Buyers Emerge In Final Hour As Dubai Woes Ease

Mon November 30, 2009

Market Commentary:

The U.S. stock market closed higher on the first full trading session after the Dubai news broke late last week. On Friday stocks sold off as investors unloaded their positions ahead of the the weekend. Advancers led decliners by a 11-to-8 ratio on the NYSE and were about even on the Nasdaq exchange.  As expected, volume totals were heavier than Friday’s holiday-shortened trading session. New 52-week highs outnumbered new 52-week lows on the NYSE but trailed by a small margin on the Nasdaq exchange.

Buyers Emerge In The Final Hour As Dubai Woes Ease

Stocks spent most of the session in the red but buyers showed up in the final hour which helped the major averages close higher on the day. Monday was the first full trading session since the Dubai news spread late last week and it was encouraging to see the major averages rally as concerns continue to ease regarding the possible default of Dubai World. Dubai World said that it is currently engaged in “constructive” initial talks with its lenders to restructure about $26 billion of debt. At this point, the world is beginning to accept the notion that Dubai World is an isolated incident and it will most likely be bailed out by one of its wealthy neighbors. Since no one knows for sure exactly how much debt is at stake, most investors believe that the total debt is under $100 billion (highest estimates). If that is the case, it is only a “blip” on the world’s economic radar. More importantly, if Dubai is bailed out then it will become a moot issue.

U.S. Dollar Falls:

The U.S. dollar fell on Monday which helped stocks and a slew of commodities. The Chinese government reiterated its stance regarding its stimulus package after India announced its economy grew at a very healthy rate of +7.9%, which topped estimates. The National Retail Federation released a report that showed that holiday traffic was up from the same period last year but the average shopper spent $343.31 in stores and online over the Thanksgiving holiday weekend, less than the $372.57 spent last year.  The group reaffirmed its forecast for a -1% decline in spending for this holiday season.

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Stocks Plunge on Thanksgiving

Stocks Plunge on Dubai News, U.S. Observes Thanksgiving

On Friday stocks sold off as investors unloaded their positions ahead of the the weekend. The catalyst which precipitated this sell off was Dubai World’s trouble restructuring their debt. Dubai World, the most indebted of Dubai’s state-sponsored companies, is seen as a barometer for the health of the financial nexus.
The company currently owes $60 billion, $22 billion of which must be refinanced by 2011. The fact that Dubai World is struggling with their existing obligations led many to question how other, less solvent, emerging market companies will fare. Since March emerging markets have enjoyed some of the largest gains as the global economy recovers from the worst financial crisis since the great depression.
From our perspective, the current rally is under pressure as investors struggle for direction. Leadership has narrowed considerably in recent weeks as the major averages edge higher on lighter volume. It is also worrisome to see the small cap Russell 2000 index continue to woefully underperform its peers. The one saving grace has been the weak dollar. This column has repeatedly mentioned the inverse relationship between the US dollar and dollar denominated assets (i.e. stocks and commodities). This relationship remains critical as this rally continues.

Bulls Gobble Up Stocks As Volume Recedes

Market Commentary- Wednesday 11.25.09:
The major averages advanced on Wednesday as the greenback slid to a 14-year low against the yen after the latest round of economic data was released.  As expected, volume, a critical component of institutional demand, was lower than Tuesday’s levels ahead of the the Thanksgiving day holiday. The stock market will be closed on Thursday and is slated to close early on Friday (1pm EST) in oberservence of the holiday. Advancers led decliners by over a 2-to-1 ratio on the NYSE but trailed by a narrow margin on the Nasdaq exchange. There were 22high-ranked companies from the CANSLIM.net Leaders List making a new 52-week high and appearing on the CANSLIM.net BreakOuts Page, higher from the 12 issues that appeared on the prior session. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.

Weak Dollar:

Stocks rallied on anemic volume the day before thanksgiving thanks to an array of factors. First, the US dollar got smacked which helped the bulls send stocks higher. For months, we have written about the inverse relationship between the US dollar and dollar denominated assets (i.e. stocks and commodities). The dollar index lost over -1.1% which was its largest single day percentage drop in nearly four months! Wednesday’s decline put the dollar Index at a fresh 12-month low. The second factor that helped stocks advance today was a series of economic data. Home sales, jobless claims and consumer confidence were relatively healthy which helped support the notion that the economic recovery is strengthening. The other positive data point came from higher oil prices. The government said that energy demand rose for a second consecutive week (thanks to a stronger economy) which sent crude oil up nearly $2 a barrel. Gold also hit a new all time high as the dollar fell and a report was released that the Indian central bank may buy more bullion for its reserves.

Economic Data:

On the economic front, the government said that weekly jobless claims fell to their lowest level since September 2008 which led many to speculate that the worst is over for the labor market. The Labor Department said the number of Americans filing claims for unemployment benefits fell to 466,000 last week which was a welcomed sign. The Reuters/University of Michigan index of consumer confidence was 67.4, higher than the average estimate of 67. Meanwhile, the Commerce Department said consumer spending rose +0.7% last month which topped the Street’s estimate for a +0.5% reading and new home sales jumped by +6.2%. On Tuesday, the Federal Reserve raised its forecast for 2010 economic growth to a range of 2.5%-to-3.5%, up from +2.1%-to-+3.3%. The Fed also signaled that it will be more accepting of a weaker US dollar in the near term to help spur economic growth.

What Matters Most- Price & Volume:

Looking at the market, the current rally remains intact as the major averages refuse to go down and continue marching higher. This is a strong sign of institutional sponsorship but concerns remain as volume continues to dry up as the the market crawls higher and leadership remains inordinately thin. This action suggests anything is possible but until a broad based sell off occurs, the bulls remain in control.

Holiday Shopping Season- Boom or Bust?

Excuse Me, Can You Predict The Future?

The entire world is focusing on the 2009 U.S. holiday shopping season. Around this time each year, the media, clients and friends ask us countless questions on the subject. Most people want to know what a so-called “expert” thinks will happen on any given event. Predicting the future is impossible because the simple truth is that no one really knows what will happen. Instead, these “experts” offer their opinion which at times will be correct and other times will be incorrect. After all, we all know how valuable opinions are, right?

False Sense Of Security:

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Stocks Fall As Investors Digest A Slew Of Economic Data

Market Commentary

Stocks closed lower as investors digested a slew of economic data. Volume, a critical component of institutional demand, was mixed compared to Monday’s levels; higher on the Nasdaq and lower on the NYSE. The higher volume on the Nasdaq marked a distribution day for that exchange but the lower volume on the NYSE helped those indexes avoided that fate. Decliners led advancers by over a 21-to-17 ratio on the NYSE and by over a 16-to-11 ratio on the Nasdaq exchange. There were 12 high-ranked companies from the CANSLIM.net Leaders List making a new 52-week high and appearing on the CANSLIM.net BreakOuts Page, higher from the 41 issues that appeared on the prior session. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.

Banks Under Pressure-Again

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Strong Start Fizzles In PM

Market Commentary:

The major averages opened sharply higher as the US dollar plunged after the latest round of stronger-than-expected housing data was released. Volume, a critical component of institutional demand, was lower than Friday’s levels on the NYSE and on the Nasdaq exchange which was expected since a series of options expired on Friday. Advancers trumped decliners by over a 3-to-1 ratio on the NYSE and by over a 2-to-1 ratio on the Nasdaq exchange. There were 41 high-ranked companies from the CANSLIM.net Leaders List making a new 52-week high and appearing on the CANSLIM.net BreakOuts Page, higher from the 12 issues that appeared on the prior session. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.

Healthy Housing Data Lifts Stocks

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10 Reasons Why The World Loves Gold!

Gold Is One Of The Strongest Asset Classes of the 21st Century!

Since the early 2000’s, gold has been one of the strongest asset classes of this century. Gold’s remarkable performance has helped the yellow metal continue to dominate international headlines and capture the world’s attention. This article will offer an overview of the 7 primary reasons why the world is bullish of gold.

Why Gold?

1.) Weak Dollar
Since the late 1990’s, the US dollar has steadily depreciated against many of its peers. In the process, dollar denominated assets (mainly stocks & commodities) have increased in value. For the vast majority of the 20th century, the U.S. dollar was a symbol of “strength” and due to its recent decline, the greenback has lost some of its luster. That important point coupled with the enormous debt incurred by the U.S. government, investors are looking for other areas of “strength.” One logical beneficiary, gold.
2.) Inflation
Inflation occurs when asset prices increase in value. It is important to note that a small dose of inflation is considered “healthy” for normal economic growth. However, there is a very fine line between, “healthy” inflation and “unhealthy” inflation. Many people flock to gold to protect their portfolios from the deleterious effects of inflation. At this juncture, many investors believe that higher inflation will occur as the global economy recovers.
3.) Reflation
In its most basic form, reflation is the act of stimulating an economy by “reflating prices.” This is usually accomplished by increasing the money supply or by reducing taxes. Another way of explaining reflation is that prices will “reflate” back to prior levels. If reflation takes over across the board as it did in 2003-2007 then expect gold to rally in that kind of an environment.
4.) Deflation
Deflation occurs when asset prices decline in value. The most recent example was the brutal worldwide bear market of 2007-2009. Even during that ominous period, gold was one of the only asset classes which did not implode. Crude oil tanked nearly -80% from $147 to $33 a barrel. The Dow plunged -54.43% from its Oct 2007 high to its March 2009 low. Meanwhile, gold “only” fell -34% from its March 17, 2008 high of $1,032 to its bear market low of $682 in Oct 2008. Since then, gold is the only asset class that has recovered its entire decline and has surged to new all time highs! This healthy action (outperforming on the way down and up) illustrates how strong gold actually is.
5.) Strong Technicals
Many people invest by using technical analysis or fundamental analysis (we use both and see no reason why anyone would consciously avoid using a helpful tool- but that will be a separate post) and in both cases, gold wins. Gold’s chart (technical analysis) is very strong as it continues surging to new highs in an orderly fashion. The bulls remain in control as long as gold continues trading above $1,000.
6.) Strong Fundamentals
Gold sports bullish fundamentals (demand currently trumps supply) which has played a pivotal role in the recent rally. Investors like to invest in commodities that have favorable fundamentals for obvious reasons and right now, thanks to the robust demand for the yellow metal, gold’s fundamentals remain stellar. Honestly, what else could one ask for?
7.) Global Economic Crisis
Historically, gold has flourished during periods of duress. People love the idea of owning something tangible and gold is the perfect solution. Gold offers a perceived safety of actually being able to own something that is inherently valuable. Thus, the world’s insatiable appetite for gold throughout the centuries!
8.) Cheap Money (a.k.a leverage)
Who is responsible for driving gold higher? Aunt Mary and Uncle Bob? You? Your neighbor?Your local financial advisor? Doubtful. There are two driving forces that determine prices for nearly all capital markets: large financial institutions and governments. Thanks to the coordinated global stimulus packages that came into effect in 2008, central banks have lowered interest rates to historic lows.  This makes money very “cheap” for large institutions to borrow and invest in capital markets. What’s one of their favorite areas to “invest”? You guessed it, gold!
9.)  Central Banks Are Buying
Marty Zweig, a famous trader and author of Winning on Wall Street, is famous for coining the phrase, “Don’t fight the Fed.” He advised investors to align themselves with the Federal Reserve, not against it. Right now, central banks around the world are aggressively buying gold and Zweig’s advice is still valid. As long as Asian central banks are buying then their will be a very strong bid in this market.
10.) Gold is in a Bull Market
Gold is currently in a massive bull market and that is the most important reason why people love gold at this point. Gold is also under-owned in a historical context. During prior recessions (and/or bear markets) and the Great Depression in the early 1930s, gold accounted for massive amounts of investable wealth. Most records indicate that approximately one-fifth of investable assets were in gold. However, in the third quarter of 2009, even using the most generous estimates, less than 5% of investable wealth worldwide is in gold. This data shows that gold is still under-owned by both individual and institutional investors. Again, gold wins.

Summary: Trust The Market

Perhaps the most important lesson is to trust the market. Since the turn of the century, we have been bullish on gold and have advised our clients and anyone else who would listen (in speeches or in the media- latest Reuters quote here) our thoughts on gold.  In the interest of full disclosure, we are currently long and sitting on very healthy gains in this market (become a client today!). In our humble opinion, we believe that gold is in the nascent stages of another leg higher but is currently extended and is likely due for a short term pullback to shake out the late participants. Furthermore, we are fully cognizant of the fact that one day this bull market will end (just like every other bull market in history) and at that point we will be fully aware and ready to sell our position and lock in our gains. Until then, we are long and comfortable!
If you want more, please drop us a note here: Contact Page.

Stocks Negatively Reverse; Dow Ends Slightly Higher

Week In Review:

The major averages rallied during the first half of the week but the bears showed up in the latter half and erased the gains and sent stocks lower. The Nasdaq, NYSE composite, S&P 500 and small cap Russell 2000 index negatively reversed (open higher and close lower) for the week which is an ominous sign. A negative reversal is a subtle sign that a change in trend may be upon us.

Monday:

Stocks enjoyed healthy gains on Monday which helped send the benchmark S&P 500 index above near term resistance (1100) and to fresh 2009 highs! The US dollar fell after Asian government’s pledged to standby their economic stimulus packages. The 21-member Asia-Pacific Economic Cooperation group, which currently comprises over half of the global economy (approximately +54%), announced that they will maintain their massive economic stimulus packages well into 2010. The greenback fell to a fresh 15-month low which sent a host of dollar denominated assets higher: mainly stocks and commodities!
Turning to the economic front, the US government said retail sales grew +1.4% in October. Several of the country’s largest credit card issuers rallied after reporting charge backs (i.e. bad loans) fell for a six straight month. Elsewhere, Federal Reserve Chairman Ben Bernanke gave a speech to the Economic Club in New York and said economic “headwinds” remain in the economy. He also said that, “Significant economic challenges remain” He went on to say, “The flow of credit remains constrained, economic activity weak and unemployment much too high. Future setbacks are possible.” He also noted that we are in a much better place in Q4 2009 then where we in the same period last year.

Tuesday:

On Tuesday, stocks opened lower but closed higher even as the dollar rallied. Inflation concerns eased after the government released a weaker than expected producer price index (PPI). The headline reading increased +0.3% last month after sliding -0.6% in September. October’s reading was lower than the Street’s estimate of a +0.5% rebound. However, the “big” news in the report was that the core rate, which excludes food and energy, unexpectedly fell -0.6%, following a -0.1% decline in September.
A separate report showed that the country’s manufacturing sector continued to grow, albeit at a very slow rate. At 1:00pm EST, the National Association of Home Builders released their housing market index which was unchanged at 17 in November.

Wednesday:

The bears showed up on Wednesday and spent the rest of the week sending stocks lower. A slew of economic data was released which led many to question the health of this recovery. The Labor Department released a stronger-than-expected consumer price index (CPI) which ignited inflationary concerns. Headline CPI rose +0.3% which was higher than the Street’s forecast for a +0.2% gain.  Core CPI, which excludes food and energy, was unchanged from last month’s reading of a +0.2% gain. However, core prices also topped the Street’s estimate for a +0.1% gain and is the component of the report that the Federal Reserve tends to focus on. The uptick in consumer prices sparked concern that companies will have little room to raise prices this holiday season (which curbs earnings) due to the fact that unemployment is at a 26-year high of +10.2% and wages fell -5.2% in September from the same period last year.
The Commerce Department released a separate report which showed that housing starts unexpectedly tanked last month. Housing starts (a.k.a registrations for new construction for residential housing units), slid -10.6% in October which was well below estimates. Permits for new construction slid -28.9% from the same period last year which led many to question the sustainability of the housing recovery.

Thursday:

On Thursday, stocks got smacked as the dollar continued to rally after the Labor Department said jobless claims (a.k.a the number of Americans filing claims for unemployment benefits) was unchanged at a 10-month low. Stocks also got hit after a report was released that showed mortgage delinquencies surged. So far, since the financial crisis began in 2007, writedowns (a.k.a losses) of mortgage-backed debt has surpassed $1.7 trillion at some of the world’s largest financial firms. The spike in mortgage delinquencies was due to a 26-year high in unemployment and a down tick in wages.
The Mortgage Bankers Association said that out of every six home loans insured by the Federal Housing Administration there is at least one late payment and +3.32% of those loans were in foreclosure last quarter. This was the highest reading for both measures in at least 30 years and bodes poorly for the troubled housing market. Elsewhere, the Organization for Economic Cooperation and Development (OECD) doubled its growth forecast for industrialized nations in 2010 to +1.9%. However, the group said that record debt levels may burden future growth. Separately, the Federal Reserve Bank of Philadelphia released its general economic index which topped estimates and suggests a slight improvement in that region.

Friday:

On Friday, European Central Bank (ECB) President, Jean-Claude Trichet signaled that the ECB will begin curbing its efforts to aid ailing banks. Those of you who have read this commentary over the past 5 years know that we like to analyze the news, yet we pay a lot more attention on how the market reacts to the news. That said, the market has reacted and continues to react rather well to the latest round of economic and earnings data. The vast majority of third quarter earnings are now behind us and the major averages remain perched just under fresh 2009 highs! Barring some unforeseen event, earnings were down for the average company in the S&P 500 for the ninth straight quarter but managed to exceed the average estimate, which is one reason why the markets have reacted so well to earnings. That coupled with the notion that the “worst is behind us” explains the market’s collective “take” on Q3 earnings. In addition, economic data, although not impressive, has improved markedly from this time last year which suggests the global government stimulus packages are working.
The benchmark S&P 500 has surged a whopping +64% from its 12-year low in March as global GDP has rebounded. The two primary concerns regarding this rally is the dearth of high quality leadership triggering technical buy signals and that volume has waned in recent weeks as the market rallied. Most liquid leaders are still holding up well which bodes well for this rally. The universe of high ranked stocks remains very thin which is exactly how this market has performed since the lows in March.

Sour Economic Data Hurts Stocks

Stocks Got Smacked As The Dollar Rallies:

Stocks fell across the globe as the US dollar rallied and concern spread regarding the underlying health of the economic recovery. Volume, a critical component of institutional demand, was higher than Wednesday’s levels across the board which marked a distribution day for the major averages. Decliners trumped advancers by about a 4-to-1 ratio on the NYSE and Nasdaq exchange. There were only 10 high-ranked companies from the CANSLIM.net Leaders List making a new 52-week high and appearing on the CANSLIM.net BreakOuts Page, lower than the 40 issues that appeared on the prior session. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.

Tepid Economic Data Hurts Stocks

Stocks experienced their largest intra day decline this month after the latest round of ominous economic data was released. The tepid economic data led many to question how long the global economic recovery will last and sent investors flocking to the US dollar for perceived safety. Before Thursday’s opening bell, the Labor Department said jobless claims (a.k.a the number of Americans filing claims for unemployment benefits) was unchanged at a 10-month low. Stocks also got hit after a report was released that showed mortgage delinquencies surged. So far, since the financial crisis began in 2007, writedowns (a.k.a losses) of mortgage-backed debt has surpassed $1.7 trillion at some of the world’s largest financial firms. The spike in mortgage delinquencies was due to a 26-year high in unemployment and a down tick in wages. The Mortgage Bankers Association said that that out of every six home loans insured by the Federal Housing Administration there is at least one late payment and +3.32% of those loans were in foreclosure last quarter. This was the highest reading for both measures in at least 30 years and bodes poorly for the troubled housing market.
Elsewhere, the Organization for Economic Cooperation and Development (OECD) doubled its growth forecast for industrialized nations in 2010 to +1.9%. However, the group said that record debt levels may hinder future growth. Separately, the Federal Reserve Bank of Philadelphia released its general economic index which topped estimates and suggests a slight improvement in that region. Billionaire investor, Bill Gross, who runs the world’s largest bond fund- Pacific Investment Management Co. (PIMCO) in Newport Beach, California, published a report today and said that he believes record low interest rates may cause new asset bubbles for stocks and risky bonds.

Looking At The Market- Analyzing Price & Volume:

Looking at the market, leading stocks came under a little pressure today but for the most part continue to hold up well. The market caught a bid (rallied) in the last hour of trade which is typically an encouraging sign and shows that buyers are still out there and willing to show up and defend support. Highly liquid technology stocks continue to be an important area of strength as investors continue to pile into a very narrow group of stocks. Gold and silver stocks are another important area that continues to outperform. As always, it is imperative to isolate strength and let the market guide you.