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Foreword
"Last Week in the Markets..." 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
Last week was more a less a wash in stocks, somewhat meaningless on the interest-rate front, but perhaps quite telltale for the dollar, oil and gold. Or, perhaps, the dollar, oil and gold were increasingly telltale for what's ahead for the stock market?
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NOTE: Due to some exceptionally severe weather last night, and resulting power outages, I got a late start in putting this missive together. Therefore, it will be more abbreviated than I had originally planned.
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Stocks
I suspect that the last couple trading weeks have given an indication of a reasonably stiff pullback in the stock market, the beginning of which is now closer at hand -- perhaps very close. First, though:
* Last week saw the seven-measure GRA tracking group rise an average 0.2%, with a median gain of the same amount. Five components rose, two fell, with returns running in a range of +1.4% for the NYSE Composite, to minus 0/6% for the NASDAQ 100.
* Thus, while last week did not see a follow-through to the prior week's declines, it did not see much of a reversal of them, either.
* For the year to date through last Friday, the tracking group was up 1.1%, on average, registering a median gain of a larger 1.5%. Five of the seven measures were in the black. The DJIA and NASDAQ remained negative on the year.
* In the table below, I continue to break out and measure returns from the March highs. Although some of the tracking group's components recently have moved farther above those values, I am still unconvinced that something approximating those March levels doesn't remain in play. Time will tell.
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SELECTED STOCK-MARKET MEASURES
(GRA Seven-Measure "Tracking
Group," Listed by YTD Returns)
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08/12 3/2005 12/31 Week From
2005 High 2004 Ended March
Close Close* Close 08/07 High YTD
===== ====== ===== ===== ===== =====
NYSE Comp. 7558 7441 7250 0.2% 1.6% 4.3%
Wilsh. 5000 12284 12074 11971 0.2% 1.7% 2.6%
Value Line 411 403 405 +0.0% 2.0% 1.6%
S&P 500 1230 1225 1212 0.3% 0.4% 1.5%
Russ. 2000 660 645 652 -0.4% 2.3% 1.2%
DJIA 10600 10941 10783 0.4% -3.1% -1.7%
NASDAQ 100 1592 1545 1621 -0.6% 3.0% -1.8%
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Average 0.2% 1.1% 1.1%
Median 0.2% 1.7% 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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From the "Last Week" edition dated 8/8:
"There's a hulluva correction (or worse) awaiting the US stock market. The jury is out on whether last week [week ended 8/5] saw its beginning. ..."
* Using the S&P 500 as a market proxy, its recent closing high occurred on 8/3, at around 1,245. Last week's close of about 1,230 was 1.2% lower, and there was no day last week in which the S&P was able to take out its finish of 8/3. Last Thursday's 1,238 close came nearest.
* Therefore, in monitoring short-term events, the two numbers I think we want to watch carefully are the March high of 1,225 (set on 3/7), and the 8/3 slightly higher high, a close of 1,245. This 20-point band is a mere 1.6% wide, with last week's close 0.4% above its bottom and 1.2% below its top.
* There are some powerful negative fundamentals that the Wall Street and the TV bulls have done a remarkable job in getting investors to ignore. The incremental impact of energy prices certainly is near or at the top of the list. And as opined a few weeks ago, the geopolitical setting is becoming a darker cloud as well. These influences could exert themselves as negative market forces at any moment.
* Nevertheless, over the near term, I believe technical factors are likely to assume an increasingly important role in dictating the market's behavior. In this regard, my reading of the current state of the technical tea leaves is not very positive.
* Next week, I'll run some of the series and numbers in more detail. For now, I'll mention a couple that make the overall market appear increasingly vulnerable. One is the short-term rate-of-change indicator I run on the DJIA, the S&P 500 and the NASDAQ 100, which recently turned negative and looks like it may stay that way for at least a few weeks, on balance. Another series that appears to have peaked and turned down is one measuring NYSE 52-week highs and lows.
Interest Rates
* Treasury yields fell across the entire coupon-issue curve fell last week, with the decline at the longer end of the curve most pronounced. Much of the impetus for the rally came from the results of the Treasury's auction of new 10-year notes on Thursday. The appearance of sizable foreign participation cheered Wall Street. On the other hand, it might not be bad if investors thought about how exceptionally dependent the Treasury market remains on foreign demand.
* In its the statement released after the Federal Open Market Committee's policy meeting last Tuesday, the FOMC made clear its present intention to continue the increases in the Federal Funds Rate that commenced in June of last year, from the 1% level. After the FOMC's 25 basis-point hike last Tuesday, the funds rate stood at 3.50%, with the December future finishing last Friday at 4.06%.
* Notwithstanding last week's lower yields, I continue to believe May 27th marked a critical day for the bond market. During that day, the yield on the 10-year and 30-year Treasury issues traded as low as 3.80% and 4.15%, respectively, before reversing strongly to the upside. Last Friday, these yields stood at 4.25% and 4.45%.
Miscellaneous
From the "Last Week" edition dated 8/8:
"In my view, the dollar continues to produce indications that an important top is either in or is being made...A weaker dollar would almost certainly benefit physical gold, perhaps materially. In the meantime, bullion acts quite well recently, as do the major stocks in the complex."
* The Dollar Index finished last Friday at 86.98, its lowest level in about 10 weeks. Meanwhile, the December COMEX gold future closed out the week at $451.40, its highest level in almost five months.
* As measured by the Philadelphia Gold/Silver Index (XAU), the leading gold stocks put in a stellar performance last week. The XAU close on Friday at 99.96, up 4.2% for the week. From its recent low close of 78.73, set on 5/16, the XAU has risen about 27%.
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