Fifth up week in a row
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Fifth up week in a row

Week Ending April 10, 2009

Rally five weeks old...
Leaders jump out
Falling consumer spending in the spotlight
Still in sell mode but...


Last Week

Quote of the week
"When we look at the systematic financial system we're in, and it affects every country in the world including Canada, I think staying bearish is the route to go," Economist Nouriel Roubini.

Rally finishes fifth week...
Stocks finished their fifth consecutive week of gains. Given the weak performances Monday and Tuesday with the S&P500 dropping more than 3%, Thursday's strong close with a gain of nearly 4% was a pleasant surprise for the bulls for a number of reasons.  It came on the last trading day of a holiday shortened week and a strong close on the last trading day is a bullish sign. It means that investors are confident enough to hold over the weekend and a long one at that. However, weekly volume was below average and that should be a concern.

Other concerns include the fact that the SPX finished the week 8% above its 50-day moving average which makes it quite overbought. Prior occurrences over the last ten years where the index has traded more than 7.5% above its 50 DMA have led mostly to short-term pullbacks according to Bespoke Investment Group. A number of stock sectors are trading in overbought territory as well and Consumer Discretionary and Financials are currently at their most overbought levels in a year.

Technically Speaking
Leaders leap out in front
This week Dan's Sunday April 5 portfolio consisted of 12 stocks to watch including Apple, (AAPL), Bank of America (BAC), Chesapeake Energy (CHK), Chicago Mercantile Exch (CME), Goldman Sachs (GS), MasterCard (MA), Research in Motion (RIMM), (CRM), Sears Holdings (SHLD), L) and Visa (V).  That they are leading the major indexes is somewhat bullish and if they remain strong if the major indexes weaken, will mean this rally is still on track.

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

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Weekly volumes dropped below average for the major indexes and this was the fourth consecutive weekly volume drop for the Dow Jones Industrials and S&P500 Indexes. As we said last week, that is generally bearish in a rally. Rallies require steadily rising volume to keep them going and without it they soon run out of gas. Given the volumes we are seeing, this rally is due for a rest at the very least.

This week, the Market Volatility Index (VIX) dropped to levels not seen since September 2008 as it fell to end the week at 36.53, down from 39.70 last week and 41.04  two weeks ago. It shows that investors are getting more complacent about stock values. 

Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index continued to hold its own as the index closed at 376.44 off slightly from its close of 378.53 last week but still holding the uptrend and well up from 366.13 two weeks ago. 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 continued to weaken dropping to $880.50/oz down from $894.60 last week. Volume and open interest remain depressed following the second of two tops February 20. Gold still 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.

Meanwhile, after putting in a bottom of sorts four weeks ago, the US Dollar Index firmed again to 85.79 compared to 84.16 last week and 85.11 two weeks ago. Since bottoming in July, the U.S. Dollar Index is up more than 19%. 

Crude oil futures held its ground this week to close at $54.69/bbl virtually unchanged from $54.68 last week. Oil is still down nearly 62% 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 1478 down 2% from 1506 last week and down from 1678 two weeks ago. 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 held steady at 0.16% (from 0.19% two weeks ago). Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) slipped to 1.13125% (from 1.16094% last week and 1.22% two weeks ago).  This compares to LIBOR 52-week high of 4.81875% last October. 

Meanwhile Freddie Mac mortgage rates firmed this week to 4.87% (from 4.78% last week and 4.85% two weeks ago) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) firmed to 4.83% (from 4.75% last week and 4.85% 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.

Q1-09 earnings reports discontinued by the WSJ
We were thrown a curve ball this week when we tried to update corporate earnings for the roughly 4000 companies tracked by the Wall Street Journal. It wasn't where it should have been. When we contacted the company, we were told that the "Earnings Digest is no longer published by either or the Wall Street Journal Print Edition." Needless to say we were shocked especially considering that this metric provided the most advanced warnings of earnings problems as the current crunch began. We will continue to search for this information elsewhere and apologize for the inconvenience of not being able to bring it to you.

Here is our report from last week. 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 compared to - 62% for Q3-08 from Q3-07.

Economic Reports
Dropping consumer spending in the spotlight...
Not only was it a short week, it was short on economic reports as well. First, we learned Tuesday that consumer credit again took a big dive in February with a drop of $7.5 billion compared to a revised jump of $8.1 billion in January. January wholesale trade also dropped 1.5. Good news perhaps from a debt perspective is that the trade balance fell again February to a deficit of $26 billion down from -$36.2 billion in January.

On the lighter side...
If at first you don't succeed, skydiving is not for you.

Stories of interest this week...

Boeing Cuts Jet Production as Economy Hurts Airlines

Emerging-Market Stocks Extend Biggest Rally in Year; Bonds Gain

Hamptons, N.Y. Home Sales Plunge 67% in First Quarter

Insurance Sales Fall Most in Half Century Amid Slump

U.S. Economy: Trade Gap Narrows to Nine-Year Low

Barclays Maroons Secret of Stable Banking in Suburb

China's New Loans, Money Supply Jump to Records on Stimulus

Rupee Pain Means Exporters Gain as Indians Beat China

Aso's Stimulus Plan May Spur Economy at ‘Massive' Future Cost

Working for your wealth,

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

Posted 04-13-2009 9:11 AM by John M. McClure