Summary
The technicals supporting stock prices have shown steady erosion over recent weeks, yet prices themselves have held up relatively well. What gives? Elsewhere, is there any hope for Bush?
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Foreword
At the end of January, "Market Thoughts" replaced "Last Week in the Markets..." The successor publication will be very much like the former one, but it carries what I think is a more appropriate title.
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The Stock Market
* On March 20th, I issued an unequivocal sell recommendation on the stock market. Using the DJIA, S&P 500 and NASDAQ 100 as proxies, here is how that pronouncement has worked out so far, through last week's close:
Summary of Gillespie Stock-Market
Sale Recommendation Issued on 3/20/06
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04/14 03/20
Close Value* Change
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NASDAQ 100 1,712 1,687 1.5%
DJIA 11,138 11,275 -1.2%
S&P 500 1,289 1,306 -1.3%
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*Level of respective measure
at time of recommendation.
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* Overall, little has taken place since March 20th. However, I am not at all uncomfortable about either having issued the recommendation or where the market currently stands vis a vis when the recommendation was made. People who took it seriously have had an orderly environment in which to liquidate positions.
* As I said at the time, I would not have made the recommendation unless I felt a decline of at least (emphasis on "at least") 5% to 10% in the works. In turn, this works out to ranges of 10,148 to 10,711 for the DJIA, of 1,175 to 1,241 for the S&P 500, and of 1,518 to 1,603 for the NDX. Again, these represent projected minimum declines.
* From around the beginning of the time the sell recommendation was made, the technicals underpinning stock prices have shown steady erosion, despite that prices have held up relatively well. Nevertheless, I take this technical deterioration very seriously, believing it merely is leading what is to come on the price front.
* This said, I am fully aware of the huge vested interest that Washington -- the White House and congressional Republicans -- and Wall Street have in keeping the good times rolling. However, it's possible these folks may not appreciate the potential monster they have created. In my opinion, the US stock market is now about as dangerous as it was coming into the 2000 highs. We all know what happened thereafter, which would be a rather unpleasant lead-in the November elections for some.
* The current trading week contains an options expiration and all the highly manipulative nonsense that goes along with these silly monthly rituals. Once in a rare while, though, one of these events blows up in the manipulators' faces. When it does, you can hear the squealing from LaSalle Street all the way back here in the New York metropolitan area!
* You can be sure that the axis powers of LaSalle Street and Wall Street are planning much better things for this week's expiration, so I am not necessarily forecasting a bad outcome. On the other hand, we all are aware of the occasional endings for the so-called "best made plans." Circumstances are coalescing for a bad expiration sometime this year, one of these being defined as when put holders ring the cash register in a big way, or at least that is how it is defined by those who set up put holders month after month after month.
* Now a look at some technical considerations, beginning with last week as it related to my seven-measure tracking group. Breaking the pattern in evidence during several prior weeks, there were no new highs last week, not even ones of the highly marginal variety that had been occurring with frequency. A single week doesn't prove anything, of course, but it does provide something to watch. As I remarked not long ago, the 2006 patterns, on balance, are highly suggestive of major distribution. If that is what they are/have been, it surely is not one of the market's more constructive portents.
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SELECTED STOCK-MARKET MEASURES
(GRA Seven-Measure "Tracking
Group," Listed by YTD Returns)
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From
04/14 Week Year Most Most Recent
2006 Ended To Recent 2006 Top* Prior Top*
Close 04/14 Date Top Close/Date Close/Date
===== ===== ===== ====== ============ ============
Russ. 2000 751 -0.7% 11.6% -2.0% 766 04/05 765 03/31
Value Line (G) 442 -0.8% 7.2% -1.8% 450 04/05 447 03/31
NYSE Comp. 8228 -0.5% 6.1% -1.7% 8369 04/05 8272 03/30
Wilsh. 5000 13065 -0.6% 4.4% -1.7% 13292 04/05 13205 03/29
NASDAQ 100 1712 -0.6% 4.1% -2.6% 1758 01/11 1709 12/02
DJIA 11138 +0.2% 3.9% -1.6% 11317 03/22 11280 03/17
S&P 500 1289 -0.5% 3.3% -1.8% 1312 04/05 1307 03/17
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Average -0.5% 5.8% -1.9%
Median -0.6% 4.4% -1.8%
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*Measured using closing prices.
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* Since I issued the sell recommendation on 3/20, there has been noticeable slippage in conventional NYSE breadth measures, particularly in advancing-declining issues. The table below illustrates the phenomenon.
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SELECTED NYSE BREADTH MEASURES --
WEEKLY & CUMULATIVE DATA (10/29/04=0)
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Average Net
Adv-Dec UVol-DVol 52W H-L Closing Tick
----------- ---------- ---------- -----------------
Week Vs.
Ended Week Cum Week Cum Week Cum Week Cum Prior
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2006
04/14 -2142 44047 -0.79 19.11 -231 42392 372 35044 1.011
04/07 -1328 46189 0.23 19.90 857 42623 522 34672 1.015
03/31 -119 47517 -0.28 19.67 773 41766 481 34150 1.014
03/24 -53 47636 0.12 19.95 609 40993 293 33669 1.009
03/17 4479 47689 2.41 19.83 1141 40384 676 33376 1.021
03/10 -1753 43210 -0.90 17.42 223 39243 382 32700 1.012
03/03 -256 44963 -0.31 18.32 802 39020 388 32318 1.012
02/24* 1199 45219 0.20 18.63 886 38218 606 31930 1.019
02/17 2965 44020 1.85 18.43 689 37332 514 31324 1.017
02/10 243 41055 -0.27 16.58 375 36643 440 30810 1.015
02/03 -1503 40812 -1.32 16.85 977 36268 502 30370 1.107
01/27 3805 42315 2.20 18.17 1243 35291 715 29868 1.025
01/20*-1204 38510 -1.51 15.97 599 34048 405 29153 1.014
01/13 1308 39714 0.16 17.48 1209 33449 586 28748 1.021
01/06* 5195 38406 2.99 17.32 992 32240 518 28162 1.019
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*Four-day trading week.
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* Using 3/24 = 0, the cumulative A-D result since then has been minus 3,589, with each subsequent week producing a negative reading. Note, too, that over the same three-week period, the cumulative up-down volume has been a negative 840 million shares.
* The recent major development, however, has been the slippage in 52-week highs. Last week's net H-L was a minus 231 (257 highs, 488 lows), the first negative week since December.
* There are times that short-term rate-of-change can be a very useful series. The one I employ uses a two-week period, purposely to accentuate results. This makes major turning points somewhat easier to see. I apply it to the DJIA, the S&P 500 and the NDX, and following are year-to-date results.
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DJIA, S&P 500 AND NASDAQ 100 -- TW0-
WEEK COMPOUND ANNUAL RATES OF CHANGE
-- 15 WEEKS ENDED 04/14/06
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Week S&P NASDAQ
Ended DJIA 500 100
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2006
04/14 7% -11% 14%
04/07 -31% -14% 94%
03/31 -33% -22% 32%
03/24 61% 54% 64%
03/17 83% 49% 2%
03/10 3% -15% -36%
03/03 -20% -0% 15%
02/24 40% 58% 22%
02/17 115% 60% 18%
02/10 3% -29% -52%
02/03 36% 5% -17%
01/27 -12% -8% -42%
01/20 -50% -39% -59%
01/13 79% 124% 375%
01/06 18% 41% 121%
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* The striking characteristics regarding the above are the large number of negative observations, accompanied by a lack of the very sizable positive values occasionally recorded in valid bull markets.
* Not long ago, I opined that a minimum objective for the sell-off I envisioned was a revisiting of respective 200-day moving averages. From last week's close, this would have required approximate DJIA, S&P and NASDAQ declines of 3.5%, 3.2% and 4.8%, respectively.
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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)
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DJIA Vs. NAZ Comp. Vs. S&P 500 Vs.
--------------- --------------- ---------------
Date 20D 50D 200D 20D 50D 200D 20D 50D 200D
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2006
04/14 -0.5 0.4 3.6 0.0 1.3 5.1 -0.8 0.0 3.2
04/07 -0.8 0.4 3.6 0.9 1.9 5.9 -0.4 0.6 3.8
03/31 -0.5 0.7 3.7 1.8 2.3 6.3 0.1 0.9 4.0
03/24 1.4 2.6 5.5 0.9 1.3 5.4 0.9 1.6 4.9
03/17 1.8 2.9 5.7 0.9 0.9 5.5 1.5 2.0 5.6
03/10 0.3 1.3 3.9 -0.8 -0.1 3.6 -0.1 0.3 3.6
03/03 0.2 1.0 3.5 1.1 1.1 5.7 0.6 0.9 4.2
02/24 1.0 1.6 4.2 0.5 0.7 5.6 0.9 1.3 4.7
02/17 2.2 2.2 4.7 0.4 0.6 5.3 1.2 1.2 4.5
02/10 0.9 0.7 3.0 -0.6 -0.2 4.8 -0.4 -0.2 3.2
02/03 -0.7 -0.6 2.1 -1.4 -0.1 5.6 -1.2 -0.4 3.4
01/27 0.4 0.6 3.4 1.0 2.0 8.0 0.6 1.4 5.3
01/20 -1.9 -1.5 1.2 -1.1 -0.1 5.6 -1.0 0.0 3.6
01/13 0.7 1.3 4.0 2.3 3.2 9.0 1.3 2.3 5.9
01/06 1.2 2.0 4.2 2.6 4.0 9.1 1.6 3.0 6.0
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Finally, a thought or two about "sentiment," which I believe remains highly bullish, thereby subjecting the market to above-average downside risk.
* As I noted not long ago, the recent sharp decline in the Investors Intelligence series' bullish component appeared totally out of sycn with the overall market. However, the recent, sharp rise in the bullish reading appears to have redressed this anomaly.
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INVESTORS INTELLIGENCE WEEKLY SENTIMENT NUMBERS
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Bulls Bears Correction
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Week 10-Wk. 10-Wk. 10-Wk.
Ended Week Avg. Week Avg. Week Avg.
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2006
04/12 53.2% 46.9% 24.5% 28.9% 22.3% 24.2%
04/05 49.5% 46.9% 27.8% 29.0% 22.7% 24.1%
03/29 46.7% 47.3% 28.3% 28.7% 25.0% 24.0%
03/22 46.3% 48.3% 30.5% 28.2% 23.2% 23.5%
03/15 42.3% 49.4% 33.0% 27.4% 24.7% 23.2%
03/08 42.7% 50.8% 31.3% 26.4% 26.0% 22.8%
03/01 42.6% 52.5% 30.8% 25.4% 26.6% 22.1%
02/22 45.3% 53.7% 29.5% 24.4% 25.2% 21.9%
02/15 48.9% 55.1% 27.7% 23.6% 23.4% 21.3%
02/08 51.6% 55.8% 25.3% 23.1% 23.1% 21.1%
02/01 52.6% 56.2% 25.8% 22.6% 21.6% 21.2%
01/25 53.7% 56.3% 25.3% 22.4% 21.0% 21.3%
01/18 57.3% - 22.9% - 19.8% -
01/11 56.8% - 22.1% - 21.1% -
01/04 55.7% - 23.7% - 20.6% -
2005
12/28 60.4% - 20.8% - 18.8% -
12/21 55.0% - 21.0% - 24.0% -
12/14 58.8% - 21.6% - 19.6% -
12/07 56.2% - 21.9% - 21.9% -
11/30 55.8% - 21.1% - 23.1% -
11/23 53.6% - 23.2% - 23.2% -
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Trailing 10-Week Highs/Lows
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Bulls Bears Correction
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Date High Low High Low High Low
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04/12 53.2% 24.5% - 22.3%
03/15 - 42.3% 33.0% - - -
03/01 - - - - 26.6% -
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* Elsewhere, the overall CBOE put/call numbers continue to suggest a great deal of complacency.
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THE BEHAVIOR OF CBOE SENTIMENT-RELATED MEASURES
AND THE S&P 500 FROM 10/29/04 THROUGH 04/14/06
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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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2006
04/14 12.38 0.86 0.60 1.45 0.83 1289.1 -0.5% 114.06
04/07 12.26 0.91 0.58 1.83 0.83 1295.5 0.1% 114.63
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04/05H 11.13 0.86 0.64 1.75 0.83 1311.6 -- 116.05
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03/31 11.39 0.83 0.61 1.68 0.82 1294.8 -0.6% 114.56
03/24 11.19 0.84 0.63 1.55 0.82 1303.0 -0.3% 115.29
03/17 12.12 0.79 0.61 1.05 0.83 1307.3 2.0% 115.67
03/10 11.85 0.87 0.53 2.02 0.81 1281.6 -0.4% 113.40
03/03 11.96 0.87 0.66 1.41 0.82 1287.2 -0.2% 113.89
02/24 11.46 0.93 0.64 2.07 0.82 1289.4 0.2% 114.09
02/17 12.01 0.83 0.51 1.36 0.81 1287.2 1.6% 113.89
02/10 12.87 0.68 0.86 0.57 0.82 1267.0 0.2% 112.10
02/03 12.96 1.08 0.70 2.50 0.83 1264.0 -1.5% 111.84
01/27 11.97 0.80 0.59 1.45 0.84 1283.7 1.8% 113.58
01/20 14.56 1.08 0.69 1.91 0.88 1261.5 -2.0% 111.62
01/13 11.23 0.78 0.59 1.64 0.87 1287.6 0.2% 113.93
01/06 11.00 0.68 0.58 0.87 0.86 1285.5 3.0% 113.74
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VIX Highs and Lows (Including Intraday)
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Year/
Week High Date Low Date
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2006 14.56 01/20 10.53 03/14
04/14 13.90 04/12 12.04 04/10
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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
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*New series, all of 2004 forward. @All products.
H-Highest S&P close during entire period.
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Interest Rates/The Dollar/Gold/Oil
* The last edition of "Market Thoughts" spent considerable time on the interest-rate area. All I will add now is the view that on balance, open-market rates at the longer end of the Treasury curve will continue to rise, despite the latest barrage of hype that the "Fed is almost finished." All this has managed to do is put some serious pressure on the dollar today. As I write this, the Dollar Index is trading around 88.52, down a sharp 1.2% on the session.
* What is the greenback's loss is gold's gain, however. Spot bullion is currently up almost $10 on the day!
* Many weeks ago, the last time it was appropriate, I reaffirmed my belief that the $55 to $60 range would contain any decline in West Texas intermediate crude. It did, and with May crude coming very close to $70 earlier today, I have the strongest of hunches we will not be talking about $55 to $60 anytime soon. If there is anything amusing about the present level of energy prices, it is the army of analysts and pundits continuing their foolish insistence that energy prices are not doing any serious harm to the economy.
Geopolitics/Domestic Politics
* Weeks ago, I opined that both of these areas were about to take an incrementally negative turn, as both indeed have. Of course, a steady diet of Limbaugh, Hannity and Kudlow would have you believe that George Bush the younger has been relatively unscathed which, put as politely as I know how, is -- moronic! (In the spirit of full disclosure, I remind readers that I am a devout political conservative of many decades standing.)
Remember the Rasmussen polls, the ones in better times for the President the above Administration apologists loved to quote? Here's the latest from Rasmussen:
"Sunday April 16, 2006--Thirty-nine percent (39%) of American adults approve of the way George W. Bush is performing his role as President. That's the lowest level of approval ever measured by Rasmussen Reports.
"Sixty percent (60%) disapprove of Bush's job performance, the highest level ever recorded..."
"President Bush Job Approval"
* Stories abound today that new White House Chief of Staff Josh Bolton is readying some major personnel changes. That is not the problem, though. While it may distract people for a while, as well as give Messrs. Limbaugh, Hannity, Kudlow, et al some fresh spin material, Bush's major problem may be unfixable. He has lost the support of a major portion of his "base" -- major numbers of conservative Republicans and just plain conservatives. I'm not sure he can get it back. And contrary to the revisionist history being peddled in some circles, this is a fete Ronald Reagan never accomplished.
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