Market Wrap
Week Ending 4/04/08
The Economy
Unemployment rose from 4.8 to 5.1% in March. Non-farm payroll employment lost -80,000 jobs, according to the latest report from the Bureau of Labor Statistics.
Over the past 3 months, employment has declined by 232,000. Average hourly earnings rose by 5 cents.
Before the recession is over, expect the unemployed figure to rise to over 500,000 workers, according to historical norms/comparisons.
The weakening in the payroll numbers suggest that the Fed will continue to lower interest rates, at least on the short end of the curve - the long end is somewhat in question at the moment.
The Mortgage Bankers Association reported that the number of borrowers at least 90 days late on their home loans rose to 3.6 percent at the end of December. This is the highest rate in the last five years.
Five million homes were sold on a seasonally adjusted, annualized rate, during February. This is down 31 percent from the peak of 7.25 million in 2005, according to the National Association of Realtors. Fifty-three percent more homes were for sale compared to the average for the past nine years.
Perhaps this is what led Federal Reserve Chairman Ben Bernanke to give his gloomy report on the economy in testimony to Congress this past week.
"Inflation has also been a source of concern. The price index for personal consumption expenditures rose 3.4 percent over the twelve months ending in February, up from 2.3 percent over the preceding twelve-month period. To a large extent, this pickup in inflation has been the result of sharp increases in the prices of crude oil, agricultural products, and other globally traded commodities.
Additionally, the decline in the foreign exchange value of the dollar has boosted some non-commodity import prices and thus contributed to inflation. However, the so-called core rate of inflation--that is, inflation excluding food and energy prices--has edged down recently after firming somewhat late last year.
We expect inflation to moderate in coming quarters. That expectation is based, in part, on futures markets' indications of a leveling out of prices for oil and other commodities, and it is consistent with our projection that global growth--and thus the demand for commodities--will slow somewhat during this period. And, as I noted, we project an easing of pressures on resource utilization. However, some indicators of inflation expectations have risen, and, overall, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully in the months ahead.
On March 13, Bear Stearns advised the Federal Reserve and other government agencies that its liquidity position had significantly deteriorated and that it would have to file for Chapter 11 bankruptcy the next day unless alternative sources of funds became available. This news raised difficult questions of public policy. Normally, the market sorts out which companies survive and which fail, and that is as it should be. However, the issues raised here extended well beyond the fate of one company. Our financial system is extremely complex and interconnected, and Bear Stearns participated extensively in a range of critical markets. With financial conditions fragile, the sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence. The company's failure could also have cast doubt on the financial positions of some of Bear Stearns' thousands of counterparties and perhaps of companies with similar businesses. Given the current exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain. Moreover, the adverse effects would not have been confined to the financial system but would have been felt broadly in the real economy through its effects on asset values and credit availability. To prevent a disorderly failure of Bear Stearns and the unpredictable but likely severe consequences of such a failure for market functioning and the broader economy, the Federal Reserve, in close consultation with the Treasury Department, agreed to provide funding to Bear Stearns through JPMorgan Chase."
Gold
Gold was down -1.77% for the week, with GLD closing at 90.25, down -1.63 points. Price is sitting on top of its lower trend line, and appears to be getting ready to break below.
MACD has put in a negative cross over and the histograms have turned negative as well. ROC has dropped sharply. Caution is warranted.
Next up is the monthly chart of GLD. It too is flashing some bearish signals. RSI is well into overbought territory and needs to be "worked" off.
MACD is still under a positive MACD cross, however, it appears to be starting to slowly curl over and merits close watching.
Histograms are receding back towards zero. ROC is well into overbought territory and has now turned down.
The accumulation/distribution indicator has turned down and shows that distribution (selling) is dominating buying at the moment.
The stochastic indicator has made a negative cross over. The weight of the evidence shows the path of least resistance is down.
Silver
Silver did better than gold this past week, as it only declined by -0.76%, down -1.35 points to 176.15.
Notice the very long tail on the last candle on the chart. This indicates that sellers took the price down much lower for most of the week, but were unable to keep the price down, which rebounded and closed significantly off the lows.
This might indicate a selling climax, the operative word being "might". However, MACD appears to be about to make a negative cross over to the downside.
Histograms are also receding quickly back towards zero. The 20 ema was tested and so far it has held.
Gold & Silver Stocks
Although physical gold was down almost 2% on the week, the gold stocks were only down -0.35%, which sets up a bit of a positive divergence.
The GDX Index closed down -0.17 points at 48.91. The recent decline has occurred on lower volume, which is somewhat constructive.
Below, the daily and weekly charts tell two different stories. The daily chart is more bullish and hints at short term upside potential. The weekly chart, however, is more bearish, and suggests that further downside testing lies ahead.
On the daily chart RSI shows a positive divergence. Volume has decreased on the recent decline.
The histograms are slowly receding back towards zero. MACD appears to be curling up and setting up for a possible positive cross over.
ROC and the stochastic indicator are moving up out of oversold territory. The accumulation/distribution indicator shows the gold stocks to be under accumulation (buying).
The weekly chart, however, shows a negative MACD cross over to the downside, with the histograms entering negative territory as well.
ROC has fallen very hard and very fast and is approaching oversold territory.
The stochastic indicator has also fallen quite hard, but is not yet near oversold.
The accumulation/distribution indicator still shows the gold stocks to be dominated by buying as opposed to selling.
The weight of the evidence still points to the possibility of a short term rally followed by more downside testing and backing and filling.
The above is a short snippet from the full length market wrap that includes almost all markets. There are dozens of charts, including charts of several new positions added this week, some of which are up 5% or more for the week just past.
The watch list of perspective future buys is also available, along with the portfolio and asset table allocation/market indicator table.
Invitation
The latest full-length version of the current week's market wrap is available only at our web site, including this week's stock chart watch list and any buys or sells executed this week that are on the website.
Stop by and check it out. Most major markets are included with the emphasis on the precious metal markets.
There is a lot of information on gold and silver, not only from an investment point of view, but also from its position as being the mandated monetary system of our Constitution - Silver and Gold Coin as in Honest Weights and Measures.
On the main homepage are papers and articles by some of the best out there to be had. There are audio and videos on banking, the Constitution, and cutting edge news. Many articles are archived and others are linked.
Live time quotes on gold and silver and precious metal stocks are available, including charts for most world currencies and futures.
Links to the World Bank, Central Banks, the International Monetary Fund, the United Nations, the Bank for International Settlements, and many other similar and different sources are available.
There is also a live bulletin board where you can discuss the markets with people from around the world and many other resources.
Good luck. Good trading. Good health. And that's a wrap.
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