Sideways or Not?
Red Flag Flying: Lower Prices Expected Ahead
This week saw the major indexes finish about where they started with a lot of volatility along the way.  We remain in the "Red Flag Flying" mode, expecting lower prices ahead, because although the indexes were flat this week, more and more ETFs and individual stocks reverted to "sell" signals, indicating underlying weakness in the markets.
Momentum continues to weaken among the "long" ETFs I monitor while the "inverse" funds' momentum have largely turned positive.  Market breadth continues to weaken with only 58% of all stocks now above their 50 Day Moving Average, down from a high of 94% at the market peak in early June
chart courtesy of
In the chart above you can see how MACD is still negative although starting to turn upward and how the red 200 Day Moving Average is still declining.  Early in the week, the index broke both the 50 and 200 day averages but only momentarily.  A decline below both the 50 and 200 Day Moving Average would typically be a bearish signal and 920 remains a strong resistance level as does 940.
For the week, we were up slightly in the Standard Portfolio as our interest rate position made +2.3%, and in the Ultra Portfolio, we were down fractionally as our short currency position gave up -1.3% which was more than the +0.7% gain from the inverse index position.
This will be a big week, possibly a major turning point in this ongoing struggle between the bulls and the bears, as a raft of major economic reports will be published going into the 4th of July weekend. 
The View from 35,000 Feet
This week 5 more banks failed with the Friday shutdowns becoming a regular phenomenom, and the Treasury was able to sell a record amount of debt with a good Treasury auction mid-week.
But China keeps complaining about the weak dollar and wants to replace it as the world's reserve currency while prices excluding food and fuel rose +1.8% year over year.
The savings rate surged to a 15 year high in May as nearly 70% of Americans said they were saving and not spending their stimulus checks.  A higher savings rate is good, of course, but the net result could mean less spending and slower growth ahead.
Consumer spending rose +0.3% in May, which was cheered as "green shoots," while real spending was down -1.9% for the year, the largest decline in 34 years, not so green, perhaps.  And on Thursday, jobless claims rose "unexpectedly."  And three times as many consumer reported declines in income as did gains.
And, finallly, oil was down for the second week in a row on fears of lower demand and global trade is off -30% year over year.
So the news remains glum, and more and more I'm reading how forecasts for "recovery" are being pushed into 2010 versus the last half of 2009.
This week we'll get a slew of reports that very likely will set the tone for the rest of the summer.
The Week Ahead: 
June Consumer Confidence, April Case/Shiller Home Price Index, June Chicago Purchasing Manager Index
Wednesday: ADP Employment Report, May Construction Spending, June ISM Index, May Pending Home Sales, June Auto Sales
Thursday: Weekly Jobless Claims, June Non Farm Payrolls, May Factory Orders 
Sector Spotlight:
Weekly Leaders: Taiwan, Hong Kong, Gold Miners
Weekly Laggards: Oil, Gasoline, U.S. Oil and Gas Exploration
My wife had some outpatient surgery on Friday and so I started writing this from the surgery center where they have a Starbucks machine and a wi-fi connection; all the comforts of home.  As they say, it's minor surgery unless it's on you, but everything turned out fine and so we're just laying low at home in the recovery mode.
Wishing you a great weekend wherever you may be.  
All information presented herein is for general information only and deemed to be from reliable sources, but we cannot guarantee its accuracy. Readers are strongly advised to check with their investment counselors before making any investment. There is risk of loss in all investment activity.  

Posted 06-27-2009 2:04 PM by John Nyaradi