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MARKET SUMMARY -- WEEK ENDED 04/09/04
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04/02 -- Change --
Close Week YTD
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90-Day T-Bill* 0.92% -1bp 0bp
02-Yr. T-Note 1.85% 0bp 3bp
05-Yr. T-Note 3.21% 7bp -4bp
10-Yr. T-Note 4.19% 4bp -6bp
30-Yr. T Bond 5.02% 4bp -5bp
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DJIA 10442 -0.3% -0.1%
S&P 500 1139 -0.3% 2.4%
NASDAQ 100 1486 -0.3% 1.2%
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Dollar Index 89.02 0.6% 2.4%
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CRB Index 284.07 0.9% 11.3%
Crude Oil@ 37.14 8.0% 14.2%
Unl. Gasoline@ 1.1508 7.3% 21.2%
Gold@ 419.90 -0.4% 1.0%
Silver@ 8.09 -0.9% 36.0%
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*Coupon-equiv. @Near-month contract.
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Summary
Several weeks ago, I opined that domestic and international political
developments -- forces I usually lump generically with the "exogenous" -- would
begin playing an increasing role in their influence on the US financial
markets. Moreover, I strongly suggested that the influence would not be a positive
one. This appears to be the direction events are now taking. I suspect we may
be good deal closer to the alpha rather than the omega of the process.
_____
From the missive of 4/5 ("Market Update"):
The debt and equity markets diverged materially last week. The former did
poorly, stocks prospered. Both markets enter the new week at critical
junctures. In the period immediately ahead, I expect stock prices to reverse and
head lower, while
interest rates at the longer end of the Treasury curve move to still higher
levels.
Four-day trading weeks are always somewhat tricky, but the one occurring
last week conformed quite nicely to the above view. Here is what transpired.
Interest Rates
* As the opening table shows, Treasury yields moved higher from the
middle to the distant end of the curve. This extended the trend beginning the
prior week, and as the following table indicates, the two-week rise in yields has
been rather sizable. Remember, too, that at their lows on 3/24, the 10-year
and 30-year issues traded at yields in the high 3.60s and low 4.60s,
respectively, finishing the 24th at 3.71% and 4.66%.
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TREASURY YIELD CURVE AS OF 04/09/04
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90-Day 2-Yr. 5-Yr. 10-Yr. 30-Yr.
Date Bill* Note Note Note Bond
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04/09/04 0.92% 1.85% 3.21% 4.19% 5.02%
04/02/04 0.93% 1.85% 3.14% 4.15% 4.98%
03/26/04 0.93% 1.56% 2.77% 3.82% 4.76%
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BASIS-POINT CHANGE TO 04/09/04 FROM:
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04/02/04 -1 0 +7 +4 +4
03/26/04 -1 +29 +44 +37 +26
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*Coupon-equivalent yield.
________________________________________________
* At present, the 30-year T-Bond is bumping up against an area of yield
resistance (price support), but one I do not expect will prove terribly
formidable. Therefore, I continue to look for still higher yields over the not
distant future, particularly at the longer end of the curve. If this materializes
in the manner and to the extent I believe it could, I might consider covering
some to all of the model bond portfolio's short position in the Treasury
5.375s of 2/15/31.
* Something of possible interest -- certainly something worth watching --
was a little flare-up last week in August and September federal funds
futures. I believe this "rearranging" of the futures curve suggests at least a
slight change in perception about the possible timing of a Fed rate increase -- to
one that there is a better chance the Fed will act, or be forced to, before
the election. Note in the table below that there is no scheduled FOMC meeting
in October.
Why did funds futures behave this way last week? I don't know for
sure, but I suspect it might well have reflected some changing views about
inflation, views obviously not changing for the better.
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FEDERAL FUNDS FUTURES -- 04/08 VS. 04/02
--------------------------------------------
04/08 04/02 BP Scheduled
Contract Close Close* Chg. FOMC Meetings
----------------------------- -------------
Apr. '04 1.01% 1.01% 0 No Meeting
May '04 1.01% 1.02% +1 May 4
June '04 1.02% 1.02% 0 June 29-30
July '04 1.06% 1.08% -2 No Meeting
Aug. '04 1.14% 1.09% +5 Aug. 10
Sep. '04 1.21% 1.13% +8 Sep. 21
Oct. '04 1.29% 1.33% -4 No Meeting
Nov. '04 1.40% 1.45% -5 Nov. 10
Dec. '04 1.52% 1.58% -6 Dec. 14
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* Despite last week's rise in US rates, Treasury yields across the one-
through 10-year curve remained far below the yields available on government
bonds in Australia and in the United Kingdom. And only in the 10-year sector were
US rates higher than in Germany
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APPROXIMATE INTEREST RATES OF SELECTED
COUNTRIES' SOVEREIGN DEBT SECURITIES
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Maturity
Date ----------------------------
Country 2004 1-Year 2-Year 5-year 10-year
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Australia 04/09 5.27% 5.30% 5.59% 5.78%
United Kingdom " 4.27% 4.48% 4.76% 4.88%
Germany " 2.03% 2.28% 3.26% 4.07%
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UNITED STATES " 1.13% 1.85% 3.21% 4.19%
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Japan " 0.03% 0.14% 0.65% 1.49%
=================================================
Yield Spreads -- Treasuries Vs. Foreign
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Australia 04/09 -414 -345 -238 -159
United Kingdom " -314 -263 -155 -69
Germany " -90 -43 -5 +12
Japan " +110 +171 +256 +270
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The Stock Market
* During the first of last week's four trading days, stock prices did
quite well. In fact, two of my tracking group's seven components -- the Value
Line Geometric and the Russell 2000 -- managed to make 52-week closing highs.
However, these highs were again, at best, of the marginal variety, and the
overall enthusiasm in evidence on Monday was more than gone by Thursday's close.
* For last week as a whole, the tracking group registered respective
average and median declines of 0.4% and 0.3%. From recent respective highs, the
group is down an average 2.0% (median decline = 1.6%). Relative to overall
NYSE breadth, which was quite poor, last week's losses were reasonably modest.
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NEW YORK STOCK EXCHANGE BREADTH MEASURES
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Volume* Issues 52-Week
---------------- -------------- --------------
A D A D H L
Week --- --- --- --- A/ ---- --- H/
Ended Total Advan. D/A Adv. Decl. A+D High Low H+L
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2004
04/09#5.423 2.389 0.44 5545 7597 0.42 716 119 0.86
04/02 7.148 4.995 0.7010473 5901 0.64 1262 55 0.96
03/26 7.140 3.267 0.46 7876 8427 0.48 469 91 0.84
03/19 7.181 3.204 0.45 8010 8351 0.49 920 56 0.94
03/12 7.658 2.228 0.30 6795 9665 0.41 872 49 0.95
03/05 6.842 3.924 0.57 9780 6574 0.60 1588 21 0.99
02/27 7.017 3.696 0.53 9220 7094 0.57 822 30 0.97
02/20#5.688 2.452 0.43 6072 7023 0.46 958 16 0.98
02/13 7.061 3.810 0.54 8944 7381 0.55 1627 20 0.99
02/06 7.568 4.043 0.53 8713 7637 0.53 917 37 0.96
01/30 8.324 3.613 0.43 7122 9278 0.43 1362 23 0.98
01/23#6.550 3.429 0.52 7524 5589 0.57 1968 6 0.99
01/16 7.896 4.678 0.59 9415 6976 0.57 2096 7 0.99
01/09 8.185 4.705 0.58 9344 7068 0.57 2402 28 0.99
01/02#4.007 2.450 0.61 7680 5279 0.59 2062 38 0.98
2003
12/26#3.219 1.970 0.61 7615 4996 0.60 1478 21 0.99
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*Billions of shares. #Four-day trading week.
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* Of considerable continuing interest to me is where the seven measures
stand relative to their closes on 1/26. As I view the situation, 1/26
represents the market's last genuine high, since as of that date, all seven of the
tracking group's components made highs. As of last week's close, the group was
down, on average, 1.5% from 1/26 values (median = minus 1.0%).
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SELECTED STOCK-MARKET MEASURES
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Recent Highs 04/08
04/08 ------------ 02/11 01/26 From
Close Close Date Close Close 01/26
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NYSE Comp. 6656 6780 03/05 6751 6672 -0.2%
Value Line 383 387 04/05 384 384 -0.3%
Russ. 2000 598 606 04/05 597 602 -0.7%
Wil. 5000 11166 11314 03/05 11293 11282 -1.0%
S&P 500 1139 1158 02/11 1158 1155 -1.4%
DJIA 10442 10738 02/11 10738 10703 -2.4%
NASDAQ 100 1486 1554 01/26 1514 1554 -4.4%
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Average -1.5%
Median -1.0%
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* Note in the above table that the NASDAQ 100's last high now dates to
1/26. The DJIA and the S&P 500 flamed out on 2/11, with the NYSE Composite and
Wilshire 5000 giving up the ghost -- so far, at least -- on 3/5. As mentioned
earlier and as shown above, the Value Line and the Russell 2000 were able to
make new highs last week, but ones that certainly were less than cogent. And
some of what makes them even less compelling was the time proximity to the
highs of the other bellwethers.
* I have mentioned in past weeks the growing similarity between the stock
market's recent/current behavior with that of the first four months of 2002.
The 2002 period turned out to be one helluva distribution top, followed by
what became new cycle lows.
The table below breaks out the respective 2002 closing highs of
tracking group components, with one exception. The exception being the NASDAQ 100,
which made its high on 12/5/01. The base from which these are measured is
9/21/01, which marked the lows the market made after the post-9/11/01 sell-off.
For "yardstick" purposes, I've measured declines to the July 2002 lows, mostly
established in intraday trading on 7/24.
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SELECTED STOCK-MARKET MEASURES
-- VALUES ON KEY DATES
(Listed in Order of 2001-02 Tops)
---------------------------------------------
Post-09/21/01
07/24 High Close To 07/24
2002 --------------- From
Low Value Date Highs
---------------------------------------------
NASDAQ 100 869 1721 12/05/01 -49.5%
S&P 500 776 1173 01/04/02 -33.8%
Wil. 5000 7397 10932 01/04/02 -32.3%
DJIA 7533 10635 03/19/02 -29.2%
NYSE Comp.* 419 610 03/19/02 -31.3%
Russ. 2000 354 523 04/16/02 -32.3%
Val. Line 249 382 04/16/02 -34.8%
---------------------------------------------
Average -34.7%
Median -32.3%
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*Former NYSE Composite series.
---------------------------------------------
* I'm not predicting coming declines of anything like the above
magnitude, at least not in the immediate future. (Of course, one exception must remain
on the table, and it would be the reaction to terrorism against the United
States occurring on US soil. I believe such an event from around present market
levels would be reflected very harshly.) In the absence of a terrorism-driven
event and until current technical patterns change, prudence dictates
exercising some degree of concern -- probably a high degree -- about these patterns'
similarity to those in evidence two years ago.
* Big-picture wise, I have not materially altered my views from those
expressed in the 3/26 missive ("Buy the Dips or Sell the Rallies?"), to wit:
"... Here's what I see setting up for the next few months. At the
moment, this big-picture outlook is rough ... and will need some tightening up
along the way. But here goes:
"New lows ... by early to mid April."
[Since we are now pushing mid April, I would modify the above to "by mid
to late April." But I think the remaining configuration remains about intact,
so read on ...]
"These new lows are then followed by a decent but
doomed rally ... I am talking about something that
could turn out to look devilishly like a major
'failing rally.' For the sake of argument right
now, let's say this process runs into May --
perhaps well into May -- before it is complete.
"Then, the stock market segues into what will be
a decidedly bad June-July period."
* If new lows are in the cards as a precursor to a major failing rally,
tests of 200-day moving averages of key measures probably continue to represent
a reasonable target, give or take, for those lows. Following is what this
looked like, as of last week's DJIA, NAZ Composite and S&P 500 closes.
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200-DAY MOVING-AVERAGE VIOLATIONS --
VALUES PROJECTED FROM CLOSE ON 04/08/04
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% Decline From
MA Violation/ 04/08 Close At
Resulting Price Violation Of:
04/08 --------------- -----------------
Measure Close 0% 3% 6% 0% 3% 6%
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DJIA 10442 9907 9610 9313 5.1 8.0 10.8
NAZ Comp. 2053 1920 1862 1805 6.5 9.3 12.1
S&P 500 1139 1066 1034 1002 6.4 9.2 12.0
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Gold/Silver
* At present, physical silver is well ahead of physical gold, at least
from a technical perspective. But this may not be as bad for the former as it
is good for the latter.
* Some are concerned about gold's recent spike, then pullback -- that it
looks "double topish." I'm not too worried about this, at least not yet.
Based on my work, the recent ephemeral move to above $430 was premature, so I
simply would tend to ignore it.
* My overall assessment would be:
Silver is well ahead of gold, but gold has built an attractive,
sturdy base to support its next move. Thus, I would expect the next major move
that will cover new upside ground will come from gold.
In turn, the XAU (Philadelphia Gold-Silver Index) is now behind both
metals, which should prove of material benefit to it when one or both of the
metals do move to new higher highs. As to the timing, let me stick with the
following previously stated view (contained in the 2/17 missive, "The Markets --
By the Numbers"):
"So far, the 2004 rise, then decline, in the prices of physical
gold and silver, as well as in the better stocks that underpin the XAU, have been
very much in line with the expectations I've expressed over the last several
weeks. The correction has probably run its course. If so and in the case of
gold, it will generally have been well contained in the $400 to $410 range.
While it may take additional consolidation and base building before an assault
is made on the prior highs, I am looking for a bullion price of, say, $450 to
$475 by late spring to early summer."
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