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Dallas, TX
June 25, 2009, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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Market Indecision Could Be Its Unraveling
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What's Hot Today: |
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U.S. stock index futures pointed to a slightly lower opening on Wall Street.
Asia rallied but Europe was selling off in pre-U.S. trading action. Oil was back
above $69. Gold was flat.
Today's Economic Calendar:
- 8:30 a.m. 1Q Final GDP: Previous: -5.7%.
- 8:30 a.m. Initial Jobless Claims For June 20 Week: Expected: +2K. Previous: +3K.
- 10:30 a.m. June 1 EIA Natl Gas Inventories
News For Thought
Iran: University professors arrested. "The Kalemeh Web site, a site affiliated with Iran’s opposition leader, Mir Hossein Mousavi, said June 25 that 70 university professors were detained after holding a meeting with Mousavi, The Associated Press reported. The Web site said it is not clear where the professors were taken." Stratfor.com reported this item.
Nigeria: MEND violence is on the rise, threatening oil infrastructure. According to Stratfor.com: 'The Nigerian militant group, Movement for the Emancipation of the Niger Delta (MEND), said June 25 that its fighters had attacked a Royal Dutch Shell oil pipeline in Rivers state in the Niger Delta, Reuters reported, citing an email statement. MEND said, “Cawthorne Channel 1, 2 and 3 flow stations feeding the Bonny export terminal have been effectively put out of service.”'
Medicare fraud sting yields 61 arrests. According to The Wall Street Journal: "The federal government announced indictments of 53 people allegedly involved in a Medicare-fraud scheme in Detroit, a day after charging eight others in Miami suspected of running a similar fraud. The two separate cases, a joint effort by the Justice Department and the Health and the Human Services Department, reflect a pickup in the government's pace in combating Medicare fraud." The two cases together involved an alleged $150 million in fraudulent claims.
Bernanke involved in "cover up" says one Republican representative. According to CNBC.com: 'The Fed "engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies," Representative Darrell Issa said in a statement released to Reuters.' Mr. Bernanke will be on Capitol Hill this morning, likely answering some very hostile questions. As usual, his testimony, especially if things don't go well, will likely affect the market. Mr. Bernanke is at a critical juncture of his tenure at the Fed, as President Obama is reportedly considering whether he will replace him or keep him as head of the central bank.
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Market Indecision Could Be Its Unraveling
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It's All In How You Look At Things
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The glass is half full crowd will tell you that the S & P 500 held above key support on Wednesday. The bears will tell you that the index failed at key resistance. And pure chartists, like us, will tell you that the market can't seem to make up its mind and that indecision is more dangerous than bing certain about any one thing.
In fact, both the bears and the bulls are right. The S & P did close above its 50-day moving average. But, it also rallied to the 910 area during trading on 6-24, and failed to close anywhere near those levels. That's because sellers overwhelmed buyers as the market rallied during the day.
There is also plenty of technical evidence that suggests that the current correction has not yet run its course. The S & P 500 made a new high in June. But the RSI (top line on SPX chart) and the MACD (bottom of chart) oscillators did not make new highs when the index did. Both oscillators topped out in May during the previous peak in the S & P 500. That's a classic technical divergence indicating a loss of momentum.
Chart Courtesy of StockCharts.com
In fact, the S & P has yet to prove that it can convincingly move above its 200-day moving average, the long term trend gauge, another sign that the index has run out of steam.
Another way to look at the market is sector by sector. Banking stocks (BKX) also topped out in May, while other leadership groups, such as semiconductors (SOX) and oil service (OSX) managed to make more solid new highs in June. Yet, most traditional leadership groups are under selling pressure in the current market.
Chart Courtesy of StockCharts.com
Oil service, in particular, is of interest at the current time, as it may be a sector that can weather the overall weakness in the market, or at least fall less during a correction. This sector is currently oversold and is showing signs of life, while other areas of the market are looking much more tired. The short term fundamentals for oil are not all that clear. But the longer term is very bullish, considering the lack of current production, decreasing investment by oil companies and governments, and the overall depletion of major oil fields around the world.
Once the global economy gets back on its feet more consistently, demand for oil will rise. And oil service stocks will be at the center of the demand cycle.
Chart Courtesy of StockCharts.com
The traditional hedges against uncertainty, the dollar ($USD), bonds and gold, are not acting particularly well at the current time, another sign of extreme uncertainty on the part of investors. When traditional safety havens aren't attracting money, especially in the face of a wobbly stock market, it's a sign that cash is a good place to be.
Chart Courtesy of StockCharts.com
Conclusion
This is a high risk market. The combination of dull summer trading, high levels of political wrangling in Washington, lots of geopolitical issues in Iran and elsewhere, and a global economy that perhaps has stopped falling, but is nowhere near a robust recovery, is leading to investors putting their hands in their pockets.
Investors who subscribe to services such as ours, tend to want to be active, always having money in stocks, bonds, or some kind of asset class.
Yet, experience tells us that this is one of those times when having money in our money market funds is an excellent alternative, as the markets are not sending out very good vibes.
That's why we have very few open trades at the moment. We're just not finding that many opportunities to trade, in stocks, or anything else.
We remain cautiously long bonds, and cautiously short gold and stocks via the Short S & P 500 ETF (SH). But, those positions are precarious, given the potential for short term volatility.
This is one of those times when the return of our money is more important than the return on our money.
Get Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for All Seasons. Also Available As Kindle Books.
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Market Moves - Stock Of The Day
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Nasdaq Biotech ETF (NYSE: IBB) Has Some Relative Strength
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The Nasdaq Biotech ETF (NYSE: IBB) is acting fairly well in a tough market.
Chart Courtesy of StockCharts.com
Biotech stocks have been out of the limelight for several years. Sure, some have done reasonably well. Others have been taken over and delivered one day bonanzas to patient shareholders. But, the 1990's style steady up trend where the whole sector would rise in tandem on a nearly daily basis has been long gone.
And to be perfectly honest, those days are not likely to return anytime soon. There is just too much uncertainty involved in the sector. Competition, the threat for lower reimbursement for drugs, and the general uncertainty of the business have given invetstors pause in this area of the market for some time.
Yet, it's hard to argue with the fact that IBB has slowly been building a base, where the sellers have been slowly shaken out, especially over the last nine months. Altogether, IBB has bottomed near 60, four times since October 2008. Since March, when the whole market bottomed, IBB has found support near 65 several times.
And while it's only up some 17% since March, as the S & P 500 has been floundering of late, IBB has been slowly moving higher. This has been especially noticeable since the ACOG meeting a few weeks ago, where there was a fair amount of encouraging news on treatments for cancer, the major thrust of the biotech industry for the last several years.
What does it mean? Well, the bottom line is fairly clear. Money is moving into biotech. It's hard to pick one or two reasons for it, other that maybe the business models of some of the companies are starting to click, and other mundane matters.
We do have a sneaky suspicion, though. There are still too many biotech companies, especially at the idea and concept level. Most of them, as in any business don't have a prayer for survival. Yet, there are some that have pulled themselves above that level and that have decent potential for the development of future drugs.
Many of those companies are still living on other people's money, and will do so for some time. Unless, and here's where the big reason for liking IBB comes in, they are bought by bigger players.
Our hunch is that we are getting close to a buying spree in biotech. And the best way to play such an event may be to own shares in IBB. For the short term, though, a move above $72 would be very bullish.
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