Market Wrap
Week Ending 4/18/08
Economy
The Bureau of Labor Statistics reported that unemployment was up from 4.8 to 5.1 percent during the month of March.
Nonfarm payrolls lost 80,000.00 jobs. Average hourly earnings were up 5 cents or 0.3% for the month of March.
The IMF states that losses from the credit and derivative mess may run as high as almost $945 billion dollars, which isn't chump change.
Have real estate prices bottomed out yet - no, not by a long shot. Foreclosures were up 57% over the last year and bank repossessions were up 120%.
There's no inflation if you don't have to buy food, oil, or gas. Food shortages are occurring worldwide. The price of rice is up almost 150% in the last year. People get a bit angry when their kids are starving. Such conditions do not auger well if allowed to continue.
Vice President Warsh of the Fed said that "we also need to be alert to risks to price stability," blaming higher food and fuel prices that are "putting upward pressure on core inflation and inflation expectations."
Janice Yellen, former Fed governor and chairman of the White House Council of Economic Advisers, told reporters that the Fed "will have to be careful not to leave monetary accommodation in place longer than it is needed."
The three-month London Interbank Offered Rate (LIBOR) rose from 2.73 percent to 2.91 percent today. This rise reflects growing concern to risk.
Look for more and more city and state revenues to be under attack from the mortgage related contagion. What has occurred in Florida, Alabama, and California is the tip of the ice-berg.
Stocks
The stock market had a good week with a nice rally up. The Dow gained 4.25% for the week. It is still trading below its 50 ma, but it broke above resistance marked by the February high. That is good.
The broader market, as indicated by the S&P 500 was up 4.31%. It is trading below its 200 ma; and it did not break above its Feb. high.
The transport had a very good week, surpassing their October 2007 highs; however, the Dow is far from confirming the new high.
One of the two is wrong, which one is it? I say the transports are wrong. Is the bear market over - no not by a long shot?
First up is the daily chart of the transports. It shows the October high being broken above, which is a sign of strength. Notice the comparison to the Dow at the bottom of the chart.
Bonds
Bond yields are moving up, as we thought they would. If rates rise that strengthens the dollar, but weakens bonds.
If rates fall it will hurt the dollar and will favor bonds. The Fed can't have it both ways, no matter how hard they try.
The Fed is stuck between a rock and a hard place. They are damned if they do and damned if they don't. I wish them luck, as they will need it; and so will we.
Two-year Treasury Notes posted their biggest loss since 2001. Up first is the daily chart of the Lehman Brother's 20 Year Treasury Bond Fund. It shows prices declining below their bottom trend line support.
The February lows look like they are the next level to be tested.
Next up is a comparison between the 10 Year U.S. Treasury Note price and the Dow. Notice how they move inversely to one another.
Money is moving out of bonds and into stocks. It will be a difficult task for the Fed to keep both bonds and the dollar strong at the same time; one or the other will have to give ground.
Also, the three-month London Interbank Offered Rate jumped from 2.73 percent on April 16 to 2.91 today, showing increasing aversion to risk in the money markets. Not a good thing.
Currency
The U.S. dollar is moving higher, as the Euro takes a breather and the Yen heads down.
As the yen goes, so goes the stock market. Recently we saw yen strength, while the stock markets went down. Now we are seeing the opposite - stocks up and the yen down.
If the dollar weakens it will be good for gold. If the dollar gains strength it will put a head wind to gold.
Strength in the euro will be good for gold and other commodities, while weakness will put downside pressure on gold and the other commodities.
Up first is the daily chart of the dollar, which shows the dollar bumping up into overhead resistance.
If the upper trend line can be broken through then the horizontal resistance line becomes the next upside target.
Below is the daily chart of the euro/dollar cross, which is coming close to breaking down.
It is followed by the daily chart of the yen, which has broken down.
Commodities
Commodities have been on a tear as of late, from oil to natural gas, to the metals and the agriculture commodities. Rice is going ballistic.
Today the commodities took a long overdue hit to the downside, as they seemed to be about too. During the week we exited almost all of our positions in the commodities. We got lucky and it worked out well.
As stated earlier, if the euro rises it will be good for the commodities. If the dollar rises it will not be good for commodities, especially the precious metals.
Up next is the daily chart of oil. It shows its bottom trend line being tested. If breached below there is significant support at 110.
We may have pulled the trigger a bit too fast on UNG. Natural gas has continued to climb. Good profits were booked, but it looks as though we left some money on the table. Time will tell.
Gold
Gold was down a little over 1% for the week, closing at 916.20 (spot prices). Below is the weekly gold chart, with continuous prices, not spot.
It shows a bullish uptrend in price where the bottom trend line of the rising channel is being tested. If it is broken through on a two day closing basis, it is most likely the correction will continue down to the 850.00 level.
For the intermediate and long term trend this short term correction would actually be very constructive for gold, as it will wash out a lot of the weak hands and speculators, placing gold into strong hands.
A stronger base will then form, which will allow for a more sustainable and powerful new phase (wave) to launch off from. The longer and stronger the base - the more powerful and longer lasting is the next move up.
If gold makes a direct assault on the $1000 price level from here, it will not likely last for as long of a time, and to the degree that it would if a lower and more solid base is first formed.
$900 hundred or there about is the level to watch - if it is broken below 850-800 is very probable. It will offer a great buying opportunity. I like to buy fear and sell greed, but that's just me.
Up next is the daily gold chart of the last three months of price action. The horizontal overhead trend line at $960 offers stiff resistance and will have to be broken above and held on a two day closing basis before any assault on $1000 is even possible, let alone doable.
Price can be seen to have recently broken below its rising price channel. The $880 price level is looming below. If broken through, a test of the $800-$850 level is likely.
The recent rally up was on declining volume, which is a sign that buying pressure and momentum is waning. Caveat Emptor.
Also, there may be an overall commodities correction waiting to take hold. The action of the euro and the dollar will be most telling.
If the euro rises against the dollar - gold and the other commodities will go up.
If the dollar rises against the euro, gold and the other commodities will go down.
Watch the currencies for clues as to the short term direction of the gold market. Intermediate and longer term trends still remain strongly in force - up.
Silver
Silver was up fractionally for the week. This is a positive divergence, although minimal and it needs further confirmation.
The daily chart shows the bottom trend line support area being tested. On the weekly chart a negative MACD cross has been put in.
Precious Metals Indices
GDX was up just over 2% for the week. It is testing its bottom trend line support. A breach below would lead to a test of the 41 area. The P&F chart shows a bullish price projection.
HUI Index
The Hui had a tough week, down about 3%. It was the weakest of all the gold indices.
The daily chart below shows the bottom support trend line being tested.
Also, note the head & shoulders short term price formation. The right shoulder has been broken below. Caution is warranted.
Significant support resides at the 400 level below.
Next up is the point & figure chart for the Hui. It shows a double bottom breakdown on April 18, 2008.
It gives a bearish price projection of 388, which is a ways below. Note it is just below the 400 price level mentioned above.
The Hui chart does not jibe with the GDX or XAU charts, so either the Hui is correct or the others are correct.
We await the outcome, which is why we took profits on most of our positions this past week. It seemed the prudent thing to do. There appeared to be a shift in momentum so we took the money and ran.
The point & figure chart for the Xau follows the Hui.
Presidential Race
The Presidential race is heating up. Very little of substance is ever discussed. There is more focus on personal mudslinging issues than anything else. Remember high school elections for the class president - it seems to keep coming to mind for some reason. I wonder who the homecoming Queen will be.
After listing to all the candidates the only one that made any sense, and always stuck to the same exact answers and policy was Ron Paul. He is a straight shooter and knows from whence he speaks. The American people could do themselves a great favor and be proud of their decision if he was elected President. His entire platform can be summed up in one sentence - return to the mandates of the Constitution. That sounds pretty good to me. Give it some thought.
A good question to ask when weighing all of the different candidates is this: Cui Bono? It means - who benefits.
I see the military industrial complex benefiting if one particular candidate is chosen. I see the wealthy elite having their cake and eating it too if another certain candidate wins.
There is one candidate I'm not sure if anyone would benefit by. And lastly - We The People would benefit if Ron Paul were to sit in the oval office and the workings as outlined in the Constitution were returned to and followed.
Remember, all law is to be in pursuance of the Constitution or it is not law. It is null and void as if it had never been passed. It carries no legal and binding authority, unless backed by the force of a police state. So the Supreme Court has ruled in one of their more enlightened moments. Nuff said.
Follow the Money
Below is a picture of where a great deal of the money we spend on oil and gas is going to.
The Al Burj. This will be the centerpiece of the Dubai Waterfront. Once completed it will take over the title of the tallest structure in the world from the Burj Dubai.
Good luck. Good trading. Good health, and that's a wrap.
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