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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
Stocks drifted lower last week, despite the help the market usually receives from an options expiration. In the process of somewhat lower prices, the market lost more of the momentum that took the bellwether averages to their recent highs, occurring during the first week of August. Is what is beginning to evolve a portent of the serious pullback (or worse) that is very likely on the way, perhaps already in progress?
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Introduction
I continue to fetch for exactly what I want this specific missive ("Last Week in the Markets...") to be. I intend to write it most weeks, but not necessarily every week. Moreover, brevity will be far more a priority than syntactical elegance.
Something else I am strongly considering is concentration in each issue, depending on what I think is most important on an edition-to-edition basis. This week, I believe it is the stock market, so most of what follows is devoted to it.
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Stocks
I suspect that the last two to three trading weeks have given a growing indication of the approaching reasonably stiff pullback (possibly something a good deal worse, though) in the stock market, the beginning stages of which may now be in progress.
* Last week, the seven-measure GRA tracking group fell 1.0%, on average, with a median decline of a slightly larger 1.1%. All seven components were lower, with losses running in a range of 0.4% for the DJIA, to minus 1.3% for the NYSE Composite.
* For the year to date through last Friday, the tracking group was up only 0.1%, on average, although registering a median gain of a larger 0.5%. Five of the seven measures were in the black. The DJIA and NASDAQ remained negative on the year.
* These paltry returns are even worse, placed in the context of the incredible and pervasive optimism prevailing as this year began (excluding me, of course).
* In the table below, I continue to break out and measure returns from the March highs. Although some of the tracking group's components moved above those values (the recent peak occurring during the first week of August), I still believe that the March levels remain in play from a technical perspective. More on this momentarily.
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SELECTED STOCK-MARKET MEASURES
(GRA Seven-Measure "Tracking
Group," Listed by YTD Returns)
----------------------------------------------------
08/19 3/2005 12/31 Week From
2005 High 2004 Ended March
Close Close* Close 08/19 High YTD
===== ====== ===== ===== ===== =====
NYSE Comp. 7459 7441 7250 -1.3% 0.2% 2.9%
Wilsh. 5000 12168 12074 11971 -0.9% 0.8% 1.6%
S&P 500 1220 1225 1212 -0.9% -0.4% 0.6%
Value Line 406 403 404 -1.1% 0.7% 0.5%
Russ. 2000 653 645 652 -1.1% 1.2% 0.1%
DJIA 10559 10941 10783 -0.4% -3.5% -2.1%
NASDAQ 100 1574 1545 1621 -1.1% 1.9% -2.9%
----------------------------------------------------
Average -1.0% 0.1% 0.1%
Median -1.1% 0.7% 0.5%
----------------------------------------------------
*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 8/15:
"...In monitoring short-term events, the two [S&P 500] 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."
The S&P 500 finished last Friday at 1220, thereby taking out on the downside the 1,225 figure mentioned above. However, this violation was a mere 0.4%, so it would be foolish to view it as decisive yet. Nevertheless, Friday's close was 2.0% below the 8/3 high, something more meaningful in magnitude.
* The first week of August saw the recent highs for all seven measures in the tracking group. Some of them -- the S&P 500 and the Russell 2000, for instance -- were recovery highs for the current secular bear market.
* I like to provide periodic updates on the status of what I continue to believe (very strongly believe) is a secular bear market that could have years yet to run. After all, it already is well over five years old. My three tracking proxies have been the DJIA, S&P 500 and NASDAQ 100. From last Friday's close, these measures would have required respective advances of 11.0%, 25.2% and 199% to get back to their record closes of 2000.
* Of perhaps more than casual technical interest is that the close last Monday (8/15) saw secondary highs that all failed to exceed the early August levels.
* Something else of note on the momentum front is the recent behavior of the NASDAQ 100. After showing greater on-balance relative strength than other important measures from the April lows through the recent highs, the NDX has now become a trailer instead of a leader.
* One series I like that measures this type of momentum is two-week rate of change. I maintain long-term data for the DJIA, the S&P 500 and the NASDAQ 100. All three measures look increasingly "toppy," but the NDX appears to be leading the other two down. For the most recent week, the respective DJ, S&P and NDX two-week rates of change were +0.0%, minus 13% and minus 37%. (See Table 1 in the appendix at the end of the text.)
* Another technical series that has moments in time when it is highly meaningful in what it is saying measures NYSE 52-week highs and lows. I keep a few adaptations of this data, but a simple one that currently is flashing some strong warning signals simply looks at the net of highs minus lows. Last week's result was a reading of +207, the lowest since a +201 reading the week ended 5/20/05. (See Table 2.)
* In recent weeks, I've made mention of the upward "creep" in the CBOE Volatility Index. The VIX finished last week at 13.42, still very low by historical standards. Still, this is up 35.8% from the multi-year low of 9.88, set only last month (on 7/20), and Friday's close stood 29.9% above this year's end-of-week low of 10.33, set on 7/15. (See Table 3.)
* In roughly mid July, the DJIA, NASDAQ Composite, and S&P 500 were at their recent maximum readings above respective 200-day moving averages (+1.7%, +6.2% and +4.1%). Did this represent an inflection point? On Friday, the Dow closed a mere 0.2% above its 200-day average, while the NASDAQ and S&P finished 3.1% and 2.1% above theirs. I suspect there's a decent chance that before there's much of a reflex bounce back up, the current down-leg will take all three measures to or below the critical 200-day measure. Longer run, I am looking for significant breaks to the downside, vis a vis this critical technical series. (See Table 4.)
Elsewhere
Last week saw weaker gold and weaker oil, reflecting the short-term overbought conditions in both. Meanwhile, there was a decline in Treasury yields and a rally in the Dollar Index, reflecting the short-term oversold condition in both of these.
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Table Appendix
Table 1.
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DJIA, S&P 500 AND NASDAQ 100 -- TW0-
WEEK COMPOUND ANNUAL RATES OF CHANGE
-- 14 WEEKS ENDED 08/19/05
--------------------------------------
Week S&P NASDAQ
Ended DJIA 500 100
--------------------------------------
2005
08/19 +0% -13% -37%
08/12 -9% -8% -20%
08/05 -20% -3% 48%
07/29 +0% 14% 57%
07/22 65% 59% 206%
07/15 131% 105% 339%
07/08 46% 55% 76%
07/01 -55% -38% -56%
06/24 -42% -13% -30%
06/17 49% 57% -10%
06/10 -7% -1% -39%
06/03 -3% 16% 32%
05/27 175% 169% 291%
05/20 37% 48% 251%
--------------------------------------
Table 2.
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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
----------------------------------------------------------
2005
08/19 -1419 31858 -1.15 7.56 207 29249 390 19603
08/12 632 33277 0.63 8.71 568 29042 524 19213
08/05 -1673 32645 -0.75 8.08 1189 28474 645 18689
07/29 1251 34318 0.31 8.83 1279 27285 432 18044
07/22 1777 33067 0.24 8.52 1003 26006 726 17612
07/15 1340 31290 1.22 8.28 1419 25003 518 16886
07/08* 2540 29950 0.93 7.06 1118 23584 713 16368
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
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*Four-day trading week.
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Table 3.
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THE BEHAVIOR OF CBOE SENTIMENT-RELATED MEASURES
AND THE S&P 500 FROM 04/20/05 THROUGH 08/19/05
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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
-----------------------------------------------------
2005
08/19 13.42 1.05 0.58 1.70 0.90 1219.7 -0.9% 107.92
08/12 12.74 1.28 0.63 2.80 0.90 1230.4 0.3% 108.87
08/05 12.48 1.15 0.55 2.77 0.90 1226.4 -0.6% 108.51
-----------------------------------------------------
08/03H 11.83 0.88 0.56 2.10 0.91 1245.0 -- 110.16
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07/29 11.57 0.99 0.66 1.65 0.91 1234.2 0.0% 109.20
07/22 10.52 0.80 0.56 1.97 0.91 1233.7 0.5% 109.16
07/15 10.33 0.75 0.54 1.19 0.89 1227.9 1.3% 108.64
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
-----------------------------------------------------
04/20L 16.92 0.98 0.63 1.87 0.88 1137.5 -- 100.65
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VIX Highs and Lows (Including Intraday)
---------------------------------------
Year High Date Low Date
---------------------------------------
2005 18.59 04/18 9.88 07/20
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
-----------------------------------------------------
*New series, all of 2004 forward. @All
products. L-Lowest S&P close during 2005.
H-Highest S&P close since 2000 high.
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Table 4.
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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)
----------------------------------------------------------
DJIA Vs. NAZ Comp. Vs. S&P 500 Vs.
--------------- --------------- ---------------
Date 20D 50D 200D 20D 50D 200D 20D 50D 200D
----------------------------------------------------------
2005
08/19 -0.5 0.2 0.2 -1.7 0.2 3.1 -0.9 0.1 2.1
08/12 -0.3 0.6 0.6 -1.1 1.5 4.2 -0.2 1.1 3.1
08/05 -0.6 0.3 0.3 0.1 2.9 5.4 -0.4 1.0 2.9
07/29 0.8 1.2 1.3 1.6 3.9 6.1 0.8 2.0 3.9
07/22 1.6 1.5 1.5 3.0 4.5 6.2 1.7 2.5 4.1
07/15 1.8 1.8 1.7 3.1 4.5 5.4 1.7 2.6 3.9
==========================================================
2004
12/31 0.9 2.9 5.1 1.1 4.0 10.4 0.9 3.0 7.3
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