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Dr. Joe Duarte's Market I.Q.
The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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Second Quarter Issues: Oil, Bush vs. Kerry, Iraq, And The Enemy Within.
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by Dr. Joe Duarte,
Updated: April 12, 2004, 08:00 EST (FREE Monday Edition)
The pre-market stock futures were moving slightly higher. The U.S. Dollar was down. Asian markets closed mixed. European markets were mixed. U.S. Treasury bond yields were rising. The U.S. Ten Year note was trading with a yield of 4.23% in electronic trading. Crude oil was trading above $37. Gold was trading above $420.
The economic calendar for April 12: no major economic reports.
The second Quarter of 2004 brings a new set of worries for investors. And while bull markets climb walls of worry, the issues are nevertheless increasingly serious, especially in an election year.
And while the mainstream media worries about the blow by blow of election year politics, we delve beneath the obvious, while still noting the latest polling data, and focus today’s article with a journey that begins with the energy markets, takes a tour through Iraq, via the latest developments in the 9-11 commission, and ends with an in depth look at several key stories related to the Middle East.
Energy Market Update: These Are The Good Old Days For The Price Of Gasoline.
Our energy market forecast for 2004 was one of oil prices between $25-35 per barrel, and a general adherence to seasonal tendencies.
So far, we got it more right on price, but not on the seasonal tendencies, meaning that the usual fall in prices in the spring, has not materialized. And both factors are sending ripples of bad news for businesses and consumers.
Crude oil and natural gas prices are expected to rise for the rest of 2004. According to futures for the months of June, September, and December, crude oil, as of 4-8 was pegged at delivery prices above 36, 34, and 33 dollars per barrel, well above the 30 dollar range and over three times the low price of $11 at the bottom of the cycle in 1998.
More interesting is the fact that natural gas prices, for the same delivery months closed last week above $6. Even more daunting is the fact that while crude prices were some 10% lower for December delivery, natural gas was some 5% for end of year 2004 delivery.
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The most recent supply figures from the U.S. Department of Energy and the API, showed that U.S. supplies are historically low. Gasoline prices keep creeping higher, making new all time highs. And the call from Washington for investigations into fraud from oil companies has died down. Frequent readers are familiar with the concept that once Congress starts holding hearings on high gasoline and oil prices, the top in prices is either close, or has already happened.
Aside from the fact that OPEC is playing hard ball, and talking prices up, global economies are no longer contracting. There is also a natural gas squeeze in South America, with Argentina and Chile finding themselves in a difficult situation during the toughest part of their winter.
Stratfor.com notes two important reasons, which make this energy cycle different than others, for the U.S.:
1) A weak dollar: “All international crude contracts are settled in U.S. dollars -- and with U.S. currency roughly one-third weaker than a year ago versus the yen and the euro, anything oil-based is proportionally more expensive in the United States than in Japan or Europe.” The dollar may have made an intermediate term bottom, and could begin to rise, though, if the U.S. economy continues to grow, interest rates continue to creep up, and if the Iraq situation begins to make progress.
2) Venezuela: “Problems in bringing Venezuelan crude to market will threaten U.S.-based Gulf Coast refineries and likely will have a subsequent effect on U.S. gasoline markets. Caracas claims production of 3.1 million bpd, but the IEA pegs the actual figure at just below 2.6 million bpd. The primary problem is twofold. In the aftermath of the strike in late 2002 and early 2003, the Chavez government purged state oil firm PDVSA, firing nearly all of its engineers and technocrats and replacing them with people whose forte was political loyalty, not oil production. The government also has been fleecing the firm in order to pay for social programs that will increase its popularity.”
For the United States, this may be as big a problem as any other, since Venezuela is the number four supplier to the U.S. and is the owner of the CITGO retail outlets and refineries.
Stratfor notes that Venezuela’s oil industry is extremely sensitive to the amount of money that is invested in it on a year basis. Thus: “because Venezuela's investments have fallen behind, production declined 20 percent in 2003 -- and still can fall further. The last time Venezuela suffered a prolonged investment dearth, production plunged from the country's 1970 high of 3.7 million bpd to 1.7 million bpd in the mid-1980s.”
Bottom line here: as we have noted before, even if politicians and pundits hail a fall to the $30 price range in oil, it is just a cosmetic drop. And their acquiescense just means that the bar has been raised yet again, toward a higher plateau in the price of oil and gasoline.
In plain English, this means that just as we once wished for $1.00 per gallon gas after the 1970s embargo and after shocks, someday, we’ll all look back fondly at $1.50 per gallon gas.
Bush Kerry See-Saw Continues
The testimony of National Security Advisor Condoleeza Rice seems to have stabilized the Bush administration’s latest fade, according to daily tracking polls.
The latest Rasmussen polls show President Bush once ahead pulling slight ahead of challenger Senator Kerry. On Saturday, Bush was favored by 46% of voters compared to Kerry’s 44%. By Sunday, the Rasmussen poll had Bush ahead 47 to 44%. Kerry was ahead on the weekly poll by two points.
Rasmussen also reported rising optimism on the economy on the part of those polled. “The Rasmussen Consumer Index gained another two points on Saturday (April 10) to 118.0. The economic confidence of American Consumers reached its highest level in two months this morning. The surge in confidence has come despite troubling news from Iraq. Typically, bad news on the international front drives down economic confidence. The strength of last week's report on job creation appears to have overcome that tendency. Both the Rasmussen Consumer Index and the Rasmussen Investor Index have gained ground on six of the last seven days.”
The latest economic poll from Rasmussen also has some good news for the White House: “Thirty-seven percent (37%) of Americans now believe the U.S. economy is in a recession. Forty-three percent (43%) disagree and say it is not. In our last survey before the job creation data was released, 41% said the country was in a recession and only 37% took the opposite view.”
A CNN/Time poll, taken after Rice’s speech to the 9/11 commission and after the violence in Iraq started, showed a different picture, as “49 percent of those polled approve of the way the president is handling his job, while 47 percent do not. The approval rating for Bush's terrorism policy dipped from 58 percent in a CNN/Time poll taken two weeks ago to 55 percent now, within the margin of error.
A steeper decline can be seen in support for the president's handling of Iraq. In the March 26-28 poll, 51 percent approved of Bush's handling of the war. In the most recent poll, 44 percent said they approve. The economic numbers were virtually unchanged, with 41 percent expressing approval and 54 percent disapproval, both down 1 point.”
An April 7 Rasmussen poll reported that “Thirty-nine percent (39%) of voters now say that Bush is doing a good or excellent job handling the economy,” while 17% said he was doing a fair job. 43% thought he is doing a poor job.
Newsweek’s latest poll had worse news for Bush as “presumptive Democratic nominee Sen. John Kerry of Massachusetts now leads the president in a two-way trial heat by seven points (50 percent to 43 percent),” in a two man race, with Kerry beating Bush 46 to 42% if Ralph Nader, who got 4%, was included in the race.
The Iraq Situation
As the weekend progressed, talk of a potential ceasefire in Iraq was being reported by the wire services.
But, the situation remained significant, as well over 600 were killed on both sides. There were also reports of Sunni and Shiite factions banding together to fight the U.S., as well as reports of Iraqi police refusing to fight rogue cleric Sadr’s private army.
Several members of the Iraqi governing council reportedly resigned. Leading Shiite cleric Ayatollah al-Sistani also issued statements condemning the violence, but used extremely careful language in order to avoid being seen as supporting the U.S.
According to the U.K’s Independent: “The lesson of the ambushes on the main highway, including the one that we witnessed, is that the rebellion is moving east from the Euphrates towards the capital. The siege of Fallujah, a city of 300,000 people, by the US Marines and the high loss of civilian life there has ignited a nationalist reaction. It has made it easy for the insurgents to recruit young men in the villages and towns, many of whom are armed and were formerly in the Iraqi army. The US generals do not seem to understand how quickly their military position is deteriorating, which may explain why so many of their men are dying in the blazing wreckage of their vehicles on the road west from Baghdad.”
The response from outside the frying pan, is two fold. Some are advocating for a U.S. withdrawal. Senator Ted Kennedy’s Vietnam speech was well publicized. The Bush administration is continuing to suggest that all is going well enough, given the circumstances.
New York Times conservative columnist David Brooks summarized the Bush point of view well when he wrote: “Sadr faces long odds. Iraqis may be frustrated with the Americans, but they don't want to jump from Baath fascism to theocratic fascism. In a February poll, only 10 percent of Iraqis said it was acceptable to attack Americans. In Kut yesterday, CNN reported, local tribesmen, disgusted by Sadr's violence, rose up against his troops. If you'd listened to the recent hysteria, you never would have expected that to happen. Furthermore, many of the most influential Shiite groups in Iraq, such as the Dawa and Sciri parties, are invested in the process of building the new Iraq. Their policies don't jibe with ours, but they have a stake in a democratic future and would love to see Sadr eliminated. There are even signs that the Iranians themselves regard Sadr as hopelessly volatile.
Brooks added: “Most important, leadership in the U.S. is for once cool and resolved. This week I spoke with leading Democrats and Republicans and found a virtual consensus. We're going to keep the June 30 handover deadline. We're going to raise troop levels if necessary. We're going to wait for the holy period to end and crush Sadr. As Joe Lieberman put it, a military offensive will alienate Iraqis, but ["the greater risk is [Sadr] will grow into something malevolent."] As Charles Hill, the legendary foreign service officer who now teaches at Yale, observed, ["I've been pleasantly surprised by the boldness and resolve."]
Debka.com reported that: “US-backed negotiators (were) attempting to talk Shiite uprising leader Moqtada Sadr into temporary absence in Iran where he lived before war. Hostilities would die down and Sadr (would) avoid humiliating arrest for murder.”
This much is clear. Sadr’s campaign is moving ahead. He is nowhere near victory, but is causing a great deal of trouble, and is making one fact clear, there is much more unhappiness in Iraq than most so called experts would have thought possible.
The New Fifth Column
According to UPI’s Arnaud de Borchgrave, the anti U.S, and U.K. feeling form Muslims inside the respective countries is significant, and at least based on opinion surveys is worth keeping an eye on. De Borchgrave, on 4-8 wrote: “The new Fifth Column syndrome indicates the enemy inside the gates has plenty of bedlamites rooting for him in other countries. In Pakistan, some 66 percent believe Osama bin Laden is a good guy. As for the world's biggest proliferators of nukes to America's enemies, he has close to a 100 percent approval rating. Recent opinion surveys among Britain's almost 2 million Muslims, mostly from South Asia, rang alarm bells in Whitehall and in the media. Eighty percent were against the invasion of Iraq, 13 percent said another September 11-style attack on America would be justified, and 50 percent said they would consider becoming a suicide bomber if forced to live like Palestinians. Some 200,000 openly sympathized with Osama bin Laden.”
And perhaps offering a window into the future of the European Union, de Borchgrave added: “Muslim sentiments are not much different in Continental Europe. Increasingly, Europeans are older and affluent and find themselves surrounded by immigrants who have little respect for local traditions. In the Netherlands, Muslims are a majority among children under 14 in the country's four largest cities. Rotterdam, a port city where half the people are of foreign origin, will soon unveil Europe's largest mosque. In Brussels, the capital of the European Union, Muhammad has been the name most frequently given for newborn baby boys. Osama is a close second.”
Iran Bankrolls And Supports Anti U.S. Operations In Iraq
Middle East Newsline reported two significant developments over the weekend. First, the intelligence and analysis web site confirmed that Iran’s involvement in Iraq goes beyond putting pressure on the Shiite clerics, and as others have reported, providing strategic and financial assistance to the Sadr uprising.
According to the report: “Iranian intelligence has been operating at least 18 covert centers in Iraq as well as targeting Shiites deemed as aligned with the United States in a nearly $1 billion effort to prevent the spread of democracy in that Arab country.”
Quoting “a former Iranian official in Teheran's intelligence community,” Middle East Newsline continued by saying that the official “ publicly disclosed the first details on Iran's intelligence presence in Iraq. The defector said Iran has bolstered its intelligence presence throughout Iraq where Teheran has sought to exacerbate ethnic tensions and encourage a nationwide revolt against the United States. The centers have been located in Baghdad, Basra, Karbala, Najaf, Nasseriya and Suleimaniya, the Iranian defector said. The centers, operating under the cover of charities, have also been used to recruit Iraqis to spy for Iran.
The defector, identified as Haj Saidi and who fled Iran in late 2003, told the London-based daily A-Sharq Al Awsat on April 3 that Iran has sent hundreds of intelligence agents into Iraq over the last 18 months. Many of them came under the guise of Iranian pilgrims and Iraqi refugees. He said more than 300 Iranian agents -- benefiting from about 2,700 safe houses in 14 cities -- were operating in Iraq.”
Syria Ships WMD To Sudan
Middle East Newsline also reported that Syria has shipped significant numbers of WMD, including chemical weapons to Sudan, using passenger airliners. The shipments, have reportedly been done with Syrian government approval, but have been made without the knowledge of the government of Sudan.
The smuggled cargo has been sent to Sudan as part of the two countries’ recently improved trading relationship, and includes “shipments of Scud C and Scud D extended-range missiles as well as WMD components to warehouses in Khartoum since at least January 2004.
["There is widespread concern in the Syrian regime that Damascus will be the next to face heavy U.S. and international pressure to open its WMD facilities in the wake of the Libyan example,"] a senior intelligence source said. ["The Syrians have decided that they want to take some of their assets out of the country."]
There is no mention in the report about whether the WMD have any connection to Saddam Hussein’s arsenal, which according to multiple unsubstantiated reports, was smuggled into Syria prior to the U.S. invasion of Iraq.
The August PDB
The August 6, 2001 Presidential Daily Briefing (PDB) was declassified by the White House, which spent a good deal of time downplaying its importance.
Quoting anonymous sources “who read the presidential memo,“ prior to the release, the Associated Press , reported that the presidential daily briefing, or PDB, delivered to Bush on Aug. 6, 2001 - a month before the Sept. 11 attacks - said there were various reports that Osama bin Laden had wanted to strike inside the United States as early as 1997 and continuing into the spring of 2001, the sources told The Associated Press. The wire service added that [“the same month as that briefing of Bush, U.S. intelligence officials received two uncorroborated reports suggesting terrorists might use airplanes, including one that suggested al-Qaida operatives were considering flying a plane into a U.S. embassy, current and former government officials said,”] and that [“those August 2001 reports - among thousands of varied and uncorroborated threats received by the government each month - weren't deemed credible enough to tell the president or his national security adviser, Condoleezza Rice, the officials said. Neither involved the eventual Sept. 11 plot.”]
The PDB became a hotly contested point during National Security Adviser Rice’s public testimony in front of the 9/11 commission. In our opinion, although Dr. Rice’s testimony was seen favorably by 50% of those polled by Rasmussen.com, little new light was shed on the subject. All evidence we have reviewed still points to the same conclusion: The United States, hampered by laws prohibiting the cooperation between domestic and international security agencies, and political squabbling during the Clinton administration and the Bush years, was never able to put together enough calm heads to sift through the evidence that might have led to better insight into the possibility of a dramatic attack by a terrorist organization.
Perhaps the key statement by Rice to the commission was this, as quoted by AP: “Rice stated emphatically on Thursday she did not see any such reports about al-Qaida using a plane as a weapon until after Sept. 11, suggesting the intelligence may have reached someone lower in the White House. ["To the best of my knowledge, Mr. Chairman, this kind of analysis about the use of airplanes as weapons actually was never briefed to us,"] she said. ["I cannot tell you that there might not have been a report here or a report there that reached somebody in our midst."]
Again, substantiating our conclusion, AP added, also over the weekend that “A person familiar with the session said Mr. Clinton told the commission he did not order retaliatory military strikes after the bombing of the USS Cole in October 2000 because he could not get ["a clear, firm judgment of responsibility"] from U.S. intelligence before he left office the following January. It wasn't until after the Bush administration took power that U.S. intelligence concluded al Qaeda had sponsored the attack on the ship in the harbor at Aden, Yemen. Some commissioners have been critical of the decision not to launch a retaliatory military strike.”
The report added that “Mr. Clinton ["did not indicate anything fundamentally that he would have done differently"] given what U.S. intelligence knew about Osama bin Laden and the al Qaeda threat.”
Conclusion: The Enemy Within
Today’s report clearly indicates that the Islamic militants have been planning to bring about the downfall of the United States, and the Western world for several years, and most likely several decades. The degree and sophistication of the entire operation, including the amazing attention to detail and the inclusion of multiple fronts of engagement, including Afghanistan, Europe, and the United States, shows that the situation is beyond serious, it is ubiquitous.
By carefully studying the weaknesses of its enemy, including the legal hurdles in the United States, such as the legislation that prevented the FBI and the CIA from communicating on high level, matters of national security, and by capitalizing on the secretive nature of the spy business, the perpetrators have shown a level of sophistication and cunning, that is only slowly being acknowledged, albeit begrudgingly in Washington.
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The 9/11 commission, even with its increasingly apparent partisanship, is mostly responsible, and perhaps accidentally, for revealing, albeit only to those who read between the lines, that the enemy of Western life, as we know it, is as much without, as it is within.
It also points out one clear fact, that is only surmised by careful scrutiny and thought, the enemy is within the fabric of western society now, and perhaps even inside the governments.
Thus, the worried look, and the increasingly graying hair on President Bush’s head, along with the permanent scowl on National Security Advisor’s face, are in our opinion, only partially present due to the pressures of re-election.
To us, it seems, that well...they, perhaps more than any others before them, are coming to grips with the fact that they are up against a formidable, multiheaded foe, who has been plotting the end of western life as we have come to know it, for at least one or maybe more generations.
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Technical Summary:
Chart Courtesy of StockCharts.com
Stocks ran out of gas on 4-8. Thin pre-holiday conditions and rising tensions in Iraq got the blame for the fade. But, the early pre-market futures, and overnight markets, suggest that the bulls will try to restart the up trend. No major technical damage was done last week, although, the NYSE advance decline line did not confirm the new highs made last week by the small stocks and the Value Line index, thus, needs to make a new high within the next couple of days, in order to keep the positive tone going.
The S & P 500 fell below 1140, but stayed above its 20 and 50 day moving averages. Key resistance is above near 1160. The 200 day moving average for the S & P 500 is near 1062, providing bull market level support.
The Nasdaq closed above 2050, and acted better than the NYSE. Nasdaq also remained above its 200 day moving average, and above its 50 day moving average. The Nasdaq 100 also remained above its 200 day line and also above its 50 day line. Long term support at the 200 day moving average at 1900 for the Composite. 2186-2256 is the next upside target, if the index can rise above 2100. The small stocks are above their 50 day moving averages, and near their recent highs.
Chart Courtesy of StockCharts.com
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Proprietary Sentiment Gauge Registers Buy Signal
The CBOE Put/Call ratio checked in at 0.74 on 4-8. The market accelerated its rally after this ratio had a nice 1.31 reading on 3-31. This latest number is not too bad, given that it came on an up day. We like to see investors turn bearish when the market starts falling, and we also like to see them remain cautious as markets rally. A consistent string of low readings can be a sign of excessive optimism and often signals a top in the markets. If the P/C ratio drops rapidly as the market rallies it is usually a signal that the rally is reaching its end or that there is weakness ahead. Readings below 0.5 are of concern, but not as serious as readings below 0.40. Readings above 1.0 are bullish. The numbers cited here are meant to be evaluated on a closing basis.
The CBOE P/C ratio for indexes checked in at 1.42 on 4-8, compared to 2.27 on 3-31. Again, the latest reading here is fairly good, since it came on an up day. Readings below 0.9 suggest too much bullish sentiment, just as readings above 2 are usually required to mark major bottoms.
The VIX and VXN had readings of 16.26 and 21.38 on 4-8, showing a slight rise. When these indexes begin to rise, it is a sign of concern as rising volatility indexes suggest that an acceleration of the prevalent trend is on its way. In this case the implication is that the down trend is going to assert itself. This series correctly predicted that a trend change was on its way. If the volatility indexes begin to rise, it usually means that the market trend is about to change, usually to the down side. A fall near or below 20 on VIX and 30-40 on VXN is considered negative, a fact that is usually confirmed when the volatility indexes begin to rise. Readings above 40 and 50, respectively, are often signs that a bottom may be close to developing.
Newsletter writers were bearish for three weeks running. This is the most bearish that they have been in the last 12 months, but still have a long way to go before their pessimism reaches contrarian levels that signal a major bottom given traditional analysis. The fall in optimism is certainly good enough to spark a bounce. For the week ending 4-9-04, the ratio of Bulls/ Bulls + Bears of Investor’s Intelligence’s weekly sentiment figures rose to 66%, well of the highs of 75% in the past several weeks. Major rallies have traditionally been launched usually when this indicator falls below 40%. The fall has been good enough to trigger a buy signal in our MAGI indicator. See below for details.
The futures traders polled by Market Vane increased their bullishness on 4-9, with a 69% reading. This survey delivered a sell signal on 2-20, with a reading of 70% bulls on stocks, which preceded the acceleration of the market‘s correction. The American Association of Individual Investors delivered a reading of 58.8% bulls, compared with a reading of 55.2 % bullish sentiment the prior week, while the bears fell to 20.3 from 22.4% last week and a nicely contrarian 42.6% three weeks ago. That‘s a very rapid swing from very bearish to fairly bullish and should be watched with care.
Our Big Trend Model fell to a slightly bullish reading of 45% on 4-9, after a reading of 42.5, a fairly bullish number, for the week of 3-19 and 3-26. Readings above 70% often signal that market weakness could be lying ahead. Readings near or below 40% often precede market bounces. The Big Trend Model is composed of technical and monetary indicators and updates automatically on a weekly basis.
Our MASI indicator was neutral on 4.9. MAGI gave a buy signal on 4-9. MAGI is based on the weekly data provided by Investor’s Intelligence’s poll of newsletter writers, a group that has been bullish for several years, and stayed bullish, and wrong throughout the bear market. Their recent bearishness is nothing compared to the bearish levels that have launched bull markets in the past. But the fact that MAGI is bullish now is something to keep in mind. When both indicators agree, there is a high degree of correlation with a significant market move. When these indicators disagree, it is often a sign that the market is about to go nowhere but that volatility is on the verge of increasing. MASI buy signals when MAGI is bearish are rarely worth acting on. MAGI is an intermediate term indicator with an excellent predictive record. The best market bottoms occur when both of these indicators are both on buy signals, a telling sign of intense fear on the part of investors. MASI and MAGI are sentiment indicators that are updated on a weekly basis.
The NYSE specialists and members were net sellers of stock on the week that ended on 3-26-04 again. We don’t like to see steady selling in this group. We would become very concerned to see increasing levels of short selling by the specialists, which is still not evident . We will be watching this indicator carefully over the next few weeks, for that development. The most recent data still showed that bullish low levels of short selling on the part of this group continued. This indicator is very positive when short selling by the specialists is low as the same time that they are net buyers of stock. This is a set of very smart investors, and when they turn positive or negative, it is just a matter of time before the market follows. Spec data is released to the public with a two week lag, so is not useful as a market timing tool, but is excellent background and confirmatory information.
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Stock Of The Day
Chart Courtesy of StockCharts.com
Energy And Tech Stocks Suggest Strong Economy Well Entrenched.
In our boook "Successful Energy Sector Investing," we described a relationship between the energy and technology sectors, which proved the link between both sectors and a strong economy.
The current market is providing such a picture, albeit without the traditional tech bellwethers leading the way.
Nevertheless, it is worth noting, and monitoring.
Occidental Petroleum (NYSE:OXY) is a good proxy for the current energy market. The company has excellent levels of proven reserves, and is a major player in the petrochemical sector, which insulates it from the influence of gasoline prices.
Also important to keep in mind is that petrochemicals, are highly economically sensitive commodities, and often serve as bellwethers of future trends.
And while Intel and the usual Nasdaq large cap stocks are struggling, software and productivity companies with wireless connections are doing well, and seem to be the engine of growth in the current tech sector.
A perfect example is Palm One (NNM:PLMO), the recent spin off from Palm Inc.
Both Oxy and Palm are in well established up trends.
Taken together, these shares are telling us that the U.S., and thus the global economies are no longer on the mend, but in established up trends.
Neither the public at large, or the market seem to have grasped that possibility fully, as of yet.
Chart Courtesy of StockCharts.com
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Chart Courtesy of StockCharts.com
The Value Line Index (VLE) marked time on 4-8, but remained above 1600. The index made a new all time high on 4-5, but the NYSE advance decline line did not. This is something to keep an eye on, especially if it remains in place in the next few days. The index closed above 1600, on 4-1, normally a bullish sign, and built upon it on 4-2. But, if there is no advance decline line confirmation, the possibility of a negative divergence arises. The 200 day moving average is significantly below the index at 1412. Shorter term support is at the 50 day average, near 1595. VLE gauges the performance of 1700 stocks, and is not market capitalization weighted. That means that it is a true picture of what is happening to a very broad base of stocks, and not just affected by the movement of one or a few major stocks.
Chart Courtesy of StockCharts.com
The Amex Biotech Index (BTK) is still acting well, as it did not close below 540 and remained above its 50 day moving average, a positive sign, if it remains in place. The index has moved above the 500-540 trading band. A break below this key band would signal an end to the longer term up trend in this sector. A bounce is possible here. Longer term we still like biotech. Visit our health and biotech area for more details.
Chart Courtesy of StockCharts.com
The Amex Pharmaceuticals Index (DRG) did not fall apart on 4-8. The index crossed above its 200 day moving average on 4-1, and has moved above the 20 day moving average. The next test is at the 336 area, the 50 day average. This is the first major set of positives here in some time. For full coverage see our health and biotech section for full details on potential stocks with which to make the most of a potential serious break in the drug stocks. President Bush is now getting very serious about influencing the bill’s passage by Congress. For a full description of the ins and outs of investing in biotech and pharmaceutical stocks check out our book "Successful Biotech Investing", available at amazon.com, barnesandnoble.com, and bookstores everywhere.
Chart Courtesy of StockCharts.com
The Philadelphia Semiconductor Index (SOX) showed some relative strength on 4-8, as it remained above the 50 day moving average, and above the 500 area.
Chart Courtesy of StockCharts.com
The Philadelphia Oil Service Index (OSX) is still consolidating, and could make a move any time, since it has been consolidating near the 100 area in the last few days, and the energy markets are showing signs of tight supplies and increasing demand. The index was oversold, recently, and bounced back, after having lost 10% of its value since the beginning of March. The index had until recently remained near 110, but its break below 100 signals that the top is now in for energy. Whether this is a signal that the energy sector has made its seasonal high remains to be seen. A long term move, if this move regains momentum could take the OSX to 140. The index rallied smartly on 1-20, and has reached an important resistance level, but had remained flat. For more details on trading the energy sector visit our energy timing page, featuring our highly effective OIH timing model and our Top Ten Energy Stock List.
In the current market, we recommend a copy of "Successful Energy Sector Investing" (Random House/Prima Venture) . The book predicted many of the current developments in the economy and the energy markets, and provides an excellent set of benchmarks and trading lessons for what could be in store for the future.
Chart Courtesy of StockCharts.com
The Amex Oil Index (XOI) may also be ready to move. XOI is still testing the 590 area, with the 600-610 area now becoming a very important trading range. A failure in the near term would be supportive of our thesis that the top in energy may have been made. For immediate analysis, including stock picks, and the latest in technical analysis of the entire energy complex, our subscriber section has a full complement of recommendations in oil service and the rest of the energy complex.
Chart Courtesy of StockCharts.com
Small cap stocks are poised to make more new highs . This sector is once again near the top of the leader board. The Russell 2000 and the S & P Small Cap 600 moved back above their 50 day moving averages. Small stocks are now within a few strong sessions of making new highs. For trading suggestions in the small cap arena visit our S & P trading page featuring our ETF trading model for small caps.
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