Longest running streak of weekly gains in eighteen months
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Longest running streak of weekly gains in eighteen months

Week Ending April 3, 2009
EquiTrend.com

Rally still going...
Leaders lagging
The new earnings season kicks off
Case-Shiller index implies worst home price declines may be over
Economic metrics also leveling
We're still in sell mode

INDEX
Apr3-09
Mar27-09
Change
Change%
INDU
8017.59
7,776.18
241.41
3.10%
DJT
2,978.32
2,777.95
200.37
7.21%
SPX
842.50
815.94
26.56
3.26%
COMPX
1,621.87
1,545.20
76.67
4.96%
RUT
456.13
429.00
27.13
6.32%
EEM
27.35
25.6
1.75
6.84%



Last Week

INDEX
Mar27-09
Mar20-09
Change
Change%
INDU
7,776.18
7,278.38
497.80
6.84%
DJT
2,777.95
2,516.96
260.99
10.37%
SPX
815.94
768.54
47.40
6.17%
COMPX
1,545.20
1,457.27
87.93
6.03%
RUT
429.00
400.11
28.89
7.22%
EEM
25.6
23.9
1.70
7.11%

Quote of the week
"Investors are still heavily in cash and the challenge they are facing is how to scale back into growth-oriented investments. For that reason, technology leadership is not surprising given many are flush with cash and little debt," - David Kreinces, a portfolio manager with ETF Portfolio Management.

Rally still going...
It was another good week for the bulls. As Dan explained this week from his Miami home, there is a lot of cash on the sidelines looking to get into the market. Despite the fact that we are still bear market, cash doesn't do much good if it isn't working which is why this rally has been so explosive But the fact that pundits like Jim Cramer are so confident that a new bull market has begun is a bearish omen. At true market bottoms, the majority including the Jim Cramers of the world, have given up, and this is most certainly not the case now.

This week marked the longest running streak of weekly gains in eighteen months. On the flipside however, we hit the highest unemployment rate since 1983 in March and although unemployment (and most other economic metrics for that matter) are lagging indicators, it shows that this recession is still very much alive and well.

Technically Speaking
Leaders lagging again
This week Dan's Sunday March 29 portfolio of 15 stocks to watch included Apple, (AAPL), Baidu.com (BIDU), Bank of America (BAC), Chicago Mercantile Exch (CME), First Solar (FSLR), Freeport CU&G (FCX),  Goldman Sachs (GS), Google (GOOG), MasterCard (MA), JP Morgan (JPM), MEM C Elec (WFR), MasterCard (MA), Mosaic (MOS), Proshare UltraShort Fin (SKF), Sears Holdings (SHLD), and US Steel (X).  That they are lagging the major indexes again is somewhat bearish for next week.

 


Figure 1 - Five-day performance of Zanger's last Sunday pix (green) compared to the S&P500 (SPX), the Dow Jones Industrial Average (DJX), Dow Transports (DTX), Nasdaq Composite (IXIC), Russell 2000 (RUT) and MSCI Emerging Market ETF (EEM). Data courtesy of The Zanger Report, performance chart courtesy of VectorVest.com.

 


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Weekly volumes were again above average for the major indexes but this was the third consecutive weekly drop for the Dow Jones Industrials and S&P500 Indexes. That is bearish in a rally. Rallies require steadily rising volume to keep them going and without it they soon run out of gas.

The Market Volatility Index (VIX) spent most of the week falling to close at 39.70 down from 41.04  last week and  45.89 two weeks ago. It was the lowest VIX reading since January 28.

Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index has been moving higher and that trend continued this week as the index closed at 378.53 up from 366.13 last week. Since hitting a high of 611.51 in July the index is still down 38% from its peak.  

After another big surge in gold to $1001.10/oz the week of February 20, the precious metal below $900/oz this week to close at $894.60/oz down from $922.90 last week and $955.70 two weeks ago. But volume remains anemic while open interest has begun to rise following the second of two tops February 20. Gold has a long way to drop to confirm the double top so this pattern offers little short-term trading value. Technically this spells further drops for gold.

After rising for the better part of two months then rolling over three weeks ago, the US Dollar Index slipped to 84.16 from 85.11 last week, but up from 83.73 two weeks ago. Since bottoming in July, the U.S. Dollar Index has paired its gain to 19%. 

Crude oil futures firmed again this week to close at $54.68/bbl up from $52.38 last week and $52.07 two weeks ago. Oil is still down nearly 64% from its mid-summer high of $147.20 and the rally remains alive. 

The Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, slipped again this week to 1506 down 10.25% from 1678 last week. This is bearish for both the economy and the price of oil going forward.

The U.S. bank prime rate and the Fed funds target rate held steady following the lasted FOMC meeting at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate slipped further to 0.16% (from 0.19% last week and 0.23% two weeks ago). Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) slipped to 1.16094% (1.22% last week and 1.22281% two weeks ago).  This compares to LIBOR 52-week high of 4.81875% last October. 

Meanwhile Freddie Mac mortgage rates slipped this week to 4.78% (from 4.85% last week and 4.98%  two weeks ago) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) also fell to 4.75% (from 4.85% last week and 4.91% two weeks ago). 

*LIBOR is the benchmark for $900 billion in subprime mortgage loans which typically adjust to it every six months. Corporations around the world have the interest rates on roughly $9 trillion in debt pegged to LIBOR and rates on more than $380 trillion in derivative interest rate swaps also are based on LIBOR. About 6 million U.S. mortgages, including the vast majority of subprime home loans as well as 41% of prime ARMs are linked to LIBOR.

Earnings
Q1-09 earnings season starts
With a total of 326 companies reporting in the first week of Q1-09 reporting season, earnings fell 48% from Q1-08 which is a darn sight better than the final tally for Q4-08 of -280.4% versus Q4-07 (3485 companies). This compares to - 62% for Q3-08 from Q3-07. This week's results are an improvement but the season has just begun!

We will be looking for earnings declines to shrink which would be a bullish indicator that the worst corporate profit declines may be over. It is also important to remember that earnings have shown a tendency to get worse as reporting seasons have matured since earnings first turned negative for the broader market in Q3-07, which is another concern.

Economic Reports
Economic metrics point to leveling...
This week's reports really started Tuesday with news that the Case-Shiller home price index had stopped getting worse on a year-over-year basis in January. Home prices were down 19% versus down 19.2% in December. I know it's not much but certainly better than another drop. Another important facet of the economy, the ISM manufacturing index showed a slight improvement in March to 36.3 from 35.8 in February but the more important ISM non-manufacturing showed a drop to 40.8 from 41.6 the month before. Construction spending also fell another 0.9% in February which isn't surprising.

Then finally, the report many had been waiting for on Friday, non-farm payrolls, showed the loss of another 663,000 jobs in March versus -651,000 in February. Unemployment is now 8.5%, the highest level since 1983.

Stories of interest this week...

Nassim Taleb Says Geithner's Bank Plan Will Fail
http://www.bloomberg.com/apps/news?pid=20601110&sid=a7DbIc6WLhmU

Convertible Sales Show Bernanke Opens Cheap Credit
http://www.bloomberg.com/apps/news?pid=20601110&sid=a191rbP7kypA

U.S. Markets Wrap: Stocks Rise in Longest Streak Since 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=aWONxsqh5T14&refer=home

U.S. Economy: Unemployment Rate Reaches 25-Year High, Service Sector Shrinks
http://www.bloomberg.com/apps/news?pid=20601087&sid=afyS1pI4ftXY&refer=home

Buffett Back in the Money on Goldman Sachs Warrants After Rally
http://www.bloomberg.com/apps/news?pid=20601087&sid=aq7O1MStteaw&refer=home

Prime Loan Default Rates Doubled in 2008, U.S. Says
http://www.bloomberg.com/apps/news?pid=20601087&sid=aXcxMzGkWT_U&refer=home


Working for your wealth,

John M. McClure
John M. McClure, President & CEO
EquiTrend, Inc.





Posted 04-06-2009 11:17 AM by John M. McClure