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September 7, 2008
Week in Review #36 (2008-09-07)
Technical analysts looking at the major equity market indexes of various countries this weekend must be stunned to see a consistent pattern where prices are on the verge of simultaneous collapse.
I hope my opening paragraph captured your attention because it also means the end of the Bear is one step removed. Just one more leg down – probably 10-12% -- is what the sellers will take to complete the bottom, I believe.
That’s good news, but it’s not to say that the next Bull market is going to soar from the beginning. In fact; unless and until Humungous Bank & Broker writes off all or most of the dead assets, and replaces lost reserves or restructures/amalgamates with other financial services companies, I think the next Bull for equities will be a rather quiet affair, hamstrung by ongoing credit market problems.
A week ago I wrote in this space,
“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 close a week ago Thursday, which was up +213 points in the DJIA index and +329 points over three straight days of gains, I noted early the next day: “Traders have not started a Bull market; they are not even bullish. They are scared.” I stated that my 10000/2000 opinion was still in place, reminding you, “it’s not a forecast; it’s a guess” and one that I made Feb-10-2007, and again in March, then June, and December of last year and again earlier this year.
That Friday the DJIA sold down -172 points, most of it in the late afternoon. This week the DJIA index dropped a further -323 points. That’s a loss of -500 points in five sessions (Monday was Labor Day).
At about 11:20am ET on Friday, the DJIA stood at 11038. Just because the index was pushed up +200 points in the last 4½ hours, which happened after European and Asia-Pacific markets were closed, I continue to opine: Where’s the Bull? Traders are scared.
To repeat, every major international equity index is on the verge of a breakdown. Look at Canada’s TSX Composite, the UK FTSE 100, France’s CAC, the German DAX, the Italian MIBTEL, the Spanish IGBM, the Japanese Nikkei 225, the Shanghai Composite; the Hong Kong Hang Seng, the Australian All Ordinaries, and Brazilian Bovespa. They are all testing primary support levels, apparently ready for one more leg down, but also within 5% to 15% of their ultimate bottom.
The closer an index gets to its cycle bottom; there will be some sectors and industries that bear watching. It could be that in some of these cases, the July 15 lows will prove to be their long-term cycle lows. Talking Heads (on behalf of Wall Street) coming to you via Mainstream Media would have you believe that those July 15 lows are clearly the bottom for the Financials. I disagree with respect to the majority of the Financials, but I am saying that there are probably some other industries and groups that will not drop lower than July 15 lows.
This is a trader’s market. Volatility demands it. A week ago, I summed up my concerns for the Buy-and-Hold crowd with these words, “Doesn’t this situation go to show that the mutual fund model no longer works? There are times that traders cannot afford to be 100% long, even with large cash positions.”
This week, the DJIA and Russell small cap indexes dropped -2.8%, the S&P 500 fell -3.2% and the NASDAQ Composite plunged -4.7%. That was another tough week for those who are long only traders and very long-term position holders. As markets zero in on a cycle bottom, however, and there are low-risk values starting to pop up, traders have to remain poised for the final dump. That’s going to be the best point of entry.
Will the DJIA drop to 10000 and the NASDAQ Composite to 2000? I think so, but I have no crystal ball. When I first made that call, I thought it would happen in 2007, but the Financials were really goosed after that, which extended the Bull. So I made the call again in June, July, September, after I saw how the XLF/XLY had run into problems.
Bill Cara: Week #06 (2007-02-10) in Review (FINAL)
10 Feb 2007 ... In any case, I am looking for Dow 10000 (2007) before Dow 15000 (2009). ......
I repeated it again a few times this year because I was getting sick of listening to CNBC TV call a bottom half way through the Bear. Anyway, the point is you need to take a big picture view so that you can set strategies. Then you watch the data series evolve, which plays into your setting up tactics.
You know, there is seldom a day go by when a Talking Head doesn’t make some mocking smart-ass remark like “I’m not smart enough to time the market.” What should be mandatory from regulators whenever some so-called professional makes that remark is to require the TV network to flash on the screen the person’s 1, 3 and 5 year performance record. Then we’ll all see the idiot is not smart enough to do anything.
Let’s take a closer look at what happened during the week. Maybe we can start isolating a few of the opportunities that are starting to evolve as the Bear moves closer to the end. With 17 of the Cara 100 at 52-week lows on Friday, there ought to be a few worthy of looking at. That would be helpful.
Global Economics Review
Weekly International Economic Report . I encourage everybody to read these reports and discuss them in the Discourse, but check the publishing date if you are looking for the latest data.
Here are the key US economic reports and the Econoday analysis from last week.
US Economic Calendar.US ISM Manufacturing Index for August. Econoday reported: “Production is holding up the manufacturing sector, the results of the ISM's August survey which shows a second month of little change, at 49.9 for the headline index vs. July's 50.0. Growth in production slowed slightly but still showed a plus 50-reading of 52.1. Employment dipped fractionally below 50 but is still probably a positive for the report, at 49.7 vs. July's 51.9. New orders improved slightly but are still on the low side, at 48.3 vs. 45.0. Backlog orders are definitely a weakness at 43.5, up 5 tenths but still well below 50… A jump in customer inventories, up 7.5 points to 54.5, indicates that respondents think inventories at their suppliers are too high, no surprise given the weak order data.”US ISM Non-Manufacturing Index for August. Econoday reported: “The non-manufacturing sector held steady and soft in August, the results of today's ISM report that shows a mild 1.1 point improvement in the composite headline index to 50.6. Key readings show little change and continue to hover near 50, a breakeven level that indicates no month-to-month change. New orders are the best news in the report, rising nearly 2 points but still under 50 at 49.7 to indicate that slightly more respondents reported a month-to-month decline than increase. Employment is the worst news in the report, down 1.7 points to 45.4 to indicate deepening contraction and pointing to trouble for tomorrow's employment report… The business activity index, equivalent to a production index, rose more than 2 points to 50.6 and confirms similar strength in the ISM production index in Tuesday's manufacturing report. But increased production isn't helping employment.”
US Factory Orders for July. Econoday reported: “Factory orders rose 1.3 percent in July vs. an upwardly revised 2.1 percent jump in June (1.7 percent originally reported). New orders for durable goods were unrevised at 1.3 percent while new orders for nondurable goods, the new component in today's data and benefiting from gains in food products, rose 1.2 percent following a 2.8 percent jump in June… Capital goods data are unusually strong for July with nondefense orders jumping 6.3 percent and 2.5 percent excluding aircraft. Shipments in these categories were also strong, up 2.5 percent and up 1.6 percent excluding aircraft… Though July's data from the manufacturing sector proved unusually strong, yesterday's ISM report for August was no better than flat -- a result that renews concern over the sector.”
US Jobs Report for August. Econoday stated: “While it looks like the first half of 2008 dodged recession, the August jobs report suggests that there is a strong chance that the economy is headed there now. The unemployment rate now is at its highest since September 2003. But first, nonfarm payroll employment in August fell 84,000, following a decline of 60,000 in July and a decrease of 100,000 in June. Payroll jobs have fallen for eight consecutive months… The latest decrease was widespread. Manufacturing and construction jobs fell by 61,000 and 8,000, respectively. Service-providing jobs declined 27,000 after falling 12,000 in July. Revisions to overall payroll jobs in June and July were a net decrease of 58,000. On the inflation front, average hourly earnings posted a 0.4 percent gain in August, topping the consensus expectations for a 0.3 percent increase… Within service-producing industries, weakness was led by a 53,000 drop in professional and business services - largely temp help. The next largest decline was in trade, transportation & utilities - primarily a 20,000 drop in retail trade… Turning to the household survey, the labor market continues to weaken. The civilian unemployment rate jumped to 6.1 percent from 5.7 percent in July and was worse than the consensus forecast for an increase to 5.8 percent. August's number is the highest since the 6.1 percent seen for September 2003… The August employment report clearly shows a weakening in the economy after a second quarter resurgence. Today's numbers are likely to dump on equities and boost bonds, lowering yields. In turn, the dollar should slip. The August employment report does not bode well for company profits in general in the near term.”
How is next week’s calendar looking?
US Economic Calendar.US Consumer Credit for July. For June, Econoday reported: “Consumer credit surged $14.3 billion in June for the largest monthly gain since November. Surprisingly, the gain was centered in non-revolving credit which rose $8.9 billion for the largest jump since August. Car sales were unusually weak in June and even weaker in July, definitely pointing to lower non-revolving levels ahead. June's gain likely reflects gains in non-auto personal loans. July's number likely will reflect the winner of the cross currents of a dip in auto loans (at least until August) and consumers' increased reliance on credit cards to get by… Consumer credit Consensus Forecast for July 08: +$8.8 billion.”US Pending Home Sales for July. For June, Econoday reported: “Pending home sales bounced back in June, up 5.3 percent compared to May and down 12.3 percent in a year-on-year reading, benefiting from easier comparisons, that continues to improve. Strength was centered in the South and West with the Northeast and Midwest lagging but still showing gains. The National Association of Realtors said tax credits to first-time buyers may have given a boost to the month's sales. The dollar firmed in immediate reaction to the report which will improve the outlook for July home sales data.”
US Import and Export Prices for August. For July, Econoday reported: “Import prices extended their run of increases in July though at a slightly less severe monthly rate of 1.7 percent, down from four prior months of increases near or above 3 percent. The year-on-year rate however continued to extend into record territory, up 21.6 percent vs. 21.1 percent in June. The easing month-on-month rate reflects less severe increases for petroleum imports, up 4.0 percent vs. four straight months of high single digit readings. Excluding petroleum, import prices rose a monthly 0.9 percent in July. For August we may actually see a decline in the overall index due to lower oil and other commodity prices. But we are also likely to see gains on the high side for consumer goods and capital equipment as the recent rise in the dollar has not had time to impact prices… Import prices Consensus Forecast for August 08: -1.7 percent.”
US International Trade data for July. For June, Econoday stated: “The U.S. international trade gap unexpectedly shrank in June despite a jump in the oil deficit. The narrowing was due to both a jump in exports and weaker consumer and business demand in the U.S. The overall U.S. trade gap fell to $56.8 billion from a $59.2 billion deficit in May. In June, exports jumped 4.0 percent while imports rose only 1.8 percent. The oil gap jumped to $36.4 billion in June from $32.8 billion in May, while the nonoil goods deficit fell to $32.2 billion from $38.0 billion in May. Looking ahead, we may see some modest bounce back in non-oil imports as they were unusually weak in June but given continued sluggishness in the economy, import growth outside of oil is still likely soft. Oil prices were still rising into early July and we are likely to some further rise in the monthly average price for oil imports. However, a decline in physical quantities of oil imported may restrain any expansion of the oil deficit. It is likely too early for a stronger dollar and slower growth abroad to have impacted export growth in July - but look for softness in coming months… International trade balance Consensus Forecast for July 08: -$58.0 billion.”
US Producer Price Inflation index for August. For July, Econoday stated: “The producer price index remained red hot in July, posting a 1.2 percent increase, following a 1.8 percent surge in June. Even the core PPI rate jumped 0.7 percent, surging beyond June's 0.2 percent increase. The headline number was led by energy but the core was boosted by a number of components. Looking ahead, recent declines in oil prices likely trickled down to the PPI and should pull the headline number down. Also, heavy discounting by auto dealers probably helped ease the core rate as well as the overall PPI. But don't forget the detail - the Fed will be looking to see if weakness is isolated and whether other components are still showing upward pressure… PPI Consensus Forecast for August 08, m/m: -0.5 percent, and PPI Consensus Forecast for August 08, y/y: +9.9 percent.”
US Retail Sales for August. For July, Econoday stated: “Retail sales in July were modestly healthy outside of autos, which declined. Overall retail sales slipped 0.1 percent in July, following a 0.3 percent rise the month before. Excluding motor vehicles, retail sales posted a moderate 0.4 percent gain in July, after a 0.9 surge in June. Higher gasoline sales were one of the stronger components, but other components were still positive overall. When excluding both motor vehicles and gasoline, sales rose 0.3 percent, after increasing 0.4 percent the month before. Looking ahead, there are cross currents for the headline number. The auto component will likely be up due to a surge in unit new motor vehicles in August. However, a decline in gasoline prices will be pushing down on overall sales. Outside of these two major components, weekly store sales indicate soft numbers… Retail sales Consensus Forecast for August 08: +0.3 percent.”
US Business Inventories for July. For June, Econoday stated: “Business inventories jumped 0.7 percent in June for the largest monthly rise since November. Inventories at factories jumped 1.0 percent in June while inventories at wholesalers jumped 1.1 percent. But retailers have been tight fisted with stocks as retail inventories slipped 0.1 percent. Department stores and auto dealers in particular have been slashing inventories, with inventories falling 0.8 percent and 0.5 percent, respectively, in June. With further slowing in consumer spending, businesses are likely to have pulled back on inventories in July… Business inventories Consensus Forecast for July 08: +0.5 percent.”
US Consumer Sentiment for September. For August, Econoday stated: “The Reuter's/University of Michigan's Consumer sentiment index show consumer expectations coming off bottom, albeit cautiously. The Reuters consumer sentiment index in August rose nearly 2 points from July to 63.0. The expectations component rose more than the overall index but came off a very low base, jumping to 57.9 from 53.5 in July. The current conditions component slipped to 71.0 in August from 73.1 in July. There was modest good news on the inflation front as one-year expectations slipped 3 tenths to 4.8 percent, reflecting recent declines in gasoline prices. While July's report was encouraging in that overall sentiment may have bottomed, the index remains near record lows… Consumer sentiment Consensus Forecast for preliminary September 08: 64.0.”
As I stated here a week ago, 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.
Also, the lousy employment numbers last week reflect an employment recession. It will be interesting to see how high levels of spending can continue in a credit crunch and period of limited savings and declining employment. In fact, I don’t see how, not just in the US, but also abroad. I don’t see, in this situation, and the high inflation that exists, that corporate earnings could rise to the lofty extent that HB&B is forecasting.
The equity markets are continuing to decline, which supports my view. At this point, except for a few hours of bullishness on Friday afternoon in NY, I think there is still more downside to come. The Banks, Dealers and Insurance companies have still not written off their phony assets and restructured or obtained enough new capital to start a new Bull market in my opinion. Besides, I think there is as much chance of rising interest rates than falling ones, and the bond chart technical indicators are showing that rates may be bottoming here and about to rise. I also don’t see how because the economic data, other than inflation, shows me no reason for rates to be rising. The only factor would be if the rapidly falling commodity prices, like oil, were to base here at 100-110. That situation would clearly require higher rates to keep the pressure on the economy, and hence on downward oil prices.
As I go through the charts to follow this week, I think there’s indications of trader nervousness that equities could crater here. I am mindful that the Interventionists only have so much ammunition, and that the total pool of free capital will overwhelm those who stand in the way of a major sell-off, if that’s what traders want to do. Moreover, I don’t see HB&B using much needed reserves to stand in the way of a broad market crash either, other than trying to keep their own share price levels high (which they need to do for their next round of capital raise-ups).
These are such challenging times for HB&B that, frankly, I no longer have any interest in reading their research reports. I don’t believe that analysts who are under duress career-wise are going to look at and report on any situation objectively. We’re running a business – each of us who manages a portfolio – and we must be objective. This is no time to suffer credulity syndrome.
I did find the Goldman Sachs’ very negative opinions of Merrill Lynch this week interesting; especially in light of my comments and the views of many that Goldman may be looking to take over Merrill.
You see; I question Goldman’s slim write-downs of flimsy assets, totaling just $3.8 billion, and their light raise-up of just $0.6 billion in capital compared to Merrill’s $51.8 billion write-downs and $29.9 billion in new capital. Could Goldman be hiding its mistakes, and preening itself in the process, while putting the knock on Merrill? If – and I say if -- this situation is contrived, and Goldman does ultimately acquire Merrill in order to hide its own internal mess, I think the responsible persons ought to go to prison for life. There is simply too much at stake to permit such actions by crooks. Time will tell, but I’ve got my eye on it and I hope the SEC investigators do as well.
The fact I even mention the possibility shows my low regard for the movers-and-shakers within HB&B. These people have caused the economic and financial mess the world is in today, and now they are looking to their former leader, Mr. Moral Hazard, to bail them out with the People’s money.
The public needs to know they can trust somebody. From this point on, regulators need to study in great detail every bank merger and capital raise. There will be lots of illegal stuff going on because these companies have their backs against the wall. Their executives are desperate, and desperate people tend to cheat.
US Equity Markets Review
DJIA stockcharts.com chart
A week ago, I wrote: “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%)!!!”
This week, the DJIA and S&P 500 plummeted -2.8% and -3.2% respectively.
On the week, there were 6 Dow components that were up and 24 down.
NASDAQ Composite ino.com chart
NASDAQ Composite stockcharts.com chart
The NASDAQ Composite dropped -4.7% this week, which followed a loss of -2.0% the week earlier.
The Russell 2000 index dropped -2.79%.
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
Sector ETF Summary for the US equity market
This week, there was 1 sector up (XLF) and 9 down. The Financials were down -1.5% through Thursday, but rallied on Friday to close higher.
I think that was window dressing -- the pig with lipstick.
The big moves on Friday came from LEH, C and JPM. Hmmm.
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 plunged -$9.23/bbl (-7.99%) this week to 106.23, which broke the technical support at 111 (the 200-day Moving average). Consequently, XLE dropped -8.60% W/W to close at 68.67.
A week ago I wrote: “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.” Well, now that GUSTAV has gone by and IKE appears on the horizon, there could be more of the same. Then again, the global economy seems to be hitting a wall, and probably receding in many nations, which will cause the price of oil to continue to fall.
This week, the best oil stock in my list was RIG, a driller, and it dropped -5.6%. When you see STO -17.0% W/W, PBR -15.3%, IMO -15.3% and SU -13.0% plunging like that, and you are not holding the bag, you must be a happy camper.
The IMO, SU and ECA of Western Canada are my favorites among the large caps. They probably have another 10% or more to fall before resuming their secular bull. The US will increasingly rely on Western Canada energy supplies, so I am looking for a bottom. It’s tough with the IMO and SU, especially, because as top-line revenues come down, their margins will get really squeezed due to rapidly escalating costs. I like them, as I say, but I think it’s time to switch horses because the course has changed. I now believe the junior oils of Western Canada – the ones with strong balance sheets and solid reserves – will be the ones I personally buy. As this Bear market ends, there will be many bargains available for those who managed to save their ammunition.
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 Basic Materials:
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Basic Materials (XLB -6.55% to 37.41) was also hammered, but not as bad as the Oils, Utilities or Tech sectors.
The best stock in my list here was the pulp & paper giant VCP, down -1.0% W/W. Some of the major miners and steel companies plunged: RTP -19.0%, GGB -18.6%, TS -18.3%, MT -17.1%, AA -12.7% and RIO -12.6%.
This is not an oil problem. It’s not a $USD problem. Pure and simple; this is economic recession related – at least fears of that.
Why is that analysis important? Simply; this is not hot money speculating in forex and energy futures. The major capital pools have decided that commodity prices are going to fall because of demand destruction, and that’s not a situation that can be turned on a dime. Macro-economic data, can be spun, yes, but it takes a while before any significant improvement will begin to show.
That’s not all bad because smart traders know that equity prices usually precede economic data reversals by maybe three to six months. So, when commodity prices plunge while seeking lows, that’s usually a good time to be tracking the equities with a view to catch the babies being thrown out with the bath water as they say.
In this group, I have my eye on base metal miners RIO and TCK. I’d like BHP more if there was less of an oil component. I like some of the steelmakers too: MT, TS (in spite of making pipe for the oil drillers), GGB are ones to watch. The pulp & paper stock VCP is another. For goldminers, I like ABX, GG and KGC and silver royalty stock SLW. Of all these, I like the precious metals plus TCK, RIO and VCP the best.
Mind you, I am blogging here; I have not discussed this WIR with Team Cara. When it comes to trading decisions, even I take advice.
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 -5.38% W/W) closed at 33.74.
Interesting that UPS (UPS -1.3%) and Fedex (FDX -2.0%) managed to out-perform the US equity market. Traders must have liked those new Manufacturing and Factory Orders numbers coming out of the US this week. If your only job is to beat the market, this is the stuff you need to do it. How many times have I passed along this particular message about FDX and IP/Factory Orders economic data?
Somebody asked me in a letter how long it takes to become a Trader Wizard. I could say that it takes about as long as the time to learn 100 or 1000 of these factors. That plus always placing risk management before opportunity management.
The big loser here was FLR -19.6%. CAT dropped -10.6%. That’s in the course of four days. Ouch! You have to learn to avoid those mistakes, which you cannot do if you continuously hold these stocks. Look at the market cap destruction in the miners this holiday shortened week. Just think about what I said about not wanting to hold the goldminers or the precious metals until the major base metal miners had found a bottom. Some people don’t listen. But, there are factors that you simply ignore at your peril.
In the Industrials, I see that Boeing (BA) has gone on strike. Think about it; it’s a positive. McNerney probably let it happen. The stock is down to $62.89 and, with option strategies, going to make a ton of money for those who are getting in now and over the next 45 days. But the production delay due to labor problems gives the company some breathing room to get its various sub-assemblies delivered from other countries – ones that are not so willing to go on strike.
Boeing is a great company; I just don’t understand why they didn’t buy the airplane production business of Canada’s Bombardier. They should have bought the whole company and spun off the railcar division. The Bombardier turbo-prop planes can take off and land in 4000 feet and they use about 30% to 35% less fuel than jets. The new planes are whisper quiet and (as Porter configures them) quiet spacious. With the marketing and purchasing power of Boeing, that division would really soar.
ABB is another Industrial stock I like. It’s got a bit more to fall than BA, though.
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 -1.75% W/W) closed down at 30.28.
The big winners this week were JCP +4.5% and CCL +3.2%. Now, these are two stocks I like for the next Bull. They probably hit long-term cycle bottoms in mid-July, which may be re-tested in a broad market sell-off. JCP will sell off hard with the Financials. CCL is an oil hedge, so, depending on how low oil goes, CCL will have a measure of downside support during the final broad market sell-off.
EBAY dropped -6.4%.
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 |