Market Wrap
Week Ending 1/16/09
The Economy
First some good news: the Reuters/University of Michigan index of consumer sentiment rose to 61.9% from 60.1%. Hopefully this improvement will work its way through the economy and result in better market conditions.
Corporate and municipal debt markets are beginning to open up. January has had the largest amount of corporate debt issuance since the second quarter of 2008. Debt spreads have been contracting.
Agency spreads have almost been cut in half. Mortgage backed security yields have fallen from 6% to below 4% - a 33% drop. So there is less pressure in the credit markets. This is an improvement.
A number of economic reports came out this week providing further proof, however, that the economy is slowing down.
Initial jobless claims rose to 524,000 for the week ending Jan. 10. Producer prices fell 1.9% last month. This was the fifth consecutive monthly decline.
Industrial production fell 2%, while capacity-utilization dropped to 73.6%. Retail sales fell 2.7% in December. This is the sixth consecutive decline.
The U.S. Census Bureau reported that the U.S. trade deficit decreased from $56.7 billion in October to $40.4 billion in November 2008.
Exports of goods and services fell $8.7 billion in November to $142.8 billion. Imports fell $25.0 billion in November to $183.2 billion.
Stocks
The financials and the banks have been a real drag on the market. The next chart shows the banking index making new lows. It will be difficult for the market to rally if the banks and financials are not involved.
The fall in the banking index is worrisome, as it suggests that there are more shoes to drop.
Citigroup reported an $8 billion loss, which was double the consensus projection.
Bank of America disappointed as well, reporting a loss of $1.8 billion. The proposed solution: more government intervention, which means more taxpayer money.
Governments and central bankers are either going to continue with unprecedented interventional policies of excess credit expansion that will be inflationary, or they must overhaul the system completely.
It is said there is opportunity in crisis. Is a long term fix going to be proposed that addresses not only the banking and financial problems, but the systemic failure of paper fiat debt-money itself?
U.S. Dollar
This past week the dollar ran into overhead resistance at its 50 day moving average (84.26) and gapped down to close at 83.97. The dollar needs to rally over 85 in fairly short order or a move down to 82 is likely.
Dollar weakness would lead to strength in gold and other commodities and the stock market as well. The second chart shows strength in the yen correlates with weakness in the stock market.
Gold
Gold was down -15.10 for the week, closing at 839.90 for a -1.77% loss. Last week's report mentioned that gold's rally looked like it was running out of steam and that's exactly what happened the first four days of the week.
Gold was breaking down when it bounced off support and rallied up $32 on Friday. This has kept the short term trend intact if lower support holds. For the intermediate term trend to turn bullish gold needs to close above $850.
The weekly gold chart shows that a possible inverse head and shoulders bottom may be forming, with the right shoulder presently under "construction".
If the formation develops with a break out above 880 on expanding volume, an upside target of over $1000 an ounce is possible (875 minus 675 = 200. 875 plus 200 = 1075).
Gold Stocks
There has been recent discussion on the website regarding the collapse of the gold stocks in 2008. Negative divergence between lower highs in the Hui/Gold ratio compared to new highs in the Hui, foretold of troubles to come.
The gold stocks became extremely overbought compared to gold; and subsequently fell precipitously to return to the mean. This chart was shown a number of times during 2007-2008.
Invitation
The above excerpt is from the full market wrap report available at the Honest Money Gold & Silver Report website. This week's report contains thirty charts & graphs, including five individual charts on the stock watch list. See which gold, silver, and other commodity stocks have the most promising chart patterns.
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The first is a list of over 50 ETF's and other investment vehicles offering profit potential on both the long and short side of various markets: stocks, bonds, currencies, gold, oil, water and more.
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Good luck. Good trading. Good health, and that's a wrap.
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