An Invitation to Visitors to the Gillespie Research Website
If you are new to this site, please look around while you are here. If you like what you see, be sure to sign up for a free trial subscription. You will find more about this at Information about Free Trial Subscriptions.
______
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.
_____
Summary
Stocks fell again last week, the second week in a row in which the GRA tracking group suffered decent losses. And in the process of this latest decline, some of our more important momentum measures also sustained further damage. But it is quite probable that the most important news of the coming week, for the stock and other financial markets, will be the outcome of Hurricane Katrina's strike on the Gulf Coast of the United States.
_____
NOTE: I am going to confine the commentary in this edition of "Last Week in the Markets..." to stocks and Hurricane Katrina.
Stocks
In last week's work, I said I suspected "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." You can now add last week's performance to this chronology.
* Last week, the seven-measure GRA tracking group fell 1.0%, on average, with an identical median decline of 1.0%. All seven components were down, with losses running in a range of 0.6% for the Russell 2000, to minus 1.5% for the DJIA.
* All seven components in the tracking group have now declined for two consecutive weeks. During this period, the group has fallen an average 2.0%. The median decline is also 2.0%. Individual declines have run in a range of 2.4% for the NYSE Composite, to 1.7% for the Russell 2000.
* For the year to date through last Friday, the tracking group, on average, fell into negative territory for the first in approximately four months, showing a decline of 0.9% (median decline of 0.5%). Five of the seven measures were in the red. The NYSE Composite and Wilshire 5000 remained positive on the year.
* For the last several weeks, I have continued to break out and measure returns from the March highs in the table below. Although some of the tracking group's components had moved above those values (the recent peak occurring during the first week of August), I thought the March levels remained in play from a technical perspective. With four of the tracking group's seven measures finishing last week below those levels (with the Value Line Index ending about at its), it appears that this was indeed the case.
----------------------------------------------------
SELECTED STOCK-MARKET MEASURES
(GRA Seven-Measure "Tracking
Group," Listed by YTD Returns)
----------------------------------------------------
08/26 3/2005 12/31 Week From
2005 High 2004 Ended March
Close Close* Close 08/26 High YTD
===== ====== ===== ===== ===== =====
NYSE Comp. 7380 7441 7250 -1.1% -0.8% 1.8%
Wilsh. 5000 12042 12074 11971 -1.0% -0.3% 0.6%
Value Line 403 403 404 -0.8% 0.0% -0.4%
Russ. 2000 649 645 652 -0.6% 0.6% -0.5%
S&P 500 1205 1225 1212 -1.2% -1.6% -0.6%
DJIA 10397 10941 10783 -1.5% -5.0% -3.6%
NASDAQ 100 1559 1545 1621 -1.0% 0.9% -3.8%
----------------------------------------------------
Average -1.0% -0.9% -0.9%
Median -1.0% -0.3% -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).
----------------------------------------------------
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 [close on 8/12] 0.4% above its bottom and 1.2% below its top."
The S&P 500 finished last Friday at 1205, distancing itself even further from the 1,225 figure mentioned above. Friday's close was a not inconsequential 1.6% below 1,225, and an even more meaningful 3.2% below the 8/3 high.
* 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 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. It already is well over five years old. For this purpose, 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 12.8%, 26.7% and 202% to get back to their record closes of 2000.
* One momentum series I like and use measures two-week rate of change. I maintain long-term data for the DJIA, the S&P 500 and the NASDAQ 100. Increasingly, all three measures have looked "toppy," and all three now look like they have "turned," with the NDX appearing 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 minus 40%, minus 42% and minus 42%. (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 is one measuring NYSE 52-week highs and lows. I keep a few adaptations of this data, but a simple one that currently continues to flash some strong warning signals simply looks at the net of highs minus lows. Last week's result was a reading of +227, the second lowest since a +201 reading the week ended 5/20/05. The lowest reading was a recent phenomenon, occurring the week ended 8/19. (See Table 2.)
* 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? It increasingly appears it did. Last Friday, the Dow closed 1.6% below its 200-day average, while the NASDAQ and S&P finished 2.3% and 0.8% above theirs, the closest they have been since mid May. I continue to suspect that before there's much of a reflex bounce back to the upside, the current down-leg will take the NASDAQ and the S&P 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 3.)
Hurricane "Katrina"
NOTE: The first entry in the "Topical Links" section of the GRA website (top of left-hand column on home page) is NOAA material (advisories and maps) on the hurricane. It updates automatically with NOAA revisionis. Just be sure to click the "refresh" button on your browswer.
_____
This afternoon, I received an alert dealing with Hurricane Katrina from Strategic Forecasting, Inc. of Austin, Texas, a piece entitled, "The Geopolitics of Katrina." Stratfor does genuinely excellent work, and in the past, I have posted guest articles written by Startfor chief, George Friedman. More on the aforementioned article in a moment.
First, here's a discussion of current interest from the National Oceanic and Atmospheric Administration (NOAA):
"The Saffir-Simpson Hurricane Scale is a 1-5 rating based on the hurricane's present intensity. This is used to give an estimate of the potential property damage and flooding expected along the coast from a hurricane landfall. Wind speed is the determining factor in the scale, as storm surge values are highly dependent on the slope of the continental shelf and the shape of the coastline, in the landfall region. Note that all winds are using the U.S. 1-minute average."
Next, here's NOAA's definition and history of "Category Five" storms, the present status of Hurricane Katrina:
"Winds greater than 155 mph...Storm surge generally greater than 18 ft above normal. Complete roof failure on many residences and industrial buildings. Some complete building failures with small utility buildings blown over or away. All shrubs, trees, and signs blown down. Complete destruction of mobile homes. Severe and extensive window and door damage. Low-lying escape routes are cut by rising water 3-5 hours before arrival of the center of the hurricane. Major damage to lower floors of all structures located less than 15 ft above sea level and within 500 yards of the shoreline. Massive evacuation of residential areas on low ground within 5-10 miles...of the shoreline may be required. Only 3 Category Five Hurricanes have made landfall in the United States since records began: The Labor Day Hurricane of 1935, Hurricane Camille (1969), and Hurricane Andrew in August, 1992. The 1935 Labor Day Hurricane struck the Florida Keys with a minimum pressure of 892 mb--the lowest pressure ever observed in the United States. Hurricane Camille struck the Mississippi Gulf Coast causing a 25-foot storm surge, which inundated Pass Christian. Hurricane Andrew of 1992 made landfall over southern Miami-Dade County, Florida causing 26.5 billion dollars in losses -- the costliest hurricane on record. In addition, Hurricane Gilbert of 1988 was a Category Five hurricane at peak intensity and is the strongest Atlantic tropical cyclone on record with a minimum pressure of 888 mb."
I don't think anyone can miss the potential economic and market consequences Katrina poses. But to reinforce some of the specifics of this situation, here are some quotes from the Strator alert, referenced above. Incidentally, for anyone not familiar with the firm's excellent, diverse work, a special trip to Stratfor's website is definitely in order.
Excerpts from Strator's "Geopolitics of Katrina" (dated 8/28):
"Katrina has been reported heading directly toward the city of New Orleans. This would be a human catastrophe, since New Orleans sits in a bowl below sea level. However, Katrina is not only moving on New Orleans. It also is moving on the Port of Southern Louisiana. Were it to strike directly and furiously, Katrina would not only take a massive human toll, but also an enormous geopolitical one.
"The Port of Southern Louisiana is the fifth-largest port in the world in terms of tonnage, and the largest port in the United States...It is a key link in U.S. imports and exports and critical to the global economy.
"The Port of Southern Louisiana stretches up and down the Mississippi River for about 50 miles...It is the key port for the export of grains to the rest of the world...The United States imports crude oil, petrochemicals, steel, fertilizers and ores through the port. Fifteen percent of all U.S. exports by value go through the port. Nearly half of the exports go to Europe.
"The Port of Southern Louisiana is a river port. It depends on the navigability of the Mississippi River...In southern Louisiana, levees both protect the land from its water and maintain its course and navigability. Dredging and other maintenance are constant and necessary to maintain its navigability. It is fragile.
"If New Orleans is hit, the Port of Southern Louisiana, by definition, also will be hit...If we speculate on worse-case scenarios the following consequences jump out:
* "The port might become in whole or part unusable if levees burst. If the damage to the river and port facilities could not be repaired within 30 days when the U.S. harvests are at their peak, the effect on global agricultural prices could be substantial.
* "There is a large refinery at Belle Chasse. It is the only refinery that is seriously threatened by the storm, but if it were to be inundated, 250,000 barrels per day would go off line. Moreover, the threat of environmental danger would be substantial.
* "About 2 percent of world crude production and roughly 25 percent of U.S.-produced crude comes from the Gulf of Mexico and already is affected by Katrina...If this follows normal patterns, most production will be back on line within hours or days. However, if a Category 5 hurricane (of which there have only been three others in history) has a different effect, the damage could be longer lasting. Depending on the effect on the Port of Southern Louisiana, the ability to ship could be affected.
* "A narrow, two-lane highway that handles approximately 10,000 vehicles a day, is used for transport of cargo and petroleum products and provides port access for thousands of employees is threatened with closure. A closure of as long as two weeks could rapidly push gasoline prices higher.
"At a time when oil prices are in the mid-60-dollar range...the hurricane has an obvious effect. However, it must be borne in mind that the Mississippi remains a key American shipping route, particularly for the export and import of a variety of primary commodities...Andrew Jackson fought hard to keep the British from taking New Orleans because he knew it was the main artery for U.S. trade with the world. He was right and its role has not changed since then.
"This is not a prediction. We do not know the path of the storm and we cannot predict its effects. It is a warning that if a Category 5 hurricane hits the Port of Southern Louisiana and causes the damage that is merely at the outer reach of the probable, the effect on the global system will be substantial."
_____
Table Appendix
Table 1.
--------------------------------------
DJIA, S&P 500 AND NASDAQ 100 -- TW0-
WEEK COMPOUND ANNUAL RATES OF CHANGE
-- 15 WEEKS ENDED 08/26/05
--------------------------------------
Week S&P NASDAQ
Ended DJIA 500 100
--------------------------------------
2005
08/26 -40% -42% -42%
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.
----------------------------------------------------------
SELECTED NYSE BREADTH MEASURES --
WEEKLY & CUMULATIVE DATA (10/29/04=0)
----------------------------------------------------------
Adv - Dec UVol - DVol 52W H - L Closing Tick
Week ----------- ----------- ----------- ------------
Ended Week Cum Week Cum Week Cum Week Cum
----------------------------------------------------------
2005
08/26 -603 31255 -0.85 6.71 227 29476 193 19796
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
----------------------------------------------------------
*Four-day trading week.
----------------------------------------------------------
Table 3.
----------------------------------------------------------
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
08/26 -1.6 -1.3 -1.4 -1.9 -0.8 2.3 -1.7 -1.2 0.8
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
----------------------------------------------------------
|
