The US Indices Big Picture
After getting crushed during the month of October, the U.S. markets came to life last week.
Last week, the DJIA put on 114.32pts, 1.57%, to 9,325.01, the S&P 500 rose 14.66 pts,1.54%, 968.75, and the NAS rallied 22.43pts,1.32%, to 1,720.9 .
The Big Q: has the up turn marked an early sign of a market recovery or does it represents a consolidation before the next leg lower.
The Big A: Time will tell.
When we measure the up turn’s power, the following is a checklist to use in determining a MML (major market low).
Most of the following below have to happen:
• An off-the-charts strong-volume rally that is not driven by government intervention.
• The emergence of sector leadership. Along with the financials, the airlines are well, but these groups cannot do it alone, the techs have to really join the party.
• At least one, and preferably two, 20-to-1 up days to neutralize the October breakdown. Over the past many sessions, the U.S. markets have suffered three 20-to-1 down days from the breadth POV.
• A volatility drop to digest the market crash. For instance, a series of 100-point Dow moves, in either direction, uninterrupted by these 800-point intraday whipsaws.
• From a sentiment standpoint, analysts need to stop declaring how great this buying opportunity is. This is a must
• A decisive break through in overhead resistance.
That is it from the Technical POV.
Now, when considering the final point, a break through in overhead resistance, see the following areas:
• Dow resistance at 9,387, matching the two week prior closing high.
• NAS resistance initially at 1,844, matching two week prior closing high, followed by the 1,900.
• S&P 500 resistance spanning from 1,000 to 1,010, two week prior closing high held at 1,003.
From a technical standpoint, anything transpiring under these levels is little more than “noise” according to some analysts, and as these areas are approached, the risk of another sharp downturn increases.
The Big Q: What should we look for this week?
The Big A: Earnings season is winding down, and there are only few companies left to report results that have the potential to influence the broad market. Stay tuned…
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My pal Wally Stein’s Words of Wisdom
Be curious, mistrust dogma and common assumptions, belief in free will, and be confident in the face of the unknown. Your biggest enemy in the stock business is opinions and emotion.
Err on the side of Green.
Last week’s 18 World Big Stories, Ok, it seems the markets have priced in the bad news.
1) World markets are stabilizing, Interbank interest rates are falling.
2) the US$ recorded its biggest monthly gain against a basket of currencies in more than 17 years last Friday, boosted by month-end demand and concerns about a deteriorating global economy.
3) US Stocks: On the Week: U.S. stocks posted their best week in 34 years last week with the first two- session gainer in a month. On the Month: the DJIA logged its biggest monthly decline in a decade, and the S&P 500 had its worst month since October 1987.
4) The Russell 2000 Index, where hedge funds own an average 13% of shares, lost 21 percent in October, ending a five- month streak of beating the Standard & Poor’s 500 Index,
5) The London FTSE 100 closed up 2 pct at 4,377.34, capping its best week ever.
6) Moscow’s stock exchange put in the best week on record with gains of close to 50%, buoyed by state purchases of stocks and corporate bonds.
7) Japan’s Nikkei index ended October down 24%, its biggest monthly fall in its 58-year history, on continuing fears over a global recession and profit taking ahead of a long weekend
Hong Kong shares fell 2.5 percent last Friday, posting its worst monthly slide since Oct. 1997, on worries over the global economy.
9) The US, China, India, Korea, and Japan cut central bank lending rates, and the door is open for more.
10) The US Commerce Department reported last Friday that consumers cut monthly spending for the first time in two years in September.
11) Saudi Arabia and other Crude Oil producing Gulf states voiced their interest is in a stable energy price, not huge volatility that has Crude Oil prices soar and collapse, and a well-functioning global economy.
12) Crude Oil fell about $2 last Friday pressured by a stronger US$, weak consumer demand and the global economic crisis putting it on track for the biggest monthly drop in history. In three months, Crude Oil’s slide has wiped out gains that took more than a year to build.
13) OPEC announced last week it would cut Crude Oil output by 1.5 million barrels per day (bpd), they have started. Venezuelan Oil Minister Rafael Ramirez said on Thursday that OPEC should cut Crude Oil output by another 1 million bpd, and should set a minimum price target of $70 or $80bbl.
14) Russia and Libya are negotiating a deal where Moscow would build, supply fuel, manage and operate nuclear research reactors for the North African state, Libya has Africa’s largest Crude Oil reserves and Russia is moving swiftly to participate in their energy projects.
15) Struggling auto makers GM and Chrysler are still in talks on a merger, but Bush administration ruled out providing government funding for it, so the deal will have to wait until after the presidential elections on Tuesday.
16) The US national debt has reached $10,523,955,355,856.66 as of October 24, an increase of 9% in about two months. So now each American citizen owes $35,079.85. (note the Pennies) http://www.treasurydirect.gov/NP/BPDLogin?application=np
17) The NFL, America’s most watched television sport, is borrowing $1.4 billion through a four-year term loan and another $460 million with a 10-year term note that will guarantee teams’ operating money through credit-market turmoil. This, even as the largest US banks continued to avoid the corporate bond market, showing the strength of the league in this environment.
18) Latest Bond outing, Quantum of Solace, starring Daniel Craig, smashed the previous record for a Friday opening of US$ 6.6MM, held by Harry Potter and the Goblet of Fire.
5 Big and Really Big Breaking Stories:
1) India’s central bank unexpectedly cut interest rates for the second time in two weeks and reduced the amount of money lenders must hold in reserve in a bid to protect the economy from the global slowdown. India’s Reserve Bank also reduced (the first time in 11 years) the statutory liquidity ratio, i.e., the amount of deposits that lenders need to invest in government debt or bonds of state run companies by 100 basis points. Also, the Bank of Japan’s interest rates may be headed back to zero, with the US Fed rate to follow.
2) The heads of Panasonic Corp and Sanyo Electric Co Ltd. have agreed in principle to a deal that would see Panasonic take over Sanyo, to create Japan’s largest electronics maker, three people familiar with the matter said.
3) Germany plans a 2 year program of investments and incentives to provide a 50B Euro (US$64B) boost to the economy that has been strangled by a freeze in global credit markets. “Measures to safeguard companies’ financing and liquidity are provided by funding investments worth slightly more than 20B Euros,” according to a joint paper by the economy and finance ministries, obtained by Bloomberg News. They “will encourage investments and orders by companies, private households and municipalities, totaling about 50B Euros.”
4) The Boeing Co. machinists start returning to work on Sunday after accepting a 4 year contract with 15 percent raises, ending a strike that idled the plane maker’s factories for eight weeks and cut profit by about $10.3 million a day, and sent BA shares South.
5) The China’s Purchasing Managers’ Index fell to a seasonally adjusted 44.6 last month from 51.2 in September, the China Federation of Logistics and Purchasing said today. That was the lowest since the gauge was launched in July 2005. (A reading below 50 reflects a contraction, above 50 a expansion)
China’s cabinet has pledged extra infrastructure spending to stimulate the world’s fourth-biggest economy amid the global slowdown.
+ Two big Qs: 1) the huge event that is on all of our minds: Tuesday’s elections, and 2) Is the worst over for markets? Stay tuned…
A bit on politics: Socialism refers to a broad set of economic theories of social organization advocating state or collective ownership and administration of the means of production and distribution of goods, and the creation of an egalitarian society.
Modern socialism originated in the late nineteenth-century working-class political movement. Karl Marx posited that socialism would be achieved via class struggle and a proletarian revolution, which represents the transitional stage between capitalism and communism. Source: Wikipedia
Joseph Schumpeter’s argument, set out in Capitalism, Socialism and Democracy (1941) that liberal democracies were evolving from “liberal capitalism” into democratic socialism, with the growth of workers’ self-management, industrial democracy and regulatory institutions.
What One Big Money Manager thinks:
“We could have a huge rally,” says David Corbin, chief investment officer of Corbin & Co. in Fort Worth, Texas, which manages about $75 million. “The Fed is pumping up liquidity, and sooner or later some of this is going to find its way into the market. I feel like a kid in a candy store. My biggest problem now is in deciding what to buy.” Corbin thinks the Dow will hit 11,000 by this year end, and rise to 11,800 by mid-2009.
4) There is a huge buildup of cash on the sidelines that points to a bounce for equities. Money-market fund assets totaled $3.4 trillion as of Sept. 30, vs. $13.3 trillion of stock-market valuation, leaving the ratio of liquidity to market value at a near-record 25%. That’s comparable to the ratio in the early 1980s, when money funds yielded double digits. According to Ned Davis Research, since late 1980, the market almost always rises at least 12% whenever money-fund balances reach about 11% of market value. “A lot of money is on the sidelines,” says David C. Hartzell, founder of Cornell Capital Management in Buffalo, N.Y., which handles about $50 million. “if you’re a money manager, you can’t afford to be out of the market, because you might miss the comeback.”
5) Based on the market’s 50% decline between 2000 and 2002, and its 48% drop in the 1973-’75 Bear market, some believe we’re most of the way through this downturn. The S&P 500 is trading at 12 times trailing earnings, the best valuations seen in almost 20 years.
Market Factbook:
1) October 2008 was a month to forget for global stocks, as the DJIA, and the S&P 500 mirrored the weak performances by other indexes around the world. The S&P 500 fell 16.83% in October, its ninth-biggest monthly percentage decline on record. The DJIA dropped 14.06% in October, its 17th worst month in its history.
2) Increasing US taxes is not consistent or appropriate to continue energy sector investment. If the big oil companies are not making the investment or increasing investment in discovery and infrastructure, it will impact jobs, and there will be fewer jobs. So, increased taxation leads to less Crude Oil supply, and ultimately higher cost of energy and fewer jobs.
3) Barron’s latest Big Money poll reveals unrelenting bullishness among many money managers, despite prognostications for a contagious recession and lame profits through 2009. Now that stocks have tumbled to five-year lows, 62% of Barron’s Big Money respondents say they are oversold and undervalued, up from 55% last spring. 7% think equities are overvalued at today’s prices and almost 70% say stocks will be the best-performing asset class in 2009, 13% favor cash, and 11% favor bonds.
More of Keith K. Hatanaka’s Food for Thought on S&P 500 Valuations and Gold.
S&P 500 is undervalued. However, M3 levels became so high, and when you factor that in, perhaps it may not be undervalued; remember, Cash is still King.
The US government stopped reporting M3 money supply in 2006. M3 Money through Oct. 10th is sitting at approximately $14 Trillion, and 16% year over year rate of increase. If money supply is expanding at 16% annual rate that means your investments must grow at more than 16%.
Gold supply worldwide is short, below is from a recent letter from Bill Murphy over at the GATA (blog):
I talked to the chief broker in charge of the precious metals dept. of one of the largest metals banks in the Netherlands this morning. He told me that his bank had no gold in the vault for the first time in one hundred and forty seven years of its history! He had clients waiting in line for bullion coins of any type, and for the first time in his career, he had No supply! None, zero, zip, nada! I called a broker in West palm beach, Fl. and he confirmed he also had no supply! He also said he had funds of two and one half million dollars in his acct. from one client, and could not find product to fill his order! Bewilderment is a term he used! He asked me how silver and gold could be so cheap in the markets when there is no supply! That discussion I will have with him another day!
Precious metals refinery capacity maxed out globally in recent weeks due to record levels of investor demand in the metals.
Recent currency volatility and financial institution fragility has been cited as the driving reasons for the record numbers of investors flocking to silver and gold in recent weeks looking for the stability and safe haven the metals have traditionally offered. Global bullion refining capacity has been quickly overwhelmed by the sudden spike in demand for physical bullion supply.
“People are often surprised to learn there are less than seventy industry accredited refiners in the entire world” said AFE’s bullion treasury manager Simon Heaps this week; “refineries have been running three fully-staffed shifts most of the year. The industry is just not geared for such huge spikes in demand as we have seen in recent weeks”.
Many refineries are announcing long delivery delays and many are taking no further orders till Q1 quarter of 2009, particularly for refining of smaller investor type bars and coins, while North America coin dealers have been out of all stock for many weeks.
AFE announced this last week, after weeks of record demand, it continues uninterrupted supply to its clients with allocated good delivery bars through its network of long term supply relationships and unique global infrastructure. “In peak times like these, long term multi-decade relationships are critical” commented AFE’s Founding Director, Philip Judge. Posted by Alex Stanczyk on Oct 26, 2008
Article from US Constitution Section 10.
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
In other words, Gold and Silver is the money, not paper money (fiat money equals debts). There is no place in the US Constitution that says paper money can be circulated as the official currency. As matter of fact it prohibits a bill of credit (paper money) from being used as legal tender between the States.
I am sure that Gold and Silver will be back, and back strong.
God Bless, KK
Snap Shot of the Major US Market Indices
DJIA: Most agree that DJIA was the main indicator on the test of the early October low. Last Tuesday it held above that low and reversed on good volume. This is positives action that indicates more to the Northside on this move with the 50 day EMA (9966), and 10,000 within reach.
Stats: +144.32 pts (+1.57%) close 9325.01 Volume: 311MM shrs last Friday vs. 267MM shrs on Thursday.
S&P 500: the S&P 500 closed the week by breaking through the 18 day EMA (962) as it sets up to move North in here.
Stats: +14.66 points (+1.54%)close 968.75 NYSE Volume: 1.563B/shrs (+13.68%). up Volume: 1.16B/shrs (+17.856MM/shrs) down Volume: 399.02MM/shrs (+174.456MM/shrs) Last Friday Advancers led 2.68 to 1 Last Thursday:: Advancers led 4.11 to 1
NAS: the NAS made a new closing low on the year last Monday and rocketed North on Tuesday moving up to the 18 day EMA where it closed last Friday. The NAS is still trending South but it is trying to set up for a move North. It is lagging the others but in position to make the break North too.
Stats: +22.43 points (+1.32%) close 1720.95 Volume: 2.488B/shrs (-1.95%). Good volume on Tuesday’s reversal putting it position to move North too, up Volume: 1.451B/shrs (-466.722M/shrs), down Volume: 1.011B (+356.449M), Last Friday advancers led 2.99 to 1, Thursday’s session: advancers led 2.67 to 1
The Charts*
DJIA Chart: http://stockcharts.com/h-sc/ui?s=djia
The S&P 500 Chart: http://stockcharts.com/h-sc/ui?s=sp500
The NAS Charts: http://stockcharts.com/h-sc/ui?s=NAS
Stock Chart School: http://stockcharts.com/school/doku.php?id=chart_school
Stock Charts Glossary: http://stockcharts.com/school/doku.php?id=chart_school:glossary_s
*Charts from Stockcharts.com
The Sentiment Indicators: These indicators are psychological indicators that attempt to measure the degree of bullishness or bearishness in a market. These are contrary indicators and are used in much the same fashion as overbought or oversold oscillators. Their greatest value is when they reach upper or lower extremes.
1) VIX: 59.89; -3.01. Typically, the highs on VIX are reached weeks before the bottom auguring for a bounce in here and then a test of the early October lows thus confirming the bottom.
2) VXN: 60.3; -2.89
3) VXO: 61.38; -3.93
4) Put/Call Ratio (CBOE): 0.96; +0.16. last Friday marked 3 days below 1.0 on the close after three weeks closing above that mark. The indicator is working fine.
*The Market Volatility Index (VIX) measures the volatility of the market. A recent news story described it as “the options market’s gauge of investor fear.” Traders use VIX as a general inverse indicator of market volatility and sentiment. High numbers mean that there’s excess bearishness, and low numbers indicate excess bullishness. The VIX is updated intraday by the Chicago Board Options Exchange (CBOE), using Standard & Poor’s 500 Index (SPX) bid/ask quotes. It was created in 1993.
**The CBOE NAS Volatility Index (VXN) employs the same formula used to calculate $VIX, which is based on the implied volatility of S&P 500 index options. This formula is derived from a basket of put and call options. Some are out of the money, some in the money, and some at the money. The resulting $VXN represents the implied volatility of a hypothetical 30-day option that is at the money.
***The VXO is the ticker created to track the “original VIX” that was calculated using the prices of S&P 100 options. The new VIX uses the ticker $VIX and is calculated using the prices of S&P 500 options. The fundamental nature of the VXO is the same as the VIX, but it is less robust and not as simple as the VIX.
Bulls vs. Bears:
Bulls: The Bulls ended the week at 21.3%, fading from 22.2% last week, this is way below the 35% level considered bullish.
For your reference: The Bulls bottomed in the Summer 2006, the last major round of selling ahead of this 2007 high, near 36%, and 35% is considered Bullish.
Bears: The Bears ended the week at 52.7% down from high of 54.4% on this move, this too is way above the 35% threshold considered Bullish.
For your reference: This is the highest the Bears have climbed since 1995 and is negative in the extreme. Again, 35% is the level that indicates extreme pessimism.
What to expect this week, and down the line…
As earnings season comes to a close there is little in the numbers that could have any real impact on the markets.
The consensus is that the market is in position to continue North in here perhaps after a pause to refresh, but last week’s action points us Due North. The market always looks out 6 to 9 months and not to the last GDP scrapbook.
The move North is a bounce off of the lows and is usually a set up for a test of the October lows, nevertheless, this is a tradable range.
DJIA 10,000-10,100 (get the DJIA 10,000 Cap out) is the rally target in here and with that it is likely that if you listen to the talking heads you will hear that the bottom is in, that’s about the time that most analysts including yours truly will be looking for that test of the October low. That kind of action will be what may be needed to establish the bottom and set up a Bull charge North, though it is not necessary. Stay tuned
The Major Indices Resistance/Support Levels
DJIA: Close 9325.01
Resistance:
9323 June 2003 high
9575 September 2003
9814 August 2004
9852 25% off of the October 2008 low
9937 May 2004 low
9966 the 50 day EMA
10,000 to 10,100
10,127 April 2005 low
10,215 Q4 2005
10,365 a 2008 low
10,459 a September 2008 low
10,776 the 90 day SMA
10,827 the July 2008 intraday low
10,962 the July closing low
11,060 February 2006
11,317 March 2006
11,388 the 2008 August low
Support:
9200 the July 2003 consolidation high
9141 the 18 day EMA
8982 the 10 day EMA
8985 the low in the 2003 consolidation
8626 December 2002
8521 interim high in March 2003
8197 the second October 2008 low
7882 the early October 2008 low
7702 the July 2002 low
7524 the March 2002 test low
7282 the October 2002 low
S&P 500: Close 968.75
Resistance:
995 June 2003 consolidation high
1065 the Q4 2003 level marking the run to 2007 high.
1071 the 50 day EMA
1075 August 2004.
1106 late September 2008 low
1133.50 mid September 2008 low
1181 the 90 day SMA
1200 the July 2008 intraday low
1244 an August 2005 high
1245 the 2002/2003 up trendline
1257 the March 2008 low
1270 the January 2008 low
1279 the 200 day SMA
1285 the July 2008 high
Support:
965 the 2003 consolidation low
938 the 10 day EMA
889 an interim 2002 high
866 the 2nd October 2008 low
853 the July 2002 low
839 the early October 2008 low
800 the March 2003 post bottom low
768 the 2002 Bear market low
NAS: Close 1720.95
Resistance:
1752 2004
1782 August 2004
1882 October 2003
1900 the October 2008 gap down level
1912 April 2005
1930 the 50 day EMA
1947 the gap down point October 2008
1984 the late September 2008 low
2070 September 2008
2099 the mid September 2008 closing low
2155 the March 2008 low
2167 the July 2008 low
Support:
1669 the 10 day EMA
1644 August 2003
1620 the early 2001 low
1565 the 2nd October 2008 low
1542 the 1st October 2008 low
1521 the late 2002 high following the bounce off the Bear market low
1387 the 2001 low
1253 the March 2003 low on the test of the rally
1108 the 2002 low
This week’s Economic data (these are expectations complied from various reliable sources. (These, and official reported data often vary). Once again, lots of data this week.
Monday, November 3
September Construction Spending (10:00): expected -0.8%, prior 0.0%
ISM Index, October (10:00): expected 42.0, prior 43.5
Tuesday, November 4 (Election Day)
October Auto Sales: 4.3M prior
Truck Sales, October: 5.3M prior
Factory Orders, September (10:00): expected -1.5%, prior -4.0%
Wednesday, November 5
October ADP Employment (8:15): expected -80K, prior -8K
ISM Services, October (10:00): expected 48.5, prior 50.2
Crude Oil inventories (10:30): 493K prior
Thursday, November 6
11/01 Initial Claims (8:30):
Productivity Q3 Preliminary (8:30): expected 1.0%, prior 4.3%
Friday, November 7
October Average Workweek (8:30): prior 33.6
Hourly Earnings, October (8:30): prior 0.2%
Nonfarm Payrolls, October (8:30): prior -159K
Unemployment Rate, October (8:30): prior 6.1%
Pending Home Sales, September (10:00): prior 7.4%
Wholesale Inventories, September (10:00): prior 0.8%
Consumer Credit, September (3:00): prior -$7.9B
John Mauldin is back this week with: Electing the Janitor-in-Chief and a tribute to Tony Bennett
That’s all for now Readers, have a great week, and always remember take what the market gives…
Have a great week and stay tuned.
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