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November 2, 2008
Week in Review #44 (2008-11-02)
I have not ever had so many doubters in my “trader wizdom” as happened a week ago, but by the time it came around to trick or treating this Friday evening, the US equity markets had the biggest weekly gain since 1974. I felt vindicated.
Moreover, this week marks the first time in history that the DJIA, S&P 500 and NASDAQ indexes all lifted by more than +10% in a single week. Additionally, I was resolute in my belief that Energy and Goldminers would be rally leaders, and as it happened, XLE was up +17.4% W/W and the Goldminer industry stocks (GDX) jumped +21.7%.
A week ago, during very difficult circumstances, I wrote, “The thrust of this WIR will be that, pretty soon, we’ll all be in the money, riding the Bull. All that matters is that we choose the right Bull to ride… This week was a crusher to most people. I empathize. You know that. But if misery loves company, don’t go looking for it here… Have a good day. There will be better ones ahead. From my home, looking across the ocean, I can see them!”
Thank goodness the market worked my way. I will admit I was starting to get testy and sarcastic with the Doubting Thomases. More relevant to you all today is that: (i) your portfolios are beginning to recover, which, I believe, will continue to be the case, and (ii) you now see the importance of market timing as well as trading in the shares of high quality companies.
So let’s get into the material so we can make sense of the data.
Global Economics Review
Weekly International Economic Report .
I encourage everybody to read these reports from Econoday and discuss them in the Discourse, but check the publishing date if you are looking for the latest data. The current issues, when posted, are good ones.
Here are the key US economic reports and the Econoday analysis from last week.
US Economic Calendar.A week ago I stated, “This Wednesday Oct 29 at 2:15pm, the US Fed will announce their decision. The belief is that the Fed has a 67% likelihood of cutting -50 basis points, and 33% of a -75bp cut. Either decision will take some pressure off the $USD moonshot, and may lead to a significant rally in $GOLD.”
$GOLD actually dropped from 738.39 to 722.30 W/W, but on Wednesday there was a rally to 775 right before the announcement. I believe the Interventionists are pushing the price of gold down, and supporting the $USD, which ultimately must fall because of the debts created by the banker bail-outs, the house mortgagor relief packages, the economic stimulus programs, and so forth.
1-800-HELP is being extended by the US monetary authorities to pretty much any party in the world needing to be financially recued. To believe that the USD will not suffer is to act like an ostrich with its head in the sand.
Moreover, there are increasing problems with international trade as the $USD rallies, as I pointed out recently:
The problem is that global trade will stop if the $USD continues to soar. International currencies throughout the Americas and Europe and Asia-Pacific countries (ex-Japan which is rallying even faster than the $USD) are sinking like a rock in water. This imbalance is making it difficult for many countries to pay for necessary commodities like oil, chemicals, metals, food, and when they can pay the prices are distorted on the high side, which imports even more inflation. The people in these countries are scared stiff. Moreover, as they find they cannot pay for the imports they need, the demand drops and prices of the commodities spirals down. This is a death spiral that must be stopped asap.Let’s have a look at this past week’s economic data.
US New Home Sales for September. Econoday reported, “The new home sales report for September, together with last week's stronger report on existing homes, points to the possibility that the sector has bottomed. New home sales came in at a better-than-expected annual rate of 464,000, up 2.7 percent on the month but an improvement offset, though not completely offset, by downward revisions to prior months. The 464,000 rate, nevertheless, marks the first back-to-back sub-500 rates since the '91 recession. In a clear plus, supply is coming down, at 10.4 months for the current sales rate and down from 11.4 months in August. Builders are definitely cutting back as the number of new homes for sale, at 394,000, is the lowest in four years… The median price, of $218,400, is also the lowest in four years. The rate of price decline, at -0.9 percent month-on-month and -9.1 percent year-on-year, is consistent with price declines underway for existing homes as distressed sales push prices down… Regional data show improvement for the West where existing home sales also bounced back in September. New home sales have been unusually weak in the Northeast which saw a record low total in September, in data going back to the '70s. It's hard to judge reaction in today's financial markets, but stocks did rally after the report was issued.”US Durable Goods Orders for September. Econoday has reported: “Durable goods orders in September unexpectedly rebounded but strength was isolated. Durable goods orders rose 0.8 percent in September, following a 5.5 percent decrease in August. The jump in September was far above the consensus projection for a 1.1 percent contraction. However, excluding the transportation component, new orders fell 1.1 percent, after a 4.1 percent drop the month before. The market had forecast a 1.5 percent decrease. The gain in the latest headline number was the result of a surge in aircraft orders - up 10.1 percent for defense aircraft and up 29.7 percent for nondefense aircraft. Outside of aircraft, durables orders remain weak… Strength in September was led by transportation which jumped 6.3 percent. Also posting gains were machinery, up 0.5 percent, and electrical equipment, up 1.5 percent. But there were sharp declines in a number of other components. Industries with lower orders were primary metals, down 4.5 percent; fabricated metals, down 0.9 percent; computers & electronics, down 1.4 percent; and communications equipment, down 14.6 percent… Year-on-year, new orders for durable goods improved to down 3.6 percent in September from down 5.8 percent the previous month… Today's report is mixed after going into the detail. Certainly, the aircraft industry (or rather Boeing) is doing well despite the recent strike. But outside of aircraft, durables manufacturing is still on a downturn.”
US Q3 Advance Estimate of GDP. Econoday reported, “Third quarter GDP is confirming that the U.S. economy is in recession. The Commerce Department's initial estimate for third quarter GDP came in at minus 0.3 and followed a 2.8 percent boost the prior quarter. The latest number was marginally higher than the consensus forecast for a 0.5 percent decline… The drop in growth was due to a fall in personal consumption, weaker residential investment, a decline in nonresidential fixed investment, slower growth in exports, and a less negative import decline. On the positive side, inventories fell less rapidly and government purchases accelerated… The third quarter decline was the first negative number since a 0.2 percent dip in the final quarter of 2007 and was the largest since a 1.4 percent drop in the third quarter of 2001… On the inflation front, the GDP price index jumped to an annualized 4.2 percent from 1.1 percent in the second quarter. The market had projected a 3.8 percent increase. Headline PCE inflation is still reflecting higher oil prices for the quarterly average with a surge to 5.4 percent annualized after a 4.3 percent jump in the second quarter. Core PCE inflation rose 2.9 percent, compared to 2.2 percent the previous quarter… Year-on-year growth for real GDP stood at 0.8 percent and is down sharply from 2.1 percent in the second quarter.”
US Weekly Jobless Claims. Unemployment is skyrocketing in the US, and this report is likely to focus traders on that issue. Econoday reported, “Jobless claims held steady, unchanged at 479,000 for initial claims in the Oct. 25 week and down a slight 12,000 for continuing claims to 3.715 million in the Oct. 18 week. Both are at recessionary levels.”
US Employment Cost Index for Q3. With skyrocketing unemployment, most workers are more concerned with saving their jobs and benefits than making wage and salary demands. Econoday reported, “The cost of labor remained mild in the third quarter, data that will put aside any practical concern over the risk of inflation. The employment cost index rose 0.7 percent in the third quarter, unchanged from both the second and first quarters, while the year-on-year rate of 2.9 percent is down 2 tenths vs. the second quarter and down 4 tenths vs. the first quarter… This series measures benefit costs which used to be a sore spot for policy makers who complained they were rising too fast. Not anymore. Benefit costs rose only 0.6 percent in the third quarter, the same rate as both the second and first quarters, with the year-on-year rate down 3 tenths to a very mild 2.6 percent. Wages & salaries, the series' second major component, rose 0.7 percent in the quarter for a 3.1 percent pace… These year-on-year rates are well below the quarter's 5 percent rates for consumer inflation, a gap confirming the loss of consumer purchasing power. Consumer inflation appears to be on the way down as are labor costs, where increases look to ease even further given the deepening declines in payrolls… The 2008 crash and credit squeeze have pushed inflationary risks deep into the background. Policy makers may at times still cite the risk of inflation, but they are focused squarely on the urgent necessity of stimulating demand. The ECI was released along with a very weak personal spending and personal income report that confirms weakness on the income side. Money moved into the Treasury market in immediate reaction to the 8:30 data.”
US Personal Income and Outlays for September. Econoday reported, “The September personal income report shows the consumer sector softening - notably with a pullback in spending. Personal income in September edged up 0.2 percent, following a 0.4 percent rebound in August. The September rise was just above the consensus forecast for a 0.1 percent increase. Within personal income, the wages and salaries component nudged up a slim 0.1 percent in September, after posting a 0.4 percent boost the previous month… Spending weakened even further in September. Personal consumption expenditures dropped 0.3 percent, following no change in August. The consensus had forecast a decline of 0.3 percent for personal spending. Most of the weakness in the latest month was in durables with a monthly 2.9 percent fall. Nondurables also declined, by 0.8 percent, while services rose 0.2 percent… On the inflation front, the headline PCE price inflation remained modest. The overall index rose an incremental 0.1 percent, following a flat reading in August. The core PCE price index inflation rate was unchanged with a 0.2 percent. The market had forecast a core increase of a mere 0.1 percent for the latest month… Year on year, personal income growth slipped to up 3.9 percent from up 4.3 percent in August. Headline PCE inflation slowed to up 4.2 percent from up 4.5 percent the month before. Core PCE inflation softened to 2.4 percent from 2.5 percent in August. Both headline and core PCE price inflation remain above the Fed's implicit inflation target range of 1-1/2 to 2 percent annualized. But with the trend in oil prices and in consumer spending, the Fed likely will get its forecast for target inflation in coming months… The September personal income report shows the consumer sector retrenching - and this was before October's negative numbers in the stock market and drop in consumer confidence. The numbers were close to expectations and the markets are more likely to focus on end of the month issues for closing accounts for October. Nonetheless, the numbers are worrisome for where the consumer is headed in coming months. Today's pending report on consumer sentiment is the next indicator on the pulse of the consumer sector.”
Chicago Purchasing Managers Survey for October. Econoday reported, “The Chicago purchasers report swung back in line with other data, plunging nearly 20 points from a solid 56.7 in September to a deeply recessionary 37.8 in October. Disastrous data on orders point to perhaps deeper lows in the months ahead: new orders fell more than 20 points to 32.5 and backlog orders fell nearly 15 points to 39.0. Production slowed violently, down more than 40 points to 30.9 and left Chicago firms holding inventories which jumped nearly 20 points to 56.5. Employment also retreated, down about 8 points to 41.5, and it looks to retreat further in the months ahead. The evaporation in demand made for a steep drop in prices for energy and raw materials as the prices paid index fell nearly 30 points to 53.7… Thirty points this way and 30 points that way underscores the volatility of this report which nevertheless hints at deepening trouble for the whole economy.”
How is next week’s calendar looking?
US Economic Calendar.On Tuesday, the US voters go to the polls to elect a new President and a significant numbers of members of Congress. According to reports of record-setting crowds at advance voting stations, Sen. Obama is clearly the front-runner.
This Thursday Nov 6 at 7:00am ET, the Bank of England announces monetary policy. At 7:45am, the European Central Bank does the same. Rate cuts are expected, which ought to further strengthen the $USD.
US ISM Manufacturing Report for October. After the release of the September ISM Manufacturing data, Econoday reported, “The ISM manufacturing's index shows a major break down for the sector in September, falling more than 6 points to 43.5 vs. August's 49.9. A move of this degree is very rare for this index which is historically very stable. Similar moves have occurred only during extreme times, such as after September 2001 or during recessions. Money moved into safety in immediate reaction to the results with Treasury yields coming down… New orders plunged in the report, down nearly 10 points to 38.8 from 48.3 in a reading that points to sustained overall contraction in the months ahead. Production also showed a severe decline, down more than 10 points to 40.8. Employment fell to 41.8 vs. 49.7 and points to more trouble for factory payrolls in Friday's jobs report. Prices paid confirms the lack of demand, showing very little pressure at 53.5 vs. 77.0. Backlog showed a severe decline as did inventories… The only positive reading in the report is export orders which came in at 52.0, firm but nevertheless down 5 points in the month. Hurricanes certainly affected results as did the credit crisis. Today's results are certain to deepen talk of recession.”US Factory Orders for October. After the September data was released, Econoday reported: “The factory sector contracted severely in August and, based on ISM's report yesterday, also contracted in September. Today's report winds up the data on August when factory orders plunged 4.0 percent reflecting a 4.8 percent contraction for durable goods and a 3.3 percent contraction on the nondurables side that reflects lower prices for energy. Monthly contraction was severe for primary metals, machinery, electrical equipment, and especially transportation. Most of these industries contain components for capital goods categories which showed a 7.9 plunge for nondefense capital goods in a reading that points to declines in business investment, yet another negative for the outlook on GDP. Orders for consumer goods also contracted, down 4.7 percent. Factory orders for July, in yet more bad news, were revised down to a gain of 0.7 percent from 1.3 percent… Other data in the report include a 3.5 decline in shipments with shipments of nondefense capital goods down 3.2 percent, a reading that specifically will weigh on third-quarter GDP. But unfilled orders remain a very big positive, up 0.4 percent. Enormous backlogs, centered in aerospace, point to long term resiliency for the factory sector, unless of course economic weakness triggers a run of cancellations. Inventories rose 0.6 percent but yesterday's related reading from the ISM points to drawdown for September. The ISM data also points, unfortunately, to yet another steep decline in factory payrolls, data to be included in tomorrow's employment report. The manufacturing sector, which had been holding its own, is now struggling with the Boeing strike, which is guaranteed to cut into September aircraft production, a new negative.”
US ISM Non-Manufacturing Report for October. After the September data was released, Econoday reported, “In complete contrast with the manufacturing report, ISM's non-manufacturing report shows steady conditions with the headline composite index little changed, down only 4 tenths to a 50.2 reading that is virtually at the dead-even 50 level. In other words conditions were dead flat in both September and August -- good news that may limit conclusions that the economy is in recession. Most sub-indexes hardly moved including prices paid which posted a record plunge in Wednesday's report on the manufacturing side. The discrepancy may reflect manufacturers' greater use of energy. New orders rose slightly to just over 50 though backlog orders did slip more than 2 points to 46.5. Inventories fell in more goods news in the report. There was little reaction in the markets.”
US Productivity and Costs estimates for Q3. After the Q2 data was released, Econoday reported, “Second quarter productivity was revised up sharply while and labor costs were revised down. Today's report is good news for corporate profits in the second quarter and into the third due to cost cutting on the labor side and higher output. Second quarter productivity was raised to an annualized 4.3 percent, compared to the initial estimate of 2.2 percent and the market projection of a 3.3 percent gain. Meanwhile, unit labor costs were revised to a 0.5 percent annualized decline from the initial estimate of a 1.3 percent increase. The market had expected a 0.3 percent annualized decrease… Compensation per hour was nudged up to a 3.7 percent gain from the initial Q2 estimate of 3.6 percent… Year-on-year, productivity was up 3.4 percent in the second quarter, following a 3.3 percent gain the prior quarter. Year-on-year, unit labor costs in the second quarter came in at up 0.6 percent, compared to unchanged the first quarter. Compensation rose 4.0 percent on a year-ago basis - up from 3.3 percent in the first quarter.”
US Employment Report for October. With skyrocketing unemployment, most workers are more concerned with saving their jobs and benefits than making wage and salary demands. After the September data was released, Econoday reported, “The September jobs report was quite gloomy with payroll losses sharply exceeding expectations. But markets had curious reactions. Nonfarm payroll employment in September dropped another 159,000, following a decrease of 73,000 in August and a decline of 67,000 in July. Thus far, payroll jobs have fallen every month of 2008. The September drop in jobs was worse than the consensus forecast for a 100,000 decrease. The September fall was the worst since the 212,000 drop in March 2003… The latest job declines were widespread. Manufacturing and construction jobs fell by 51,000 and 35,000, respectively. Rounding out the goods-producing sector, natural resources & mining rose 9,000 in September. Service-providing jobs declined 82,000 after falling 16,000 in August… Within service-providing industries, weakness was led by a 40,000 drop in retail trade and a 27,000 decline in professional & business services. Also falling were financial activities, transportation & warehousing, wholesale trade, information, and leisure & hospitality. On the positive side, education & health services advanced 25,000. Also posting modest gains were government and also other services… Average weekly hours were slipped to 33.6 hours in September from 33.7 hours in August… On a year-on-year basis, nonfarm payroll employment declined to down 0.2 percent in September from down 0.1 percent in August… On the inflation front, average hourly earnings eased to a 0.2 percent rise in September, following a 0.4 percent gain the month before. The market had projected a 0.3 percent increase… Turning to the household survey, the civilian unemployment rate held steady at 6.1 percent in September and matched the consensus projection for no change.”
US Pending Home Sales for September. After the August data release, 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.”
US Consumer Credit for September. After the August data release, Econoday reported, “The credit crunch was already beginning to hit consumers in August. Consumer credit plunged $7.9 billion for the first month-to-month decline in nearly 11 years. The decline was centered in non-revolving credit which fell $7.3 billion. With auto sales weakening, there's little reason to expect gains in this category for September. Revolving credit fell $0.6 billion. The great risk right now is that the credit crunch will spread to the consumer's ability to finance household expenditures. Efforts around the world to increase savings guarantees are an effort to stem this risk.”
Economists generally agree that the macro-economic data for this Q4 and 1Q2009, at least, will continue to be negative, but they will also acknowledge that many of these reports are based on data that significantly lags current events and that equity markets usually turn higher mid-way through a recession. What concerns me are the vast numbers of economists who are being given the Financial Entertainment TV platform to sell their consulting services, their speaking engagements and their books. These people are biased. Art Laffer, for example, is never going to change from his “Trickle Down” economic theory. Traders need to filter that kind of noise.
Bear in mind that the week that markets crashed, when I was urging traders to stop listening to economists and start focusing on the capital markets data, it was (i) the time that economists were lined up at CNBC, in incredible numbers, to go on their fear-mongering rants, and (ii) the end of the most over-sold period in market history. The following week – this one – saw the biggest weekly gain in US markets since 1974, and the only time ever that all US broad market indexes jumped over +10% simultaneously.
I told you that I was the trader and those guys are economists and that Wall Street uses them for one thing only, which is for marketing purposes. They are not permitted to get within eyesight or ear-shot of a trading floor.
What the world needs is to educate people in the basics of active market trading. When you start down that road, you quickly see that b.s. baffles brains, but traders trade on the data. There is no place in trading for salespeople who peddle financial products or for crapola from entertainers or theorists. Trading is a street skill. You eat what you kill. Full stop.
US Equity Markets Review
DJIA stockcharts.com chart
By now you are chuckling at my words. But re-read what I wrote here in this space last week:
A week ago in this space, I wrote, “I try my best (to get people to see the values popping up all over), but there is an overwhelming sense of hopelessness that permeates the public. Too bad.” Now I will add, the market will soon see what I see… The S&P 500, which is the measuring stick of the institutional investor dropped this week from 940.55 to 875.77. We are within striking distance of the absolute bottom.
This week, the absolute bottom was reached on Monday and touched again Tuesday at 845.27. The close was 968.75, which was a gain of 91.98 +10.49% W/W.
Nobody can deny that I pleaded for you not to miss the bottom. I pulled out Ecclesiastes 3.
Should the equity futures on Monday open locked limit down, we’ll be back at the July 2002 point of cycle bottom. The wealth created by the United States over the past six years will have been eliminated. How sad. How utterly destructive it is for those who went deeply into debt to take risks like buying a home, adding to pensions and building securities portfolios.
This wealth will return, in time. But time is the great leveler. In time, we will all pass from this earth. In the relatively brief time it takes the equity market to fully recover, maybe three years, many of us will no longer be vertical. How sad. How painful for the heirs.
But let me tell you right now, early on in this Week In Review: this is a time to rejoice. New money going into equities today will be the seeds that plant the fields. In time, the new wealth that for certain will be created will be harvested. The cycle of all things living will go on.
Those of you who have been financially devastated so much in the past year can take comfort in Ecclesiastes Chapter 3, my favorite biblical verse. I even went to the video and lyrics of my favorite inspirational country music song from Lee Ann Womack.
I’ll tell you, I felt like I was standing on a stage with Barack Obama, somewhere in Iran. Great speech, but not too many believers!
In time, as I say, people come around to my way of thinking.
NASDAQ Composite ino.com chart
NASDAQ Composite stockcharts.com chart
A week ago, I wrote in this space, “The NASDAQ Composite dropped from 1721.29 to 1552.03 this week. The recent cycle high was 2473 in mid-August. A year ago the Bull market high was 2861… If you get into the market now, I believe your stocks will almost double within three years. If you choose the right ones, they ought to double in three to six months… I hope you dance.”
After hitting a low of 1493.00 during the session the day before I wrote that, the NASDAQ this week hit a low of 1503.81, but closed at 1720.95 for a gain of +168.92 or +10.88% W/W.
Here is the list of the ten highest-weighted non-financial stocks in the NASDAQ Composite. Put them in a watchlist (see Google Finance Portfolio) and watch them like a hawk:
AAPL MSFT GOOG QCOM RIMM CSCO INTC ORCL GILD EBAY
A week ago in this space, I wrote, “If you find these stocks rallying hard on high volume next week, then I believe you will be watching the power of the Bull.”
You know that among the NASDAQ Techs, I like Oracle, Research In Motion and Intel. Well, this week, ORCL, RIMM and INTC jumped +12.9%, +12.2% and +12.3% respectively. I promise you, I can’t do better that that.
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
A week ago there were nine of ten sectors that sank, four of them down over -11.75%: Consumer Discretionary (XLY -12.7%); Basic Materials (XLB -11.9%); Financial (XLF -11.8%); and Telecom (IYZ -11.8%). This week, all ten were up! The winners were: Consumer Discretionary (XLY +19.1%), Energy (XLE +17.4%), Telecom (IYZ +15.2%), Financials (XLF +14.4%), Industrials (XLI +13.9%) and Basic Materials (XLB +13.2%).
A week ago, in very difficult circumstances, I wrote here, “As Mohammed Ali used to say, while leaning back on the ropes, “Hit me again. Are you getting tired?” Not being in debt, and holding cash in reserve, I feel that way. Prices have come to me, finally dropping almost to the long-term cycle low of July 2002.”
Now you see why I pleaded with you to stop listening to the noise, and to focus on the current prices and the values that had popped up everywhere.
Here’s the SPY Monthly, Weekly and Daily data charts:
SPY Monthly data:
SPY Weekly data:
SPY Daily data:
The tables I now show are for eleven GICS Sector Index Funds (ETF’s), including two for Technology (XLK and SMH), for a total of ten GICS sectors. They cover the full spectrum of the US equity market.
Table 1: Cara ETF List is sorted by price performance Week over Week (W/W), i.e. 1W%N.
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
You can do this table yourself by entering the following string into the Summary window at Billcara2.com and then clicking on the link for Performance. SPY XLE XLB XLI XLY XLP IYH XLF XLK SMH IYZ XLU . You can also add more ETF’s – up to 30 in total.
For a list of components to many ETFs, go to the AMEX.com web site, and click on ETF’s.
10 (energy: XLE)
15 (basic materials: XLB)
20 (industrial: XLI)
25 (consumer discretionary: XLY)
30 (consumer staples: XLP)
35 (healthcare: IYH)
40 (financial: XLF)
45 (technology, semiconductor: SMH)
50 (telecom: IYZ)
55 (utilities: XLU)
Individual Sector ETF Review
Sector 10 (energy: XLE, IYE, VDE, OIH, PBW and IXC)
Here’s the XLE Monthly, Weekly and Daily data charts:
XLE Monthly data:
XLE Weekly data:
XLE Daily data:
Table 2: Senior oil & gas equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Crude Oil ($WTIC) closed the week up +$3.66/bbl (+5.71%) to 67.81.
A week ago, the oil price crashed by -$7.98/bbl. (-11.06%) to 64.15. I then wrote, “That got the attention of OPEC, which will (soon) respond with production cut-backs in an effort to hold the line here, or possibly at about the 70-75 level.”
The question now is, can Americans live with the oil price at 70-75? I think so.
The XLE rallied again this week, up +17.41% to 51.25. Recall what I wrote in this space a week ago: “For a second week, lower oil prices did not take the related stock prices down in this sector this week, relatively speaking. XLE (the Energy ETF) closed down -4.28% to 43.65, while the S&P closed down -6.78%... Since, a week ago, XLE closed up +5.07%, there actually has been a gain, from $43.40, over the past two weeks. Stock prices usually lead commodities… Mind you, just three weeks earlier, XLE closed at 67.70, so the loss over four weeks is substantial. That’s what too many of you are focused on.”
So, the XLE is on its way back.
Two weeks ago in this space, I wrote, “Exxon (XOM), which is a recent Buy pick of mine, dropped -43% in the previous two weeks, but was up +9.1% this W/W. I worked really hard last weekend to bring about that result. The big belt buckles in Irving TX ought to thank me. :-) The price a week ago was $62.36. Today it’s $68.04. What happened in the interim (other than falling oil prices)?”… (Then I added a week ago) “This week XOM was up +1.5% to 69.04 and CVX was up +2.50% to 63.91. These are the two biggest cap US oil companies. Somebody is buying them! Keep your wits about you. You are looking at the makings of a stock rally, and I believe the Oils will be pumping… About XOM a week ago in this space, I concluded, “Look what these low prices this week mean in comparison to those who traded XOM for the past several years. Then look at the Value Line data to see how much this company has strengthened over that period of time. There is no need to have a panic reaction when this stock dips. You should be waiting for buying opportunities like this.”
This week, XOM gained +7.4% to $74.12. More proof of concept. In fact, let’s go back two weeks to WIR#42 (Oct 19) to review the total transcript of what I wrote about Exxon:
Last week I wrote in this space: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.What I wrote here a week ago is very important. I don’t know precisely how markets are going to move week to week or even day to day or hour to hour. But I know trading. Let’s follow my words of wisdom:I am confident of that because these (like Exxon) 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 you 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!
Yes, this week (ie, the one ending Oct. 24), XOM closed at $68.04. Even though that is a lower price than I had anticipated, the gain this week was +9.1%. Yes, traders who are scaling in will now have a basis in the low 60’s. Traders who got in a week ago at 62.34 are already happy because even though the current price is 68.04, they could have bought XOM down to 59.17 this week.
Look what these low prices this week mean in comparison to those who traded XOM for the past several years. Then look at the Value Line data to see how much this company has strengthened over that period of time.
There is no need to have a panic reaction when this stock dips. You should be waiting for buying opportunities like this.
So, while everybody in the market was screaming bloody murder, I was calmly walking you through the cycle bottom, trading the shares and options on shares of America’s largest company by capitalization, revenues, earnings, etc. The price of XOM is now $74.12.
This is why I mock the entertainers and economists people spend hours watching on television. The market is not rocket science and you don’t have to be an expert in calculus to manage your portfolio. There is not a single concept I discuss in these pages that cannot be taught in secondary school. In fact, it must! There is no need to listen to sales people and others who know the market patter when you can follow along here and learn the stuff.
But, people fight it. I see examples of that everyday in the blog. For instance, soon after I recommended XOM a couple weeks ago along with 14 other Cara 100 stocks (at a long-term cycle turning point) and the price subsequently dropped a bit, people screamed. They just got in and already they wanted out. Reminds me of the TV commercial of the guy in the art auction who had just successfully bid on a piece immediately raising his arm to tell the auctioneer he wanted to sell it now. This lack of patience tells me that people are reacting, not acting. They are listening to know-nothing fear-mongers and not believing in the principles of successful trading.
But I do what I can do. Let’s move on.
Actually, one final point. A couple weeks ago there was a smart alec from Europe here who I banned after he made a remark that I was a typical American who was only spending my time to harvest clients. From the time I started this blog in April 2004 through June 2006, I had no intention of coming out of retirement since 4Q2000. Then I was asked to write a book. Then, in spending hours doing that in The Bahamas, I thought about returning here, which meant I needed to work. Trust me; lying on a beach all day becomes unhealthy after a couple weeks, so in 2H2006 I decided to organize a new business. I know that 99 point something percent of you will never use my professional services, but that’s not why I started to blog Easter weekend 2004. I have maintained from the beginning that (i) anybody can master this stuff, and (ii) everybody who does will become better clients of their advisors, also holding their advisor to a higher standard. Every day of my life now I receive letters of appreciation from people I almost certainly will not come in contact with again unless they decide to write again. Those letters amount to a legacy that makes all the time I spend here hugely valuable to me.
Back to the market, there were some oil stocks that skyrocketed this week: China National Offshore Oil Co (CEO +31.1%) and PetroBrazil (PBR +27.7%). RIG too was up +24.3% W/W. These are mega-cap stocks, so the money flow going into the energy sector is massive, as I had expected and told you so.
But volatility is enough to frighten the average person, while putting a smile on the faces of day-traders. A week ago, in this sector, the losers were: PTR (-21.1%), PBR (-19.7% to 21.05), CEO (-18.9%), and SU (-8.0% to 20.15). I wrote, “These are all good, but for the ones I really like, I noted the current price. I want to refer back here at some point for more proof of concept.”
PBR and SU are now, one week later, much higher. PBR gained +$5.84 (+27.7%) to 26.89 and SU gained +$3.77 (+19.7%) to 23.92. There is a long way to go before running into resistance of the (plunging) 50-day and 200-day Moving Average lines. I added “plunging” because it won’t take long, which means that active traders need to have a trigger finger.
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 +13.19% to 25.92) was another sector that out-performed the market this week. I figured it would, so a week ago I wrote in this space:
Basic Materials (XLB -11.92% to 22.90) had a monster move to the downside, but note that the gain of +5.09% on the prior Friday was offset by a loss of -3.42% this Friday. From Thursday through Thursday, XLB was down less than the other sectors Friday through Friday (except Utilities XLU).So, I am not rattled that XLB was down so much W/W. In fact, I am lining up my ducks here for the next rally.
One of the reasons for my interest is the action in $GOLD (+2.18%) and the Goldminers ($XAU +4.31%) on Friday, a day when the $USD and $XJY (Yen) were soaring (+1.4% and +3.1% respectively). That shouldn’t be – unless the same Big Belt Buckles were in buying here Friday as well as in the Oils as they were earlier in the week.
Just to put a lid on Friday, which was the only good day for the Goldminers, on Friday Kinross (KGC +10.8%) and Goldcorp (GG +10.5%) were up sharply.
The rest of the week for the Goldminers was bad, and so it was for the Steelers, and Base Metal Miners: TCK -30.1% W/W to 9.58!, TS -28.9% (Argentina in trouble), PKX -27.7% (S. Korea in trouble), GGB (-26.1%), MT (-25.8%), and AA -20.3%) all plunged.
Is this the specter of a global depression or in reality the end of many hedge funds, and forced selling in many accounts, particularly in countries abroad where the currency is sinking? Is it the work of prudent pension fund managers who, being undecided, have pulled funds out of the market?
Is the US government going to fail to meet its obligations, as many of you fear?
Here’s what I think. A week or two from now, with the new found reflation money deposited in the Money Center Banks, the number of Ivy League economists screaming deflation and depression will number many fewer. Calmness will settle in the marketplace, with lower volatility at the NYSE and at NASDAQ.
“A week or two from now”! Was one week enough for you? Did you note the $VIX and $VXN break-down? And, how about those Goldminers? The industry ETF (GDX +21.7% W/W) was soaring.
About those economists: the equity market just had the biggest one-week rally since 1974, and never before had all the DJIA, S&P500 and NASDAQ jumped together over +10% in a single week. Never.
Like I say, the market doesn’t rattle me because I understand it.
Having said all that; keep your eye on the falling MA lines and the VIX and VXN. There will be resistance and probably a re-test of lows. Volatility, while falling, has not disappeared. Bank traders are still willing to take your money.
Bankers need to take your wealth to build their capital reserves. They are trading against you. They know everything about you. Ain’t fair; but it is what it is.
Maybe the next US President will bring about real change and not just talk about it. Then again, maybe a Bob Rubin and/or Warren Buffett will be pulling his chain.
I am skeptical because I’ve been around. Then again, I could have been from Missouri.
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 |
Industrials (XLI +13.94%) was another red-hot sector this week, closing at 25.17. A week ago I wrote here:
The Industrials (XLI -6.83% W/W) closed at 22.09. Most of the loss (-5.60%) happened on Friday. Traders did not like the opening limit down equity futures that suddenly popped up to spook the Street, and they offed the commodities and related equities (except for $GOLD and the Goldminers).Two weeks ago in this space, I got into the need for traders to use stops and manage positions day to day: “... Does this not tell you that traders (i) need stops, and (ii) often have to day trade or else sit it out in cash?”
I added, “A week ago, I wrote in this space: 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 (BA), Bombardier (BBD.B on Toronto) or Embraer (ERJ) – 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… You must have been listening because even though this sector was up just +0.72%, the result for the three plane makers W/W was: BA (+6.6%); BBD/B.TO (+4.31%); and ERJ (+11.9%). Name me one economist who gave you a trifecta that returned +7.6% this week.”
BA was up +4.3% Monday through Thursday this week, and late into the day on Friday, but did have a loss of -2.75% on Friday (note the last 8 minutes! … where BA plunged -$1.10 to close at $45.24).
I love to take note of moves like that. You see, Mohammed Ali taught me the Rope-a-dope. Shows me that somebody wants to put on a show Monday morning; either major losses in the opening futures or a sling-shot early morning, or both. In any case, I know that economists are not aware of what’s being set up here.
When Ali decides to come off the ropes to take control is hours or days away.
Hours.
Traders like me love the action.
This week in the US, Boeing (BA) signed a machinists contract and the stock flew +$7.18 (+15.9%) to 52.42, while Embraer (ERJ) of Brazil flew $4.20 (+25.12%) to 20.92. Meanwhile the Canadian markets were slow to get off the mark, and Bombardier (BBD/B.TO) added just 6 cents to C$4.65.
Still the average gain here this week in the BA, ERJ and BBD/B was +14.1%.
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 +19.10% W/W) closed at 23.13. That was poetry in motion.
A week ago I wrote here:
For some reason, traders are not watching the trillions of dollars being fed to bankers. When the Treasury makes the final wire transfers -- any day now -- these banks will be flush. That means that retailers will be able to get all the loan money they need… Next, the government will start talking up a Stimulus II package to put money into the hands of the consumer – the same one who this time will not have to spend that money at the fuel pump paying ridiculous prices to fill-up the family SUV. The consumers will once again be flush. Then the retailers’ cash registers will go $ka-ching, $ka-ching… Some consumers might even buy cars and boats, and take cruiseship vacations to visit me in Bahamas… ha!
Proof of concept: the Consumer Discretionary stocks were the #1 sector performers this week.
A week ago I wrote about Brunswick:
Brunswick Corp (BC) makes some of the best boats in the world for the price. The stock has totally tanked, plunging -43.0%, down -80.6% YTD. They need a new banker. Obviously they need some friends in Congress who ought to bail them out of the swamp before US boat production sails off to Taiwan… In summary, there are many problems in this sector that a little money spread around by Henry Paulson would cure. Send him an unsinkable Boston Whaler as a retirement gift. I can just see him sailing one of those $100,000 babies back to his $60 million a year Wall Street job. Ya, right! Anyway, the money is on the way. Hope floats.
BC was up 18 cents this week (+5.47% W/W) to close at 3.47. But the good news is that 17 of those 18 cents were gained on Friday. So the hope of a bail-out is still floating. Do the right thing Mr. Treasury Secretary, Brunswick’s 23,000 still employed workers might even float a multi-million dollar Hatteras down the ditch from New Bern NC to your place in Palm Beach.
Ah, New Bern, Beaufort, Morehead City and Cape Hatteras. I shipped my own boat from Wilson NY (near Buffalo) – after sailing it across Lake Ontario in a late October blizzard (“You must be from Canada” the lonely yard-worker shouted as we arrived covered in snow!) – to Morehead City. Then I flew Toronto-Charleston-New Bern, stopped for $300 in groceries, took over the boat, stepped the mast, hung around for the three days it took for that storm to clear, and sailed offshore to Ponce Inlet (Daytona Beach FL), actually departing Cape Fear because I wanted to see the gunnery range at USMC Camp Lejeune – no, it was really because the storm offshore was so bad, I decided to spend a day headed south on the ditch, checking out the boat before leaving offshore for several days.
But, I’ll never forget the North Carolina coast – beautiful people. Hard working, low wages, proud of their country. And I’ll never forget Cape Fear. Getting in after dark, cooking a huge turkey in the galley stove, getting ready to watch George HW Bush win his election. What a night. Anchored in the river in the dark, finding our way by depth sounder. Forgot about the tide, which is pretty big there. I guess the last ferry in the night crossing a hundred yards astern sent waves big enough to knock the boat over on its side. Without knowing it, the tide had ebbed, leaving us stuck, in the mud, upright on the keel – for a while anyway. We fell out of bed thinking that ferry had run over us. Oh, the memories.
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 +5.96% W/W to 24.16) did not fare as well as other sectors.
A week ago I wrote in this space, “Seems many people can no longer afford good food and drink. From the sounds coming from these economists, we’d have to think they were on a soup line back in the 1930’s, for Pete’s sake.”
This week, there were line-ups for those $4 cappuccinos at Starbucks, however, because the SBUX was up +35.6%. Funny, but it was just a few years ago when I didn’t know what a Starbucks was. Now I pop in to use their free internet… Funny but it was just a few years ago when I didn’t know what an internet was…
Weird how some things quickly become staples.
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 +5.60% to 54.49) was, like the Staples, too defensive for traders this week.
NVO (+17.4%) and BMY (+16.5%) were big winners and AET (-12.0%) quite the opposite.
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 |
Financials (XLF +14.39% to 15.50) returned after being missing through October. The market needs it. I expected it. A week ago I wrote in this space:
The Financial sector (XLF -11.84% W/W to 13.55) was 8th best of ten performer. Only XLY and XLB were bigger losers… A week ago I wrote, “Once the Lehman CDS crisis passes early in the week, Bernanke can part the waters, and permit the rally to continue. Paulson will be up all weekend to ensure it. The storyline has already been scripted: “Treasury, Fed and SEC team working effectively to (i) get Mom & Pop back to work, (ii) get banks to start lending to Mom & Pop again, and/or (iii) use only a small part of the $700 billion commitment from Congress to buy better-than-expected real estate backed loans that were syndicated by Fannie and Freddie”…In TV Land, this is called the warm-up act. The big show follows.” … With every day’s delay, the skeptics get louder. Nerves are frayed. Fewer traders are watching the data. More of them are listening to the crowd… I can’t get caught up in that… This week some good quality banks like RY (-7.3%), JPM (-9.9%) and GS (-12.2%) were taken down. Those were the relative strongest. BBD (-25.7%), IBN (-22.8%), HBC (-20.5%), C (-18.4%) and DB (-18.1%) were crushed. The losses on Friday were horrific… I believe that next week will be different…”
Being up +14.39% was different. Now the credit markets need to stabilize somewhat before the big volume will return to the equity market. Not being part of the Paulson-Dimon-Mack boardroom crowd, I’m, like you, out of the deal on that one.
Goldman Sachs (GS) dropped -7.9% this week though, and that’s not a sign of stability. There is a lot going on here behind the scenes. Goldman is chopping staff right and left, which is not like them. I won’t even listen to their analyst opine on commodities anymore… Who knows, maybe the whole front office has been seconded by Paulson into Treasury? Do you think?
Naw, they couldn’t be running Treasury, central banks in many countries, the FOMC open market operations, CNBC Entertainment, Sears, the World Bank, you name it? Could they?
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 +9.56%) and Semi-conductors (SMH +13.08) were mid-level performers again.
It was a good week for Intel (INTC +12.3%).
But GOOG was up just +5.9% and the big winners here this week are from India: INFY (+16.3%) and CTSH (+15.3%). What happened to good old American technology? Like ThinkPads, all the brains move to China?
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 +15.17% W/W) closed at 16.19.
Verizon (VZ +18.3%) and AT&T (T +8.5%) were both up strongly. Maybe that’s a signal that the bond market is going to stabilize here.
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 +6.55% to 29.27) dropped from 1st best performing sector to 8th.
The big winner this week was EXC (+11.7%), so maybe the next US President – the one who’s #1 platform plank is to get control of the US energy market – likes nuclear? Who knew? I thought he wanted windmills.
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 | 0.37 | 0.33 | 0.77 | 0.72 |
| 6 Month | 0.81 | 0.94 | 1.33 | 1.39 |
| 2 Year | 1.54 | 1.56 | 1.51 | 1.79 |
| 3 Year | 1.26 | 1.30 | 1.23 | 1.63 |
| 5 Year | 2.80 | 2.80 | 2.56 | 2.85 |
| 10 Year | 3.95 | 3.96 | 3.67 | 3.73 |
| 30 Year | 4.36 | 4.32 | 4.06 | 4.20 |
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 2yr AA | 2.89 | 2.90 | 2.91 | 2.73 |
| 2yr AAA | 2.79 | 2.69 | 2.60 | 2.55 |
| 2yr A | 3.25 | 3.11 | 3.22 | 2.75 |
| 5yr AAA | 3.43 | 3.36 | 3.52 | 3.32 |
| 5yr AA | 3.46 | 3.42 | 3.60 | 3.27 |
| 5yr A | 3.44 | 3.48 | 3.72 | 3.49 |
| 10yr AAA | 4.33 | 4.64 | 5.01 | 4.05 |
| 10yr AA | 4.23 | 4.46 | 4.27 | 4.06 |
| 10yr A | 4.90 | 5.14 | 5.61 | 4.08 |
| 20yr AAA | 5.51 | 5.56 | 5.20 | 5.29 |
| 20yr AA | 5.05 | 5.10 | 5.54 | 5.16 |
| 20yr A | 5.54 | 5.58 | 4.94 | 4.83 |
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 2yr AA | 5.81 | 5.86 | 6.12 | 4.94 |
| 2yr A | 5.66 | 6.55 | 7.41 | 10.85 |
| 5yr AAA | 5.77 | 5.81 | 5.79 | 4.80 |
| 5yr AA | 7.63 | 7.04 | 7.27 | 7.44 |
| 5yr A | 6.86 | 7.21 | 7.45 | 6.90 |
| 10yr AAA | 5.95 | 6.15 | 6.21 | 5.12 |
| 10yr AA | 7.15 | 7.12 | 7.17 | 7.36 |
| 10yr A | 7.36 | 7.42 | 7.11 | 6.65 |
| 20yr AAA | 7.15 | 6.55 | 6.34 | 5.89 |
| 20yr AA | 6.95 | 6.46 | 6.79 | 5.99 |
| 20yr A | 8.45 | 7.60 | 7.38 | 6.60 |
The 20-year Treasury ETF (TLT), which a week ago rallied hard +3.05% from 93.87 to 96.73, plunged this week by -4.03% to 92.83. So the extreme volatility that has hit capital markets is very much true in the bond market as well.
Three times in the past seven weeks, I have observed that hot money has flowed back and forth between 13-week T-Bills and long bonds. Every time the yield on the long bond gets up into the 4.40 to 4.45 range (meaning bond prices have sunk), money flows from T-Bills into the bonds. As this happens, the yield on the bonds drops and the T-Bill yield rises. Later, money starts flowing back into T-Bills.
I haven’t decided in my mind whether this occurrence is due to (i) huge money being pulled out of bonds, which would happen if bond traders were concerned that higher interest rates were on the way, (ii) typical capital flows from bonds to equities at an equity market cycle bottom, which usually happens when interest rates have bottomed and begin to rise, or (iii) credit market crunches where banks go scrambling for liquidity (ie, cash demands).
A week ago, my confusion became apparent when I wrote in this space:
This also looks to me as possible manipulation. The market appears to be acting under the influence of syndicates or maybe just programmed algorithms that have run amok. Through Thursday, Bonds were up over +4.1% on a flight to safe haven move, but on Friday after equity futures opened limit down, the TLT (also) lost -1.06% on the day. So, where is the money going? Under mattresses?One of my concerns is gaining traction. A week ago in this space, I wrote, “Blame (the mess) on Paulson and the US Congress. Every time they spend more money than comes in, it has to be printed. The government doesn’t do that; their banker the Fed does it. They can fudge the market only for so long and suddenly voila there is no capital available for corporations or consumers, and Paulson and Bernanke blame it on the banks. This is utter nonsense. We need an honest government, as kaimu says, in order to have honest money and fairness to the private sector. Ain’t happening.”
It could be that traders want to see the post-election results in Congress before deciding if there is or is not going to be the changes needed to clean up the mess laid at our feet by over-spenders.
At this point, I’d like people to think about how money is created and what’s happening to the debts of America. It is at the same time misunderstood and mind-boggling.
Because there is a widespread lack of understanding of banks, money, and debt, here are videos that will take maybe 90 minutes of your time to watch that will tell you pretty much all you need to know. The material is taught in secondary schools.
30-minute video that explains the US national debt.
How money is created from debt.
Five part series: Money as Debt
Part 1
Part 2
Part 3
Part 4
Part 5
Here are the charts of the US debt market that I consider to be the important ones.
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 +40.5%) and Freddie Mac (FRE +39.2%) soared but after being down about -99%, the close this week of $0.927 and 1.030, respectively, really is of no interest to me. Since nobody knows what’s going on there, trading in these two stocks is akin to gambling.
As I opined a week ago here, “What the world (and the US) needs now is for the Treasury to stick $100 billion or more into the treasury of both F & F in return for redeemable, non-voting, floating rate preferred shares, and then put 100% into the private sector, restructured like the original AT&T, broken down into regional Fannie & Freddie babies. The old Fannie and Freddie have died. The chemistry of rigor mortis is obvious. Life must go on. Their children must now be permitted to do the job, free from the stupidities that go on in Washington.”
But Washington will not let go because these two are personal cash cows for half of Congress and the next President of the US, the Senator from Illinois.
Consumer Finance -USA -- Interactive Weekly Data Charts
Consumer Finance -USA -- Interactive Daily Data Charts
Commodities Review
After four straight weeks of big losses, the $CRB index lifted +4.84% to 268.39.
In early July, the $CRB hit a high of 493.97. The drop since then is having a major impact on inflation data. The recent econ data shows that inflation is no longer problem #1, but deflation could soon be.
The 50-day MA for $CRB is 331.97 and the 200-day MA is 392.29.
Interactive Chart of Weekly CRB Commodities Index:
Interactive Chart of Daily CRB Commodities Index:
Oil Review
$WTIC rallied +$3.66/bbl (+5.71%) to 67.81.
After falling in price from the $150 level, I opined, “I believe that oil-related funds are shutting down and there is forced selling in the market. I also think that credit to the hedge funds has been shut down… The drop in Crude Oil prices -- US Light Sweet Crude called West Texas Intermediate as well as European Brent – is the major reason why the commodity index ($CRB) has tanked.”
For $WTIC, the 50d MA is now 92.55, and the 200d MA is 110.36. The price in mid-July hit a record high of $149.90.
The good news is that the monster price cut is like a tax rebate to corporations and consumers alike.
Here is the e-miNY Dec-07 Crude Oil chart.
Interactive Chart of Weekly Crude Oil:
Interactive Chart of Daily Crude Oil:
Gold & Precious Metals Review
Five weeks ago I wrote, “$GOLD …dropped (to) … 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.”
A week ago, I added, “Yes, I still believe in that scenario despite the price of $GOLD falling -$57.40/oz this week and -$71.30/oz the previous week. The price is now 730.30, dropping below 700 once… I believe the current storm is (i) margin call related and (ii) an attempt by the Fed/Treasury to kill the spirit of speculators and $USD hedgers… As I wrote in this space (four) weeks 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.”
The Euro showed signs of recovering this week, closing up +0.85% to 127.43, but there was a loss of -1.56% on Friday. The Euro has collapsed from US$1.4624 at the end of September, so $GOLD is still under pressure.
I have previously opined, “I do believe the Euro and $GOLD will rally as soon as the US credit market crisis is gotten under control, and traders stop repatriating $USD and $XJY (Yen) from abroad.”
For $GOLD, the 50d MA is now 820.11, and the 200d MA is 890.32.
Interactive Chart of Weekly Gold EOD Continuous Contract Index:
Interactive Chart of Daily Gold EOD Continuous Contract Index:
Interactive chart of recent trading for the Gold Bullion index.
Spot silver chart for the week
$SILVER gained +0.43 (+4.68%) to 9.73 this week. Like platinum, palladium and copper, these metals lifted while gold stayed under pressure. Next week could be a good one for gold. But, I am aware that rate cuts by the BoE and ECB on Thursday at 7:00am ET and 7:45am may put some additional pressure on silver and the other precious metals.
A week ago I wrote in this space, “Like gold, I believe silver represents good value here because it’s not possible to produce more of it if the price continues to drop. I also believe that the low leveraged companies, ie, little or no debt, and the ones operating in stable jurisdictions, are likely to have shares that perform well in the equity market.”
For $SILVER, the 50d MA is now 11.56, and the 200d MA is 11.96.
[Excuse the typo here a week ago.]
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.
$PLAT (+$29.30/oz +3.65%) closed at 831.60. There is a lot of volatility.
The 50-day MA is 1106.54 and the 200-day MA is 1729.20.
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.
$PALL (+$25.45/oz +14.45%) closed sharply higher at 201.60.
The 50-day MA is 231.85 and the 200-day MA is 389.60, which is still bearish, but improving.
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 closed up +4.15 +2.26% at 187.50. Five weeks ago it was 307.45.
The 50-day MA for $COPPER is 277.15 and the 200-day MA is 345.03.
A week ago I wrote, “I cannot see either the base metals like copper or the precious metals soaring without some preliminary warming up in the Xstrata, Vale (RIO) and Teck (TCK), which I use as a tell. These are the companies that understand forex and credit markets as well as anybody. Their goods are sold by Letters of Credit. It’s a tough time for them.”
This week things improved. The RIO soared +25.0%, but the TCK gained just +2.4%. However, the Rio Tinto (RTP +26.3%) and BHP (BHP +25.2%) also soared. The movers are all much bigger than Teck. I suspect the TCK under-performed because the Toronto index under-performed this week. Let’s watch TCK next week.
Xtrata (XTA.L) trading in London was up +35.7% this week – just flying on Wednesday through Friday. Wow. Metals are on fire. TCK to follow next week!
Interactive Chart of Weekly Copper EOD Continuous Contract Index:
Interactive Chart of Daily Copper EOD Continuous Contract Index:
Interactive chart of the Copper metal index.
Table 12: Senior gold equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
A week ago I wrote here, “The Goldminer stocks ($XAU) have now been crucified for four consecutive weeks with losses of -17.46%, -14.63%, -10.29%, and -18.95%. The closing price for the index this week was 70.86. It was 153.84 on Sept 22, and 206.21 in mid-July… Four 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 later, 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.”
This week, the goldminer index ($XAU) and US ETF (GDX) jumped +14.39% and +21.73% respectively. That was quite a ride. But the Cdn ETF (XGD) was up only +8.27%, if such a weekly gain could be properly described as “only”. But it’s all relative.
Two weeks ago, I referenced Alamos Gold (AGI.TO) as a good one in the eyes of my associates and myself. Then AGI.TO went up +4.68% a week ago Friday, lifting it to a gain of +0.71% on the week. This week the gain was +16.94%, so that’s a sterling six session performance. Q3 revenues have increased +138% Y/Y.
Silver Wheaton (SLW) had a nice move Wednesday into Thursday morning, but remains under pressure.
Friday, most of the precious metal miners were down as the $USD jumped +1.05%. But over the week, the big winners were EGO +32.4% and GFI +25.2%. The laggards were AEM +6.4% and GG +9.7%. SLW was up just +4.7%, which means that some institutions are undergoing forced selling. One of the biggest players from the outset in SLW has been Frank Holmes of US Investors in San Antonio, an office btw I have been to before Frank became a snowbird and joined the company from Toronto. But this week, Frank’s GROW is not growing much. The choppiness tells me there is possibly some forced selling going on here. When mutual funds are not in net redemption mode, managers like Frank are exceptional. Actually, when it comes to precious metals, there are not too many managers as good as Frank.
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 have discussed this in recent WIRs.
This week the $USD lost -0.86% W/W to close at 85.67.
“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… Reflation, by the way, 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 80.34 and the 200-day MA is 75.23.
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 $USD, possibly headed for a test of the all-time low of 70.70… If so; precious metal prices will ultimately soar.”
Interactive Chart of Weekly U.S. Dollar Index:
Interactive Chart of Daily U.S. U.S. Dollar Index:
The Euro ($XEU) gained +0.85% this week. The close was 127.43. There was even a loss of -1.56% on Friday.
The Euro 50day MA is 1.3910 and the 200day MA is 1.5033.
A week ago, I wrote, “Traders are watching the FOMC decision this Wednesday. If the $USD drops after the anticipated 50 or 75 basis point rate cut, then the Euro ought to strengthen a bit.” It did, and it did. But now there is a belief that the BoE and ECB will also drop rates on Thursday, which would firm the $USD for a couple days I believe.
Interactive Chart of Weekly Euro Dollar Index, priced in USD:
Interactive Chart of Daily Euro Dollar Index, priced in USD:
The Pound gained +0.88% this week to close at 1.6082.
The 50-day MA and 200-day MA are at 1.7543 and 1.9168.
Weekly British Pound Index:
Daily British Pound Index:
Weekly Japanese Yen Index:
The Japanese Yen ($XJY) had a week earlier soared +7.60%. This week, after five strong rallies in the past six weeks, the Yen gave back -4.17% to close at 101.48.
The Japanese economy is very weak. A lower Yen helps exports. Toyota (TM) would benefit. But, as I say, when the Yen had been on a bullish roll for over a month, the exporters were being smashed. The Nikkei 225 responded this week with a monster rally from 7649 to 8577, almost back to where it was a couple weeks ago.
The Yen’s 50-day MA is 96.35 and the 200-day MA is 95.33.
Daily Japanese Yen Index:
The Loonie (Cdn Dollar) gained +5.48% W/W to close at 82.64. The previous week, it dropped -6.98% to close at 78.35. I have never seen volatility like this in forex markets.
The Loonie traded as high as 110.17 in 3Q07, when I was advising snowbirds to buy property here in The Bahamas. Even in mid-July this year, the Loonie traded at over $1.00 American (or $1 Bahamian).
The 50-day MA and 200-day MA is at 90.24 and 96.66, 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 rallied sharply. The global panic began to calm. But, most of these markets have just recovered from the previous week when they got hammered. There has been no break-out yet. Still, I like the action.
UK FTSE soared from 3883.4 to 4377.3
German DAX soared from 4295.7 to 4988.0
Aussie All-Ords lifted from 3831.6 to 3982.7
HK Hang Seng soared from 12618.4 to 13968.7
India’s BSE 30 soared from 8701.1 to 9788.1
Japan’s Nikkei 225 soared from 7649.1 to 8577.0
Brazil’s Bovespa soared from 31481.6 to 37256.8.
I opined previously in this space:
(Markets are getting smashed, but) I think I have a handle on the market today, (and) events are happening behind the scenes that are significant, and could shoot the market off in unexpected directions. So, caution is advised for the majority of you, at least until you see across the board RSI-7’s lift above the 30 level.”
There is no change. I’d like to see these markets lift more on higher volume. Until then, I remain a cautious Bull. Continue to raise stops.
There are 16 country index charts from StockCharts.com (with their formal approval btw) because I think it is important to be watching these markets move through a trend juncture together, and in relation to currency and commodity strength or weakness.
I also made some additions to the country-based ETF tables as I intend to focus more on ETF’s in 2008. In time, I will also set up tables and track the domestic market prices. This will come after we switch to the Drupal platform in November.
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 |
The country market ETFs were up anywhere from +8.4% (Japan EWJ) to +19.6% (Germany EWG). I exclude Russia (RSX +47.1%) because that gain for a national equity market is just insane.
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 (+11.29% to 9325.01), S&P 500 (+10.88% to 968.75), NASDAQ Composite (+14.1% to 1720.95), and Russell 2000 small cap index (+14.1% to 537.52) set one week records since 1974 for the DJIA, and where all indexes were up for the first time ever by more than +10% W/W.
The biggest gainers in the DJIA this week were: HD +27.4%; AA +22.2%; VZ +18.3%; HPQ +18.0%; and CVX +16.7%.
GM -2.7% was the only loser. The laggards among gainers were JNJ +0.9%, MSFT +1.7%, KO +5.9%, and PFE +6.9%.
This week there were 29 of 30 DJIA stocks that were winners. The loser, GM, is not a blue chip. The company is presently being restructured for a merger and a hiving of GMAC into a bank. Trading GM is a gamble, not a speculation.
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 two DJIA components, neither of which are Cara 100 companies: Coca-Cola (KO) and Kraft Foods (KR).
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 Oct. 31: next one is due Jan. 30)
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 Oct. 31: next one is due Jan. 30)
There is not much I want to say about Coca-Cola or Kraft or the stocks KO and KR. The Value Line reports will tell you most of what you need to know.
The only point I’d like to make is that on Friday, I watched a Talking Head from Wall Street, speaking on Bloomberg, mentioned one of these stocks, saying that now would be a good time to consider buying a defensive stock. I shake my head in amazement at stuff like that.
After the broad market has crashed, if you had to be positioned long stocks all the way down, defensive issues should have been your choice. At the bottom here, you sell them and buy high-beta, high-quality issues in the cyclical sectors. The past several weeks is the time you should have been looking to make the switch.
A week ago I wrote up United Technologies (UTX), which is a Cara 100 company, and Caterpillar (CAT), which is not. This week, UTX and CAT were up +16.2% and +14.7% respectively.
Caterpillar is interesting in that, because I wrote it up in detail, there is more proof of concept of the trading lessons I teach. A week ago in this space, I wrote: “Now, the economists and analysts are warning you off this stock. In fact, Banc of America Securities downgraded the stock this week! UBS rated it a SELL this summer. No worry; you can smile and tell them that BC said they were paid well to do that. It’s time you paid yourself… So now that the analysts telling you to off the stock, I’m going to tell you it’s a good time to consider buying it. You see; CAT has plunged from a high of 86 in the summer to just 33.30 today, with a Friday intra-day low of 31.95. The PE (TTM) is now just a shocking 5.4 and the dividend yield is up to 4.6%. How good is that!.. there is a tremendous amount of technical price support here, going back to the 1990s. Nobody has bought the CAT at prices like this since the summer of 2003… Also, some 30 strike put writes would lower your cost basis. The Jan 30 puts are $3.05 bid. If the stock is put to you, your $26.95 cost would match up ridiculously well to the $10.00 earnings I see in the next four quarters AND the $1.77 dividend that I project for the next year… You’d have to be a brain-dead trader not to see value here… So take the $3.05 premium on the short put and use it to knock down your cost base to ~$30 (with a possibility of having more stock put to you between now and mid-Jan at $30). Enjoy the $1.77 dividend for the next year and ~$2.00 the following year, realizing that will be a yield of +5.9% this coming year and +6.7% the following year… Note the payout ratio is a low 25% and the balance sheet is strong so the dividend can be said to be safe. Yes, there is a lot of long-term debt on the books, but interest rates are being kept so low, that is a non-factor… The kicker here: the Monthly-Weekly-Daily RSI-7 is 13.2+7.3+18.7. Add the three numbers up and they barely break 30… Price and value wise, this stock is a steal here… I believe the same with the broad market. I wouldn’t want to be short here.”
Now for the rest of the story:
This week, the CAT lived, closing at $38.20 (+14.7% W/W) after hitting a high of 39.19. The low was 32.00. Had you written the written the Jan 30 puts at $3.05, you could have bought them back at the closing Friday $1.57 bid, for a five-day gain of $1.52 (ie, +97% gain). Let’s say we did that to lower our cost base to 33.30-1.52=31.78. At a close this week of 38.20, you are now in the money +$6.52 (+20.5%).
Do you recall my statement, “If you get into the market now, I believe your stocks will almost double within three years. If you choose the right ones, they ought to double in three to six months… I hope you dance.” Of course you remember. We’ll, CAT isn’t a double after one week, but it’s already up +20.5% and I’ve got 25 weeks to make good on my statement. With a Bull market, that will happen. But the bigger point is that trading involves art as much as science. You have to have a feel for the market. You have to know the company and you must focus on the data and the percentage moves possible with various strategies and tactics.
In the case of CAT, for example, with my cost base down to 31.78, I might write a Jan 40 call at $3.40 bid, taking my cost base down to 28.38. In 75 days, should I get taken out at 40, which would be likely, my profit is 40.00-28.38=11.62 for a gain in less than 80 days of +41.0%. That’s close enough to my statement of +50% in 183 days (6 months). Then again, there are other tactics I could use to keep the stock and still reduce my risk.
None of these tactics were discussed with my professional options advisor. My optionsoracle, by the way, has 27 years experience as an institutional broker, market maker, independent trader and Member of the Chicago Board Options Exchange. When it comes to money, I leave as little as possible to chance; but when I’m teaching, this stuff rolls off the top of my head.
You understand, I hope, why I rail at guys who run computer companies who rate the gurus on their trading expertise. They know next to nothing about trading, and sell a service that represents expertise. Ha! Reminds me of a 22-year old I hired one year who told me he was writing a book on Travel Through Europe on $5 a day (or whatever). So I asked him where he had been in Europe that I might judge from my experience. I swear he said, “Oh, I haven’t been to Europe, but if the book sells well, I’ll go.”
B.S. baffles brains, but I liked that kid. He had spirit. I can’t tell you more because of what I’ve already said, but that young guy went on before he turned 30 to become a senior marketing executive of an organization that 100% of you know, even those of you from the remotest part of the world. Always looking forward; that’s what I try to teach here.
The Dow 30 Company links in chronological order of next reports. I added the Google Finance links, which are superb.
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)
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)
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 Oct. 17: next one is due Jan. 16)
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 Oct. 17: next one is due Jan. 16)
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 Oct. 17: next one is due Jan. 16)
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 Oct. 17: next one is due Jan. 16)
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 Oct 24: next one is due Jan. 23)
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 Oct 24: next one is due Jan. 23)
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 Oct. 31: next one is due Jan. 30)
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 Oct. 31: next one is due Jan. 30)
Wrap-up:
There are many pundits this week who are shouting in their well-promoted newsletters, “Beware the Bear market rallies!” But, I am not the kind of person who plays on people’s emotions. I know people are hurting and I am empathetic. My role here is not to lead people up and down and all around. My function is to teach people to “fish” so that they might be freed of all the noise and selling of products in the marketplace. If it takes many years to accomplish what amounts to a life skill, then all of this is worth the effort and cost on my part.
If you put 100 economists or 100 newsletter writers in a room, you’ll always come out with at least 100 ideas in each case. The talk will be all over the board. But, if the room holds 100 traders, the split may not be 50 Bulls and 50 Bears, but there will be a market that usually stays within a narrow range.
These are extreme times for capital markets caused by exogenous events like failures in the credit markets, political divisions, and the like. That is compounded by the break-down of regulatory oversight and by the economic cycle. We understand that. We also understand, I hope, that calmness and clear heads are what works best when under pressure.
At the end of the day, there is no need to holler “fire” in a crowded theater, just like there is no reason to avoid risk management during the best of times.
There is a need at uncertain times like this to make sudden decisions, but that’s what traders are trained to do. They act, not talk, their way through the day. They go into every day prepared, and they rely on their expertise and experience to make better than 50:50 average decisions.
At all times, traders know they will make mistakes, but they don’t let it affect them emotionally. The saving grace is that through training, they know to cut losses short and let profits run. They base those decisions on real-time data, not story-telling in the public media.
We are all students of the market. I mean just that. We study the fundamentals of companies, seeking quality, and we study prices, seeking indications of trend and cycle reversals. Nothing else is relevant. That includes who is President or Vice President; who is the new Talking Head on CNBC; whether mainstream media “gets it” or not, and that sort of thing.
Those things take up endless amounts of people’s time. In time, we are all dead.
I need to improve my life; and I think you do too. Highest quality and best price always does it. Have a great day.
Posted by Posted by Bill Cara on November 2, 2008 11:09:00 AM | Category: Cara Week in Review