The VRTrader.com VR Silver Newsletter - Monday 3/24/2008
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Redistribution in any form is strictly prohibited.
Leibovit Files| by Mark Leibovit
Monday, March 24, 2008
End Of The Month Window Dressing Approaches - But Will It Work In A Bear Cycle?
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Economic Events and Market Reports March 24-28:
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MONDAY, March 24:
Existing Home Sales for Feb (10 am ET)
Treasury announces 2&5 year note auctions (11 am ET)
Treasury auctions 3 & 6-month bills (1 pm ET)
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TUESDAY, March 25:
Consumer Confidence Index for March (10 am ET)
Weekly Chain Store Sales (8:55 am ET)
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WEDNESDAY, March 26:
Durable Goods Orders for February (8:30 am ET)
New Home Sales for February (10 am ET)
EIA Petroleum Status Report (10:30 am ET)
Treasury auctions 2-year notes (1 pm ET)
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THURSDAY, March 27:
Gross Domestic Product (GDP) for Q4 (8:30 am ET)
Weekly Initial Jobless Claims (8:30 am ET)
Treasury auctions 5-year notes (1 pm ET)
Weekly Money Supply (4:30 pm ET)
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FRIDAY, March 28:
Personal Income & Consumption Exp. for Feb (8:30 am ET)
U. of Michigan Consumer Sentiment for March (10 am ET)
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The stock market is rallied on Thursday with the S&P 500 closing at 1330.00. It was triple-witching options expiration. Recall I predicted over a weak ago, this is a bullish time period following a 'Weird Wally Wednesday' (actually came the day before - Tuesday) correction. A lot of cyclical factors are coming into play in the current time period including the vernal equinox which should be a catalyst for turning the markets higher albeit temporarily? It's also end of the month 'window dressing' time - though many could correctly argue during a bear market managers may choose to unload rather than add to positions. A break above last Tuesday's closing level of 1330.74 and last Wednesday's high of 1341.51 should propel us to the previous high of 1388.34. A test and failure of that resistance and we could be heading back towards the lows in the 1270 area. Overall, we're not out of the woods yet and the 'choppiness' is likely to continue, but looking forward a bit up to and after tax season, money managers will have a renewed arsenal of funds to put to work in the markets coming from retirement account contributions. This should help to lead to further rally tries. Could we rally and test the upper end of the recent trading range (1388-1396 in the S&P 500) and then again retest lows? You bet. Meanwhile, I will keep you appraised, but for now I remain on a TIMER DIGEST 'Buy signal'.
What about the bigger picture prospects? Though I reserve the right to adjust my forecasts yearly based on what appears in my Annual Forecast Model, it appears that we've entered a bear cycle. Bear markets have a nasty habit of showing up every four years or so. A decline of 20% or more is usually characterized as a bear market using one of the major indexes. The problem with this thinking is that individual stocks generally do a whole lot worse. Let's compare. The Dow Industrials has declined from 14,198 to 11,647 (2551 points) or 17.9% while the S&P 500 declined from 1576 to 1256 (320 points) or 20.3%. Hot stock Apple Computer declined from 202 to 115 (87 points) for a 43% loss before recovering. During the last 100 years there have been 19 bear markets. The average length of a bear market is 18.5 months. The average bear market results in a decline of 36%. The longest bear markets lasted about three years. Specifically, they lasted 31, 34, and months for the bear markets ending in 1942, 1932, 1949 and 2003, respectively. The shortest bear market lasted two months. This was the crash in 1987 when the Dow Jones Industrials plunged 36%. For now, I am assuming we're going to some sharp rallies, especially since we're in the throes of a Presidential election year, but when the dust settles we may very well see this bear carry well carry on for three years into 2010. I hope I'm wrong.
The financials were in the lead once again as the New York Fed announced modifications to its new Term Securities Lending Facility (TSFL). The TSFL auctions will now allow schedule 2 collateral, instead of the schedule 1 collateral previously proposed. Schedule 2 collateral will now include collateralized mortgage obligations (CMOs) and AAA rated commercial mortgage-backed securities. That means that the Fed will lending banks highly liquid Treasury securities in exchange for less liquid assets. The thrifts & mortgage group was up 10.3% while investment banks & brokerages were 11.2% higher. The XLF was up 6.3%. The XLF has now rallied from a low of 22.29 at Monday's open to it's current price of 26.32, a rally of 18% in less than a week. I sold the XLF on a trade, but will be looking to repurchase.
Short term rates closed the day and week at 0.5%, the lowest rate since 1942. Where can I borrow some of this nearly free money? The 10-year bond rate is 3.33%, which is its lowest rate since 2003. The spread between the 90-day T-bill and 10-year bond is 2.83%, the largest spread since 2004. These are the kind of figures you see at the beginning of bull markets. Does that mean we have seen the low? A lot of people are talking about how the US of today is like Japan of the 1990s with permanently low rates. So which way will it be? Beginning of a bull or a 10 year long recession and bear market? The fact that these two choices are so diametrically opposed is why the markets have become so volatile.
Metals continued to fall as the day wore on and oil made a small comeback but remained in the red. Gold is down 33.10 to 912.20 and silver dropped 1.66 to 16.785. Gold closed just above the day's lows and silver closed at the lows. Crude oil rebounded though down just 0.93 to 101.61. As you know, I remain a big picture bull on the precious metals, even though I did go short Silver via SLV this past week for a trade. I suspect there should be considerable technical support around $800 in gold (if it gets that low) and 15.00 in silver (ditto). The next upleg in gold should carry it anywhere from $500 to $1000 off its low. For silver, I am assuming a $10.00 spread. I am now bidding under the market for both gold and silver.
The US Dollar Index opened the day higher and remained there throughout the day. The dollar index is up 0.58 to 72.73. Recently, the US Dollar Index would gain and quickly give back its gains. The last few days have felt different than the past few months. Keep an eye on the 70.698 low. I would like to see a retest of that level, either to break below it or to bounce off of it to tell us which way to trade. The US Dollar Index is a key determinant of commodities as well, as we have seen the last few days, so a clearer US Dollar Index picture would also clear up the commodity picture even more. At present, we appear to be in a rally phase - though I must caution we've seen several false starts to date.
Initial claims jumped to 378,000, up 22,000 in the week and up 24,000 vs. a month ago which offers a survey week comparison for the household employment report. There is a special factor as Market News International, citing the Labor Department, reports that an ongoing strike at American Axle has shut down production at General Motors. But, weakness is evident with continuing claims confirming trouble, up 32,000 in the March 8 week to 2.865 million.
The Conference Board's index of leading economic indicators is pointing in the direction of recession with a 0.3 percent decline and followed drops of 0.4 percent in January and 0.1 percent in December. For the latest month, component declines were seen in stock prices, initial unemployment claims, vendor performance, building permits, and consumer expectations. While the component numbers are old news, the index release will increase chatter of the U.S. being in recession. The latest number matched market expectations.
The slowdown is continuing in the Mid-Atlantic manufacturing region where the Philadelphia Fed's business activity index is negative for a fourth month in a row, at -17.4 level vs. -24.0 in February, but better than expectations of -20.0. New orders, arguably the most important reading in the report, show less severe but still similar results, at -9.3 vs. -10.9. In especially bad news, employment is back in negative territory, at -4.7 vs. February's 2.5.
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ATTENTION SUBSCRIBERS:
Full Annual Forecast Model charts and commentary for 2008 are now posted for THOSE WHO HAVE SUBSCRIBED to the VR Forecaster Report. Please click on the VR Forecaster link on the left side of the Home Page and then click on 'Click to View 2008 Report'. You will then be prompted to enter your username and password. For the rest of you, don't miss the opportunity to subscribe to this special report and mid-year update that long ago vindicated OUR claim that it represents a 'blueprint to the future'. If you had been a subscriber, you would have known ahead of time that the market in 2007 would likely nosedive in February/March, rally to June, the nosedive into mid-August, then rally into early October and the sell-off into the third week of October - followed by a choppy November.
Remember, folks, there is no price too high for good information! http://www.vrtrader.com/vr_forecaster/index.asp
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VR TRADER.COM WATCHLISTS:
Please note: The VR Watchlist is currently now only available via the VRTrader.com website accessed via your assigned username and password. Please email mark@vrsurvey.com if you misplaced that information.
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DAILY VR LIST:
Editors note: As you may have noticed, we have been posting our daily VR list for both Silver and Platinum subscribers. Silver subscribers who find this useful should upgrade to Platinum where you can pull
down VR charts for many securities and watch the patterns unfold for yourself.
A Volume Reversal ™ is change from a Rally day to a Reaction day accompanied by an increase of volume or a change from a Reaction day to Rally day accompanied by an increase in volume. Volume Reversals
™ coming off intermediate lows or highs have greater significance in helping to define those lows or highs and important pivot points in the marketplace.
How do you use this list? VRs are buy and sell triggers and are particularly useful in defining lows or highs in stocks and stock
indexes. Traders find them particularly useful, especially coming off market extremes as an indication of a change of direction. Use the VRs in conjunction with your other technical indicators and you've
added a unique technical tool to your arsenal.
Current VR List
Below is VRTrader.com's exclusive VR list (Volume Reversal tm).:
What is a Volume Reversal? There are several proprietary subtleties to the Volume Reversal ™ algorithm, but essentially a Volume Reversal ™ is a change from a Rally day to a Reaction day accompanied by a increase of volume or a change from a Reaction day to Rally day accompanied by an increase in volume. Volume Reversals ™ coming off intermediate lows or highs have greater significance in helping to define those lows or highs and important pivot points in the marketplace. The Volume Reversals ™ presented here provide you with a unique research tool that may have trading (short-term) significance, but it also may have 'trend changing' (intermediate) significance as well. The sector Volume Reversals ™ show where big money is possibly affecting an entire group of stocks. The stocks listed under the group have posted Volume Reversals ™ along with the group as a whole. The individual stocks listed have posted Volume Reversals ™ on their own and are valid plays as well.
To see a visual representation of Volume Reversals ™, please go our Current Portfolio section and click on any recommended stock. Or, if you would like to get a VR Chart for a specific symbol, please click here. Please note that not all symbols may be currently available.
The Volume Reversal ™ is a registered trademark and can only be used or quoted after receiving express written permission from VRTrader.com and Mark Leibovit.
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List of Volume Reversals 3/20/08 - Sectors
*** Sectors Positive Volume Reversals ***
**** NONE ****
*** Sectors Negative Volume Reversals ***
Automotive - Manufacturers - Major
HMC - Honda Motor Co
NSANY - Nissan Motor Co
Banking - Money Center Banks
BLX - Banco Latino Americano
CS - Credit Suisse Group
HBC - HSBC Holdings PLC
Drugs - Manufacturers - Major
LLY - Eli Lilly & Company
MRK - Merck & Co
RIGL - Rigel Pharmaceutcals Inc
WYE - Wyeth
Electronics - Printed Circuit Boards
FLEX - Flextronics Internat Ltd
RAVN - Raven Industries Inc
SANM - Sanmina-Sci Corp
Health Services - Hospitals
AMSG - Amsurg Corp Common
CYH - Community Health Systems
MDTH - Medcath Corp
Insurance - Life Insurance
AGO - Assured Guaranty Ltd
DFG - Delphi Financial Grp A
FFG - FBL Financial Grp
IPCR - IPC Holdings Ltd
Manufacturing - Industrial Equipment & Controls
CIR - Circor International Inc
PLAB - Photronics Inc
PNR - Pentair Inc
ROP - Roper Industries Inc
Materials & Construction - Manufactured Housing
CHB - Champion Enterprsies Inc
CVCO - Cavco Industries
Retail - Drug Stores
WAG - Walgreen Co
Transportation - Air Delivery & Freight Services
FDX - Fedex Corp
UPS - United Parcel Service B
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