Thread: Market Talk / June 25 - July 1

Stocks: Leading Sectors Pointing Up

Although they may be a bit premature, the jump in energy and metals sectors late last week signals that the trend is about to start turning up in the rest of the stock market. What is keeping the market at bay -- and the buyers sitting on the sidelines -- is the fear of the Fed continuing to raise rates and sending the economy into the ditch.

Those fears are quite justified since the Fed did exactly that on the last tightening cycle. Our measure of the economy shows it has basically lost all of its strength since the early part of the year and has slumped into the same ditch it was in following the hurricanes last year.

Now, since we get this data from the Federal Reserve itself, it's clear that the Fed officials know this very well and are probably a bit concerned that they might go too far. Although they are likely to raise rates 25 basis points (¼%) at this week's meeting -- after all, the markets have already priced in this hike and to do otherwise would disappoint them and raise fears of impending recession -- we suspect that they are going to drop a bone to the markets and hint that the steady hike regime may be coming to an end. But, since they don't want to spark excess bullishness, they are also likely to mention the possibility of high energy prices contributing to inflationary expectations, something they have already done in past announcements. Thus, the markets' reactions to the meeting announcement are likely to be short term volatile both up and down, but also likely to be positive longer term. The bond market should sense the end of the tightening cycle is coming and begin to lower long term rates. The stock market should also start to see buyers coming back in on the dips (we have already seen some of that happening, as a matter of fact).

We have some specific markets, sectors and timeframes which we think will be key to the bullish turn up that coming within the current bear market environment. We also have several methods which point to a specific timeframe for the end of the bear market which should be valuable for long term investors who are waiting patiently in cash. Subscribers should follow the link below for more specifics on stocks, bonds and some key opportunities in commodities as well.

http://marketclues.blogspot.com/

Good Morning,

Please find here the link to the latest issue of the Investment Commentary.
Please download the pdf file by clicking on the following link: http://www.hable.ca/downloads/Commentary.pdf
(The link has been checked for viruses and worms, and does not contain any malicious software according to the latest scan)

Enjoy the weekend.

Sincerely,

Dr. Volkmar G. Hable

Money Market Mutual Fund Assets

June 22, 2006
Washington, DC, June 22, 2006 - Total money market mutual fund assets increased by $6.21 billion to $2.113 trillion for the week ended Wednesday, June 21, the Investment Company Institute reported today.

Assets of Money Market Mutual Funds

http://www.ici.org/home/mm_06_22_06.html#TopOfPage

MARKET COMMENT

June 22, 2006


Waiting around is a drag. Without a patient resolve an investor can get in trouble trying to outguess the powers that be. One day everything looks great and the next not.

Rumors were spreading that the Fed will raise rates 50 basis points next week. That pushed gold, stocks, bonds and currencies lower today reversing much of yesterday’s gains. At the same time, weaker economic data combined with inflationary concerns had pundits chatting about “stagflation”. Until the Fed sends its message, markets have become a guessing game. It’s this kind of day-to-day up/down environment that makes the sidelines appealing.

There will be more choppy days ahead as we wait for the Fed’s decision. Waiting is hard, but sometimes it’s the only smart thing to do.

http://www.etfdigest.com/daveDaily.php

&P 500 Index (SPX) Nasdaq 100 Index (NDX) Chart Analysis
S&P 500 Index (SPX) Chart Analysis

Last week we wrote:

"... Thursday was definitely a day of fireworks. A huge 3% gain in the Nasdaq and 2% gains in both the S&P 500 and Dow. Up volume outpaced down volume by large amounts. For the NYSE it was 20 to 1. For the Nasdaq it was 15 to 1. Without a doubt these are incredible numbers and they are rarely seen."

This week:

After the huge triple digit rally day two weeks ago we were watching for a repeat. It is rare for the markets to have trading days when up volume exceeds down volume by more than 9 to 1. The NYSE had a 20 to 1 day in that rally.

On Wednesday this week we had another huge trading rally and by midday we were looking for a second better than 9 to 1 day. If it had occurred, it would be what is called a "double barrel buy signal" by Martin Zweig. Mr Zweig has written several books on market timing and this signal was a mainstay of his timing signals. We were huge followers of Mr Zweig back in the 1980s.

But this week's Wednesday rally fell flat. It started strong and reached 9 to 1 up/down volume by midday, but end of day selling came in and, though it was still a good advance, it did not achieve "double barrel buy" status. Plus, on the following two days traders could not sustain the rally. In fact, both days ended in declines.

It seems no matter how big the rally, they last no more than a day or two and then the sellers take over again.

This week ended with losses again for the SPX. But for all the fireworks, most of the days stayed within a tight trading range and the week was mostly sideways. You can see this in the below chart.

Could we have seen a bottom? Well, yes. The below chart shows a possible 3 Wave ABC decline. If this is what has occurred, the bottom will not be surpassed and we should see a sustained advance begin soon.

But if those lows are broken, we would expect to see much lower lows in coming weeks. All we can do is stay with the trend. Right now the trend id down. If it changes, so will we.

Support is still at SPX 1228. Resistance, if we move higher, is at SPX 1272 and then SPX 1285.

The trend for the S&P is bearish. We are in a BEARISH position in the Rydex Inverse S&P500 Fund (or other bearish S&P index fund).

S&P 500 Index (SPX) Daily Chart

http://timing.typepad.com/timer/

TradingMarkets.com
How To Catch A Market Turn
Friday June 23, 9:44 am ET
By TradingMarkets Research


It isn't everyday that the market gives you a textbook pattern, so it's worth learning from examples as they arise. Take the intraday bottom we formed during Thursday's trade. It was as pretty a pattern as you're likely to see.

http://biz.yahoo.com/tm/060623/14442.html

http://www.financialsense.com/editor...2006/0622.html

Put another way: in the past BEAR MARKETS and MAJOR CORRECTIONS have very often come to their end with the Summation Index below -3,000. This is not a short term or even medium-term gauge, but is instead a medium to long-term tool. As a result, readings below -3,000 on the Summation Index tend to imply serious stock market rallies, not stock market rallies that last a few weeks, but stock market rallies that last many months or more.

The link I tried to post is of an article by Frank Barbera dated 6/22 on the Financialsense web site.

As markets fret, Bernanke struggles with rift at Fed
Mr. Bernanke, who is nearing his six-month anniversary in the job, is struggling to convince investors that he's firmly in control of the U.S. central bank and its monetary policy. Some economists worry that an internal power struggle could cause the Fed to push too hard on the inflationary brakes with excessive rate hikes.
http://www.theglobeandmail.com/servl.../Business/home

New home sales rise 4.6 percent in May
Sales of new homes again defied predictions of a slowdown in May and rose 4.6 percent, but median sales prices fell and the U.S. Northeast experienced its slowest sales tempo in nearly two years, according to a government report on Monday.
The report follows a stronger-than-expected 5 percent increase in May U.S. housing starts last week. The Commerce Department earlier on Monday revised upward data for housing permits, showing that they fell just 1.4 percent in May, compared to an initially reported 2.1 percent fall.
http://news.yahoo.com/s/nm/20060626/...omy_homes_dc_2

Federal Reserve's Bernanke should continue talking
Some on Wall Street think Ben Bernanke has a communication problem. They say he gives mixed messages about the economy and about the Federal Reserve's intentions, leaving investors confused.
But they're missing the point - the recent economic data isn't so clear cut either. And consider the alternative if he becomes tightlipped: There won't be any clues about where interest rates could go next.
http://www.clarionledger.com/apps/pb...=2006606250336