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October 12, 2008
Week in Review #41 (2008-10-12)
We know that fear sells – even more so than greed. What is happening then is that the people’s emotions are being played by those who are control of the capital markets. The extreme volatility is telling us that at times the market interventionists are in control and at times we traders are in control. To the average person, it looks like chaos.
Having worked both sell-side and buy-side at a high level, I understand what the market is. By way of explaining it simply, I often say that the market is a game that plays people rather than the other way around. In a similar vein, I say that stocks are sold and not bought. To finish the point, there is a set of negotiations underway between governments and bankers to see who retains control of capital markets, and each side is spinning the public. The bankers, who are the ones who sell the stocks, have stopped all activities. Ergo, prices are dropping and everybody is confused. That is the state of the market today.
In any case, these days I spend much of my time helping educate and inform the people about capital markets in order to facilitate their taking control. My basic message is that the owners of capital need to take control of their wealth and to stay away from debt, which is the only path to financial independence.
Some of you might recall the parody of the movie “Wall Street” I wrote back in 2004 and republished in 2005 for the sole purpose of showing how far off the rails America has been taken by bankers, ie, the sell-side. Here is the link.
Yes, value-add is good. In fact, the new financial system to be developed by the G-7 needs to be built on that principle, along with the following precepts:
• eradication of self-regulation and all possible conflict of interest dealings;• independent and separate financial services and capital markets regulation as a subset of the federal judiciary, with filings managed by Finance ministers;
• removal of central banks and Government Sponsored Entities (GSE) like Fannie and Freddie as quasi government (public) financial institutions, putting them entirely back in the private sector;
• independent private sector depositories for securities and precious metals;
• independent marked-to-market vs cost basis double accounting;
• transparent and fully-disclosed credit markets and financial services, with the elimination of non-disclosed contingent liabilities and off-balance sheet items;
• required time-stamped, on-line XBRL filing of all public data, including all parts of financial reports, notes, management discussions, speeches, and news releases, from all parts of the public as well as the private sectors in each country;
• capital markets that are operated in the best interests of the owners of capital and not for the capital managers or administrators, and
• the universal (general) agreement on currencies to start as soon as possible, and a system for five-year re-balancing.
Every point here is an absolute requirement to build a foundation for global trade and investment that will best serve the world at large and not the interests of bankers. Hence, bankers will fight this tooth and nail, fearing the public will finally have that level playing field.
I fear it is now or never.
We are indeed reaching to get to the top of the hill whereupon we will be staring at the Himalayas. Should my principles-based plan be defeated at this point by central bankers and their own that have been moved, like Trojan horses, into the home of government, the next crisis – the one over pension benefits, healthcare, state and municipal bankruptcies – will be on us within five years. As Michael Panzner has written in his best-seller, Financial Armageddon, that one will drive the world into a global depression.
As nobody knows until some time later when the equity market complex actually has technically reverted from Bear to Bull – I opined that it has already done so notionally in October. With the events of this week, I ought to be saying the turnaround is happening. The bigger point is that it is.
I am a believer that monetary authorities around the world have the means, and have come to international agreement this week, to work in a coordinated manner to end the crisis with money taken from future budgets, and with a commitment to build a new financial system that will start with a universal agreement on currencies.
But the timing of the turnaround is akin to reversing the direction of a cruise ship versus a speedboat. In a dire emergency, with so many people shouting SOS, it’s a painful thing to watch. I get letters every day from people who have been wiped out. Thankfully I get even more letters from people all over the world whom I have never had the pleasure to meet to thank me for helping them save their wealth from this fiasco, so that they can enjoy the rest of their lives in the manner they want, largely as independent people, and people who will pass to their heirs a substantial sum.
In such depressing times, those ‘thank you’ letters are very much appreciated.
As to the capital market; I am now 45% invested in short puts in the shares of select high-quality Cara 100 companies (see my list of 36) plus 30% long the shares of some of these companies and 25% long gold futures. This is a bullish, but cautious stance. With the historically high extremes of volatility, however, the only chance to be successful is to trade positions on an intra-day basis.
I do empathize with people who cannot do that, whether they have self-directed brokerage accounts, or managed pension, mutual and/or hedge funds, particularly in the latter case where asset managers have been incompetent.
My objective with short puts is, in effect, to put in stink bids expecting that only a few are met with stock that is put to me by traders who are under duress of margin calls or other aspects of emotional or forced selling. That is a double win because (i) the stocks for some are acquired at a very low price and (ii) the remaining short puts expire worthless, which is my income while waiting for this market to become an apparent Bull. With the extreme conditions of the times, the option premiums have soared, making put writing a very profitable business.
Here is the October 1 list of three dozen stocks to consider buying (listed in alpha order). Each of these companies has respectable management, financial strength, operating margins, long-term returns on shareholder capital, industry leadership positions, and good products and services:
Sector 10: Energy
• ECA EnCana
• IMO Imperial Oil
• SU Suncor Energy
• XOM Exxon MobilSector 15: Basic Materials
• Mostly precious metals at this point [25% invested after the $USD reaches a short-term cycle peak in a couple days as the Euro/Pound sinks due to the credit market crisis that monetary authorities there must stabilize].
• ABX Barrick Gold
• DOW Dow Chemical
• GG Goldcorp Inc
• SLW Silver WheatonSector 20: Industrials and Transports
• ABB ABB Limited
• BA Boeing
• GE General ElectricSector 25: Consumer Discretionary Spending
• None at this point until the credit markets recover
• After an initial rally from an over-sold condition, most of these stocks will likely miss the first leg of the Bull and start to lift say about March 2009Sector 30: Consumer Staples
• DEO Diageo
• KO Coca-cola
• MCD McDonalds
• PG Procter & Gamble
• WAG Walgreens
• WMT Wal-MartSector 35: Consumer Healthcare
• DNA Genentech
• JNJ Johnson & JohnsonSector 40: Financial
• Only a few at this point until the credit markets recover
• After an initial rally from an over-sold condition, most of these stocks will likely miss the first leg of the Bull and start to lift say about March 2009
• HBC HSBC Holdings [very strong in the emerging economies]
• IBKR Interactive Brokers [brokers and traders and not dealers]
• OXPS OptionsXpress Holdings [brokers and not dealers]
• RY Royal Bank of Canada [very strong in the emerging economies]Sector 45: Technology
• CSCO Cisco Systems
• DELL Dell Inc
• GOOG Google
• IBM IBM
• INTC Intel Corp
• ORCL Oracle
• QCOM Qualcomm Inc
• RIMM Research In MotionSector 50: Telecom
• MICC Millicom International
• NOK Nokia Corp
• TEF Telefonica SASector 55: Utilities
• CCJ Cameco [not a utility technically speaking but supplies uranium]
• EXC Exelon Corp [uranium utility]I stated at the time I originally published it, this list is lengthy but not complete. There are many other high quality companies that are trading at attractive prices. I reminded you that cycle bottoms happen in periods of fear (and when we have cash and credit available) just like cycle tops happen in periods of greed (and when we run out of cash and credit).
Late in the session on Friday, as market prices were being hammered beyond all reason, I listed 95 stocks, of which 15 are of Cara 100 companies, some of which were included in my list of 36. The last list was compiled by one of the Cara Trading Advisors associates, Pascal Willain, based on an assessment of extremely low debt to equity, hence independence from their bankers.
ADDENDUM 3:45pm ET
BUY ALERT Friday October 10 3:40pm ET
Here is a list of 15 Cara 100 stocks to BUY:
ADBE
AMAT
BBBY
CHL
CTSH
DELL
GRMN
INFY
INTC
NKE
NOK
NTES
QCOM
WAG
XOMHere is a list of these 15 plus 80 more that I believe are worthy of buying here into the close.
These companies have very low debt plus good operating metrics. The source is Pascal Willain, who is a colleague I will introduce soon in my new website for clients of Cara Trading Advisors (Bahamas) Limited.
Good luck!
There was the following exchange in the Discourse 13 minutes later:
woah. i dont think i have seen Bill ever do that here.[Bill Cara note: It's called putting it on the line. Traders have to make decisions. I just made a big one.]
Posted by: NYUgrad at October 10, 2008 3:53 PM [link]
I am not alone. One of the doyens of Wall Street, Muriel Siebert, in a Bloomberg interview on Friday evening, said: “Companies in the market represent value today. At these prices, they say “Buy me!”
I agree with that assessment; but I also think there are tactics like put writing and intra-day trading that one needs in order to seize the opportunity with a tolerable level of risk.
Muriel Siebert, in addition to always being outspoken, has been a pragmatist in her lengthy career. Pragmatism is defined as “a straightforward practical way of thinking about things or dealing with problems, concerned with results rather than with theories and principles.”
You see why I railed this week against the likes of Marty Feinstein and Bob Shiller, from the economic departments of Ivy League schools. When you are in the trenches of the trading wars, down and dirty as we certainly are at this point, you need people like Muriel Siebert at your side. Forty years as a member of the NYSE she has been a leader on the world financial stage.
Politicians, bankers, economists? You won’t find leadership there because they have never fought in the trenches. Those are the people who use our money and their words to their advantage. Sweet talkers; all of them in the same bed.
I am truly apolitical; but I tell you now: we need a Free America; a Free Canada; a Free Europe; personal sovereignty in every country. In many countries, thank God, we the people were given a Constitution that protects our rights and interests. Now that it is threatened, we need to stand up to those who are taking it from us. I have named the enemy: politicians, bankers, and economists.
There are national elections in the next month in the US and Canada. It’s not too late to take action against those political candidates for high office who refuse to protect our sovereign rights and interests.
But this Week In Review ought to be seen as a practical step for individuals to move back into equities. Let’s leave the social equity issues for another day. We have work to do, right now, so let’s get started.
Before we do, let me just take the time to applaud “Si02”, an engineer from Ottawa for his contribution to the viewers of BNN TV on Friday. Well done. Here is the link.
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. The current issue, when posted, ought to be a good one.
Here are the key US economic reports and the Econoday analysis from last week.
US Economic Calendar.US Pending Home Sales Index for August. Econoday reported, “In rare good news for the housing sector -- that couldn't come at a better time -- pending home sales surged 7.4 percent in August for a year-on-year gain of 8.8 percent. The West, which has been hurt the most, bounced back strongly, up 18.4 percent for a year-on-year gain of 38 percent. The results are a surprise given the credit squeeze but, as evidenced by this morning's mortgage bankers data, loan rates are coming down and are evidently attracting credit-worthy buyers… If pending sales are followed by gains in final sales, we could be seeing the bottoming for the sector whose weakness of course is at the center of the global credit squeeze. But improvement is tentative and in fact uncertain, underscored in a special warning by the National Association of Realtors that ongoing troubles in the credit market could disrupt final closings. Next housing data isn't until next week with Thursday's housing market index from the nation's homebuilders. Markets, focused on today's coordinated global rate cuts, showed no immediate reaction to the report.”US Import and Export Prices for September. Following the data release, Econoday reported: “Import prices have come falling back steeply the last two months, reflecting lower energy prices but also slowing demand. Import prices fell 3.0 percent in September, the second severe drop in a row. The year-on-year change, though severe in the other direction at +14.5 percent, is still the lowest rate since February. Month-to-month, import prices were down across the board led by a 9.0 percent drop in petroleum products. Excluding petroleum, import prices posted a rare month-to-month dip, down 0.9 percent for a record decline and the first decline in a year-and-a-half. This reading is closely watched and indicates that price pressures are reversing… Export prices fell 1.0 percent in September following a 1.7 percent drop in August for a rare back-to-back dip. Year-on-year, export prices are up 6.8 percent, also the lowest rate since February… Cost pass through appears to have peaked, based on price readings for both exports and imports of both capital and consumers goods where prices, which had been on a steep climb earlier in the year, are beginning to retreat. Markets are not likely to pay too much attention to today's report which however does point away from the risks of inflation and offers support for central bank rate cuts to help the markets.”
US International Trade data for August. Econoday reported: “The U.S. trade deficit in August narrowed notably - primarily due to a drop in oil imports. The overall U.S. trade gap narrowed to $59.1 billion from a revised $61.3 billion shortfall in July and came in slightly wider than the consensus forecast for a $59.0 billion gap. In August, exports dropped 2.0 percent while imports fell 2.4 percent. Meanwhile the nonoil goods deficit worsened to $33.6 billion from $29.3 billion in July. The disconcerting part of this report is the drop in exports. Based on growing weakness abroad, the U.S. is losing what had been a key source of strength. On the news, equities fell and rates rose… The August decline in exports of goods reflected decreases in automotive vehicles; industrial supplies & materials; consumer goods; and foods, feeds, & beverages. Increases were seen in capital goods and the other goods category… Helping to lower the oil deficit was a drop in oil prices. The average price of imported oil declined to $119.99 per barrel in August, easing off from July's record high of $124.66 per barrel… Year-on-year, overall exports were down to up 15.9 percent in August from 20.1 percent in July while imports eased to up 13.4 percent from up 16.3 percent in July… Again, the negative news from a broader perspective is the slowing in exports. For the near term, the numbers indicate that the net exports component of GDP will shrink, offsetting negatives elsewhere to some degree.”
US Treasury Budget for September. After the data release, Econoday stated: “Following a deeper-than-expected $111.9 billion deficit in August, the fiscal year-to-date deficit is up 76 percent from this time last year, at $483.4 billion with two months still left in the government's fiscal year. Receipts are down 1.4 percent led by weakness in corporate taxes and individual taxes. At the same time that receipts are down outlays are up, up 7.0 percent year-to-date and led by an 11 percent jump in defense to a year-to-date $569.4 billion. Net interest expense shows the next largest increase at 4.5 percent… The nation's widening deficit is a major negative for the economic outlook, limiting the ability of government to manage the economy through tax cuts or spending and flooding the credit market with U.S. Treasuries. The monthly Treasury International Capital report, the next due out on Tuesday, is certain to take greater notice, offering data on foreign demand for not only Treasuries but also federal agency debt, a category that now appears to overlap with Treasuries and one that will begin to add new weight to the budget deficit as the Treasury begins to purchase mortgage-backed securities.
I think that most economists would agree that the latest econ data releases are not the reason that equity and commodity markets have been crashing. The crisis stems from a credit problem between banks. These banks no longer trust each other. The credit ring has broken; major banks are failing. That development impacts all lending, which puts all borrowers in a bind. Moreover, as these banks write down more bad assets, and tighten up credit, they are calling loans. Clients are selling securities and commodity market positions, which is driving down prices, forcing brokers to sell out under-margined accounts. This is a death cycle under the present circumstances where one bank doesn’t trust the next one. Until the banks themselves are stabilized, we should expect volatile prices. This is a time, once every generation, where the practice of stink bidding works well. Prices often come down to your lowest bid. If they don't, you keep the premium as your income.
Central banks this week dropped their key lending rates by -50 basis points across the board except for Switzerland where the drop was -25 bp. Like the bail-out plans, nothing is working to stop the crisis because as I stated in a previous report, you cannot force a bank to do something the directors think is counter to the interest of those in control.
The G-7 plus regional country groups are meeting in emergency session this weekend and into the week to come up with a coordinated emergency plan. The plan that Treasury Secretary Paulson wants is to buy non-voting interests (preferred shares) in certain banks. That is a senseless plan that any honest, independent banker would never do. But the man is in control of the Treasury and can do pretty much what he wants at this point.
The crisis, I feel, is more in who’s running the show and that the US Constitution is not being honored. This is a political crisis now.
How is next week’s calendar looking?
US Economic Calendar.US Retail Sales for September. After the August data release, Econoday reported, “The weak jobs market is pulling back consumer spending as retail sales fell for a second straight month, down 0.3 percent in August vs. a downwardly 0.5 percent drop in July (-0.1 previously reported). The August number was far worse than the market projection for a 0.3 percent gain… Outside of vehicle sales, which were strong due to GM incentives, August sales showed wide declines: electronics -1.3 percent, building materials -2.2 percent, general merchandise -0.2 percent, non-store retailers -2.3 percent. Gasoline sales, reflecting lower prices and soft demand, fell 2.5 percent. Autos did jump, up 1.9 percent to limit the overall damage in August… Excluding autos, sales plunged 0.7 percent, a very low reading for this category. The consensus had expected a 0.2 percent dip in ex auto sales. Excluding both autos and gasoline, retail sales still were notably negative, falling 0.4 percent after rising by the same amount in July... Overall retail sales on a year-on-year basis in August were up 1.6 percent - down from 2.1 percent in July. Excluding motor vehicles, the year-on-year gain came in at up 5.5 percent while excluding motor vehicles and gasoline, the year-ago increase stood at 5.9 percent… Treasury yields and the dollar moved lower in immediate reaction to this report and a big headline drop in the PPI. But the bottom line is that the consumer sector is running out of steam. Today's report adds to the argument that Q3 will be flat. Equities likely will be soft - especially in the consumer discretionary sector.”US Producer Price Index for September. After the August data release, Econoday reported: “Producer price inflation in August turned negative at the headline level due to a drop in energy costs. Meanwhile, core inflation eased at least temporarily from heavy discounting by auto dealers. The overall PPI fell 0.9 percent, partially reversing July's huge 1.2 percent spike. August's decline was greater than the consensus projection for a 0.5 percent drop in the overall PPI. The core PPI rate eased to 0.2 percent, after jumping to 0.7 percent in July. The August core matched the market forecast for a 0.2 percent gain… As expected, energy pulled headline inflation down in August with a 4.6 percent drop after a 3.1 percent boost in July. Food price inflation was unchanged at 0.3 percent… Indeed, the core was pushed down by discounting by auto dealers. Passenger cars slipped 0.3 percent while light trucks dropped 1.9 percent. Otherwise, core components were mixed… For the overall PPI, the year-on-year rate slipped to up 9.7 percent from 9.8 percent in July (seasonally adjusted). The core rate rose to up 3.7 percent in August from up 3.6 percent the previous month… Today's PPI report is favorable toward bonds as is this morning's retail sales report which came in notably weak. Equities will likely focus on the deteriorating consumer sector and will likely be headed down.”
US Consumer Price Index for September. After the August data release, Econoday reported: “Consumer price inflation in August eased sharply on lower energy costs. The headline CPI declined 0.1 percent, following a 0.8 percent jump the month before. August's decrease matched the market forecast for a 0.1 percent dip. The core rate slowed to a 0.2 percent rise from July's boost of 0.3 percent. The consensus had forecast a 0.2 percent increase… Pulling the overall CPI down was a monthly drop of 3.1 percent in the energy component, after a 4.0 percent boost the month before. Gasoline dipped 4.2 percent in August. Food inflation also slowed but remained quite elevated with a 0.6 percent increase, following a 0.9 percent surge in July. Higher production costs are still feeding into food production… The modest easing in the core was led by a 1.1 percent drop in lodging away from home, along with decreases for new vehicles and used cars & trucks, down 0.6 percent and 0.3 percent, respectively. Also, owners' equivalent rent remained low with a 0.1 percent increase - matching July's rise. Apparel slowed but remained high at 0.5 percent, following a 1.2 percent jump the month before. Recreation firmed to 0.5 percent after a 0.4 percent gain in July… Year-on-year, the overall CPI eased to 5.4 percent (seasonally adjusted) in August from 5.5 percent in July. The core rate was unchanged at 2.5 percent… The latest inflation news looks good at face value for both headline and core numbers. But the detail shows mixed trends. The decline in energy costs was expected but we may see some reversal from shortages of gasoline and natural gas due to the impact of Hurricane Ike. Elevated energy costs are keeping food inflation high. For core components, economic weakness is pulling some prices down as is a glut of new and used motor vehicles. But import prices are keeping apparel on the high side.”
US Industrial Production for September. After the August data release, Econoday stated: “Industrial production in August fell sharply with declines somewhat widespread. Overall industrial production fell 1.1 percent in August, following a 0.1 percent rise in July. The August decrease was worse than the consensus forecast for a 0.3 percent decline. The manufacturing component dropped 1.1 percent, after a 0.1 percent rise in July. Utilities output fell 3.2 percent in August, while mining output decreased 0.4 percent… For manufacturing, weakness was heavily from an 11.9 percent drop in motor vehicles & parts. Excluding motor vehicles, manufacturing output slipped 0.3 percent after a 0.1 percent dip in July. Notable declines were also seen in nonmetallic minerals, electrical equipment, furniture, apparel, petroleum & coal, and plastics & rubber products. Notable gains were found in wood products, primary metals, and printing… On a year-on-year basis, industrial production in August slipped to down 1.5 percent from down 0.4 percent in July… Overall capacity utilization in August declined to 78.7 percent from 79.1 percent in July and compared to the market forecast for 79.5 percent for the latest month… Today's report shows manufacturing to be weak and should weigh on equities and will only add to market concerns over the Lehman Brothers' bankruptcy.”.
US Housing Starts for September. After the August data release, Econoday reported: “Housing starts in August continued its downward spiral as tight credit and bloated supplies of unsold homes continue to depress new construction. Starts fell 6.2 percent, following a 12.4 percent drop in July. The August pace of 0.895 million units annualized was down 33.1 percent year-on-year and fell short of the market forecast for 0.950 million units. The decrease in starts was led by multifamily starts, which dropped 15.1 percent, after a 28.7 percent fall in July. Single-family starts also declined but at a much more moderate pace, decreasing 1.9 percent in the latest month, after dropping 3.2 percent in July… By region, the drop in starts was led by a monthly 14.5 percent decline in the Northeast with the Midwest and South also declining, by 13.6 percent and 7.4 percent, respectively. The West rebounded 10.8 percent… Permits also declined in August, falling 8.9 percent, following a 17.7 percent decrease in July. August's 0.854 million unit pace for permits was down 36.4 percent year-on-year… Today's report shows further deterioration in the housing sector. Equities will not like the news but bonds should. The further decline in this sector will give next week's existing and new home sales reports even more attention. The latest starts numbers also point to a decline in the residential investment component of third quarter GDP.”
US Equity Markets Review
DJIA stockcharts.com chart
History was made this week. The DJIA and S&P 500 took the biggest percentage weekly loss in almost 100 years.
All ten sectors were down for the week, and over the week all 30 DJIA components were down, but on Friday there were three sectors up and 7 own. Trading volume zoomed.
The losses this week will long be remembered as five of the DJIA 30 were down over -25%: General Motors (GM -45.7%); Alcoa (AA -41.5%); Bank of America (BAC -39.5%); Chevron (CVX -27.2%); and American Express (AXP -25.0%).
That is unprecedented.
A week earlier, American Express also got hammered: (AXP -21.9%) and Alcoa (AA -18.3%).
Alcoa, Chevron and American Express are fine companies and their share prices will come back. General Motors and Bank of America, however, may be burnt toast.
NASDAQ Composite ino.com chart
NASDAQ Composite stockcharts.com chart
The NASDAQ Composite plunged -15.3% this week. The good news is that this index had a gain of +0.3% on Friday.
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
If you find these stocks rallying hard on high volume next week, then I believe you will be watching the power of the Bull.
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
Again this week, there were zero sectors up and 10 down. The week before that wasn’t a good one either.
The worst this week were Energy (XLE -24.9%) and Telecom (IYZ -21.9%).
Here’s the SPY Monthly, Weekly and Daily data charts: [I apologize for the bad data from the vendor]
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 closed the week down -16.93% this week to 77.99. A week earlier the drop was -12.17%.
A week ago I wrote here, “I do think many of the oil-heavy hedge funds were on the ropes and are now dead, which could take HB&B a week or two to clean the blood off Wall Street… Now that the $100 psychological level didn’t hold and 90 is looking precarious, is another of my earlier targets (80-85) ready to be hit?” The 80 level might hold.
The monster hit to the Crude Oil price over the past two weeks explains the monster hit to the related stocks. Energy ETF (XLE) plunged -24.89% this week, which was on top of the prior week drop of -14.65%.
XLE has fallen to 43.80. Three months ago, XLE was 90.
In two weeks, XLE is down -35.9%; and in 4 weeks it’s down -37.0%, in 3 months it’s -47.3% and 6 months its -45.0% -- worst in class (10th out of 10) in every time frame.
Exxon (XOM), which is a Buy pick of mine, dropped -20.0% this week; and -22.7% in 2 weeks, -19.5% in 4 weeks; -27.5% in 3 months and -30.4% in 6 months – not nearly as bad as the sector ETF (XLE). That’s because XOM is a quality company, and Cara 100.
But a one week loss of -20% is terrible. The price is $62.36.
When did I recommend that traders sell this stock? Yes, in November 2007, at 94, and again in December at 95. Nobody who reads this blog missed what I wrote about the biggest US-headquartered company.
Bill Cara: Week in Review #45 (2007-11-10)
I won’t harp on this, but Mr. Exxon is down to 86.85 and headed lower. Yes, as I wrote earlier, ...
billcara.com/archives/2007/11/week_in_review_45_20071110.htmlBill Cara: Week in Review #50 (2007-12-16)
Despite much higher crude oil prices and processed prices, Exxon actually made ... Tell them you sold XOM at 94 and that you still think it’s a world-class ...
www.billcara.com/archives/2007/12/week_in_review_50_20071216.htmlBill Cara: Week in Review #51 (2007-12-23)
XOM, Exxon Mobil Corp. .... It’s possibly giving you yet another chance to sell XOM at 94 or better. You’ll look back in six months and say thank you, ...
billcara.com/archives/2007/12/week_in_review_51_2007-12-23.htmlBill Cara: Week in Review #52 (2007-12-30)
Exxon (XOM) had a terrific week in the market, moving from $93.43 to $95 for a ... Now you know I say that six months from now your having sold XOM at 94 ...
billcara.com/archives/2007/12/week_in_review_52_20071230.htmlBill Cara: Week in Review #3 (2008-01-20)
It’s possibly giving you yet another chance to sell XOM at 94 or better. ... Yes this week XOM (-5.8 pct) and Baby Exxon (IMO) (-5.7 pct) were actually the ...
billcara.com/archives/2008/01/week_in_review_3_20080120.htmlBill Cara: Cara's Commentary & Community Chat, Wed., Feb. 6, 2008 ...
Look at the billions lost in Exxon market cap since I urged traders to get out at 94-95. It's almost got a 70's handle now. ...
billcara.com/archives/2008/02/caras_commentary_community_cha_124.htmlBill Cara: Week in Review #6 (2008-02-10)
XOM, Exxon Mobil Corp. .... Isn’t it nice when a plan (ie, “sell XOM at 94-95”) works out? The 200-day Moving Average of $WTIC is up to 80.07 from 79.46, ...
www.billcara.com/archives/2008/02/week_in_review_6_20080210.htmlBill Cara: Week in Review #11 (2008-03-16)
Exxon Mobil (XOM) is the company and stock that Value Line has reported on this week. As you know, I didn’t like (Cara 100) XON at 94-95, and have profited ...
billcara.com/archives/2008/03/week_in_review_11_20080316.html -Bill Cara: Daily Report for Thu, Jul 17, 2008
Exxon for instance was one I repeatedly discussed as a candidate to sell in the 94-95 level and buy in the 70’s. You had that chance in April and again in ...
www.billcara.com/archives/2008/07/daily_report_for_thu_jul_17_20.html -Bill Cara: Bill Cara's Community Chat, Mon., Aug. 4, 2008, 9:30am ET
... you will start to read all kinds of nonsense that Exxon is a lousy company, yada yada. Laugh at them. Call them clowns. Tell them you sold XOM at 94 and ...
www.billcara.com/archives/2008/08/bill_caras_community_chat_mon_13.html -
Now read what I wrote the last time I analyzed Exxon, just four weeks ago:
By following along this blog, you can see clearly that I was shouting out SELL at prices over 94 for XOM, indicating later that I wouldn’t buy until the mid-70’s, but with expert use of put and call options (conservatively applied), I believed a trader could acquire XOM at a price in the high 60’s, perhaps 68.I am confident of that because these are stable, very large cap companies with very few meaningful “surprises”. That means you can confidently apply put and call option strategies. At what I believe is a cycle bottoming condition, I write puts at strike prices where I find solid economic value (ie, very low capital risk), and where I believe I have an upside Total Return growth of say +26% per year.
With XOM, if my cost base is say 68 and my two-year target is say 120 (low end for VL forecast), plus a growing dividend (one that I project to be $1.55 (2008), $1.78 (2009) and $2.02 (2010), you will significantly exceed your performance expectations. You will even beat it if your next sale at say 120 takes three years. VL is projecting up to ~145 for XOM into the 2011-2013 period, based on 10x cash flow per share of $14.65. This is a reasonable analysis and conclusion.
If there is a roaring bull market between now and say 2011, which is quite possible, then 145 is also possible. But, I am more conservative; I don’t think the global economy is going to be that hot, so I’ll stick to the long-term 120 price target. With the extensive stock buy-backs in process, I could see that Earnings Per Share might approach say $10.50 in 2011, so a 120 price target would require a PE of 11.4, which in a Bull market would be quite reasonable.
Exxon will remain a core component of my portfolio. Well-timed put writes plus a solid dividend (please make it higher) give me high income, and well time purchases of the stock and long calls provide solid capital growth. What’s not to like.
I won’t even argue that many of you were waiting until the price of XOM got down to 68, and when you saw the price of Crude Oil collapsing, the $USD soaring, and the broad market looking awfully shaky, you froze, which means you sold at 94 and you are still out at $62.36. I will presume you did buy at an average of 68, which means your present holding is down -8.3%, and you are concerned. But if you sold at 94, you missed a loss of -27.7%.
If on Friday you wrote the Jan 60 puts for at least +8.00, your cost is now 60 and you have given another trader the opportunity to put more XOM to you at 60. So, your cost basis is at worst 60. Wow!
Now work those numbers above where I said that I expect to see a 2011 price of 120 for XOM based on a reasonable PE of 11.4 and Price to cash flow/share of 10 (remember that’s a Bull market I am projecting for 2011). There is nothing wrong with a double in three years, and with solid dividends that I project to be $1.55 (2008), $1.78 (2009) and $2.02 (2010), that’s another $5.25 (pre-tax) income to lower your cost basis.
Muriel Siebert has it right. At $62.36 for XOM and a massive $8.00 premium for the Jan 60 put write, some stocks are just screaming, “buy me”. The present Monthly-Weekly-Daily RSI-7 is at 19.6/18.2/17.3. With these RSI numbers and price protection down to $54.36, plus those dividends, I think you ought to buy it now (and write the January 60 puts). I wouldn’t wait for the Daily RSI-7 to cross back above 30 because this stock could be 70-72 before you blink.
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 -13.77% to 25.68) was the third best sector performer this week. Partly the reason is because XLB had sold off -15.49% the previous week, which made it the worst performer.
The winner on my monitor (relatively speaking!) was Nucor (NUE -11.5%), which means that some of the real losers got whacked. How about Alcoa, down -41.5% this week (-52.2% over two weeks!)? Will the auto industry really shut down for good so that aluminum is no longer needed? How about aluminum foil or pop and beer cans?
Alcoa was not alone. How about one of my favorites, Votorantim Pulp & Paper, a great family owned company in Brazil, now down to $7.21, which happens to be 2003 prices. VCP plunged -35.0% this week and is down -57.2% in two weeks. The RSI-7 for M-W-D is 17.5/3.9/12.7. Yes, a weekly RSI-7 of 3.9. This is a Cara 100 company. Look into it.
Another disaster is Teck Corp, headquartered in Vancouver Canada, in my view the best diversified metals miner in the world, with excellent management. TCK this week plunged -32.9% and is down -55.9% over two weeks. That’s a full Bear market each week. TCK is down to $14.31. The 52-week high was $53.80 on May 21. The RSI-7 for M-W-D is 23.7/11.2/12.0. Wow. Look into it.
In the Energy section, I could have said the same for EnCana (ECA) and Suncor (SU).
You know that early this year, I did not like the prices of any of these stocks; but I’m telling you I do now. Back in Feb-May, every mining analyst and oil analyst in the Humungous Bank & Broker world was telling clients to Buy! Now many of them no longer have jobs, or like the staff at Bear Stearns, Lehman, Merrill Lynch, Morgan Stanley and maybe Goldman Sachs, they are personally suffering as bad as most of their clients.
How about that Merrill Lynch, down this week -40.9%! Still, their legal department has sent me a letter and a follow-up letter a week later to remove four of their reports from twenty-four months ago from my blog. At first I thought maybe the lawyers at Merrill Lynch had better things to do these days. Then I figured the law department must be trying to spend the billions paid by Bank of America before they sink into oblivion. You know, kinda like a work program to improve the resume (“October 2008; I put Bill Cara in his place!”). Now, I figure there could be bad advice in those reports that they don’t want class action lawyers to find on the internet. Whatever. I did promise to remove the four two-year old reports and I will if I can find them, the moment I get 15 clear minutes.
Life on Wall Street has really changed.
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 -14.86% W/W) closed at 23.54. Was down -12.42% a week earlier too. Feels like a Bear market.
Bad joke. Dark humor.
Brown Bear. Definitely not a Polar, although the temperature of this market is definitely ice cold.
General Electric (Cara 100) had a terrific session on Friday (up +13.1%), and closed up +0.32% W/W to $21.50.
But how about that Textron? Textron is definitely not a Cara 100, but its on my monitor to help me figure out what’s going on, or going down actually because TXT was about 65 to start June and is now down to $19.03. The loss this week was –24.5%, making it -41.4% over two weeks.
Does this not tell you that traders (i) need stops, and (ii) often have to day trade or else sit it out in cash?
Brazil’s aircraft maker, Embraer (ERJ) dropped -28.4% this week and -40.6% over two weeks. Ouch. This is a Cara 100, and I like it at $17.20. ERJ was more than double that a month ago. The M-W-D RSI-7 is now at 23.1/14.4/9.9.
Boeing, Bombardier or Embraer – take your pick. I assure you they will still be making planes next quarter, next year, and the year after that. And, probably be making solid profits too.
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 -14.72% W/W) closed at 22.13. There was even a gain of +2.12% on Friday.
A week ago I wrote: “Brunswick Corp (BC -22.8% when Crude Oil dropped -12.2% in the same week? Give me a break. This is a manipulation.” Ouch!
How wrong I was. Crude Oil this week plunged a further -16.9% and BC still cratered -31.0%, which means the two-week loss has been -46.7%.
What I think might have happened here, and I saw the same with JC Penny, which was also an oil hedge play (but down -27.9% this week and -36.8% over two weeks) is that some hedge funds were sold out and closed down. After watching them so closely for a couple years, some of these trades just don’t make sense. If you have an answer, I’m all ears.
Anyway, as I wrote in this space a week ago: “… there will be a credit market problem and a homes foreclosure problem, and an employment layoff problem, longer than any of us would care for. So, “no tickee” means I don’t like Consumer Discretionary at this point.”
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 -13.33% W/W to 23.60) was best performer a week ago and second best this week. Nervous traders had been using XLP as a safe-haven play, like Treasuries and Healthcare, but this was ugly. Besides Healthcare was down -17.1%, so that was even more ugly.
A week ago, I wrote in this space: “The five best performing DJIA components this week were: PG, PFE, KFT, KO and MRK. That tells me traders are scared. The low volume tells me they haven’t panicked, but they are clearly turning defensive… When the rally starts, these will be the laggards.”
This week’s best performers were GE, JPM, MCD, INTC and UTX, which tells me there is some bottom picking because all but MCD are higher risk plays.
MCD btw lost just -11.42% W/W. You make call that a consumer discretionary – some of you use discretion and pass the place by while on the other hand many of you have kids so you figure it’s definitely a Staple.
KO (-21.1%), ABV (-23.0%) and PDA (-23.0%), all of them staples, not nails, but were hammered nonetheless.
You can tell I get tired.
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 -17.07% to close at 50.23, which was terrible medicine. Tasted like Buckley’s.
I suggested two weeks ago that UNH would be down the next week, and it was the worst on my 12-stock monitor #1 for Healthcare, down -6.6% a week ago. This week UNH was down -28.0%. Aetna (AET) was down -23.7%.
The “winners” were BMY (-14.1%), JNJ (-15.6%), NVO (-15.8%) and DNA (-16.6%).
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 -19.85% W/W to 15.10) were hammered, but there were actually two worse performing sectors this week: Energy (-24.9%) and Telecom (-21.9%).
Does this not tell buy-and-hold traders they might not be using an effective strategy?
As I pointed out last weekend, “Just when the public thinks that Wall Street got their $700 billion demand from Treasury, plus at least another $400 Billion in guarantees, which would remove the credit market roadblock, the T-Bill yield dropped further, the LIBOR rate increased, and the XLF … went into the tank.”
But the loss a week ago was just -11.9%; this week’s loss of -19.9% tells me that traders are awaiting some major closings. Morgan Stanley (MS -59.5%) and Merrill Lynch (-40.9%) seem to be two reasonable candidates.
Does Las Vegas post odds for a take-down this week-end?
I can just see those assets leaving by the elevator on Friday. Come Monday – Columbus Day – the Niña and the Pinta may have sailed into the sunset.
Reminds me that Monday here in The Bahamas is Discovery Day, a reminder that Christopher Columbus sailed into the New World in 1492 in Long Bay in San Salvador, which is one of the Family Islands of The Bahamas, although it didn’t take Columbus long to exterminate the families he found there.
When the Bahamas gained independence, the Prime Minister was the late Sir Lynden Pindling, and his home at the time was fittingly named Long Bay. My associate Jim Watt bought that home, as many of you recall the many photos I posted here. Jim sold that house a couple months ago.
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 -14.56% to 15.90) and Semi-conductors (SMH -11.35% to 20.30) were fourth and first best performers this week. In fact the loss this week was less than a week ago.
The leader among the Techs was Apple (AAPL -0.3% W/W), a small loser but with a gain of +9.1% on Friday.
Adobe (ADBE -19.5%) took a big hit and German software house SAP (SAP -25.8%) was even worse.
Among the chip stocks, Intel (INTC -12.3%) and SanDisk (SNDK -13.4%) were down as well.
A week ago in this space, I wrote: “Yes, it could be early, but if the Bull is starting, then AAPL (140.91) will be a “tell”. Get it? William Tell! (bad joke.)” Isn’t it amazing then that bad people on Wall Street start rumors about Steve Jobs’ health. These crooks are short, and they are, I’ll bet a dollar to a penny, paying off media to carry their phony stories to the public… Anyway, AAPL from 140 to 97 in ten days is a complete Bear market. But AAPL has fallen from over 180 in mid-August.” AAPL closed the week at $96.80.
To use my line from a week ago, “Imagine; it’s like everybody woke up three weeks ago and said they knew the coming of Great Depression II was a certainty.”
I josh of course because I, for one, don’t believe the world is headed to the millennium’s first great depression. Maybe five years from now. That would be when the Democrats figure that bigger govt, universal healthcare costs, muni and state bankruptcies, underfunded pension liabilities, the unwinding of credit derivative products, and the massive financial support to homeowners, corporations and banks who should have been foreclosed, was all too much to handle.
Wasn’t there a movie about a tsunami that washed over NYC? Dibs on that writer’s crystal ball!
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 -21.92% W/W) closed at 15.03. Two weeks ago I wrote: “this sector has been very weak recently. Typically, it tracks Financials fairly closely.” This week, Verizon (VZ -14.3%) was down a lot, but AT&T (T -14.3% and -6.3% the week before) has been dumped.
As I stated a three weeks ago, “Like the most Financials, I think I’ll avoid the Telco sector when selecting companies whose stocks I want to buy for the next Bull market.”
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 -19.83% to 25.76) was another poor performing sector. The worst losers here this week were FE (-25.5% after being down -11.1% a week ago), and NGG (-23.8%).
Those are huge losses for Utilities to take in a week, and all types (electric, gas and diversified) were badly hit.
I recently started running this table to help you with the higher income utilities. But, with these losses, the Total Return (TR) is like the Titanic, way underwater.
Here is the list of North American Utilities that I will be following more closely:
AEP D DUK ED EXC FE FPL NGG PCG PEG SO TRP
For study purposes, there is a good mix of electric (AEP, D, DUK, FE, FPL and SO), gas (NGG, TRP) and diversified (ED, EXC, PCG, PEG) utilities.
Table 12: US Utilities
Bonds & Yields Review
Table 10: US Treasury Yields
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 3 Month | 0.11 | 0.39 | 0.30 | 1.58 |
| 6 Month | 0.72 | 0.94 | 0.95 | 1.80 |
| 2 Year | 1.59 | 1.53 | 1.57 | 2.18 |
| 3 Year | 1.40 | 1.37 | 1.45 | 2.03 |
| 5 Year | 2.75 | 2.69 | 2.63 | 2.89 |
| 10 Year | 3.84 | 3.78 | 3.61 | 3.63 |
| 30 Year | 4.12 | 4.10 | 4.09 | 4.22 |
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 2yr AA | 2.85 | 2.84 | 2.75 | 2.20 |
| 2yr AAA | 2.65 | 2.52 | 2.59 | 2.13 |
| 2yr A | 3.18 | 3.09 | 2.95 | 2.40 |
| 5yr AAA | 3.26 | 3.25 | 3.18 | 2.68 |
| 5yr AA | 3.44 | 3.34 | 3.33 | 2.69 |
| 5yr A | 4.09 | 3.88 | 3.50 | 2.77 |
| 10yr AAA | 4.67 | 4.41 | 4.44 | 3.47 |
| 10yr AA | 4.47 | 4.21 | 4.23 | 3.45 |
| 10yr A | 4.18 | 4.18 | 3.96 | 3.48 |
| 20yr AAA | 5.32 | 5.36 | 5.76 | 4.50 |
| 20yr AA | 5.75 | 5.79 | 5.74 | 4.66 |
| 20yr A | 5.67 | 5.73 | 5.49 | 4.67 |
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 2yr AA | 5.79 | 5.69 | 4.72 | 3.99 |
| 2yr A | 7.44 | 8.98 | 9.62 | 5.65 |
| 5yr AAA | 5.55 | 5.71 | 5.33 | 4.64 |
| 5yr AA | 7.43 | 7.60 | 7.12 | 5.56 |
| 5yr A | 6.96 | 7.21 | 7.70 | 5.58 |
| 10yr AAA | 5.53 | 5.47 | 5.03 | 4.70 |
| 10yr AA | 7.29 | 7.63 | 7.30 | 6.08 |
| 10yr A | 7.24 | 7.30 | 6.85 | 6.22 |
| 20yr AAA | 6.10 | 5.98 | 5.81 | 5.59 |
| 20yr AA | 6.18 | 6.16 | 5.92 | 5.71 |
| 20yr A | 6.79 | 6.72 | 6.43 | 6.07 |
The 20-year Treasury ETF (TLT) dropped -1.49% from 97.40 to 95.95.
The TIP dropped -6.36% from 101.86 to 95.38.
A few weeks ago I opined that bonds were dead. Less than two months ago the TIP was at 107.01, now 95.38. The TLT in mid-September was 100.86, now 95.95.
The Aggregate Bond (AGG) has plunged from 102.08 in mid-Sept to 88.40 presently. That is shocking, but the banks will not lend to corporations either, so many will fail. Besides, when the final tally for these bail-out packages is in, the total will likely be, for the US, at least three trillion dollars, which will have to be recouped by higher interest rates. No hand-out of money comes free.
Those higher rates will hurt corporate borrowers, which is why I published a Buy List of 95 companies (including 15 Cara 100’s) that have extremely low or nil long-term debt. At this point, traders have to focus on risk management even more so than usual. As you know I call it Job 1.
Ford also has a Job 1, but maybe they might not have Job 2 if the stock gets much lower than the $1.99 it closed at Friday. Was a high of $5.70 two weeks ago!
Can you believe the once great Ford is now a small cap stock? About to merge with two other small caps to make one mid-cap stock...
Last week in this space I wrote, “… there needs to be a new exchange set up for credit derivatives so that the buy-side gets to be a check and balance on the Banks.” I could have added the auto manufacturers as well.
Unfortunately, I think the three Detroit auto makers are toast – unless the federal govt helps do an amalgamation of the three, and assumes their credit swaps, long-term debt, and underfunded pension liabilities. Now if the govt did that and of course took over the common stock in return, there just be a Motor City revival.
Would love to see it. Terrific colleges and universities there. Hard working people. Frankly, the US economic engine cannot afford to lose Detroit, so I think there will be a plan come out of Washington soon. Maybe even during next Wednesday’s televised Presidential debate, which is all about jobs at this point.
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 |
Fannie Mae (FNM) and Freddie Mac (FRE) closed the week at $1.08 and $1.16 respectively.
Do you recall the hey-days – when Barney Frank was riding high – when Fannie hit $68.01 in Aug-07 and Freddie hit $67.47 in Oct-06? I’m not even referring to 2004 prices that were that much higher, and I still said at the time I didn’t care for either of them.
You see; when companies are paying political hacks multi-millions in salaries (I wonder what the net is after the kick-backs), but can’t even file financial statements to their sponsors (or to the shareholders if they even thought those people were important), then I had to say I had zero interest.
Bill Gross, who loved Fannie and Freddie all the way to pennies, costing his pension clients so many billions that people in California can’t even count that high, now has the balls to want appointed by the Treasury to help manage the portfolios that Fannie and Freddie murdered. And, you watch; King Henry will appoint Bill to his court, making it even more gross.
Oh, I just can’t remove my favorite youtube video of this whole sorry Fannie, Freddie and Barney episode: Like somebody said, “It ain’t pretty.” .
Listen clearly to what Barney Frank said on TV on July 14. Check the prices of FNM and FRE on that date. Listen to him try to b.s. the audience and then scold O’Reilly for being called a coward. He tried to say his House committee did a good job with Fannie and Freddie. O’Reilly rightly told him, he’s a liar and a clown. And just like the person he is, Barney let that roll off with a laugh.
It’s not a laughing matter. All these quasi public-private enterprises need to be wound up as soon as possible.
Consumer Finance -USA -- Interactive Weekly Data Charts
Consumer Finance -USA -- Interactive Daily Data Charts
Commodities Review
The $CRB plunged a further -11.22% W/W to 289.89. A week earlier the loss had been -10.44%.
In early July, the $CRB hit a high of 493.97. The drop since then is having a major impact on inflation data that lags the price move.
The 50-day MA is 367.85 and the 200-day MA is 399.07.
As I wrote a week ago, when bankers call in loans, the high-risk (and potentially high-reward) borrowers of commodities are getting hammered.
But, had commodities that are purchased for use in the economy, such as energy, metals, food stuffs, etc, been priced for economic returns instead of speculative returns (ie, like housing earlier, based mostly on inflated and rising prices (ie, hot air)), losses to this extent would not be happening.
Do you recall the point where I said that a $CRB over 320 made no sense to me, and that I believed the Paulson and Bernanke team would step in soon to cut the speculation? They never did. They let commodity prices blow up a bubble that then burst in early July 2007 when credit markets were starting to seize up. Yes, the Fed did step in to change the margin requirements on the various commodity exchanges, but by that point $CRB had run up to its high of 474.
In summary, Bernanke’s Fed had the tools to regulate, and failed to use them. I don’t find the speculators at fault. Speculators are merely traders with an opportunistic-oriented strategy.
As I asked before, how many of you believe that Bernanke was under White house orders to let that oil price run from 70 in June-July 2007 all the way up to 148 a year later before the economy imploded, and the commodity bubble burst? I believe that, which is why I strongly urge legislators to change the system to where all securities, commodities, and financial services regulation must be put into an independent body like the federal judiciary.
I will not even get into the role played by Phil Gramm’s wife at the Commodity Futures Trading Commission. CFTC is supposed to be a regulator that always rules in the public interest. Don’t you believe it! Who you know in Washington and who owns you is the ruler and the parties who are served and protected. This must stop.
A new regulatory system needs to put all regulation under the same offices, and separated to the extent possible from political interference. This is so basic that not doing so is destroying the empire.
As I often say, economics is pretty simple. It is these vested interests who complicate it and screw it up and the conflicts of interest by the authorities and lawmakers who allow that to happen.
Yes, there are a lot of lessons here. Henry Paulson knows them by rote and knew what he was doing all along, which is why I referred to Paulson’s actions as Paulson’s Folly. He’s now King, and the rest of us, including many commodity funds today, are, to continue the metaphor, paupers.
If the public needs stable markets that don’t outright abuse them, they need to elect legislators who will bring into law a truly independent regulator.
As it is today, you have to ask your candidate is the law in place today to serve and protect whom?
Interactive Chart of Weekly CRB Commodities Index:
Interactive Chart of Daily CRB Commodities Index:
Oil Review
$WTIC plunged -16.93% to 77.99. A week earlier, the pull-back was -12.17%.
The drop in Crude Oil prices -- US Light Sweet Crude called West Texas Intermediate as well as European Brent – is the major reason why the commodity index ($CRB) has tanked.
You’ll notice that I never refer to $CRB as the Reuters/Jeffries index. I hate brands when it comes to the public domain. This crapola is part of the reason we live in a world of make-believe. If somebody had paid enough money at the outset, it could have been called the Juicy Fruit Index. It’s all nonsense. We need to get back to reality.
For $WTIC, the 50d MA is now 106.67, and the 200d MA is 112.19. The price in mid-July hit a record high of $149.90.
Here is the e-miNY Dec-07 Crude Oil chart.
Interactive Chart of Weekly Crude Oil:
Interactive Chart of Daily Crude Oil:
Gold & Precious Metals Review
Two weeks ago I wrote, “$GOLD …dropped -3.60% on Friday to close at 864.70 in the spot market… This is a negative technical picture, but I have opined that too much Fed money will lead to higher gold prices.” I still believe that.
This week $GOLD gained +$25.80 (+3.10%) to 859.00, but the day to day and intra-day volatility is massive. On Friday, for example, the spot price dropped -$65.40/oz to close the week at 849.90.
These changes often happen on Fridays, which shakes the emotions of the ‘weak hands’. There is little I can do to calm the nerves of precious metals traders except to reiterate my belief that precious metals ought to be bought on every significant pull-back because the monetary authorities have embarked on a global initiative of reflation, including bail-outs of financial services companies. As soon as the credit markets start to work normally again, there will be only so much time that these market interventionists can hold back precious metal prices.
It’s why gold, silver, platinum and palladium are called precious. The miners cannot keep up to demand. Supply must come from government holdings to keep the price down. There are many highly respected sources who believe that the govt no longer has the gold and silver inventory they claim. There is no audit; no check and balance in the system.
A new financial system must put govt, as owner of commodities, in the same position as the private sector that trades in these commodities. Otherwise, there is no level playing field. One side is free to cheat with impunity, ie, without fear of punishment. That’s not right and we all know it, so why the charade?
As I wrote in this space a week ago, what we can expect in the gold market, at some point soon, is the resultant impact of well over $1 trillion in new money being printed by the Treasury Secretary (and much more) and another $1 trillion (and much more) printed by the other G-20 monetary authorities. The price of gold must, in my view, shoot higher.
The tell will be in the Euro/Dollar level. As the Euro collapses with an incredible move of -5.68% a week ago, and a further drop of -2.82% this week, $GOLD is under pressure. But the Euro and $GOLD will rally soon. As soon as the US credit market crisis is gotten under control, traders will stop repatriating $USD from abroad and they’ll start using it to buy commodities like gold and silver (and oil).
A week ago I opined in this space, “I think before that happens, however, the ECB and Bank of England and the European governments will likely agree to join with the US in printing money to try to reflate the region out of the financial and economic problems it faces today. Reflation in Europe ought to temporarily help strengthen the $USD, holding or pushing $GOLD lower. But when all these countries including the US, Japan, Canada and Australia, etc, reflate at once, what they are doing is to devalue their currencies against gold. At some point after the TED spread narrows, I expect $GOLD to zoom. With a wide TED spread, there is a greater opportunity cost by holding gold and not time deposits (aka CDs).”
Now you have seen that situation unfold as I had expected it to. Next, the price of gold will soar. Of course, the US authorities will tell you they are selling their gold to hold the $USD from crashing, but who at this point really believes there is more gold in Fort Knox than Cinderella’s Castle?
For $GOLD, the 50d MA is now 843.34, and the 200d MA is 898.35.
Incidentally, it was just four weeks ago that $GOLD closed the week at 764.50, well below today’s price of 859.00. I called for a gold rally when gold was below 764, which Seeking Alpha republished, and it did the next day, shooting to 932 within two weeks. How quickly people forget. Now I even see people writing in the Discourse that they could not find any evidence of my call.
I also opined at the time that there would be a $USD rally which would knock gold and silver down again, which it did for a bit.
A week ago, I wrote in this space, “This week I will be watching gold like a hawk for another purchase.”
And, it was a terrific week until about 9:40am ET when the monetary authorities started selling gold down from 920 down to 830 in the next 4 hours or so, before it rebounded on the December futures to close the day at 859.
Blogging is fun, but is a challenge too for those of you who take my contribution more seriously than what it is intended to be -- education and information. The fact is that I am not your financial advisor, and I know little to nothing about almost 100% of you. So, I could never in these circumstances abide by a financial advisor’s Know Your Client requirement. Therefore, I would very much appreciate that you take responsibility for your own actions, and come here for the added knowledge only.
As I wrote here a week ago, “Yes I do tend to carry the weight of the world on my shoulders – you should see some of the heart-breaking letters I get – but I happen to love work and blogging too. So, I do what I can as long as people understand there is a limit to consecutive 15 hour days… I’m really feeling the pressure now because I happen to be out there calling a new Bull and with the -10% loss in US equities this week (and -18% loss this week too), I can understand why many of you are not believers.”
But, I know trading and I share my knowledge for which I don’t get paid by you. I would therefore appreciate that my words be taken in context and that you understand what I am doing here. What I am not doing is forecasting market moves every ten minutes for you, the public.
Most of you understand that, and write me beautiful letters, for which I thank you. The others, I tell to get lost. My patience wears thin at times, for which I apologize. “Thrifty” felt my ire yesterday, but he wrote me afterward, and I’m sure things are cool now.
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 lost -6.40% W/W, which followed the loss of -16.13% the week earlier. The price is now at just $10.62/oz. But, as I wrote a week ago, “A week earlier $SILVER gained +8.24% and the week before that the gain was +15.56% from $10.80”. So, with silver, we are back to where I called the precious metals Bull four weeks ago. Now it should be onwards and upwards – but only when the monetary interventionists stop depressing the price.
The loss in silver was anticipated when I wrote in this space a week ago, “Hopefully the pressure on precious metals is not too excessive this week.” Silver trading is far more emotional than gold trading. I call the traders there the “Silver Crazies”. That’s a term of endearment, if you wish. It really speaks, however, to the volatility.
As I wrote in this space four weeks ago, “I think $SILVER will bottom here before $GOLD. The Silver Crazies sense things can change quickly. As tortured and depressed as they are, having failed to jump ship when I shouted SOS, they are still alive. In fact, if you read kaimu closely, there is no killing a Silver Crazy… Extreme volatility is usually a sign that prices are in the process of reversing trend.”
For $SILVER, the 50d MA is now 13.12, and the 200d MA is 16.41.
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 actually gained +$77.90/oz (+8.07%) this week to close at 1043.70.
A week ago, with the price down to 986.60, I wrote, “It’s hard to believe that as recently as July, $PLAT was trading at $2100/oz, now under $1,000. All the gains back to 2005 have been eliminated.”
If, as and when the credit market squeeze is over in the banks, I expect $PLAT to soar. I think the intra-week low of 948.70 will be the cycle low. There is now well over $4 trillion in money market funds earning next to zero, which means a portion of that will be moved into precious metals, and when the rally happens, $PLAT will be a leader.
The typical Chinese trader likes platinum because it’s more valuable than gold. China has been suffering the negative wealth effect for over a year, with devastating portfolio results, but the cash builds among the people and the people love to take financial risk. Some call it punting.
The 50-day MA for $PLAT is 1309.79 and the 200-day MA is 1782.56.
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 has been on a five-week plunge from $300 to $200, but as recently as March, $PALL traded as high as 600.
This week $PALL dropped -9.02% to 205.15. The price is back to Oct 2005. Three years of gains wiped out in six months. That’s the way Bears go.
The 50-day MA is now 290.18 and the 200-day MA is 407.04.
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 -$50.00 W/W (-18.59%) to 219.00.
I have believed for years that when traders in private equity, like Glencore in Switzerland (“the Metal Men”), got access to all the capital they wanted – like an endless sub-prime loan if you will – that copper contracts could be manipulated to ridiculous heights. That’s because maybe five people in the world control the delivery of copper. That’s almost absolute control.
Independent traders can make money but they need to put in tight stops and expect the people in control will be whip-sawing the rest. That’s a tough way to trade, so I just say that being out of the room (ie, not in the top five), I’m out of the deal. Ergo, no interest!
Markets are not free, but at least most are not controlled and manipulated like copper.
$COPPER is now 219.00, dropping -18.59% this week. Two weeks ago it was 307.45. On Friday this week, the hit was -$21.60 (-9.0%). Yes, in a single day! The banks really had clients on the run on Friday, but when it looked, for all the world, that Morgan Stanley, Merrill Lynch, Bank of America, or Goldman Sachs – take your pick or pick them all – would not last through this weekend, that’s what happens to client accounts. Loans get called.
Btw, if you do want to trade copper futures, you might want to follow the shares of Xstrata on the London Exchange; Vale (RIO) in NY and, to a lesser extent, Teck (TCK) in NY or Canada.
In fact, I cannot see the precious metals soaring without some preliminary warming up in the Xstrata, Vale and Teck, which I use as a tell.
The 50-day MA for $COPPER is 314.36 and the 200-day MA is 353.11.
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 stocks were crucified a week ago; this week, the losses were merely huge (-10.29% in $XAU) (-8.98% in GDX) (-2.11% in XGD). That’s right; just -2.1% down for the Cdn goldminer index.
A week ago, ETFs like GDX (-19.23%) and XGD.TO (-13.10%) and the $XAU Philly Goldminers index (-18.95%) were all thoroughly beaten. As I wrote here, “The perma-bulls are now questioning why they even hold precious metal stocks when so many things can go wrong, like country risk, commodity price risk, equity market risk, credit market crises, inflation, power shortages, mine accidents, takeovers that don’t make sense, and on and on… But then along comes Friday, and the goldbugs get that gleam in their eye again. With the money printing presses rolling out a trillion here and a trillion there, the goldminer stock prices started to percolate.”
Not this Friday. Paulson’s staff must be reading me! This Friday, $XAU went down -12.16%, GDX down -12.93%, and XGD down -12.50%. Wow; what a way to shut down a party!
In my gold stock monitor, Harmony (Australia) (HMY +14.9%), and Gold Fields (South Africa) (GFI +4.1%) were well up, but others like LIHR, EGO, AUY and NEM were crushed, down -29.3%, -19.4%, -19.2%, and -17.9%, respectively.
Two weeks ago I said I was concerned. I wrote, “We’ll be watching closely. But, these are volatile markets, which require minute to minute monitoring, so they are not for the typical trader.” A week ago, I added, “I cannot stress that point too much. Such volatility requires traders to hit the buy and sell button frequently. Sometimes these trades are stomach turning. It’s not a practice many traders enjoy. The money to be made or lost can be large.”
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
You cannot trade commodities that are priced in $USD without studying forex movement. The Forex market is a multi-trillion dollar marketplace every day, which dwarfs the size of the stock and bond markets. In this market, the Euro/USD is the highest volume trader. The $USD is a trade-weighted US Dollar index, we used to call the Morgan Dollar.
The current value of $USD is a mean value of rate fluctuations of six world currencies (Japanese yen, Euro, British pound, Canadian dollar, Swiss franc and Swedish krona) that each trade against the USD. I discussed this in depth in the past two WIRs.
This week the $USD closed +2.68% higher at 82.62. The $USD is on a roll. A week earlier, the gain was +4.51%. That's quite a roll!
I continue to believe a huge drop may happen in the $USD at any time “because the Treasury Secretary has embarked on a program of massive reflation in order to bail out the major US banks.” But I also added the proviso that when Europe and Japan and Canada reflate, their currencies also drop, as we will see.
Reflation is different from inflation, which refers to the increased cost of goods and services. Reflation is money printing.
The 50-day MA for the $USD is 77.78 and the 200-day MA is 74.62.
To reiterate, “My opinion is that the $USD has been rallying since the beginning of July because traders became cognizant of the economic slowdowns in Europe, Canada and Japan that were even worse than the US. In fact, recently the OECD increased its GDP forecast for the US and lowered it for the other countries, which then spiked the $USD. In time, however, the net effect of global reflation ought to be a weakening of the $USD, possibly headed for a test of the all-time low of 70.70. The charts at StockCharts (links below) reflect that opinion, in my view. If so, precious metal prices will ultimately soar… It’s only by looking at the capital marketplace as a continuum of prices, constantly studying price dynamics, will people ever have an understanding of trading.”
Interactive Chart of Weekly U.S. Dollar Index:
Interactive Chart of Daily U.S. U.S. Dollar Index:
The Euro ($XEU) dropped -2.82% this week. A week ago there was a stunning loss of -5.68%. The close this week was 134.04.
Just a couple weeks ago I wrote, “The Euro lifted +1.79% this week to close at 1.4484. With the previous Friday’s gain of +1.85%, the Euro has now lifted +3.64% in six sessions, which is truly an awesome move.” How quickly that strength reversed to its present price at 134.04.
I had said recently that I was “looking for a stronger Euro, especially if the Fed announces an emergency rate cut.” What I didn’t say in the same sentence (but I did elsewhere) was that I also expected all the other central banks to cut. So everything is relative.
The Euro 50day MA is 1.4498 and the 200day MA is 1.5156.
Interactive Chart of Weekly Euro Dollar Index, priced in USD:
Interactive Chart of Daily Euro Dollar Index, priced in USD:
The Pound lost -3.96% this week to close at 1.7052 American. A week ago, the Pound lost -3.70%. The economy is bad there too.
The 50-day MA and 200-day MA are at 1.8274 and 1.9400.
A couple weeks ago I wrote, “The UK economy is what some economists and politicians are calling “sick”, so don’t expect the Pound to soar too high right away.”
Weekly British Pound Index:
Daily British Pound Index:
Weekly Japanese Yen Index:
The Japanese Yen ($XJY) soared +4.59% this week, closing at 99.38. That is four straight weeks of up moves.
“Some say this is the impact of the reversing Japanese carry trade by traders who are fearful of falling market prices.”
The Yen’s 50-day MA is 93.44 and the 200-day MA is 94.60.
The Yen closed the week ending Aug 17 at 90.49. The rising Yen is really hurting the Japanese exporters, like Toyota (TM).
Daily Japanese Yen Index:
The Loonie (Cdn Dollar) plunged -7.87% W/W to close at 85.24. The loss a week earlier was -4.32%, so these are massive losses.
The beneficiaries are the exporters and in-bound tourism. The losers are those snowbirds who I recommended buy property in Bahamas when the Loonie was it traded as high as 110.17 in 3Q07. Even in mid-July, the Loonie traded at over $1.00 American.
The 50-day MA and 200-day MA is at 94.01 and 97.96, respectively.
Weekly Canadian Dollar Index:
Daily Canadian Dollar Index:
Here is the China Yuan (CNY) chart.
International Equity Markets Review
Equity market prices this week crashed everywhere. Some like Russia even turned off the electricity, stopping all trading.
As I wrote here a week ago, “Most of these markets are sitting right on crucial technical support levels, appearing ready to tumble once more. In fact, had there not been a remarkable turnabout on Thursday afternoon at DJIA=10462 that was extended through the close on Friday at 11388.44, I would definitely be writing today about the last stumble in this 2007-2008 Bear market.”
This week was that disaster, setting up the new Bull.
UK FTSE plunged from 4980.3 to 3932.1German DAX plunged from 5707.0 to 4541.2
Aussie All-Ords plunged from 4080.8 to 3939.5
HK Hang Seng plunged from 17682.4 to 14796.9
India’s BSE 30 plunged from 12526.3 to 10527.9
Japan’s Nikkei 225 plunged from 10938.1 to 8276.4
All countries are hurting badly. The equity market sell-off is a global phenomenon.
We are at the bottom, I believe. But there will be few believers until the coordinated action of the global monetary authorities, being taken this weekend, starts to have an impact on moving the banks to start lending again. That is a matter of confidence – not ours, but between bankers. All of them are fearful that major banks are doomed to fail under the weight of the credit default swaps. If they can’t swap, they are going to default, and once the credit ring is broken, the systemic loss may become unstoppable.
At the end of the day, prices will stabilize and huge trading profits will be made by those who took risk.
Three weeks ago I wrote here, ‘Don’t fight the Fed-Treasury tag team’ and called for a Bull market, but I also issued a stern warning: “A 70-cent Dollar will boom the equity markets. Watch Russia. Watch Brazil. Watch India. Watch Australia. Watch Canada. Watch Gold. Watch Oil (should make George happy). Watch XLE. Watch XLB. Watch XLI. Watch XLK.”
Well, the $USD has been soaring and the rest of these market prices have been crashing, which is to say that any trader would not stand in the way.
I am saying this week, again, to watch that $USD and TED spread. If the $USD falls and the TED spread narrows, I believe the global equity markets will go higher.
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 this month.
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 |
All the country market ETFs were smashed.
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 (-18.15% to 8451), S&P 500 (-18.20% to 899.22), NASDAQ Composite (-15.30% to 1649.51), and Russell 2000 small cap index (-15.65% to 522.48) were hammered worse than for any week going back to 1914, almost 100 years. This was a financial disaster.
The biggest losers in the DJIA were: GM -45.7%; AA -41.5%; BAC 39.5%; CVX -27.2% and AXP -25.0%. Not even during the week of Black Monday October 1987 were losses of this magnitude taken. The good news is that this is probably the end of the Bear market that started 14 months ago, taking the DJIA from 14200 to a low this week of 7882, before closing at 8451.
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 AXP BA BAC C CAT CVX DD DIS GE GM HD HPQ IBM INTC JNJ JPM KFT 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 four DJIA components, three of which are Cara 100 companies: General Electric (GE); Hewlett-Packard (HPQ); IBM (IBM); and Intel (INTC). Only Hewlett-Packard is not a Cara 100 company, but many of you believe it ought to be.
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 Oct. 10: next one is due Jan. 9)
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 Oct. 10: next one is due Jan. 9)
IBM [GICS 45, Dow 30, Cara 100]
(IBM: Google Finance file)
(IBM: Yahoo Finance file)
(IBM: StockChart chart)
(IBM: Billcara2 chart)
(IBM: ADVFN Financial Data)
(IBM: Value Line Report Oct. 10: next one is due Jan. 9)
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 Oct. 10: next one is due Jan. 9)
I will review IBM, Intel and General Electric in a moment. But first, let me make an important statement.
To prove the point that when I put a stock on the Buy List it doesn’t mean to say I am buying it right then and there, please re-read my words in this space just a week ago:
Procter & Gamble is on my Buy list for now, but believe me, the stock is relatively over-priced…Just like Wal-Mart, I like P&G. Hard working people from Cincinnati, producing great products, with an excellent distribution system. I do have issues with a slightly weakening balance sheet and lower Return on Shareholder Equity percentages in the past couple years, but I like the stability and financial strength. I look to this company for income, largely by writing put options to add to the dividend.
With the high share price today, and the rough consumer environment – even for Staples – I would exercise extreme caution when buying this stock. The price has popped from 66 to 71 in the past few days in what is a safe-haven move.
I’m guessing here because I can’t remember – somebody please check – but I think there would have been a Buy Alert from my simple little system in late June in the very low 60’s, and the +12% to +14% gain in the past three months would be pretty much all she wrote. You get greedy, you get hurt.
As much as I love P&G, PG is not my child. Stocks are not children; they are merely prices. The value in understanding them is in the understanding of trends and cycles.
Hopefully, the next couple of weeks will see broad market forces or insiders or selling by institutions bring PG back to earth, and then we’ll buy it again, maybe at ~65 this time.
If so, I’d count on dividends of $1.55 (2008), $1.78 (2009), and $1.99 (2010). With a price of say 65, you’ll probably average +2.75% dividend yields for the next couple years. Then, if you support that with put write premium income, you can improve that. Let’s say you want capital growth; you’d apply the put premium and dividend income to your cost base, which would take your cost to the high 50’s. Then if you could sell the stock at its peak in 2011 say at $105, you could hit an annualized return of about (say) +22%, which isn’t bad for a defensive stock. A balanced portfolio includes these types of stocks along with the GOOGs and RIMMs.
This is like a chef working in the kitchen with the ingredients that happen to be on the shelf. It all depends on what you want to make for dinner. PG is not beef steak – more like broccoli. Always healthy.
This chart shows that in the space of a week, I didn’t have to buy PG at 71 or even at my guesswork price of 65. The price cratered to a low of $54.92, closing at$59.56.
Now let’s say you paid $58, which is well above where PG traded for most of Friday afternoon, when I was extremely bullish. You could also easily have gotten $7.00 premium for selling the Jan 55 put, either on Thursday or Friday. In other words you were protected down to $48. So if you did have the stock put to you at 55 plus the stock you bought at 58, your cost would be 53. Imagine that! With your dividends in the next two years, your worst case is a cost basis in the high 40’s!
Just think of all the billions of dollars turned over in PG stock in the past five years, and where your cost basis would stand up against all the best money managers in the world. Can you think HALL OF FAME?
Btw, by my snap calculation, that would be over $1.2 trillion, which is an average of 16.5 million shares per day times 1300 trading sessions in five years times an average price of about $60. But who’s counting?
Now tell me that your kids will hate you for it (if they are looking ahead to their inheritance)!
In any case, the future will not look as rosy as the past. I am afraid those days are gone. Sure, I am saying that there ought to be a major rally that, if you place your bet on the right number, ought to return you gains of +30% to +40% or more in the next 12 months. But I have also called for sidetracking markets for many years, and where successful self-directed portfolio management or outside professional management (hopefully successful) will be hard pressed to earn you Total Returns (TR) greater than +15% per annum. To do that you will have to avoid the high-risk stocks, stick to quality and buy and sell with good timing strategies and tactics.
But you can do that. You will just have to recall the recent past only for the lessons it has taught you. You cannot dwell on the losses you have taken. Else, it will never be onwards and upwards to financial independence… in the Bahamas (or the place of your dreams).
This week, I elected to use the pre-announcement by IBM of yet another good quarter to report that I find the share price presently offers excellent value. You can review my notes of a couple days ago. I wrote them one evening and repeated them in the next day’s commentary.
Also for the three Cara 100 companies reported on this week by Value Line (GE, INTC and IBM), the VL report refers to excellent recovery potential. That, by the way, was at much higher share prices than the closes on Friday for these stocks. I think you just have to buy them here. You may also want to write puts at attractive premiums to lower your cost base, whether or not you subsequently get the stock put to you.
Now, with this market volatility, many of you can see the importance of managing positions, including cash. Portfolio management is not about taking tips from others to buy this or that. It is a process you have to work at, like running a small business.
The non-Cara 100 company, although a good one, Hewlett-Packard, does have to work through some issues that Value Line discussed.
The Dow 30 Company links in chronological order of next reports. I added the Google Finance links, which are superb.
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)
Kraft Foods [GICS 30, Dow 30]
(KFT: Google Finance file)
(KFT: Yahoo Finance file)
(KFT: StockChart chart)
(KFT: Billcara2 chart)
(KFT: ADVFN Financial Data)
(KFT: 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)
McDonalds [GICS 30, Dow 30, Cara 100]
(MCD: Google Finance file)
(MCD: Yahoo Finance file)
(MCD: StockChart chart)
(MCD: Billcara2 chart)
(MCD: ADVFN Financial Data)
(MCD: Value Line Report Sept. 5: next one is due Dec. 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 Sep. 13: next one is due Dec. 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 Sep. 13: next one is due Dec. 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 Sep. 19: next one is due Dec. 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 Sep. 26: next one is due Dec. 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 Sep. 26: next one is due Dec. 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 Oct. 3: next one is due Jan. 2)
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 Oct. 3: next one is due Jan. 2)
Wrap-up:
How does anybody wrap up a week like this and do justice to the situation. History was made this week. Trading volumes are through the roof. Prices have hit a bottom.
Whether that is rock bottom; only time will tell! I believe it is, but I do not have the time to continue to argue my case that reflation from global authorities plus appeasement of bankers by governments and mega trillions of cash sitting in money market accounts plus corporate treasuries that are historically at liquid levels and a global army of traders standing by for the flare gun to send them into battle to finally slay the Bear, will in fact do just that.
I declare the Bear dead. Three weeks ago, I opined that the process had begun. I encouraged traders to take bullish positions, knowing that there would be a time gap between your ears and your actions. We started to see a glimpse of action on Friday when the broad market indexes soared by +10% in the matter of a few moments only. Nothing like that has happened in history.
This weekend, there are merger talks between the Big Three of Detroit. Nobody could have conceived the possibility even a few weeks ago.
This week, Morgan Stanley and Merrill Lynch, once the giants of the investment banking world, saw their shares plummet -59.5% and -40.9%, respectively. Nobody would ever have believed that possible even a week or two ago.
It would be my great pleasure to have you, at this point in history, buy stocks in the quality corporations in the world that serve us and employ us. Capital markets are about us as readers of my book have seen in the first paragraph:
As complex as it might seem, the market is merely a case of “people acting like people” – with all their fears, enthusiasms, prejudices, stupidity and wisdom. Together, we create prices. The market is us.”
If you believe that -- if you believe in me -- then you will set aside your fears, you will direct your enthusiasm with mine, and you will buy stock.
Have a great week. This is history, and we are so blessed to be alive and participating in it.
I hope to see a lively Discourse, and I thank you in advance for it, and for all that many of you do to help others less knowledgable, opinionated or forward as yourselves.
Posted by Posted by Bill Cara on October 12, 2008 10:50:15 AM | Category: Cara Week in Review