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Foreword
"Last Week" is an examination of the week that was in the financial markets, in an effort to help assess the prospects for the week(s) that will be.
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Summary
Is there any level to which Wall Street's corps of ultra-greedmeisters won't sink in its incessant mission of promoting unquestioned stock-market bullishness? There must be some point beyond which even these people will not go. However, it was just the week before last when they put on one of their more vile displays in recent memory.
And speaking of displays of less than stellar quality, how about the one put on by the US Labor Department last week? When, on Thursday and Friday, some of Washington's more audacious bureaucrats informed the American people -- with a straight face, no less -- that there was no consumer- or producer-price inflation in June! Wanna bet on that?
Stocks
Not long after the bombings of the London subway system on July 7, the Street's greedmeisters were putting a spin on the incident that not only really put these folks down in the lower reaches of the sewer system, the spin was wrong!
Unsophisticated bomb, probably not Al-Qaida, if Al-Qaida, not very effective in the carnage, etc., etc.
There was lots more of this pure wishful thinking, of course, simply geared to talk the investing public out of any concern for what had happened. Not to mention to dissuade investors from thinking, "If this is London, can a US city be far behind?" Over ensuing days, however, British authorities made it increasingly clear this episode was something very serious and about which Americans should be worrying.
Not Wall Street, though. Including the day of the bombing and going forward, which comprises a mere seven trading days, the respective gains for the DJIA, S&P 500 and NASDAQ 100 were 3.3%, 2.5% and 4.9%.
* Last week, the seven-measure GRA stock-market tracking group was up an average 1.4% (median gain of 1.3%).
* All seven of the group's components rose during the period, with gains running in a range of 2.9% for the NASDAQ 100, to 0.3% for the Russell 2000.
* For the year to date through last Friday, the tracking group was up 0.7%, on average, registering a median gain of a larger 1.3%. Five of the seven measures were in the black, while the DJIA and NASDAQ remained negative for the year.
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SELECTED STOCK-MARKET MEASURES
(GRA Seven-Measure "Tracking
Group," Listed by YTD Returns)
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07/15 3/2005 12/31 Week From
2005 High 2004 Ended 2005
Close Close* Close 07/15 High YTD
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Wilsh. 5000 12255 12074 11971 1.4% 1.5% 2.4%
NYSE Comp. 7404 7441 7250 1.0% -0.5% 2.1%
Russ. 2000 664 645 652 0.3% 2.9% 1.9%
S&P 500 1228 1225 1212 1.3% 0.2% 1.3%
Value Line 409 403 404 1.0% 1.5% 1.1%
DJIA 10641 10941 10783 1.8% -2.7% -1.3%
NASDAQ 100 1578 1545 1621 2.9% 2.1% -2.7%
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Average 1.4% 0.7% 0.7%
Median 1.3% 1.5% 1.3%
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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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* The market enters this week in a highly short-term overbought condition, with an unhealthy divergence or two manifesting themselves. If you were a betting person, a lower market this coming week appears a decent bet.
* One of the divergences mentioned above involves up-down issue and up-down volume ratios. There's a certain relationship between these measures emerges that occasionally emerges, something I call an "inversion." These inversions, when the occur, are frequently followed shortly thereafter by a market decline.
* Something else supporting the notion of an overbought market are some of the key sentiment measures. Ones relating to the VIX and put-call activity are shown in the following table. On Friday, the VIX closed at 10.33, after having traded as low as 10.13, both multi-year lows.
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THE BEHAVIOR OF CBOE SENTIMENT-RELATED MEASURES
AND THE S&P 500 FROM 10/29/04 THROUGH 07/15/05
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CBOE Options S&P 500
Date --------------- -------------------
or Put/Call Ratios Vs. 10/29/04
Week CBOE -------------------- Prior 1130.2 =
Ended VIX* All Equ. Ind. Tot.@ Close Week 100.00
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2005
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07/15H 10.33 0.75 0.54 1.19 0.89 1227.9 1.3% 108.64
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07/08 11.45 0.82 0.42 1.58 0.88 1211.9 1.5% 107.23
07/01 11.40 1.00 0.55 2.10 0.88 1194.4 -0.2% 105.68
06/24 12.18 0.89 0.57 1.59 0.89 1191.6 -2.1% 105.43
06/17 11.48 1.02 0.53 1.93 0.91 1217.0 1.6% 107.68
06/10 11.96 0.71 0.47 1.55 0.90 1198.1 0.2% 106.01
06/03 12.15 0.99 0.61 1.90 0.90 1196.0 -0.2% 105.82
05/27 12.15 0.81 0.57 1.61 0.90 1198.8 0.8% 106.07
05/20 13.14 0.93 0.46 2.23 0.89 1189.3 3.1% 105.23
05/13 16.32 1.02 0.72 1.58 0.88 1154.1 -1.5% 102.12
05/06 14.05 1.07 0.80 1.67 0.88 1171.4 1.3% 103.65
04/29 15.31 1.01 0.74 1.65 0.88 1156.9 0.4% 102.36
04/22 15.38 0.98 0.67 1.90 0.88 1152.1 0.8% 101.94
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04/20L 16.92 0.98 0.63 1.87 0.88 1137.5 -- 100.65
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04/15 17.74 1.42 1.00 2.17 0.86 1142.6 -3.3% 101.10
04/08 12.62 0.93 0.55 1.82 0.86 1181.2 +0.7% 104.51
04/01 14.09 1.06 0.81 1.61 0.86 1172.9 +0.1% 103.78
03/25 13.42 0.78 0.50 2.04 0.88 1171.4 -1.5% 103.65
03/18 13.14 1.27 0.72 2.95 0.88 1189.7 -0.9% 105.26
03/11 12.80 0.99 0.62 1.97 0.88 1200.1 -1.8% 106.18
03/04 11.94 0.81 0.61 1.31 0.86 1222.1 0.9% 108.13
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VIX Highs and Lows (Including Intraday)
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Year High Date Low Date
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2005 18.59 04/18 10.13 07/15
2004* 22.67 03/22 11.14 12/23
2003 41.16 03/12 14.83 12/15
2002 56.74 07/24 18.87 03/28
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*New series, all of 2004 forward. @All
products. L-Lowest S&P close during 2005.
H-Highest S&P lose during entire period.
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Interest Rates
* Treasury yields rose for the third consecutive week. Since the close on Friday, 6/24, the yield on the 10-year note was up 25 basis points. The rise in yield over that period on the 30-year bond was 18 basis points.
* The low intraday yields set on 5/27 continue to look very much like a significant reversal took place that day. The respective low 10-year and 30-year yields on 5/27 were 3.80% and 4.15%, versus Friday's respective closes of 4.17% and 4.40%.
What Happened to June Inflation?
Last week, the Labor Department reported no change in either the Consumer Price Index or the Producer Price Index during June. I wonder -- with all the decrying done in the country about low voter turnouts in national elections, does anyone take into account influences like last week's inflation releases? When voters see and hear nonsense like this, it not only reinforces their conviction of governmental incompetence, it also makes them seriously question government's basic honesty.
Following is an excerpt of a short piece put out last Friday by my colleague, John Williams, following Thursday's CPI data. John oversees his publication, John Williams' Shadow Government Statistics, which can be accessed at: "Shadow Stats".
(NOTE: Later this year, Shadow Government Statistics will begin publishing its own monthly index of consumer prices. If you would like information on this project, or to be placed on the publication's mail list, let us know by leaving a message at "Contact Us.")
John's mission is to unmask and clarify the serious and growing foibles of the US government's calculations and reporting of its critical economic data. From John's "Alert" of last Friday:
"Yesterday morning's report of 0.0% monthly CPI inflation (both seasonally adjusted and unadjusted) appears to have been a political fabrication, which was accomplished through the manipulation of reported energy prices.
"...Here's where the hanky-panky comes in...For example, official (CPI) seasonally-adjusted gasoline prices declined 1.2% in June after a 4.4% plunge in May. Further, June 2005 gasoline prices were up just 6.9% from June 2004. The reported gasoline inflation rates, however, are demonstrably shy of reality. One good surrogate for seasonally-adjusted changes in gasoline prices is seasonally-adjusted retail sales of gas stations, and the June retail sales numbers also were released yesterday morning.
"Instead of down 1.2% for June, retail gasoline sales were up 1.9%; instead of down 4.4% in May, sales were down just 0.5% (revised from a 1.6% drop); instead of up 6.9% year-to-year, gasoline sales were up 16.2%!
"Further, weekly gasoline prices reported by the government's Energy Information Agency (EIA) tend to support the retail sales data, with month-end June prices up 14.9% from the year before. The EIA also shows that unadjusted June prices rose versus May in a range of 0.5% to 5.4%, depending how the numbers are measured, but gasoline prices definitely rose.
"...Partially at fault in the current misstatement of inflation is 'Intervention Analysis,' described in yesterday's BLS press release as an 'enhanced seasonal adjustment procedure.' According to the BLS, 'For the fuel oil, utility (piped) gas, motor fuels [primarily gasoline], and educational books and supply indexes, the procedure was used to offset the effects that extreme price volatility would otherwise have had on the estimates of seasonally adjusted data for those series.'
"What is at work here, though, likely involves more than screwy seasonal factors and gimmicked methodologies. It has not been unusual in recent administrations for 'enhanced' inflation or other economic reporting to be used to help counter sagging approval ratings. The scope and nature of yesterday's misreporting looks like outright political manipulation!"
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