[5:24pm] Between a rock and a hard place. Social unrest in the form of mass protests and riots are likely this year say the credit agencies, not just in lesser credits like Greece, but in AAA-rated states like the US, the UK, Germany, France, and Spain. Powerful as they may be, the central banks of these nations are attempting to reverse the quantitative easing programs underlying the massive economic stimulus related government spending programs of the past two years. That’s the rock; the hard place is the crash in the bond market that will come as yields rise as central banks withdraw from their government debt auctions.
The US government 20+year bonds (TLT –2.53% W/W) dropped from Monday’s close of 91.36 to a low of 88.37 on Thursday, closing at 88.95 on Friday. For those who don’t understand the notion of volatility, that was a 2-1/2 day plunge of –3.27% in Treasury bonds. Ouch. At least you have been forewarned.
People ask why is Greece such an issue today? The problem is that a large part of the country’s public debt is due in March-April and a large part also due later this year. Other countries may have similar debt as a percentage of GDP, but their average maturity may be seven or ten years in the future, which gives them time to cut their spending, raise taxes, and anticipate improving economic conditions that will help their fiscal situation even if they do nothing in the interim.
This situation is like you have, say, a $200,000 obligation to the bank due in three years, and you and the bank agree it’s no problem. But you also have a $20,000 debt coming due next week that you cannot pay off. Big problem.
It’s called roll-over risk. Get used to the term.
Fed chairman Bernanke is suggesting the US is a roll-over risk, but that he hopes to be able to let the bond bubble burst slowly… Hmm. Isn’t that just a matter of saying how rapid should be the ultimate descent of the US Dollar index (and rise of the price of Gold)?
In other words, the faster rates rise in the US, the faster government bond prices fall and that money would seek a measure of stability in the form of Gold – at least until the rates reach a high enough level to pull private money back into bonds. But, I think this Trade of the Generation (TOG) is on for a few years more.
The only hope for a US Dollar index that continues to rise at a sustainable pace is that Americans buy into a national austerity program at a greater clip than people in Europe and Japan. The Germans understand that, and they are willing to do whatever it takes not to have their currency crash – whether its their Euro or their Dmark will depend on whether other Europeans get the same message.
It is safe to say that I think the Americans will not accept austerity programs and their leaders will not stop spending on military and other costly programs that create little or no wealth, which is the only sustainable path to a stronger Dollar, healthier domestic economy, and attractive lifestyle. Some disgruntled Americans are even leaving the country, dropping citizenship. There has always been talk of that, particularly during the war years, but I sense it is a bit more real at this point.
As to a more important situation today, it’s going to be interesting to see how the central banks of the world sell to their people the prospects of higher interest rates. I’m sure they’ll put lipstick on the bond pig, but not many traders will be misled. I think the large majority of us believe that in 3 or 4 years, the US government 5-year notes will be paying considerably more than 2.59% and the 10-year notes more than 3.85%.
Btw, it was two years ago this month that the 5-year yield ($FVX) was about to soar in just three months from 2.16% to an economy-stopping, equity market crashing 3.80%. Fast forward to the low of 2.00% four months ago to 2.59% this week, on the way to maybe 3.5% or higher in the next few months. Bondholders first and shareholders next will choke. The latter will cave in as interest rates reach a certain cycle high level. Nobody knows at this point how high that level will be, but I suspect it may be about 3.5% yield on the 5-year US Treasury paper.
The important point is that we are headed in that direction, and quickly. The move in yield this week was a surge of +13 basis points from 2.46% to 2.59%. In the first week of March, that yield hit a low of 2.25%, so the market is already +34bp off the low. As bond prices sank, money moved into equities (for now), with the S&P moving up from 1120 to a high of 1175-1180 on Thursday.
For this month then the favorable trade has been to buy equities and US Dollars and sell bonds. On Thursday, the $USD hit a high of 82.24, up from a range of 79.5 to 80.5 earlier in the month. Fairly soon, that trade will reverse. I suspect we’ll see a final popping of Treasury yields, the $USD, $GOLD and $SPX in the current bull cycle, and a bear cycle bottoming in the TLT.
Nobody can forecast the precise timing of cyclic reversals, but if you can promise accuracy, please tell us. We’ll be listening.
There is support for the TLT (88.95) at 88 (and note that the present RSI-7 on the Daily price series is now a tad under 30), 85.50 and 83. Those will be the prices, if they hold, where I think the market will put significant selling pressure on the $SPX, $GOLD and $USD, in that order, as investment capital flows back into bonds.
Now let’s review the past week and look forward to what may be headed our way.
Global Economics Review
Weekly International Economic Report from Econoday.
Summary: Everyone seemed to have an opinion but none of them seemed to agree. But by Thursday night, a support package for Greece was agreed on. Key players’ opinions ebbed and flowed so that one needed a score card to keep track. For example, ECB President Jean Claude Trichet was vocal in opposing any IMF participation, but then praised the idea after an accord was reached. However many of his governing council members do not agree with the idea of IMF participation. Similar vacillations were shown from French President Sarkozy who ended up agreeing to the German backed plan… Briefly, Greece would receive both bilateral loans from its eurozone partners and funds from the International Monetary Fund if it faces severe difficulties. Greece’s public debt is projected to reach more than 120 percent of gross domestic product this year… The currency markets took the uncertainty of a pact out on the euro sending it to a 10 month low on Thursday. Analysts noted that Greece is not the only country with fiscal woes. Most EMU members are above the guidelines set forth in the Stability and Growth Pact of a deficit no higher than 3 percent of GDP and debt no higher than 60 percent of GDP. And many other countries have been warned by the European Commission including the four largest — Germany, France, Italy and Spain — that their economic growth forecasts for the next three years were too optimistic, putting at risk their ability to cut their budget deficits in accordance with the European Union’s fiscal rules. The Commission asked these four countries along with others including Austria, Belgium, Ireland and the Netherlands to spell out exactly how they intended to meet their medium term deficit reduction targets… Earlier in the week, worries that the eurozone sovereign debt crisis was spiraling out of control rattled markets, causing the euro to plunge as traders became increasingly frustrated by the eurozone’s vacillation in the face of the Greek debt crisis and after Fitch downgraded Portugal’s sovereign debt.
Here are the key US economic reports from last week’s calendar.
US Existing Home Sales for February. After release of the data on 3/23/2010 10:00:00 AM ET, Econoday reported, “Demand for existing homes remained extremely weak in February with sales at a 5.02 million annual rate for a 0.6 percent decline from January. The seasonal build in supply, at 8.6 months vs. 7.8 in January and 7.2 in December, is the steepest in the last 20 years. The build has been holding down prices, which are at a median $165,100, up 0.1 percent from February, and at an average $210,500, down 0.8 percent on the month… The single-family component, which makes up the vast bulk of sales, fell 1.4 percent in the month to a 4.37 million rate. Distressed sales made up 35 percent of total sales vs. 38 percent in January. All-cash sales, reflecting tight credit and low prices, are extraordinarily high at 27 percent. Regional data show special month-on-month and year-on-year weakness in the still-troubled West followed by weakness in the South, which is by far the largest region. The Midwest and Northeast, in perhaps the best news in the report, showed strength in February… The National Association of Realtors, which compiles the report, still expects to see a surge in sales surrounding the second-round expiration of tax credits this spring. But the housing market is in limbo right now, depending on stimulus effects, which even if they do appear point to new trouble at mid-year, especially if mortgage rates begin to rise. New home sales will be posted tomorrow.”
US Durable Goods Orders for February. After release of the data on 3/24/2010 8:30:00 AM ET, Econoday reported, “Although the headline durables number did not rise as much as expected, a sharp upward revision to January put the level for February about as expected. Overall new orders for durable goods in February gained 0.5 percent, following a revised 3.9 percent surge in January. February fell short of analysts' projections for a 1.0 percent increase but January's number was much higher than the prior estimate of 2.6 percent. Excluding the transportation, new durables orders rebounded 0.9 percent, following a 0.6 percent decline in January. The combination of the upward revision to January's headline number to a modest shortfall in the February percentage left traders content that today's report was essentially in line with expectations… The latest advance in new durables orders reflected components mixed in direction after such a huge gain in January. New orders were led by machinery, up 4.7 percent, with fabricated metals and primary metals also rising-by 1.9 percent and 1.5 percent, respectively. On the downside were electrical equipment, down 3.3 percent; transportation, down 0.7 percent; and computers & electronic equipment, down 0.6 percent… Non-defense capital goods orders excluding aircraft made a partial rebound, rising 1.1 percent after dropping 3.9 percent in January. Shipments for this category-a key ingredient in equipment investment in GDP-rose 0.8 percent in February, following a 1.9 percent dip the month before. Both shipments and orders have been volatile but remain on healthy up-trends. For both, January was notably strong… Year-on-year, overall new orders for durable goods were healthy and little changed at up 10.9 percent in February, compared to up 11.1 percent the prior month. Excluding transportation, new durables orders slipped to 7.9 percent from 8.5 percent in January… On the news, trading remained more focused on concern about Greek debt woes as equity futures were little changed but Treasury yields edged up. But the bottom line is that manufacturing is still the greatest source of strength for the recovery and today's durables report supported that view.”
US New Home Sales for Feb. After the data release on 3/24/2010 10:00:00 AM ET, Econoday reported, “The housing sector remained depressed in February, evidenced by yesterday's existing-home sales report and now by today's report for new home sales. New home sales fell 2.2 percent in the month to a 308,000 annual rate. January was revised 6,000 higher to 315,000 with December revised 3,000 lower to 345,000. Supply swelled to 9.2 months in line with a similar reading on the existing-home side. Sales fell most steeply in the two least active regions, the Northeast and Midwest, while showing a small decline in the South and a gain in the West. Interestingly, prices firmed in the month, up 6.1 percent to a median $220,500 and up 5.1 percent to an average $282,600… But given the heavy supply, prices aren't likely to continue to firm unless a sales surge begins to unfold ahead of stimulus deadlines in the spring. Mortgage applications for home purchases have firmed in three of the last four weeks in what is hopefully an indication that January and February will prove to be lows for the housing sector.”
US Jobless Claims Report for week ending 3/20. After the announcement on 3/25/2010 8:30:00 AM ET, Econoday reported, “Initial jobless claims fell to a lower-than-expected 442,000 in the March 20 week, which outside of a single week in the up-and-down month of February, is the lowest total of the recovery. Expectations were centered at 450,000. The four-week average, at 453,750, is at a cycle low… Continuing claims are also at a cycle low, at 4.648 million with the four-week average at 4.689 million. The unemployment rate for insured workers is unchanged at a cycle low of 3.6 percent. Claims for emergency unemployment compensation and extended benefits also fell. Today's data include annual revisions… Markets are showing no reaction at all, at least initially, to today's very positive report, one which points to month-to-month improvement for underlying payrolls including the possibility of actual growth for the labor market.”
US GDP Final Estimate for 4Q2009. After the data was released on 3/26/2010 8:30:00 AM ET, Econoday reported, “Fourth quarter economic growth was up but not quite as much as previously believed. The good news is that we have moved well beyond the final quarter of last year and forward momentum is now probably a little better than seen in GDP. Real GDP growth for the fourth quarter was revised downward to an annualized 5.6 percent from the prior estimate of 5.9 percent. The consensus expectation was for no change from the previous estimate. Both final sales and inventory investment were revised down. Final sales grew a meager 1.7 percent, following a 1.9 percent rise in the third quarter… The 0.3 percentage point cut in the GDP growth rate primarily reflected downward revisions to nonresidential fixed investment, to private inventory investment, and to personal consumption expenditures… Year-on-year, real GDP held on to its return to positive territory, improving to up 0.1 percent from minus 2.6 percent in the third quarter… Inflation is still barely noticeable as the GDP price index was revised up to a 0.5 percent gain, compared to the prior estimate of an annualized 0.4 percent. Analysts expected no net revision to the prior estimate of 0.4 percent… Were today's report the initial estimate for the fourth quarter, it would be upsetting how weak final sales were. But more recent monthly data show a gradual improvement in consumer spending, business investment in equipment, and an up-trend in exports. Basically, there should be little reaction to today's GDP revision.”
US Consumer Sentiment for March. After release of the data on 3/26/2010 9:55:00 AM ET, Econoday reported, “Perhaps reflecting slowing layoffs, consumer sentiment inched slightly higher in the second half of the month. The Reuters/University of Michigan index came in at a final March reading of 73.6, a bit ahead of the mid-month reading of 72.5. But the improvement is very slight, showing a bit less weakness for current conditions, at 82.5 vs. a mid-month 80.8, and a bit less weakness for expectations, at 67.9 for a 7 tenths gain from mid-month. The final March reading is unchanged from February and is 8 tenths below January. One-year and five-year inflation expectations are both unchanged and are both at 2.7 percent… At least the results aren't getting any worse and a month's worth of improvement in jobless claims, as well as anecdotal reports of strength underway in retail sales, both hint that spirits are more likely to improve than deteriorate. Markets are quiet this morning though stocks are getting a very slight lift from the report.”
The economic data continues to show an improving condition in the US. At some point, the Fed must step in with a reversal of the previous quantitative easing stance. That understanding plus remarks by the monetary authorities in China with respect to forex. International trade duties and the like, lead me to believe that traders are expecting bonds to dip and yields to rise, which would put downward pressure on future growth. So, even if and as business conditions are improving and stabilizing, they are not also expected to be a terrific boost to corporate performance, particularly in America.
Here are the key US economic reports from next week’s calendar.
US Personal Income and Outlays for February. Prior to release of the data on 3/29/2010 8:30:00 AM ET, Econoday reported, “Personal income rose only 0.1 percent in January, after a 0.3 percent boost the month before. The softening was due to a return to trend in farm income after a jump in that component in December. The true measure of strength in income for consumers is the wages and salaries component, which jumped 0.4 percent in the latest month after edging up 0.1 percent in December. The spending numbers also required some extra digging. A 0.5 percent rise for personal consumption was stronger than expected but given a 1.8 percent surge in non-durable goods, looks to have been boosted by gasoline. The inflation numbers were mixed in January as the headline number was up 0.2 percent but the core reading was flat. Looking ahead, the wages and salaries component for personal income will likely dip as aggregate weekly earnings fell 0.5 percent in March, according to the employment situation. Current dollar PCEs are a little iffy as core retail sales jumped 0.8 percent but unit new motor vehicle sales dropped 3.7 percent. Look for soft PCE price index numbers since they track CPI. March's headline CPI was flat while the core was up 0.1 percent.”
US Consumer confidence for March. Prior to the release of the data on 3/30/2010 10:00:00 AM ET, Econoday reported, “The Conference Board's consumer confidence index fell back sharply in February, dropping nearly 10 points to 46.0. This was the lowest level since the 40.8 reading for April 2009 but is still above the recession low of 25.3 seen in February 2009. If the confidence index tracks the March consumer sentiment index, look for little change as the final sentiment reading for March matched that for final February.”
US Chicago PMI for March. Prior to the data release on 3/31/2010 9:45:00 AM ET, Econoday reported, “The Chicago PMI for February rose 1.5 points to 62.6-solidly into positive territory. The gain was led by a sharp slowing in deliveries which boosted that sub-index to 62.6 from January's 55.3. While one might worry that this may have been weather related instead of due to a spike in business activity, other indications suggest otherwise. Production and new orders were up while inventories were down. The very strong reading for new orders coming in at 62.2 for a fifth straight plus-60 reading suggests a healthy headline number for March.”
US Factory Orders for February. Prior to the announcement on 3/31/2010 10:00:00 AM ET, Econoday reported, “Factory orders rose a very solid 1.7 percent in January led by strength in transportation equipment, specifically aircraft. Orders for non-durable goods rose 0.9 percent. Durable goods orders were revised four tenths lower to a still very strong 2.6 percent. More recently, the advance report showed durables orders February gaining 0.5 percent, following a revised 3.9 percent surge in January. With energy prices up for the month, non-durables orders also should rise in February, leading to a boost for overall orders.”
US Motor Vehicle Sales for March. Before various announcements on April 1/2010, Econoday reported, “Sales of domestic-made light motor vehicles in February dipped 2.2 percent to a 7.7 million unit annualized pace, largely on severe snow storms cutting into showroom traffic. Imports, however, fared worse, dropping 7.9 percent to 2.7 million units. The import share was hurt by Toyota's recall-related stoppage of sales on certain models. Combined domestics and imports were down 3.7 percent to 10.4 million units from 10.8 million in January. Deal making by competitors going after Toyota market share could boost overall sales in March.”
US Jobless Claims for the week ending 3/26. Prior to release of the data on 4/01/2010 8:30:00 AM ET, Econoday reported, “Initial jobless claims for the March 20 week fell to a lower-than-expected 442,000, which outside of a single week in the volatile month of February, was the lowest total of the recovery. The four-week average, at 453,750, is at a cycle low.”
US ISM Manufacturing Index for March. Prior to the data release on 4/01/2010 10:00:00 AM ET, Econoday reported, “The composite index from the ISM manufacturing eased back in February to 56.5 from 58.4 the month before. But the number was still at a healthy level above break even, indicating moderate growth in manufacturing activity. The composite index has been above 50 for seven months in a row. Looking ahead, the March composite is likely to remain well into positive territory as the new orders index slipped but remained at a high reading of 59.5.”
US Construction Spending for February. Prior to the data release on 4/01/2010 10:00:00 AM ET, Econoday reported, “Construction spending in January dropped 0.6 percent after sinking 1.2 percent in December. On the year, total construction has declined by 9.3 percent. Weakness in the month was led by a fall in private nonresidential spending with public outlays also slipping. The bright spot was private residential construction spending which posted a notable gain. Looking ahead, overall outlays are likely to fall back further as housing starts dropped a sharp 5.9 percent. This likely was weather related due to severe snowstorms. This effect will likely been seen in other components of construction spending.”
US National Employment Report for March. Prior to the announcement on 4/02/2010 8:30:00 AM ET, Econoday reported, “Non-farm payroll employment in February declined 36,000, following a 26,000 decrease in January. Weakness in February was led by a 64,000 drop in construction jobs. Manufacturing and mining both actually edged up. Service-providing jobs were up 42,000 in February with the highlight being a 48,000 jump in temp help. Despite these positive signs, the big negative is coming from the public sector as government jobs fell 18,000 despite the hiring of 15,000 temporary Census workers. Wage inflation in February eased to an anemic 0.1 percent rise from 0.2 percent the month before. From the household survey, the unemployment rate held steady at 9.7 percent in February. Looking ahead, an easing in the drop in construction plus a stronger gain in Census workers could put payroll jobs back in the positive column for March.”
International Equity Markets Review
All major non-North American equity market indexes were up this week with the exception of Bovespa of Brazil, and the Hong Kong Hang Seng (-1.5%), Singapore STI (-0.3%), Shanghai Composite (-0.3%), and Taiwan Taiex (-0.3%).
YTD, only three Chinese indexes -- Shanghai Composite (-6.6%), Taiex (-3.8%), and Hang Seng (-3.7%) are down.
News reports such as this week’s announcement that no new real estate development will be permitted in mainland China for at least a month – indicate tightening conditions are continuing, which would have a further negative impact on equity prices in the region.
Below are 16 country index chart links from StockCharts.com (with their formal approval btw). Global equity markets do not trade in a vacuum. It is important to be watching these markets move through a trend juncture together, pushed and pulled by global currency and commodity strength or weakness as well as local and regional economic forces.
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
ETFs Review for International equity market
There was a mixed performance in the eleven major country ETF’s that trade in USD in New York that I monitor. Thanks to a strong lift on Friday (+1.17%) the German EWG was up +1.12% W/W. On Friday Japan’s EWJ soared +1.57%, carrying it to a gain of +0.78% W/W. The French EWQ was up +0.28%, Hong Kong’s EWH up a tad and the EWU of UK flat. The rest were down, with India’s IFN down –1.36% and Brazil’s EWZ down –1.21%, being down the most.
The EWZ also dropped –1.57% on the previous Friday.
I still believe there is too much risk in these country ETF’s, which would be exposed should the US Dollar rally even more from here.
Table 14: 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 |
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:
Taiwan’s equity market
Here is the Republic of China/Taiwan (EWT) equity market ETF Monthly, Weekly and Daily data charts:
Indonesia equity market ETF
Here is the Indonesia Fund (IF) equity market ETF Monthly, Weekly and Daily data charts:
IF Summary from Yahoo Finance:
http://finance.yahoo.com/q/pr?s=IF
IF Summary from Google Finance:
http://www.google.com/finance?q=AMEX:IF
IF chart from StockCharts.com:
http://stockcharts.com/charts/gallery.html?IF
Here are the links to interactive charts from Billcara2.com for the key country ETFs, which you can add technical indicators for as well.
Group 1:
(list one)
(list two)
Group 2:
(list one)
(list two)
US Equity Markets Review
The major US equity indexes all lifted this week, but there was a strong bout of selling on Thursday afternoon, and Friday was mixed.
This week, the S&P 500, NASDAQ and DJIA were up +0.58%, +0.87% and +1.01% respectively. On Friday, the S&P 500, NASDAQ and DJIA were almost unchanged. Over the past six sessions, the S&P 500 is flat.
NASDAQ Composite ino.com chart
NASDAQ Composite stockcharts.com chart
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
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
Add two of AMZN, DELL, JAVA or YHOO to get a Cara Dozen.
Or while you are at BillCara2.com, input up to 30 tickers in the window above “Summaries” – say AAPL MSFT GOOG QCOM RIMM CSCO INTC ORCL GILD EBAY AMZN DELL JAVA YHOO plus up to 16 more – and click on Tech Chart, Basic View, Daily Watch, Performance or Fundamentals and you’ll get a lot of information to compare one against the others.
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.
Dow 30 Stocks Review
Among the DJIA components this week, 21 were higher, 1 flat, and 8 down, which was almost as good as a week ago and the same as two weeks ago.
This week’s top five performers in the Dow 30 were: Bank of America (BAC +6.42%), Caterpillar (CAT +5.17%), Disney (DIS +4.96%), JP Morgan (JPM +3.61%), and Kraft (KFT +3.37%).
This week’s bottom five performers were: Merck (MRK –1.66%), 3M (MMM –1.17%), Johnson & Johnson (JNJ –1.12%), Exxon (XOM –0.75%), and Chevron (CVX –0.73%).
As you can see the losses were again much less than the gains in the extreme performers of the Dow 30 this week. However next week on Wednesday, trading for the quarter year comes to a close. Money managers will tend to be less aggressive in chasing performance.
Table 15: Dow 30 List
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
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)
For those of you who are relatively new at trading, or to this blog, why not pull the ten (10) Cara 100 companies out of the DJIA 30 list, and study the links for just these stocks? Keep a hard copy of the Value Line quarterly report plus a record of the Daily-Weekly-Monthly RSI-7 technical indicator. Study up on what the RSI is so you know it and have confidence that it is just like a football game yardstick that shows you how much risk your team is facing when trying to score points.
The Cara 100 high-quality company list has the following ten DJIA components:
Wal-Mart (WMT), Disney (DIS), Johnson & Johnson (JNJ), McDonalds (MCD), Exxon (XOM), Boeing (BA), Procter & Gamble (PG), IBM (IBM), Intel (INTC), and United Technologies (UTX)
There is no rocket science to these high-quality companies. In your typical week, you shopped at Wal-Mart and along the aisles, mostly the personal consumer products were from Procter & Gamble, except for maybe the baby powder from Johnson & Johnson. On the way there, you may have filled-up at an Exxon gas station, and on the way home, maybe you stopped for a Big Mac or a salad at McDonalds. Overhead, you watched airplanes from Boeing. If you were in a high-rise building, you probably rode in an Otis elevator from United Technologies. Maybe you no longer have an IBM PC, but you do know the company, and your present PC is likely powered by Intel. Every parent's kids want you to take them to Disney… All in all, this is just life we're talking about here. If you are alive, you know these companies like your children. You probably even see more of them… So, just quickly read those Value Line reports – one per company every 13 weeks – and keep an eye on the RSI (momentum) and MACD (trend)… Those guys on Wall Street may be worth a gazillion dollars, but they didn't do it the way you and I have to do it. So, stop listening to their stories that financial engineering and out-sourcing is what's making America strong. That is such a crock. Instead, live life, use common sense, do only what you understand, feel comfortable, and you'll be surprised at how quickly you can take control and free yourself of the shackles of HB&B.
I must say that I continue to run the paragraph above because, in the long run, it works. Every few long-term cycles, possibly once in ten or 12 years or so, the equity markets fall under the control of interventionist parties that operate with different objectives than most traders. These parties, including central banks and sovereign wealth funds, are backed by trillions of dollars, so until their objectives are met or defeated, the market will behave strangely. That makes it difficult for us because those players are using taxpayer money, which seems to be an endless source.
You have read the above for many months. Recently I added the cautionary words,
The good news is that governments need the public to participate in capital markets. Without our capital, the global financial system would collapse. So, sooner or later – and I suspect pretty soon – the Mr. Market will regain control, and the risks will (start to) normalize… I will add that this is a long-term process, which may take another three to five years to come full circle… For the present though, Mr. Market is withdrawing from the game, and it’s not just to watch a Crouching Tiger, Hidden Dragon.
When money flow starts to rally (i.e., rising volume times rising prices), we’ll begin to relax, thinking the market is stabilizing. Until then, we think it is vulnerable to many possible negative scenarios.
Value Line Report(s) this past Friday
This week, Value Line reported on the two DJIA components that represent America’s Ma Bell: AT&T (T) and Verizon (VZ), neither of which is a Cara 100 company based on financial strength, management, returns on equity, profit margins, and so forth.
As opined in the past, these are not bad companies; they are just of little interest to me. I review them in order to study the economy, and other prices, like the telecom group, bonds and interest rates, and other high dividend yielders like the Utilities.
As you know, prices don’t trade in a vacuum, and these stocks give you a part of the bigger picture, which, as I see it, is not looking so hot for the telcos or for the broad market for that matter. But I will reiterate: these are not bad companies, particularly for income-oriented accounts who plan to hold for a long time.
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 Mar. 26: next one is due Jun. 25)
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 Mar. 26: next one is due Jun. 25)
Always before I study a company, I take a quick look at the Monthly-Weekly- and Daily charts:
For AT&T (T):
http://billcara2.com/tkchart/tkchart.asp?stkname=T&ind=rsi&wt=3
http://billcara2.com/tkchart/tkchart.asp?stkname=T&ind=rsi&wt=1
http://billcara2.com/tkchart/tkchart.asp?stkname=T&ind=rsi&wt=0
For T ($26.24 3/26 WIR #13-2010), the RSI-7 for the Monthly/Weekly/Daily was 47.8 / 59.8 / 63.9.
Here are the previous results: For T ($28.10 12/24 WIR #52), the RSI-7 for the Monthly/Weekly/Daily was 56.0 / 69.4 / 68.8. At 9/25 WIR #39 with the price at $26.96, the RSI-7 for the Monthly/Weekly/Daily was 47.4 / 64.7 / 59.7 and rising. Thirteen weeks prior to that, at WIR #26 on 6/26 with the price at $24.82, the RSI-7 for T was 32.2 / 49.1 / 63.1.
For Verizon (VZ):
http://billcara2.com/tkchart/tkchart.asp?stkname=VZ&ind=rsi&wt=3
http://billcara2.com/tkchart/tkchart.asp?stkname=VZ&ind=rsi&wt=1
http://billcara2.com/tkchart/tkchart.asp?stkname=VZ&ind=rsi&wt=0
For VZ ($30.37 3/26 WIR #13-2010), the RSI-7 for the Monthly/Weekly/Daily was 47.3, 55.7 and 56.8.
Here are the previous results: For VZ ($33.36 12/24 WIR #52), the RSI-7 for the Monthly/Weekly/Daily was 59.7, 71.4 and 66.5. At 9/25 WIR #39 with the price at $29.94, the RSI-7 for the Monthly/Weekly/Daily was 40.6, 43.4 and 43.1 and falling. Thirteen weeks prior to that, at WIR #26 on 6/26 with the price at $30.99, the RSI-7 was 44.8 / 60.7 / 73.0.
In the case of these two stocks, RSI-7 has proven to be a helpful tool in a trader’s toolkit.
Let’s review the details:
From WIR # 26 (June 28, 2009):
With T at $24.82 and VZ at $30.99, I wrote:
…As for me, I wouldn’t buy them (they lack the quality I’m looking for), but a series of put writes in a Bull phase ought to work out pretty well.As for the Value Line analysis of AT&T, they lowered the Timeliness and Technical to 3 and 4 respectively in the past 4 weeks, but did the same for Verizon this week. That might cause some extra selling in VZ.
The T is trading at 24.82 and the report was written at 24.22 when the dividend yield was 6.9%. That’s very high and likely secure despite the relatively high payout ratio.
The T dividend will likely be $1.64 this year, up a tad from 1.60 in 2008, and likely not going to be more than about 1.68 in 2010.
Only mobile is selling well, but the company has a strong offering of wireless.
I can see more cost-cutting here, which means higher productivity. So, I’m not as negative as I usually am. It’s just not prime time for T to shoot higher.
(For VZ) the RSI-7 for the Monthly/Weekly/Daily is 44.8 / 60.7 / 73.0 vs the RSI-7 for T at 32.2 / 49.1 / 63.1.
So after the next short-term pull-back, of these two stocks, I’d be writing puts in T as by then the RSI-7 across the three time horizons would be lower, meaning my risk is less.
The Value Line report was written at 29.54 and the stock is now 30.99, which was the #1 performer in the DJIA index this week. In fact, T was #3.
The dividend yield is about 6.0%, and the dividend is likely to increase from 1.78 in 2008 to 1.87 this year and maybe 1.95 in 2010.
Just like T, the high dividend protects the stock price on the downside as the cash flows of these companies are relatively stable.
Like T, the earnings of VZ are not exciting in terms of growth, but they are fairly stable.
One more leg down on the Daily charts and the stock will be looking very good for long-run positioning. I’d not buy the stock due to it’s lacking the quality I need, but I would consider writing a series of puts after every short-term price pull-back.
From WIR # 39 (Sept 27, 2009):
In addition to being accurate on the T vs VZ opinion, I would have cleaned up on the put writes as well.
Today, without checking in with Pierre Brodeur, who needed some time off to deal with one of life’s unfortunate but always present personal situations, or Pascal Willain, I pretty much feel the same. There is no reason to run away from these stocks. Revenues, earnings and cash flow, and dividends, are all likely to increase for both companies for 2010.
Going forward, say for 2010, the dividend yields are likely going to be 6.23% ($1.68/$26.96) for T and 6.44% ($1.93/29.94) for VZ. These are exceptional yields for companies rated A+ and “1” for Safety by Value Line.
If you plan to hold them for five years, you must be aware that the dividend will be increased every year, and the share price to also expand. I think you can be assured of receiving a total return of at least 17% or 18% annually, which is the lowest estimate by Value Line. In other words, your capital would about double in five years. Compare that to the 5-year Treasury note that is presently yielding +2.372% per year, and will pay back only the principal amount. The difference is an annual loss of almost 15% or 16%. It makes no sense to me whatsoever that traders would price in so much risk in these two telco operators. Invest in the stocks.
As to the Value Line reports, I have already admitted these are my two least favorite companies. So please don’t ask me to read into them further. There is just one thing I’d like you to look at: the little box on the left side of the page about one-third from the bottom, which is the annual 5-year projected growth rates for revenues, cash flow, earnings, dividends and book value. If you are prepared to assume a bit more risk, as you will in the Cara 100 companies, you will find much better growth in high quality companies.
The next Value Line report for these two companies is slated for Christmas Eve day or the one before that. I wouldn’t expect a Christmas present if you buy these two stocks today, but if you find a Buy Alert between now and then, or you start a put write program in the Accumulation Zone, I think you would be a happy Santa.
For WIR #52 (Dec. 26, 2009):
As you can see, I believed that in the past quarter if there was a strong pull-back, there would be an opportunity for more put writes.
VZ in three days from Dec 14 dropped from a high of $34.13 to $32.36, and since recovered +$1.00. There was also pull-backs in Oct and again to begin Nov. So there were opportunities to add premium from put writes while understanding that had the price dropped further you would have been required to buy the stock – but do so at low-risk, fire-sale prices. This is your job as a trader.
T offered an even bigger opportunity for effective put writes because after WIR #36, the price dropped to a low of $25.00 before lifting to $28.36, then down to about $27.10 about two weeks ago before closing at $28.10.
The point is not that you or I would likely ever hit those highs and lows, but that there are sudden moves in quite stable high quality stocks like T and VZ, and that if you follow the dance, and are prepared to buy in at lower than average prices because you’d be happy with the longer-term annualized Total Return (TR), the extra premium plus the high dividend and a modestly rising share price will make you happy and successful.
For the near future, Value Line analysts for both T and VZ have raised their Technical ratings from 4 to 3 on 12/25. The text states the ratings were lowered, but Value Line, like everybody, has typos. As a floor trader who I was complaining to one day because he didn’t get the reported price I bid told me bluntly, we trade the actual price, not the price that the media publishes. I accept that.
But do I think that T and VZ should be raised for Technical Timing? No; the Weekly and Daily RSI-7’s for these two stocks are close to 70. I like the timing prospects when the RSI-7’s are in the 25-35 range for stocks like T and VZ. In December, the Daily RSI-7 did get down there for T but not quite for VZ.
So, without a chance to sell down as far as I’d like to see, I believe these two stocks are pricy at the moment, and likely to five much better entry opportunities in 1Q2010, possibly in mid-January.
The income from dividends is high. T will likely pay out $1.72 in 2010 and VZ $1.95. That means the dividend yields are close to 6%. These dividends will likely increase from +3 to +5% annually, which puts upward pressure on the share price as well. If you can buy the stocks at lower prices, the dividend yield will be higher still, and if you write some puts at lower strike prices to take in premium, you are adding to your income. If you stick with the program, the +14% to +20% annual Total Returns projected by Value Line are reasonable.
These two are not Grandpa and Grandma’s telephone companies any more. They are much less wired and now mostly wireless. With your Blackberry’s and iPhones, these two telco service giants operate the command and control centers of our universe. They’ll be around when your kids and mine become Grandpa’s and Grandma’s.
They may not be my favorite stocks, but they employ combined well over 500,000 Americans, which puts food on the table and a roof over many heads, so I’m sure they are the favorites of lots of you. If you can do a +20% annual Total Return with stocks of this caliber, there are many of you who ought to try.
For today, WIR#13 (March 28, 2010), with T @ $26.24 and VZ @ $30.37:
These stocks have gone nowhere for the past nine months covered by the three WIR reviews. My assessment that put writes would be the only way to basically invest was the correct call. In fact a look at the Dow 30 performance tables shows that the stock prices have over the past 3-, 6-, and 12-months been –6.62%, -2.67% and –0.42% for AT&T (T) and –8.96%, +1.44%, and –0.56% for Verizon (VZ). Over 6- and 12-months, only Exxon (XOM) of the Dow 30 stocks, has fared worse.
How Value Line’s analysts Hellman for T and Nugent for VZ could possibly project 3- to 5-year hi-lo Annual Total Returns (TR) of 16%-22% for T and 18%-23% for VZ is beyond me. Both in fact rank their stocks a ‘4’ for 12-month Timeliness, which is Below Average for the Dow 30 component stocks.
The thing is that with dividend yields close to 6.5%, these stocks are ‘perfectly’ priced. And as to dividend growth, Hellman is projecting dividends for T of $1.64 (2009), $1.68 (2010), and $1.72 (2011), which isn’t much, and Nugent figures for VZ the dividends will be $1.87, $1.90 and $1.90 respectively, which is virtually zip. And since both of these companies are paying out close to 80% of their earnings in dividends every year, there is almost no room for expansion or protection should earnings ever drop.
In the case of T, earnings per share for 2009 forward are expected to be $2.12, $2.20 and $2.25, which is getting better. The problem is that eps in 2006 and 2007 were $2.34 and $2.76. Ouch. Same thing for VZ, only worse. With 2006 to 2008 eps at $2.56, $2.34 and $2.56 respectively, the 2009-2011 eps are expected to be $2.40, $2.35, and $2.50. Ouch a second time. In fact, Nugent is calling for almost no increase in per share earnings for VZ going out 3-5 years.
And with no spare cash to buy in its common stock, both companies anticipate the same number of shares to be outstanding over the next few years, so no help with the metrics there.
As to financial strength, AT&T’s balance sheet has gotten a tad stronger in the past two years, although nothing to shout about, and Verizon’s has actually gotten worse. Neither company has much cash relative to the size of their debt.
But, as pointed out in the previous WIR, these companies are not disappearing in the next five years. So, the best I can say is to write puts for income, timing your entries when RSI-7 on the Weekly price series reaches cycle low points below 30. February would have been the timeliest opportunity going back into 3Q2008, but not now.
Like long-term bonds, I have zero interest here. Sorry to offend those buy-and-hold investors.
The Dow 30 Company links in chronological order of the upcoming reports.
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 Dec. 31: next one is due Apr. 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 Dec. 31: next one is due Apr. 2)
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 Jan. 8: next one is due Apr. 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 Jan. 8: next one is due Apr. 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 Jan. 8: next one is due Apr. 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 Jan. 15: next one is due Apr. 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 Jan. 15: next one is due Apr. 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 Jan. 15: next one is due Apr. 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 Jan. 15: next one is due Apr. 16)
General Electric [GICS 20, Dow 30, ex-Cara 100]
(GE: Google Finance file)
(GE: Yahoo Finance file)
(GE: StockChart chart)
(GE: Billcara2 chart)
(GE: ADVFN Financial Data)
(GE: Value Line Report Jan. 22: next one is due Apr. 23)
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 Jan. 22: next one is due Apr. 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 Jan. 22: next one is due Apr. 23)
Coca Cola [GICS 30, Dow 30, Cara 100]
(KO: Google Finance file)
(KO: Yahoo Finance file)
(KO: StockChart chart)
(KO: Billcara2 chart)
(KO: ADVFN Financial Data)
(KO: Value Line Report Jan 29: next one is due Apr 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 Jan 29: next one is due Apr 30)
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 Feb 5: next one is due May 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 Feb. 12: next one is due May 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 Feb. 12: next one is due May 14)
American Express [GICS 40, Dow 30, Cara 100]
(AXP: Google Finance file)
(AXP: Yahoo Finance file)
(AXP: StockChart chart)
(AXP: Billcara2 chart)
(AXP: ADVFN Financial Data)
(AXP: Value Line Report Feb. 19: next one is due May 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 Feb. 19: next one is due May 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 Feb. 19: next one is due May 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 Feb. 19: next one is due May 21)
Johnson & Johnson [GICS 35, Dow 30, Cara 100]
(JNJ: Google Finance file)
(JNJ: Yahoo Finance file)
(JNJ: StockChart chart)
(JNJ: Billcara2 chart)
(JNJ: ADVFN Financial Data)
(JNJ: Value Line Report Feb 26: next one is due May 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 Mar. 5: next one is due Jun. 4)
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 Mar. 12: next one is due Jun. 11)
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 Mar. 12: next one is due Jun. 11)
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 Mar. 19: next one is due Jun. 18)
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 Mar. 26: next one is due Jun. 25)
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 Mar. 26: next one is due Jun. 25)
Sector ETF Summary for the US equity market
The tables I 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.
This week, four of ten sectors closed down: Energy (XLE –2.1%), Utilities (XLU –1.7%), Healthcare (IYH –1.2%), and Telecommunications (IYZ –0.8%).
Once again, I didn’t notice any sector rotation going on although the dynamic duo of Financial (XLF) and Consumer Discretionary (XLY) – the one prints the money and the other profits when you spend it – were each up +2.0%, which was by far the most.
Again there was a general lack of interest overall except the same thing happened as the previous week, a fact the Bulls cannot like: volume expands only in sell-off’s.
Check the following link for the S&P 500 and note the extra volume this Thursday, which happened as the market started to crater in the afternoon. Then follow through the previous week where the market was very strong all week until Friday when all ten sectors dropped that day. Volume was well up that day as well.
http://ca.finance.yahoo.com/q/hp?s=^GSPC
When markets advance on skimpy volume and pull back on large selling, the phenomenon is called distribution.
Now go to the table of the Cara stockwatch published on Friday and note all the Sell Alerts.
http://caracommunity.com/report/2010-03-26
Just above that table is the one listing 52-week highs: that’s an awfully big list of what I call ‘perfectly priced’ stocks, i.e., it may not get better than that.
These facts are not proof the market is now headed south, but clearly your capital risk is elevated at this point. You need to tighten stops.
Why, you ask? The majority of sectors (6 of 10) and Dow 30 stocks (21) were up, so what could be so bad, you say.
Look again: the past six sessions puts a whole different spin on the picture.
XLE –3.59%
XLB –1.10%
XLI +0.17% (all in one stock – CAT)
XLY +1.55% (a lot of DIS and JCP)
XLP –0.22%
IYH –1.27%
XLF +1.10% (all in one stock – BAC)
XLK +0.01% and SMH –0.16%
IYZ –2.69% (along with that giant sucking noise coming from the bond market (-2.43% over 6 days)
XLU –2.69% (ditto)
SPY –0.38% (as Porky Pig would say “That’s all, Folks”)
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 ETFs - up to 30 in total. For a list of components to many ETFs, go to the AMEX.com and NYSE.com web sites, and click on ETFs.
You can use this tool to set up watchlist charts by industry group and sub-groups.
Here’s the SPY Monthly, Weekly and Daily data charts:
SPY Monthly data: 
SPY Weekly data: 
SPY Daily data: 
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 |
With the West Texas Crude Oil price dropping -$0.97/bbl (-1.20%) to 80.00, and –1.90% a week ago Friday, that’s a hit of –3.20% to the Crude Oil price in six days. Why? Inventories are high and growing. Unemployed people stay at home.
Over those six days, the sector ETF (XLE) is down –3.59%. The loss this week was –2.04% and Friday was actually a winning one for XLE (+0.04%), if you count a gain of two cents a win on a day 8 sectors of ten were up.
What’s happening here is a direct result of the lifting US Dollar. If the $USD rises, Crude Oil contracts fall in price and along with it the XLE. A falling US Dollar is needed to reverse the play – but only for the short-term. A long-term falling Dollar would bring on inflation, higher interest rates, economic pain, and other problems you don’t want to dwell on.
As I remarked in this space a week ago, “When the Dollar is up sharply, there is usually profit-taking going on in equities, starting with the highest beta stocks, and with the stocks that are considered riskiest, including many of the non-US stocks… This experience is known as the US-as-safe-haven play, but is something you should come to expect and watch for on your monitors. (Also) The next time the Dollar drops, watch for example the CVX and XOM to be laggards as the price of the Oil stocks rise.”
So this week the $USD lifted +1.05%, and PetroBrazil (PBR –5.1%), Schlumberger (SLB –4.1%) and PetroChina (PTR –3.6%) took big hits. The one that was up, China National Offshore Oil Co or CNOOC (CEO) closed the week up +1.0% because of a +3.5% gain on Friday, explained as follows:
BEIJING, Mar 26, 2010 (Xinhua via COMTEX) --
China is attempting to become long-term partner in Uganda's downstream sector, said Fu Chengyu, chairman of CNOOC Ltd. (CEO.NYSE; 0883.HK) and president of CNOOC Group on Thursday. This suggests CNOOC's effort to set a foothold in Uganda. CNOOC, French Total and Britain Tullow have agreed to jointly invest at least five billion USD in developing downstream sector in Uganda.
Fu said in an industrial forum held in Uganda that CNOOC would introduce the best technology, experience and technique to Uganda so as to build a long-term partnership. Uganda becomes more attractive to foreign oil firms with its Lake Albert basin having found crude oil reserves of more than 800 million barrels, said Fu.
Any time you see a price move strongly against the peer group, look for a causal factor and try to determine what the impact that might have on the sector, the overall market, and on your portfolio. It takes all of ten seconds. As I see it in this case, developing Uganda will be good for Uganda and -- in maybe ten years -- CNOOC, Total and Tullow. Zero impact elsewhere.
This sector needs a lower US Dollar for share prices to rise. That would also mean higher Crude Oil prices, and higher costs for you at the pump, and… connect the dots.
The market does not trade in a vacuum.
Enjoy the dance.
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:
Table 3: Senior Basic Materials:
XLB Daily data:
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
The Basic Materials (XLB) sector ETF gained +1.20% W/W to close at 33.68.
Big miner Rio Tinto (RTP) and big steelmaker ArcelorMittal (MT) were up +4.2% and +4.1% respectively this week. YTD, however, most of the Basic Material stocks are down.
Two weeks ago I wrote, “The $USD dropped –081% this week, so traders were a bit surprised at the modest increases in the Crude Oil and ETF prices. Anyway, I still think: ‘At this point, traders ought to be looking to sell the rallies I think as the $USD is still in an intermediate term Bull phase’.” I added, “XLB:$SPX shows a strengthening position relative to the broad index, but certainly not presently at an entry point.”
Since then, the $USD lifted +1.17% and +1.05% (this week), and the impact is being felt in the Basic Materials, Energy and Utilities, which are down over the past six sessions by –1.10%, -3.59%, and –2.69%. The sectors have been rotating as expected as over this time the Consumer Discretionary and Financials, which benefit (relatively speaking) from a stronger Dollar, were up +1.55% and +1.10%.
The dance goes on.
Sector 20 (industrial: IYJ, XLI, VIS, and IYT)
Here’s the XLI Monthly, Weekly and Daily data charts:
XLI Monthly data: 
XLI Weekly data: 
XLI Daily data:
Table 4: Senior capital goods makers and transportation:
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
The Industrials ETF (XLI) gained +0.91% W/W to close at 31.09, which was the 5th best sector. That’s actually a change, also brought about by the stronger US Dollar. You see, I wrote previously that “XLI in the past several weeks was 2nd best sector performer, after being 4th best, 3rd and 2nd the weeks before that. So, Industrials have been relatively hot.”
As you recall, there was a period of several weeks where the $USD pulled back from its longer-term rally move, and the Euro had heated up. A weaker Dollar helps the Industrial giant stocks like GE, CAT and BA because foreign sales come easier, and repatriated foreign profits are juicier. A stronger Dollar works in reverse. From March 18 until Friday, there has been a very strong Dollar. But the period from Feb 19 through March 17, the Dollar dropped sharply from a high of 81.34 to a low of 79.51, and that was the push needed to lift the XLI. Then in the past six days from March 19, as the Dollar lifted, XLI gained only +0.17%. In fact, if you take out Friday’s –0.69% loss in the $USD, the prior five days had a major gain in the $USD, and XLI actually dropped –0.09% over that time.
So keep watching these factors and you’ll gain a sense of where you are in the market as prices ebb and flow. By writing notes, as I do in this blog, you focus on prices and the inter-connections, which is why I blog. When you put things in written form for the world to see, you cannot fool yourself. Staying grounded means staying alive.
To check on general and detailed info for the Industrials group, the Thomson Reuters service is a good one:
http://www.reuters.com/sectors/industries/significant?industryCode=52442
Here is the link to all sectors and industries as classified by Reuters:
http://www.reuters.com/assets/siteindex#sectorsAndIndustries
You know, I have had people who worked in the securities industry for 20-30 years write me to say thanks for an education they never got in a career of moving from one HB&B to the next. I’ll say, “But that’s because you became an expert in sales or research or corporate finance, or whatever, and it was never your job to study prices. You accepted the widely held industry perspective that stocks are sold, not bought, that HB&B does the thinking for people, and that prices are set by insiders, including the movers and shakers at HB&B.”
That’s all changing now because independent investors are starting to think for themselves. They don’t want conflicted advisors, but are going to self-managed accounts. They now prefer ETF’s rather than mutual funds. Etc.
We do know that most people have a life other than full-time trading, and they are busy during market hours. So there will always be the need for advisors, and those under the HB&B umbrella are starting to catch on. They are themselves learning to trade, and to communicate reasons for price moves rather than pass along tips or put clients into mutual funds. I say it’s a terrific time for a young person to go into HB&B as a sales trader or advisor, offering up a valuable service to people. What I don’t like are stories like the main one in Saturday’s Toronto Star where old people have had their life’s savings stolen by a con artist who was running a ponzi scheme.
http://www.thestar.com/news/investigations/consumerprotection/article/78...
For all the things done wrong by power hungry, bonus seeking, HB&B executives, these ponzi schemes are not going to happen by front-line troops at HB&B. So, for those of you who think I have it in for anything other than the top 1- or 2% of HB&B people, you are wrong. Sorry. That’s not to say the rest are outstanding either. But, many are. Many of them have personal values every bit as strong as I consider my own.
The thing is that if you are a young person who has been considering a career at HB&B and frightened by the current media backlash, you need to visit these firms and meet their sales directors and see where the best fit is, where you can develop a career as an independent minded professional, somebody who won’t be told by a manager to sell this piece of junk or that just because some corporate finance manager in the firm created it and the company needs to sell it. If you have a good personality, get along with your associates, and willing to work as hard as your grandfather had to, then you are probably a good bet for HB&B. If you have already made a lot of good connections or bring with you a solid business model, an approach to getting business done, then you are a great bet for HB&B. Success comes on a two-way street. It’s not just about Wall Street or just about Main Street, but about the connection, and you need to be a link to be successful.
Fitting that all this should cross my mind when I’m supposed to be writing about the Industrial sector.
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) gained +2.04% W/W to close Friday at 33.06, which jumped from #6 to the best performer of the 10 sectors this week.
As I wrote in this space a week ago, “XLY was 2nd best for a couple weeks when Financials (XLF) were strong and risk was being bought”.
I also wrote, “As stated here a week ago, XLY:$SPX shows an over-bought position relative to the broad index, and presently is at an exit point”.
I also pointed to NKE and EBAY, saying: “These two are not short candidates, but are simply perfectly priced with little room to grow until after the broad market pulls back”.
So what I’m saying is that you need to tighten stops or sell into strength when RSI-7 and Stochastics get to extreme levels and start to back off. We’re there now. Have a look at this chart:
http://www.billcara2.com/tkchart/tkchart.asp?stkname=XLY,VCR&ind=rsi&ind...
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) gained +0.50% W/W to close at 27.91. But over the past six sessions, XLP has dropped –0.22%.
I think Staples (XLP) is a better choice right now than Discretionary (XLY) because I think the market is soon going to price in risk.
This week, Walgreens (WAG) soared +6.6%. Actually the gains were made on Thursday and Friday as momentum traders figured on a technical break-out. Maybe they see all of us needing drugs to cope with the impending sell-off in the market? Do you think? :-)
Sector 35 (healthcare: IYH, XLV, VHT, IXJ, and IBB)
Here’s the IYH Monthly, Weekly and Daily data charts:
IYH Monthly data: 
IYH Weekly data: 
IYH Daily data:
Table 7: Senior healthcare equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
The healthcare sector (IYH) lost –1.18% W/W to close at 65.96, dropping from 3rd best sector performer to 3rd worst.
I think this was a “sell the news” event after the passage of the healthcare reform legislation. The insurers were the biggest winners in the run-up to the vote, and this week were the sector’s biggest losers. United Health (UNH –5.1%) and Wellpoint (WLP –3.1%) got hit. A week ago, UNH was up +4.5% WLP +4.0%.
It looks to me like next week Aetna (AET) might take a hit. This past two weeks the stock seemed to be in a heavy “social media” promotion.
http://www.privatehealth.co.uk/news/march-2010/aetna-launches-social-med...
Generally, however, I think this sector is attractive on a relative basis because I think that too many traders have taken on excessive risk in the past many weeks.
Two weeks ago, I gave you a heads up when I wrote in this space, “IYH:$SPX, like another defensive sector XLP, shows a strongly over-sold position relative to the broad index, reflecting that traders have been taking on too much risk in recent weeks, and that IYH is probably at an entry point.”
Sector 40 (financial: IYG, IYF, XLF, VFH, IXG, VNQ, RWR, IYR, and ICF)
Here’s the XLF Monthly, Weekly and Daily data charts:
XLF Monthly data: 
XLF Weekly data: 
XLF Daily data:
Table 8: Senior financial company equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Financials (XLF) gained +1.98% W/W to close at 16.00.
Two weeks ago, I wrote in this space: “XLF:$SPX, like XLY and XLI, shows an over-bought position relative to the broad index, and presently is at an exit point. What this chart, and the others, tells you are that risk-takers have bit off a bit too much, and maybe needing a rest.”
Yes, I still think that, and believe it’s coming if the $USD continues to strengthen. In last week’s WIR I explained my reasoning: “You see, after the initial move, which is a safe-haven play, then the prices of commodities and precious metals fall, which impacts share prices in these sectors. Unless the economic data is strong during this time, which would serve to offset any downward pressure on the commodities, and also boost the stock prices in other sectors, the stronger Dollar is bad for equity prices.” I added, “A strong Dollar and weak Euro this week served to boost the non-US banks.”
This week it was Bank of America (BAC +6.4%) and Citigroup (C +10.5%) that were very strong. But, C is only up +4.3% YTD, and should interest rates start to rise, I think it could be lights out in the Citi. I just don’t think that selling off the best quality assets is leading this company out of the swamp. But, time will tell.
The banks formerly known as investment banks, Goldman Sachs (GS) and Morgan Stanley (MS) dropped –2.8% and –2.6%. Maybe, in the new financial services reform, the shareholders there see the writing on the wall. If you are going to take more risk in your trading, you are going to have to put up more capital, I think.
Daily charts of electronic brokers and exchanges
Weekly charts of electronic brokers and exchanges
Sector 45 (technology: IGM, IGV, IGW, XLK, VGT, IYW, IGN, IXN, MTK and SMH)
Tech (XLK +0.92% to 23.00) and Semi-conductors (SMH +1.13% to 27.80) were mostly stronger, and that’s what the market Bulls wanted to see.
Two weeks ago in this space I wrote, “XLK:$SPX shows an over-bought position relative to the broad index, and also to SMH. I’d consider switching some of the recent high-flyer techs for some of the under-performing semi’s, but would wait a couple weeks before adding new positions in the Tech sector.” In the WIR last week, I added: “Bingo. Chip makers LSI Logic (LSI +15.1%) and Intel (INTC +3.4%) were hot, pushing the ETF (SMH +1.78%) to a strong gain, while the Palm (PALM –27.6%) was crushed.”
This week, most of the Tech stocks were up a bit, but not as much as Qualcomm (QCOM +4.$%) or Apple (AAPL +3.9%), while the Semi’s once again were very strong, with ST Microelectronics (STM +7.7%), SanDisk (SNDK +7.6%) and Novellus Systems (NVLS +7.6%) up the most from my watchlist. The Weekly RSI-7’s for this trio is now around 73, and lifting. Move up your stops.
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 |
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Sector 50 (telecom: IYZ, VOX and IXP)
The Telecom sector (IYZ) could not hold the gains of +2.99% a week ago and +2.49% two weeks ago, when this was the #1 sector performer both weeks. This week, IYZ dropped –0.80%.
AT&T (T unchanged W/W) and Verizon (VZ –0.13% W/W) went nowhere. As I pointed out in this space a week ago when the telco’s were soaring: “This can happen when volume is so low, and, as happened on Friday, the other stock sectors were getting hammered. Traders often turn to the big Telcos for safe haven when the Dollar rallies and the price of the long bond lifts as it did this week.”
Well, the bonds got hammered in the past six sessions, and traders are now thinking that maybe the Dollar is close to the end of its sprint, so there was no good reason to keep pumping the telco stocks.
Looking back YTD, T and VZ are down –8.2% and –8.7%. This week Value Line reviews them, which means that I add my notes in this WIR. Heads up; the picture is not looking so terrific going forward either. Yes, by waiting for sell-offs and then writing puts, you can make money, but sticking long there is like death warmed over. Try to avoid it. As the bond market is likely to take a major hit in the future, I’m not even going to write puts here. Yes, these companies will be around for as long as me, but unless the bond market is strong, like 4Q2009, these stocks will not be so vibrant as they were from mid-October into year-end. As soon as bonds started coming off, so too did T and VZ stumble.
It’s like a dance. You need the right partner.
Here’s the IYZ Monthly, Weekly and Daily data charts:
IYZ Monthly data: 
IYZ Weekly data: 
IYZ Daily data:
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:
A week ago I wrote, “The Utilities sector ETF (XLU) gained +0.40% W/W to close at 29.96. Interestingly, XLU dropped –0.40% the previous week. Not much of a change in the past month in this sector.”
This week I can say that XLU dropped –1.70% W/W to close at 29.45, and that included a gain of +0.24% on Friday. But the loss for the previous Friday was –0.99%, so while the $USD was soaring for those five days, the Utilities were getting the energy knocked out of them (-2.93%).
http://billcara2.com/markets/mkview.asp?qte=ss&ty=tk&qt=AEP+D+DUK+ED+EXC...
Here is the list of North American Utilities that I follow:
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
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Bonds & Yields Review
Table 10: US Treasury Yields
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 3 Month | 0.11 | 0.11 | 0.13 | 0.09 |
| 6 Month | 0.22 | 0.22 | 0.22 | 0.17 |
| 2 Year | 1.04 | 1.08 | 0.99 | 0.86 |
| 3 Year | 1.61 | 1.65 | 1.56 | 1.40 |
| 5 Year | 2.59 | 2.64 | 2.46 | 2.35 |
| 10 Year | 3.85 | 3.88 | 3.69 | 3.69 |
| 30 Year | 4.75 | 4.76 | 4.58 | 4.64 |
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 2yr AA | 1.08 | 1.08 | 1.17 | 0.79 |
| 2yr AAA | 0.92 | 0.87 | 0.94 | 0.63 |
| 2yr A | 1.28 | 1.27 | 1.22 | 1.02 |
| 5yr AAA | 1.88 | 1.79 | 1.87 | 1.47 |
| 5yr AA | 2.01 | 1.97 | 1.94 | 1.63 |
| 5yr A | 2.19 | 2.16 | 1.96 | 2.07 |
| 10yr AAA | 3.13 | 3.07 | 3.22 | 3.33 |
| 10yr AA | 3.11 | 2.97 | 2.71 | 2.98 |
| 10yr A | 3.74 | 3.70 | 3.79 | 3.62 |
| 20yr AAA | 4.20 | 4.10 | 4.53 | 4.14 |
| 20yr AA | 4.28 | 4.18 | 4.61 | 4.38 |
| 20yr A | 5.22 | 5.16 | 5.23 | 5.58 |
| Maturity | Yield | Yesterday | Last Week | Last Month |
|---|---|---|---|---|
| 2yr AA | 1.37 | 1.43 | 1.39 | 1.35 |
| 2yr A | 1.49 | 1.63 | 1.58 | 1.62 |
| 5yr AAA | 3.00 | 3.10 | 2.87 | 2.82 |
| 5yr AA | 3.19 | 3.27 | 3.12 | 3.19 |
| 5yr A | 3.50 | 3.59 | 3.37 | 3.32 |
| 10yr AAA | 3.78 | 3.92 | 3.40 | 3.59 |
| 10yr AA | 4.91 | 5.09 | 4.74 | 5.10 |
| 10yr A | 4.93 | 5.06 | 4.55 | 4.74 |
| 20yr AAA | 5.50 | 5.69 | 5.32 | 5.19 |
| 20yr AA | 5.54 | 5.53 | 5.29 | 5.54 |
| 20yr A | 6.44 | 6.63 | 6.27 | 6.13 |
A week ago I wrote in this space: “This week, for a second week in a row, the 20- and 30-year US Treasury bonds gained a bit, but the shorter-term bonds pulled back as yields for those lifted between +1 to +5 basis points (bp)… The 20-year US bond (TLT) gained +0.86% W/W to close at 91.26, which added to the previous Friday’s gain of +0.62% for a solid six-day run.”
But a week ago Friday, the gain was only +0.10% and there was a shifting out of bonds. This week, TLT plunged –2.53% W/W to close at 88.95.
As I wrote off the top, there might be elevator floors stopping at 88, 85.50 and 83 for the TLT. I think, because rates are likely to rise, we’ll see 89 go to 83 before 95. So, I don’t want to be in bonds.
This week, as the prices dropped, the yields for the 2-, 5-, 10- and 30-year paper lifted by +5, +13, +16, and +17 basis points (bp). Over the next year or so, I think the yields will continue to lift, which means I also don’t want to be holding equities that (i) hold lots of bonds as assets, and/or (ii) are dividend plays, like telcos and utilities. If you need to put defense on the field, look to consumer staples and healthcare. They’ll get beaten up a little less and give you the best chance to win if the market pulls back.
But, bottom line, avoid bonds. Don’t let the bond departments at HB&B sell you on that. There is no rule you need x percent in equities and y percent in bonds, etc. The only rule is WIN. Don’t lose your capital.
Some people have to buy bonds. Take me for instance, for regulatory capital as required by my regulator. So when I set up I bought – you guessed it – Toyota bonds. Anyway, I was smart enough to buy the shortest maturity I felt the regulator would accept. This week those Toyota bonds matured and I bought – you guessed it again – South Korea bonds. Amazing timing. It’s actually getting better. My purchase this week came the day before news came out that a South Korean warship sunk near the border with North Korea, suggesting maybe a torpedo was involved, causing large loss of life.
I really have Murphy’s Law working.
A couple years ago I bought a Korean car – really one I loved to drive – but the problem was that about two years later the manufacturer went bankrupt and out of business. I was going to buy a Hummer for Nassau – kind of a defensive measure, but then I remembered Murphy. So I ended up buying an old convertible – egg yolk yellow – so the thieves would have to repaint it or never drive it around town. I know they don’t have the money to paint it. My next defensive measure? The car is 20 years old with a brand new top but an old radio I have never listened to, so I always leave the car unlocked, giving access to a $25 radio, saving a knife job on a $500 top. It’s not what you sometimes have to give up that matters; it’s always what you manage to keep that’s most important. Life is really that basic.
Anyway, I’m not good at buy-and-hold. You can see why I like to trade prices.
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.
Why change the following text?
This chart is stunning to long-term observers of the debt markets. Obviously, the banks are being favored. What happens when the banks are forced to borrow at much higher true rates? What happens to the private sector owners of this debt?
Four weeks ago, the Fed finally (having been unchanged for well over a year) changed policy by charging the banks more to borrow from the Fed, raising the rate from 0.50% to 0.75%. This is only the start. Without higher yields, I have been saying, repeatedly, “This situation will end badly, although that scenario might take a year or two to fully play out. Unless the economy collapses into a severe double dip recession or a depression, the long-term risk is to be holding bonds as ultimately rates will have to lift to stabilize debt and equity markets.”
I have also opined that, “…if the rates do move slowly higher in the near term, there will be pressure down on equity prices, which may hurt temporarily, but the longer-term picture could look better unless rates rally to a high enough level that forces more foreclosures before the economy has been proven to be on the rebound.”
Yes, your timing is very important, and don’t listen to sales people who say, “I’ve got just the right product for you… You can’t make money timing the market.” Those people are dinosaurs.
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 (FNM) and Freddie (FRE) were down –7.8%% and unchanged respectively this week. The prices closed at $1.06 and $1.32 respectively.
I continue to recommend that Congress put the boots to these two, and allow the private sector to maintain the US mortgage market. The only thing that government can successfully manage is to lose money.
http://billcara2.com/tkchart/tkchart.asp?stkname=FNM,FRE&ind=rsi&wt=0
Consumer Finance -USA -- Interactive Weekly Data Charts
Mortgage Finance -USA -- Interactive Daily Data Charts
Commodities Review
Do you recall a week ago: “As the US Dollar soared +1.17% this week, $CRB took a loss of –0.25% W/W to close at 272.63. But the trading was more orderly this week than last. This week on Friday the Dollar ballooned +0.58% and $CRB tanked –1.11%, mostly because of Crude Oil.”
This week, the $USD soared +1.05% W/W to close at 81.60, and the commodities index ($CRB) dropped –1.95% to close at 267.32.
A week ago I wrote in this space, “Notice on the Daily chart where the $CRB price is relative to the 50-day Moving Average. The 50d MA for $CRB had stayed flat for about seven weeks, at 276.66 a week ago, and is now down to 273.96, rolling over, while $CRB is now at 272.63, having not been able to break higher through massive resistance. As I say, the Fed must be happy – they don’t have to raise rates to get a stronger Dollar – weakness in the Euro has been accomplishing the same result, for now at least.”
With the drop in the $CRB to 267.32, the 50-day Moving average dropped from 273.96 to 272.44, so the price could not get up through resistance and is continuing to roll over. Now the 200-d MA (and 40-week MA) is looking vulnerable.
The 200-day MA has moved to 266.15, up from 265.91, 265.50, 264.99, 264.21, 263.37, 262.55, 261.58, and 260.38 over eight weeks. Nine weeks ago, I opined in this space, “But, while it will still rise, there will be resistance at about 267. I do not expect to see the 200d MA above 270 in 2010.” I added later, “This is neurosurgery on my part, but I remain confident that prices are falling in place… At some point, the trend in the $CRB will have to start falling or else the Fed will have to start lifting rates”.
The 300-day MA for $CRB is now up to 253.17 from 252.36 a week ago, after bottoming at about 244 in mid-Dec. As stated before, “Unless the economy is growing in a healthy state, I doubt the Fed would like to see these long-term MA’s for the $CRB rise above say 265-270. They have the tools to restrain the rise, including imposing higher margin requirements at the commodity exchanges.” You are starting to hear that now. The CFTC hearing this week was all about setting position limits. This is all about Big Government wanting bigger tools for more effective intervention. You see; government assumes (incorrectly) they have all the answers. They pay lip service in saying that we have a free market economy. We have exactly what they want to give us, tipping off their friends in advance of significant policy changes, so it’s tough.
As I opined in this space a few weeks ago, “Let’s just say that with their abnormally low interest rate policy, the Fed is between a commodity and a hard place, and you and I are the ones who will pay for it. Thankfully, the commodity prices will now start falling – but that will take a stronger $USD, which will not be good for long-only positions in the equity market. I do think gold and silver will de-couple from the usual link to commodities as precious metals are being hoarded and production is not increasing fast enough to meet real (physical) demand.”
I still believe that “we’re seeing a decoupling with Precious Metals, but the process is a long-term one, and I for one believe there will be at least one more serious price pull-back in Precious Metals as the $USD lifts. The Fed will have to start lifting rates to counter an inflation problem during a period of economic growth before a full decoupling can happen.”
Although I use the $CRB (Reuters/Jeffries Index), principally because it’s the oldest, there are many commodity indexes: http://www.crbtrader.com/crbindex/ • Astmax Commodity Index(AMCI) • Commin Commodity Index • Dow Jones-AIG Commodity Index • Goldman Sachs Commodity Index • Reuters/Jefferies CRB Index • Rogers International Commodity Index • Standard & Poor's Commodity Index • NCDEX Commodity Index • Deutsche Bank Liquid Commodity Index (DBLCI) • UBS Bloomberg Constant Maturity Commodity Index (CMCI)
Here is a link to an article that discusses the major ones that have been around for a while: http://www.rogersrawmaterials.com/overviewandanalysis.PDF
Here is a current price summary of the heaviest weighted commodities contracts: http://money.cnn.com/data/commodities/
These indexes change their component weightings perhaps annually or even monthly, for example: http://www.seekingalpha.com/article/43586-the-new-generation-of-diversif... http://tinyurl.com/a5myfj
Interactive Chart of Weekly CRB Commodities Index:
Interactive Chart of Daily CRB Commodities Index:
Oil Review
The stronger $USD (+1.05% this week) and growing Crude Oil inventories are combining to hammer Crude Oil ($WTIC). This week $WTIC dropped -$0.97/bbl (-1.20%) to close at 80.00.
As opined in this space earlier, “A few weeks ago, when prices were lifting, a closing price of 84 would represent a break-out and I don’t think the Fed wants the market to go there.
For $WTIC, the 50-day MA is now 78.30, reversing from 78.39, 78.32, 77.86, 77.23, 76.44, and 76.20 over the past six weeks.
The 200-d MA is at 74.20, up from 73.91, 73.54, 73.04, 72.51, 71.99, 71.48, 70.89, and 70.27, and rising.
You can go to StockCharts.com, default sharpchart view, insert: $WTIC:$USD and then at the bottom to chart attributes and put the settings to solid line before hitting update.
As a general rule, as a trader of Crude Oil, when you see the $WTIC:$USD RSI-7 bottom below 30 and start to rise, you want to be a buyer of Oil and seller of Dollars.
Choose Weekly or Daily charts, depending on your preference.
When this indicator peaks above 70 and starts falling, you want to sell Oil and buy US Dollars.
The reason is that Crude Oil contracts are priced in USD, so higher $USD, means lower $WTIC. Also, a stronger $USD, at the reversal of a cycle (but not later) is caused by a change in speculative interest. Stronger $USD; less speculation and lower prices for $WTIC.
The scenario played out again this week, like it did a week ago:
Weekly chart with $WTIC:$USD at 48.76, down from 54.98 a week ago, and 60.60 the week before that.
Daily chart with $WTIC:$USD at 35.84, down from 44.85 a week ago, and from 62.02 the week before that.
Please have a look at this tool. You need a bunch of them in your toolkit.
When we see the Comparative RSI-7 for this series falling below 30 for the Daily and Weekly data, then we want to look at switching out of Dollars into Oil.
Five weeks ago I stated in this space, “So, at this juncture, we want to hang in with our over-weighting in the Oils, but we realize that prices will encounter resistance in the 80’s.” Then, four weeks ago, after a modest decline, I added, “Oil is hanging in and my positions with it. Next week, I think they will improve”. And bingo, they did as three weeks ago the XLE and $WTIC jumped +3.58% and +2.31% respectively. Then two weeks ago, XLE was up only +0.60% and $WTIC up just +0.05%, so resistance was being encountered. I wrote that traders are not so inclined to buy risk at this point. I reduced my Euro/Oil position, which worked out. “ A week ago, I added, “Now, I’ll be waiting to crank up the Euro/Oil for the trade I next put on. But the prices have to come to you before a trader should make a move. These markets are highly unstable and can reverse course in a very short time.”
As you can see, $WTIC has dropped –1.90% over the past six sessions. If next week, the $USD continues to rally, I expect $WTIC to continue to drop. But, keep an eye on the $XEU:$USD and the XLE:$WTIC as the Euro will get over-sold and the oil & gas stocks will tend to move a tad before the oil price.
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
This week, $GOLD lifted +$0.30.oz (+0.03% W/W, which was a tiny blip on the radar screen), closing at $1107.10. It needed a huge move of +1.53% on Friday for that to happen, and the $Gold move on Friday was led by $SILVER (+1.74%) and by the $USD, which dropped that day –0.69%.
Was Friday an important turn, a push into precious metals over concern that maybe North Korea had torpedoed a South Korean warship? Or will there not be much to this story, and the $USD continue to gain strength as the Greece debt crisis gets painted over?
Like the other Comparative Relative Strength charts I have been using for other pairs, you need to do them here too. Choose Weekly or Daily charts, depending on your preference, but when you see an extreme in the Daily chart, you ought to pay attention.
Unfortunately, I don’t have the screenshot program on the computer I am using when traveling – the ones I took two weeks ago are no longer available because my battery died and I don’t have the necessary AC:DC power converter, so we’ll have to wait until I get back to Nassau early this week to be able to show the $SILVER:$GOLD charts for the Daily and Weekly price series.
To reiterate: As a general rule, as a trader of Precious Metals, when you see the $SILVER:$GOLD RSI-7 bottom below 30 and start to rise, which means that the silver price is advancing faster than the gold price, you want to be a buyer of Precious Metals. Alternatively, when this indicator peaks above 70 and starts falling, you want to sell Precious Metals, and go to US Dollars… The reason is that Gold and Silver contracts are priced in USD, so higher $USD, means lower $GOLD and $SILVER. Also, a stronger $USD, at the reversal of a cycle (but not later) is caused by a change in speculative interest. Stronger $USD; less speculation and lower prices for the Precious Metals.
From the Daily chart, you’ll notice that late October was the time to switch from Dollars to Precious Metals, and mid-January was the time to switch back to Dollars. Then, four weeks ago I stated that “At the present time, the greatest risk is to be out of the Precious Metals. As confirmed by the $WTIC:$USD RSI chart, it appears to me that the $USD is most likely to stay flat or pull-back from an 81 cycle high, which would allow a move higher in most commodity prices, including Oil and Gold and Silver.” …These are common sense relationships that, while they may stumble now and then, do work over the long run. You don’t need to be reading the nonsense that manipulators have made or destroyed the precious metals price. What is happening is that traders legitimate (global money supply changes) and emotional (fear and greed) interest in the precious metals is reaching extreme levels, following which there is what is called a reversal to the mean, or return to normal behavior, if you will.
The more time you put into the study of capital market inter-relationships, the more confident you will become in your trading.
http://billcara2.com/tkchart/tkchart.asp?stkname=gld&cht=Tech+Chart&px=3...
http://billcara2.com/tkchart/tkchart.asp?stkname=gld&cht=Tech+Chart&px=1...
http://billcara2.com/tkchart/tkchart.asp?stkname=gld&cht=Tech+Chart&px=0...
The $GOLD 50day Moving Average is now at 1106.45, down from 1110.37, 1109.90, 1108.19, and 1106.34” A week ago in this space I said that 1110.37 was “back above the 1108.17 from four weeks ago – but not for long, I think.” Bingo. This week, it’s down to 1106.45.
The 200d MA is 1047.82, up from 1044.22, 1040.67, 1036.71, 1031.61, 1026.87, and 1022.57 over the past six weeks.
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 was down -$0.09/oz (-0.53%) W/W to close Friday at 16.91. On the previous Friday there was a loss of -$0.42 (-2.41%), which I said “was significant”. This Friday, there was a gain of +1.74% and that may be significant, or it may be a reaction to a potentially random event in South Korea.
http://stockcharts.com/charts/gallery.html?s=$silver
http://tinyurl.com/y8k8ud4
For $SILVER, the 50d MA is now 16.68, down from 16.84, 16.86, 16.87, 16.89, 17.02, 17.23, 17.56, and 17.81 over the past seven weeks. As you know, $SILVER is typically just a step ahead of the $GOLD price trend.
The long-term 200d MA is 16.24, up from 16.20, 16.16, 16.10, 16.03, 15.97, 15.92, 15.85, 15.75, and 15.65 over eight weeks. But, as I opined nine weeks ago in this space, “this long-term MA for $SILVER may rise for a couple months or so (from 15.65) and then find resistance at about $16.15. (But) I would not be surprised to see it stay a (longer-term bullish picture) from there.” I still believe the long-term trend is up, but we traders have to trade by the hour, by the day, by the week.
You can take the very short-term picture or a longer one depending on your investment time frame.
For the longer view, I believe there are too many very wealthy persons who have started hoarding precious metals because of the intense overspending by governments all over the world for the rising trend to be snapped this early in the cycle. I really believe that, for a major downtrend in precious metal prices to happen, real wealth must be produced faster (in the industrial and commercial economy) than fiat money is printed. Until then, there will be squeezes by the Interventionists and the odd bit of profit-taking by the enterprising and speculative traders.
As stated in this space a week ago, “But, for the short-term view, as expressed elsewhere in various pages in this WIR and the one of a week ago, I am tending toward the defensive. There is heavy resistance here, and I think the $USD is headed higher. The comparative relative strength of silver to gold has been excessive, and in need of a pull-back. That process has started.”
We’ll have to see after Monday and Tuesday’s news fills us in as to whether there are serious problems starting up between North and South Korea. The reports this weekend are playing down any link to the North.
http://www.reuters.com/article/idUSTRE62P30E20100326
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 lost -$12.60 (-0.78%) to close at $1596.00/oz, which followed a flat week, and was quite a break from the gains of +$29.30 and +$39.20 the previous two weeks.
http://stockcharts.com/charts/gallery.html?s=$plat
http://tinyurl.com/ydwz4pn
The 50d MA for $PLAT is now at 1562.59, up from 1560.08, 1548.60, 1533.68, 1520.40, 1511.07, 1506.31, 1502.04, 1493.90, and 1480.91 the previous nine weeks.
The 200d MA is at 1381.91, up from 1373.75, 1363.46, 1352.15, 1341.01, 1331.42, 1323.04, 1312.58, 1305.30 and 1297.81 the prior nine weeks. Nine weeks ago I opined here, “That long-term MA could lift as high as 1385, and then provide support for short-term price weakness. We shall see.”
I also said in recent weeks, “You know, in the longer-term I am a believer in higher precious metals prices. But short-term, don’t fight a rising $USD – if, as and when you see it”. In other words the elevator doesn’t always go straight up, and you must look for the best opportunities to get on and off.
Two weeks ago in this space, after a couple weeks of huge gains, I wrote, “I anticipate some weakness in $PLAT next week. Try to avoid the Down elevator.” A week ago, I added, “I was just a week early I think.” Proof is in the pudding.
I don’t trade plat or pall, but I study them as part of the precious metals study.
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.
This week, $PALL dropped -$12.85 (-2.75%) to close at 454.70. Three weeks ago, $PALL closed at 475.40, and I said it was in need of a pull-back.
http://stockcharts.com/charts/gallery.html?s=$pall
http://tinyurl.com/yenr5rj
The 50d MA is now at 443.42, up from 440.44, 434.95, 426.04, 417.55, 411.14, 406.81, 402.56, 396.97, and 390.10 in the nine weeks before this.
The 200d MA is at 346.02, up from 341.03, 335.30, 329.51, 323.93, 319.10, 314.77, 310.11, 305.19, and 300.58 in the past nine weeks.
As I continue to say, $PALL has been one of the better predictors of the Precious Metals group.
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.
This week, $COPPER gained +$3.05 (+0.90%) to close at 340.30 on the contracts. Prices are now flat over three weeks.
http://stockcharts.com/charts/gallery.html?s=$copper
http://tinyurl.com/ybgnb7f
For $COPPER, the 50d MA is at 327.03, down from 327.29 and 327.56, but up from a prior 326.24, 323.80, 322.54, and 322.07. As said a week ago, “Maybe there is a shift in progress”.
The 200d MA is at 294.81, up from 292.15, 289.30, 286.09, 282.70, 279.88, 277.48, 274.89, 272.75, and 269.97 in the nine previous weeks.
For those who are keen to study the industrial metals like copper, aluminum and zinc, why not look at the Powershares DBB, which trades on the NYSE.
http://finance.google.com/finance?q=NYSE:DBB
Also study Freeport-McMoRan (FCX) share trading. It’s quite volatile, but an effective indicator of copper prices. This week, FCX lifted from $78.51 to $79.15.
http://www.google.com/finance?q=NYSE:fcx
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 Friday, $GOLD dropped -$20.40/oz. That week, the $USD lifted +1.17%. I opined, “If the $USD continues to lift this coming week, I anticipate more hits to the $GOLD price, and to the share prices of the Goldminers. But I will be waiting for a golden moment to start acquiring shares in very small gold prospector and mine developer companies.”
This week, while $GOLD stayed flat on the week, there was a gain of +$16.70 on Friday, largely due to the South Korean warship sinking.
On the week, the $XAU (-2.76%), GDX (-3.53%) and XGD (-2.50%) were quite weak, and that followed huge losses on the previous Friday with $XAU (-1.55%), GDX (-1.44%) and XGD (-0.94%), an in spite of huge gains this Friday. On Friday, the $XAU (+1.96%), GDX (+1.87%) and XGD (+2.30%) were solid as the $USD dropped –0.69% on the day, a first in over a week.
Two weeks ago in this space, following some first signs of weakness, I opined, “I think there will be further weakness this coming week. I think we are about to see a brief surge in the US Dollar that could take a further -$100-$110 off the price of Gold. If that should happen, I will be loading up the truck with the high quality Goldminers, and some of the juniors we like.”
We are continuing to do the homework, but I’m not going to publish anything until I put out a Brief at the opportune time. Despite Friday’s gains, I think the Korean affair news will recede, and the $USD continue to move up, hurting these goldminers even more. So, I think we have plenty of time to let the prices come to us.
The winners this week were both losers, Harmony (HMY –1.2%) and Gold Fields (GFI –1.2%). The worst hit, of the ones I follow closely, were Kinross (KGC –5.2%) and Barrick (ABX –5.1%).
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
LIHR IAG EGO RGLD GOLD TSE_AGI GSS NG NGD AEM
Here are the key Silver miners and the SLV ETF: SLV SIL SVM CDE HL PAAS SSRI SLW MGN
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.
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
The $USD is a trade-weighted US Dollar index, we used to call the Morgan Dollar.
As commodities are priced in $USD you need to study forex price trends and cycles.
The Forex market is a four trillion dollar a day marketplace, which dwarfs the size of the stock and bond markets. In this market, the Euro/USD is the highest volume trader, and London is the center of the universe.
The current value of $USD is a mean value of rate fluctuations of six world currencies (Japanese yen, Euro, British pound, Canadian dollar, Swiss franc and Swedish krona) that each trade against the USD. The Euro is by far the biggest component.
The ETF that tracks the G-10 currencies is the Powershares DBV. http://tinyurl.com/ltxpk4
The US Dollar index ($USD) gained a further +1.05% this week to close at 81.60. the gain the prior week was +1.17%. The Dollar has been hot. On Friday, however, there was a rush into $GOLD and $SILVER as news came in of a possible conflict near the Korean border. On Friday, the $USD dropped –0.69%.
Years ago, such a possible conflict would have sent money rushing into the Dollar, but now traders understand that ‘Gold is Money’ – the best kind to hold in a crisis.
http://stockcharts.com/charts/gallery.html?s=$usd
http://tinyurl.com/y9c3sr4
The 50-day MA of the $USD is now at 79.89, up from 79.48, 79.23, 78.99, 78.69, 78.25, 77.85, 77.30, 76.87, and 76.52, in the past nine weeks, and still rising.
The 200-day MA is 78.09, close to the 78.06, 78.04, 78.05, and 78.10 of the previous four weeks, but still under the 78.16, 78.24, 78.37, 78.53, and 78.69 of the five weeks before that.
When the US dollar 200-d MA was dropping, I was saying in recent weeks, “there is a base forming near this level. Longer-term I think the $USD is going higher”. That is in progress now as you can see.
Longer term, I think the $USD will falter again. Think California and all the massive debt crisis issues of many States in the troubled Union.
Interactive Chart of Daily U.S. U.S. Dollar Index:
The Euro dropped –0.92% this week, although it did have a gain of +1.02% on Friday.
http://stockcharts.com/charts/gallery.html?s=$xeu
http://tinyurl.com/ydekjtk
The 50d MA for the Euro futures are now at 137.48, down from 138.51, 139.22, 139.99, 140.67, 141.79, 142.85, 144.18, 145.26, and 146.18 over nine weeks.
The 200d MA is at 142.95, down from 143.10, 143.22, 143.28, 143.27, and 143.26, and close to the 143.20, 143.06, and 142.86, over the weeks before that.
As stated here for a few weeks, “This reversal in the 200d MA is likely to continue as the Euro weakens here, which will support the Dollar, and pull down the prices of physical commodities, metals and precious metals. Only the precious metals will gather a measure of support as these are collectables, not consumables.”
I’m looking at the charts for a potential reversal in the Euro, but a few things have to happen first. I’m ignoring Friday’s reaction move for now.
Later this year, the Euro will soar as America tries to dig out of its debts and deficits in California and many other States.
Interactive Chart of Weekly Euro Dollar Index, priced in USD:
Interactive Chart of Daily Euro Dollar Index, priced in USD:
The Pound dropped –0.77% W/W to close at 148.99, which, along with weakness in the euro, helped push the Dollar up this week again.
http://stockcharts.com/charts/gallery.html?s=$xbp
http://tinyurl.com/yasdzc2
The 50d MA of the Pound is at 155.25, down from 156.41, 157.30, 158.19, 159.34, 160.25, 160.98, 161.89, 162.71, and 163.25 over the past nine weeks.
The 200d MA is 161.54, down from 161.85, 162.13, 162.34, 162.39, 162.34, 162.21, and 161.97 over the previous seven weeks.
Weekly British Pound Index:
Daily British Pound Index:
Weekly Japanese Yen Index:
The Yen plunged –2.15% W/W to close at 108.06, down from 110.43.
http://stockcharts.com/charts/gallery.html?s=$xjy
http://tinyurl.com/yd2fzv4
The Yen’s 50-day MA is now 110.74, up from 110.67, 110.44, 110.27 and 110.14, but close to the previous weeks at 110.31, 110.54, and 110.88.
The 200-day MA is now at 109.12, up from 108.95, 108.78, 108.65, 108.46, 108.23, 108.06, 107.85, 107.60, and 107.33 the previous nine weeks.
Japan’s balance sheet is not a model of best practices. It has the worst Public Debt to GDP of any country in the world. Ultimately, the Yen must suffer.
Daily Japanese Yen Index:
The Canadian Dollar dropped –0.91% to close at 97.41 from 98.30. After the nonsense all over the media a week ago, I wrote in this space, “Talking Heads are shouting prospects of Dollar parity, which they say would be good for Canada. Hmm, I think not. I’m still thinking the Cdn Dollar is soon going to soften for a couple months, along with Oil and Precious Metal prices and a stronger USD.” It did this week, and may for a few more yet.
http://stockcharts.com/charts/gallery.html?s=$cdw
http://tinyurl.com/ycx58us
As the Loonie flew over several recent weeks, I stated, “…the higher oil, metal and precious metal prices helped. Canada is a storehouse of commodities.”
Two weeks ago I opined, “I think we’ll soon see a 95 or 96 cent Loonie at the first leg of the journey south, and then 94 for a test of the longer term MA at that point. So, now is the time for Canadians to be buying $USD and US real estate and anything Yankee.” A week ago I added, “Despite the modest lift this week, I still believe the Loon will take a breather for a while.”
The Loonie 50-day MA is now at 95.97, up from 95.87, 95.59 and 95.36 the previous three weeks, but prior to that the Loon was fairly stable with a 50-d MA at 95.09, 95.04, 94.97, 95.04, 95.09 and 95.22 the weeks before.
The 200d MA is at 93.48, up from 93.29, 93.10, 92.88, 92.60, 92.38, 92.16, 91.86, 91.55 and 91.25 over the previous nine weeks. I don’t think it is a good policy of the Bank of Canada to push the Loon above 94 for very long. Manufacture for export, tourism flows, and long-term capital flows will be negatively impacted. After the Cdn economy starts to stabilize, with growth and lower unemployment, and a return to balanced budgets, I do think the Loonie will trade above par to the USD.
Trading forex is a dicey game, and there are charlatans all around who would sucker the unwary into their seminars, where they sell dubious services. But, for knowledgeable traders, the price trends and cycles must be studied nonetheless as they serve as confirmations -- or anomalies -- of other prices… In the latter case, with an anomaly, the relationship needs to be studied further.
Weekly Canadian Dollar Index:
Daily Canadian Dollar Index:
Here is the China Yuan (CNY) chart.
Wrap-up:
As I pointed out again this week, money flow is a very important indicator. Money flow is the calculation of price times volume over the period of time you wish to study. As often is the case, money flow over the usual weekly time frame may look pretty good, but over say six days may look dreadful. That’s why you need to study the data closely. It happened this week that the past six days showed equity prices were flat to falling, while over five days this week they were rising. And if you look at the week, this Friday was a bad one, just like the previous Friday, which is often an indicator of market nervousness or even bearishness as traders don’t want to hold positions over the weekend. Moreover, the trading volumes have been remarkably low for many months, and getting worse, and, more to the point, have only been rising on the down days, like they did this Friday and a week ago Friday. These are not good signs for the market Bulls.
Another study that is not producing positive indicators is the RSI-7, which is now spewing out Sell Alerts. The RSI and Stochastic indicators on the Daily price data have broken down, and now the Weekly data series of many sectors and key stocks is vulnerable. Investor sentiment is shifting as the once bullish momentum traders seem to have run out of gas.
Having said all that, traders must now focus on two things: (i) the key support levels that we have been discussing in the Daily Blog, and (ii) waiting for a pattern of lower highs and lower lows to start showing in the prices of the key stocks and the sectors.
As equity prices break down, there should be a rotation out of the high beta stocks and commodity price sensitive sectors, and into the usual defensive sectors like consumer staples and healthcare. Capital should be returning from riskier places abroad like in BRIC markets, causing a lift in the $USD, which is now happening, and that stronger Dollar should be pressuring the prices of commodities like Crude Oil, and of precious metals, and that too is happening.
Traders seeking profits never stand opposed to a decisive market move once they get confirmation. I suspect that fairly soon there will be confirmation.
Note that I said “traders seeking profits”. Don’t think all market players want only profits. Unfortunately, interventionist central bankers use the capital markets as their own policy management tool. Not always, but far too often these central bankers will take huge losses in order to stay in control. So, we must recognize the signs.
In any case, the sum of private investment in the world is much bigger than that held by central bankers, and not all central bankers are in the same camp. These are good things. In the end, then, the market will move according to natural law, the way it should be, reflecting our emotions, our decisions, simply being us, at least those of us who dance.
It’s been real Toronto. I’ll be back, I expect, in July for the birth of our first grandchild. By then, hopefully, we’ll have our trading systems and websites in place, and a vehicle or two that works for the small investor.
Enjoy the rest of your weekend.
