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Summary
Because of the long weekend here in the United States, leading into a four-day trading week ahead, I'm going to keep this edition of "Last Week" purposely brief.
There were certain aspects of the year's first half that I think will prove accurately telltale for the financial markets during the balance of the year. For instance, I suspect the lackluster performance of the stock market is a portent of materially worse performance ahead.
On the other hand, the on-balance behavior of interest rates and the dollar during 2005's first six months may be quite different from what is in store for those markets in the months ahead.
Something else that appears festering for a turn or two for the worse in the period ahead is the geopolitical landscape. I can easily foresee coming problems in US-China relations, and the situation in Iraq clearly is not conforming well to domestic political pressures that will surely begin to increasingly manifest themselves as next year's midterm election draws closer.
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Stocks
Think about this. As this year was kicking off, how many analysts and pundits were forecasting that most bellwether measures would be even in marginally negative territory as of June 30th? "Very few" is the correct answer, which means that something is not going per expectations. And what that is, I think, is the economy. I strongly suspect the stock market has been and continues to discount quite well an economy that is not as strong as the government's data say it is, and an economy headed for even tougher times in the months ahead.
Some Numbers
* Considering how bad the week preceding it was, last week must have been at least mildly disappointing to the bullish camp. The GRA seven-measure tracking group rose an average 0.6% (median gain of 0.5%), making only a small dent in offsetting the prior week's losses.
* Six of the group's seven components rose during the period, with gains running in a range of 2.0% for the Russell 2000, to 0.1% for the DJIA. The NASDAQ 100 fell 0.6%.
* For the year to date through last Friday, the tracking group was down 2.5%, on average, registering a median decline of a lesser 1.5%. All seven measures remained in the red for the year.
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SELECTED STOCK-MARKET MEASURES
(GRA Seven-Measure "Tracking
Group," Listed by YTD Returns)
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07/01 2005 12/31 Week From
2005 High 2004 Ended 2005
Close Close* Close 07/01 High YTD
===== ===== ===== ===== ==== =====
NYSE Comp. 7246 7441 7250 0.5% -2.6% -0.1%
Wilsh. 5000 11916 12074 11971 0.6% -1.3% -0.5%
Russ. 2000 643 645 652 2.0% -0.3% -1.4%
S&P 500 1194 1225 1212 0.2% -2.5% -1.5%
Value Line 397 403 404 1.4% -1.5% -1.7%
DJIA 10303 10941 10783 0.1% -5.8% -4.5%
NASDAQ 100 1491 1545 1621 -0.6% -3.5% -8.0%
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Average 0.6% -2.5% -2.5%
Median 0.5% -2.5% -1.5%
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*2005 closing highs as of March, as of dates shown:
NYSE Composite (3/4), Wilshire 5000 (3/7), S&P 500
(3/7), Value Line (3/7), Russell 2000 (3/4), DJIA
(3/4), NASDAQ 100 (3/7).
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* Of greatest interest above, in my view, is where the group stood at the end of last week vis a vis respective early March highs. I continue to believe early March was probably a major deflection point, one that we might well look back on as confirmation of the end of the cyclical bull episode that commenced off the 2002 lows.
NOTE: What was in place year to date as of Friday closely approximated the actual first-half numbers, since the quarter ended on Thursday. I'm currently in the process of preparing and posting the usual quarter-end data, the progress of which is inventoried at "Second-Quarter 2005 Data Tables - Posting Update."
* Something last week's rise in prices did accomplish was to put a halt to working off the stock market's longer-term overbought condition. The gains brought the cumulative NYSE advance-decline result to a level above where it stood at its prior peak, despite that prices have generally lagged. But cumulative NYSE up-down volume remained below its March high. This remains a critical divergence.
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SELECTED NYSE BREADTH MEASURES --
WEEKLY & CUMULATIVE DATA (10/29/04=0)
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Adv - Dec UVol - DVol 52W H - L Closing Tick
Week ----------- ----------- ----------- ------------
Ended Week Cum. Week Cum. Week Cum. Week Cum.
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2005
07/01 2539 27410 0.35 6.13 659 22466 536 15655
06/24 -2259 24871 -1.12 5.78 632 21807 295 15119
06/17 4086 27130 2.38 6.90 1059 21175 732 14824
06/10 1196 23044 0.52 4.52 633 20116 371 14092
06/03* 1900 21848 0.28 4.00 627 19483 398 13721
05/27 2267 19948 1.06 3.72 333 18856 296 13323
05/20 4613 17681 2.79 2.66 201 18523 601 13027
05/13 -2141 13068 -1.69 -0.13 17 18322 629 12426
05/06 2746 15209 1.55 1.56 184 18305 791 11797
04/29 305 12463 -0.40 0.01 -324 18121 506 11006
04/22 1461 12158 0.54 0.41 -386 18445 399 10500
04/15 -4417 10697 -3.36 -0.13 -315 18831 117 10101
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03/04 1989 23753 0.61 8.36 1228 18424 745 8137
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*Four-day trading week.
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* The following table updates key moving average relationships, using the DJIA, the S&P 500 and the NASDAQ Composite as proxies. As a hunch, I would think that rather soon, the NASDAQ Composite and the S&P 500 will join the DJIA in breaching their 200-day averages.
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DJIA, NASDAQ COMPOSITE AND S&P 500 CLOSING PRICES ON
SELECTED DATES VERSUS RESPECTIVE 20-DAY, 50-DAY AND
200-DAY MOVING AVERAGES (Percent or Portion Thereof)
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DJIA Vs. NAZ Comp. Vs. S&P 500 Vs.
--------------- --------------- ---------------
Date 20D 50D 200D 20D 50D 200D 20D 50D 200D
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2005
07/01 -1.6 -1.0 -1.5 -0.7 1.4 1.0 -0.7 0.6 1.4
06/24 -2.1 -0.8 -1.4 -1.2 1.8 1.0 -0.9 0.8 1.4
06/17 1.0 2.5 1.2 0.9 4.3 3.3 1.5 3.3 3.8
06/10 0.4 1.5 0.7 0.2 3.3 2.0 0.4 1.9 2.3
06/03 0.5 1.0 0.4 2.1 4.1 2.9 1.0 2.0 2.6
05/27 1.6 1.8 1.2 3.7 4.7 3.2 1.8 2.3 2.7
05/20 1.8 1.0 0.6 4.0 3.4 2.0 1.9 1.5 2.1
05/13 -0.7 -2.7 -2.5 1.6 -0.3 -1.1 -0.5 -1.8 -0.6
05/06 1.1 -1.3 -0.3 1.2 -1.3 -1.3 0.9 -0.8 1.2
04/29 -0.8 -3.1 -1.7 -1.7 -4.0 -3.4 -0.6 -2.2 0.2
04/22 -1.9 -4.0 -2.1 -2.0 -4.2 -3.0 -1.5 -2.9 -0.3
04/15 -3.5 -5.2 -2.8 -4.1 -6.1 -4.2 -2.8 -4.2 -1.0
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03/04 1.6 2.6 5.7 0.3 -0.4 4.1 1.5 2.3 6.6
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Interest Rates
* As fully expected, the FOMC hiked its target on the Federal Funds Rate last week, to 3.25% from 3.00%. The bond market's intitial reaction was to rally on the news.
* However, due to a sharp sell-off in prices on Friday, Treasury yields rose rather meaningfully across the curve for the week as a whole. Increases were most pronounced in the two- to 10-year range.
* The run in federal funds futures ended the week pricing in at least another 25 basis-point hike in the funds rate by year-end. The December future finished Friday at 3.87%, versus 3.70% a week earlier.
* Recent Treasury levels that continue to be critical are the intraday lows set on 5/27. Although very fleeting in duration that day, these were 3.80% on the 10-year note, and 4.15% on the 30-year bond. Respective intraday lows last week were 3.89% and 4.18% (on 6/27). However, Friday's closes were 4.04% and 4.30%, respectively.
Miscellaneous
Next week, I'll have a look at the dollar, oil and gold. In the meantime, though, I'll opine that the Dollar Index in the 90-92 area might be it for a while (90.13 close on Friday), and the major, somewhat protracted correction in crude simply is not materializing. Which gets back to a point I made recently, to wit: There appears to be something fundamentally going on in oil that the technicals simply are not picking up.
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