MMM: Google Finance file)
(MMM: Yahoo Finance file)
(MMM: StockChart chart)
(MMM: Billcara2 chart)
(MMM: ADVFN Financial Data)
(MMM: Value Line Report Aug. 15: next one is due Nov. 14)
American International Group [GICS 40, Dow 30]
(AIG: Google Finance file)
(AIG: Yahoo Finance file)
(AIG: StockChart chart)
(AIG: Billcara2 chart)
(AIG: ADVFN Financial Data)
(AIG: Value Line Report Aug. 22: next one is due Nov. 21)
American Express [GICS 40, Dow 30]
(AXP: Google Finance file)
(AXP: Yahoo Finance file)
(AXP: StockChart chart)
(AXP: Billcara2 chart)
(AXP: ADVFN Financial Data)
(AXP: Value Line Report Aug. 22: next one is due Nov. 21)
Bank of America [GICS 40, Dow 30]
(BAC: Google Finance file)
(BAC: Yahoo Finance file)
(BAC: StockChart chart)
(BAC: Billcara2 chart)
(BAC: ADVFN Financial Data)
(BAC: Value Line Report Aug. 22: next one is due Nov. 21)
Citigroup [GICS 40, Dow 30]
(C: Google Finance file)
(C: Yahoo Finance file)
(C: StockChart chart)
(C: Billcara2 chart)
(C: ADVFN Financial Data)
(C: Value Line Report Aug. 22: next one is due Nov. 21)
JP Morgan [GICS 40, Dow 30]
(JPM: Google Finance file)
(JPM: Yahoo Finance file)
(JPM: StockChart chart)
(JPM: Billcara2 chart)
(JPM: ADVFN Financial Data)
(JPM: Value Line Report Aug. 22: next one is due Nov. 21)
Microsoft [GICS 45, Dow 30]
(MSFT: Google Finance file)
(MSFT: Yahoo Finance file)
(MSFT: StockChart chart)
(MSFT: Billcara2 chart)
(MSFT: ADVFN Financial Data)
(MSFT: Value Line Report Aug. 22: next one is due Nov. 21)
General Motors [GICS 25, Dow 30]
(GM: Google Finance file)
(GM: Yahoo Finance file)
(GM: StockChart chart)
(GM: Billcara2 chart)
(GM: ADVFN Financial Data)
(GM: Value Line Report Aug. 29: next one is due Nov. 28)
Johnson & Johnson [GICS 35, Dow 30, Cara 100]
(JNJ: Google Finance file)
(JNJ: Yahoo Finance fle)
(JNJ: StockChart chart)
(JNJ: Billcara2 chart)
(JNJ: ADVFN Financial Data)
(JNJ: Value Line Report Aug. 29: next one is due Nov. 28)
Wrap-up:
At election time, it’s not surprising that people express their political biases in a blog like this. All of us do it in other ways too. For example, my views on, say, Microsoft software or Toyota cars or coffee at Tim Horton’s, impacts my thinking on those stocks, and you can see that.
But I ought to know better; I am a trader, not a consumer. My Job #1 is to decide whether I rate the quality of the company high enough to be spending my valuable time watching the stock price and volume action in the market. That is all that counts to a trader: price and time.
It’s a wonderful day today in Toronto, so I have finished early in order to get out to enjoy it. Tomorrow will be terrific weather as well, and a public holiday – let’s call it Worker Day – because Labor or Labour, however it’s spelled in your country, is tainted with the notion of chattel, which is, you know, something I spit at.
This weekend, forty-five years ago, a man stood up in Washington and led the people with his historic oration, calling for a revolution of values.
“…A true revolution of values will soon cause us to question the fairness and justice of many of our past and present policies. On the one hand, we are called to play the Good Samaritan on life's roadside, but that will be only an initial act. One day we must come to see that the whole Jericho Road must be transformed so that men and women will not be constantly beaten and robbed as they make their journey on life's highway. True compassion is more than flinging a coin to a beggar. It comes to see that an edifice which produces beggars needs restructuring.A true revolution of values will soon look uneasily on the glaring contrast of poverty and wealth. With righteous indignation, it will look across the seas and see individual capitalists of the West investing huge sums of money in Asia, Africa, and South America, only to take the profits out with no concern for the social betterment of the countries, and say, "This is not just." It will look at our alliance with the landed gentry of South America and say, "This is not just." The Western arrogance of feeling that it has everything to teach others and nothing to learn from them is not just.
A true revolution of values will lay hand on the world order and say of war, "This way of settling differences is not just." This business of burning human beings with napalm, of filling our nation's homes with orphans and widows, of injecting poisonous drugs of hate into the veins of peoples normally humane, of sending men home from dark and bloody battlefields physically handicapped and psychologically deranged, cannot be reconciled with wisdom, justice, and love. A nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual death…
Do I believe that we shall overcome? In Dr. King’s own words,
And if we will only make the right choice, we will be able to transform this pending cosmic elegy into a creative psalm of peace.If we will make the right choice, we will be able to transform the jangling discords of our world into a beautiful symphony of brotherhood.
How many times have I written about this subject! Check these words from my commentary of May 31, 2007:
As I see it, the polarization of American society is near complete. The service sector has been split in two: high-end and low end. The high end, of course, is mostly financial and technology and the low end ranges from the fast food type work to, surprisingly, careers in education, military and emergency services (police, fire, border and coast guard), and healthcare support (nurses, clerical, physical maintenance), where the majority of the people (in America, just so our international readers understand what is going on here) are borderline poor.I use that ‘borderline poor’ expression when referring to a class of people who struggle to make ends meet at the end of the month, relying on the support of credit cards, high cost loans (now called sub-prime as part of the spin), speculative price increases in their homes (which extends them additional credit), and even food banks and medicaid to get by.
When I first started this blog in April 2004, on Easter Weekend, which, like Thanksgiving and Christmas, is a time of celebration in our family, a time to consider our personal values and our blessings, I was focused on the social ills of the world as it is today, and how the capital markets are such a causative factor.
I called it “Bill Cara… Capital Markets & Social Equity… perspective and discussion” so we (you and I) could talk about these matters of great importance. After all, what matters more in life than personal values and blessings.
I admit, it was difficult at first. People would ask, “What’s that all about? … I never heard of social equity; how does that possibly link to stock markets”, and so forth.
Then along came the third most powerful hurricane in recorded history to hit the US on August 29, 2005, and subsequent events unmistakably exposed, via real-time telecasts, the guts of America to the rest of the world and to their own people. That was Hurricane Katrina, and the aftermath was that Americans began to question the social mores of the country, i.e., was America really the Land of Opportunity for all – or a prison for many?
Not to put too fine a point on it, but the answers do not lie with Goldman Sachs and HB&B. The answers, my friends, lie in our own hearts and minds. We know what the problem is, and it is up to us to solve it.
Brother, wherever in this world you live, enjoy your Worker Day. But, please, start thinking about how to apply our personal values to bring about changes to a system that today is dominated by Humungous Bank & Broker, and is taking the food from our tables that we’ve rightfully earned.
Have a good weekend; I am rushing to get out for the day and will leave things open until Tuesday morning. We’ll know about the damage caused by Gustav by then. It’s already being estimated at about $25 billion. If there is a direct hit on New Orleans, it will be worse, but that might be the end of the Big Easy as we know it if it happens.
That human life might be spared is something to pray for.
Posted by Posted by Bill Cara on August 31, 2008 03:40:01 PM | Category: Cara Week in Review