| TSG Weekly Market Watch August 7, 2009 |
|
|
|
| Written by Matt Blackman | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Saturday, 08 August 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
TSG Stock Market LetterWeek Ending August 7, 2009Topics Discussed This Week:
(*Best viewed in Mozilla Firefox or Google Chrome - For some reason it does not display properly in IE7*)
News works market magic… Earnings still on the floor And the economy shows more signs of life… But unemployment isn’t quite what it seems Elliott Wave perspective… Report - The Great Inflation/Deflation Debate
Last week
Quote of the week “There are some real downsides to Buy American [Obama’s protectionist limitations to stimulus spending]. It delays projects. We have to look at what jobs we are losing.” ― U.S. Representative Kevin Brady (see article entitled GE “Buy American’ Water Filter Shortage below). Economic news works market magic It was the fourth week of all green across the board for the major indexes we track with the Dow Transports taking the lead with a nearly 5% gain. And with those gains, there is evidence that more investors are joining the party. The S&P500 Index volume moved above the 50-day moving average for the first time since mid-May. And it was all due to more improving economic news…but all it not what it appears to be. When you've finished reading the week's report, be sure to check out our latest report - The Great Inflation/Deflation Debate... Market at a Glance Here is this week’s table of commodity, shipping and interest rates indicators that we are tracking. In the last column, the trend is marked in green if positive for the market, red if negative and black if neutral. This week, the VIX moved lower showing increasing complacency among investors, crude jumped nearly $3/bbl while the Baltic Dry Index, a useful measure of global product demand and therefore economic strength, fell 17.3%, for its biggest weekly drop since July 10.
* 52-Week High / Low †LIBOR is the benchmark for $900 billion in subprime mortgage loans which typically adjust to it every six months. Corporations around the world have the interest rates on roughly $9 trillion in debt pegged to LIBOR and rates on more than $380 trillion in derivative interest rate swaps also are based on LIBOR. About 6 million U.S. mortgages, including the vast majority of subprime home loans as well as 41% of prime ARMs are linked to LIBOR. Earnings still on the floor This week, earnings for the 8,013 US stocks of the VectorVest Composite Index (VVC) held steady again at an average $0.16/share from $0.13/share five weeks ago. Rising stock prices again lifted the VVC average PE again to 135.32 from 132.32 last week, 130.97 two weeks ago and 118.42 four weeks ago. Earnings growth, which tells us how fast earnings are appreciating, remained stuck on the floor again at 1% this week, the lowest growth rate in at least 15 years. And again, the VVC moved further above the 50-week moving average (purple line in above chart). June 5, 2009 proved the all-time high water market for average PEs at 155.58 for the VVC Index with average earnings of $0.13/share. This compares to the previous peak PE of 60.51 in mid-May 2003 during the last recovery. But the difference is that during that period, earnings growth remained much healthier at 8% and earnings had begun improving nearly a year prior after hitting a low of 3%. In March 2000, average PEs were 32 and earnings growth was 11%. Meanwhile average earnings for the 2,978 stocks in the Canadian Toronto Stock Exchange (TSX) tracked by VectorVest Canadian Index (VVC/CA) were again negative at -$0.01, an improvement from -$0.03/share five weeks ago. Earnings growth was steady at 3% down from 4% during the week of July 10. Earnings for the VVC/CA peaked at an average $0.73 per share in September 2005 after which they steadily declined. By the week of March 6, 2009 they had fallen to $0.16/share and on June 12 to -$0.02/share during a period in which the TSX exchange index rose more than 40%. Although prices continue to rally, earnings have yet to respond.
Figure 1 – Chart showing weekly prices, average Price/Earnings ratios (blue), earnings per share (black) and earnings growth (GRT in red) for 8,013 US stocks tracked by VectorVest showing the average PE for the broad range of publicly trading companies. The purple line is the 50-week moving average (MA). Chart courtesy of VectorVest.com Economic Reports Economic news tickles the crowd… For a bear market rally, the news at the start of the week was downright impressive. First we learned that the Institute of Supply Management manufacturing index jumped again to the highest level in a year with a reading of 48.9. And while the service ISM slipped to 46.4 showing some weakness in the service sector, both are still within spitting distance of the expansion threshold of 50 as the next chart shows.
And although construction spending (next chart) showed a 0.3% improvement, it was only the second improvement since last June and the trend remains strongly negative.
Consumer credit (next chart) is off its worst levels (-$15.7 billion in April) but credit is still falling as evidenced by the $10.3 billion drop in June thanks to the combination of tighter bank credit and continued job losses which have caused consumer credit to contract at a record pace. This is one indicator that needs a lot more coaxing along before consumer spending has a chance of making a comeback with any staying power.
But unemployment isn’t quite what it seems… We learned Friday that non-farm payrolls jobs losses fell just 247,000 in July and the June number was revised to -443,000 from -467,000. As the next chart shows, things have improved significantly since January when there were a total of 741,000 jobs lost. But we still aren’t out of the woods yet – more than 6.7 million jobs have been lost since this recession officially began December 2007 which is the biggest decline of any recession since WWII according to Bloomberg.
The other problem is that average weekly production hours worked budged just 0.1 hours in July from the record low of 33 hours in June which means we are still a long way from being out of the woods just yet.
At the end of the day if we calculate the unemployment rate they did before all the statistical alternations were first made in the 1980s and 1990s that included “re-classifying” discouraged workers to remove them from the rolls of the unemployed, we get a very different picture than the official BLS rate of 9.4%. As the next chart shows, the real unemployment rate is 20.6% according to John Williams of ShadowStats.com
Source - ShadowStats.com
Elliott Wave Perspective Last week, we showed the highest probability Elliott Wave pattern as a Double Zigzag with highest probability target between 1120 and 1150 for the S&P500 Index with the next highest probable pattern showing possible retracement in the shorter-term before the index moved significantly higher.
This week, the highest probability by a wide margin remains a Double Zigzag pattern with highest probable target area between 1105 and 1150 with second most probable showing the same pattern except with a near-term retracement back to between 940 and 1005 with the lower target having the higher probability.
On the lighter side… More Murphy’s Laws… Absolute Principal Beauty is only skin deep, ugly goes to the bone. Stories of interest this week… REPORT - The Great Inflation/Deflation Debate (Part 1) http://tradesystemguru.com/content/blogcategory/47/81/ GE ‘Buy American’ Water-Filter Shortage Strands Work http://www.bloomberg.com/apps/news?pid=20601109&sid=a8PcscLTa_7w ‘Underwater’ Mortgages to Hit 48%, Deutsche Bank Says http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ac9y1xr7yNhQ# Fannie Mae to Tap $10.7 Billion in Treasury Capital http://www.bloomberg.com/apps/news?pid=20601110&sid=aAoMEkN9lWGA Mortgage-Bond Yields Rise to Two-Month High; Rates May Climb http://www.bloomberg.com/apps/news?pid=20601087&sid=amwL1R5EtUrA Goldman Sachs $100 Million Trading Days Reach Record http://www.bloomberg.com/apps/news?pid=newsarchive&sid=am7Ds.JhNxvw Default Increase Curbs Bankruptcy Lending as Recoveries Dwindle http://www.bloomberg.com/apps/news?pid=20601109&sid=aBmBls_HJ15E Homebuilders Eliminate Frills as First-Time Buyers Drive Sales http://www.bloomberg.com/apps/news?pid=20601109&sid=akCaYx29BrI8 BOE Governor King Raises Stakes in 175 Billion-Pound U.K. Economy ‘Gamble’ http://www.bloomberg.com/apps/news?pid=20601110&sid=aj9tZ6cO8SLw ‘Lost Couple of Decades’ Looming for U.S. Economy: Chart of Day http://www.bloomberg.com/apps/news?pid=20601109&sid=aX39_VW6pf3U
Disclaimer TradeSystemGuru.com obtains information from sources deemed to be reliable; however, TradeSystemGuru.com does not guarantee the accuracy of any of the information provided. TradeSystemGuru.com makes no warranties, expressed or implied, as to the fitness of the information for any purpose, or to results obtained by individuals using the information. We may or may not be invested in any investments cited above. In no event shall TradeSystemGuru.com be held liable for direct, indirect, or incidental damages resulting from the use of the information found on or distributed through this website. TradeSystemGuru.com shall be indemnified and held harmless from any actions, claims, proceedings, or liabilities with respect to the information and its use. TradeSystemGuru.com does not make specific trading recommendations or provide individualized market advice. All information provided is to be construed as opinions and is intended to be used as an educational information service only. We encourage investors to contact a registered securities representative prior to making any investment or related decisions. Any and all forecasts and opinions expressed herein are for discussion purposes only and are not intended to constitute investment or trading advice. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Last Updated ( Sunday, 16 August 2009 ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| < Prev | Next > |
|---|