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Dallas, TX
March 10, 2010, 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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Taking Stock Of The Markets A Year Into The Bull
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What's Hot Today: |
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U.S. stock index futures were pointing to a slightly higher
opening on Wedneday. The one year anniversary of the current bull market
turned out to be a fairly routine day. Today is the ten year anniversary
of the top in the tech sector.
- Bank Reserve Settlement
- MBA Purchase Applications 7:00 AM ET
- Wholesale Trade 10:00 AM ET
- EIA Petroleum Status Report 10:30 AM ET
- 10-Yr Note Auction 1:00 PM ET
- Treasury Budget 2:00 PM ET
News For Thought
Shades of "Food for Oil" in Somalia. Those who remember the corruption
of the "Food for Oil" program in Iraq, that involved high level French
politicians and other sordid details might find this story familiar. According
to The New York Times: "As much as half the food aid sent to Somalia is
diverted from needy people to a web of corrupt contractors, radical Islamist
militants and local United Nations staff, according to a new Security Council
report."
According to The Times: "The report, which has not yet been made public but was
shown to The New York Times, outlines a host of problems so grave that it recommends
Secretary General Ban Ki-moon open an independent investigation into the World
Food Program there. It suggests that the program rebuild the food distribution
system — which serves at least 2.5 million people — from scratch to break what
it describes as a corrupt cartel of Somali distributors."
Predictably it gets worse. According to the report: "In addition to the diversion
of food aid, regional Somali authorities are collaborating with pirates who hijack
ships along the lawless coast, the report says, and Somali government ministers
have auctioned off diplomatic visas for trips to Europe to the highest bidder,
some of whom may have been pirates or insurgents."
You got it. Billions of tax payer funds from around the world are being hijacked
by pirates and corrupt government officials. Meanwhile governments around the
world are taking turns raising taxes, and creating more so called "aid" programs
that are likely to be subverted even further.
Finally, the New York Times reports: "These allegations of food aid diversions
first surfaced last year, and the World Food Program has consistently denied
finding any proof of malfeasance and said that its own recent internal audit
found no widespread abuse."
Report: Out with swaps in Europe. According to The Wall Street Journal: "The
EU is considering a ban on speculative derivative trades, including credit default
swaps, which have been blamed for worsening the crisis in Greece." |
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Taking Stock Of The Markets A Year Into The Bull
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A Reality Check Is A Worthwhile Exercise
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Few people anywhere would have believed it if you had told
them a year ago that the S & P 500 would be nearly 60% above where it was
at the time. Yet, as always happens, the market makes fools out of the majority
of its participants.
So we were not surprised to see March 9, 2010 be a fairly routine day in the
markets, even if it was the one year anniversary of the current bull market.
To be sure, the gains on the day weren’t all that magnificent. And it wasn't
exactly a great thing to see when lots of points went away at the end of the
day. But gains they were. And no one was complaining much, given the fact that
the bears have been out beating the negativity drums for some time and calling
for some kind of an anniversary decline.
Still, it’s good to put things in perspective. This bull market is now a year
old, which means that it’s starting to grow old, in terms of cyclical bull markets,
or bull markets that don’t last several years. The jury is still out on whether
this is a secular bull market, the kind that lasts several years, even decades,
such as the ones in the 1980s and 1990s. And the truth is that we won't know
if it's a secular bull market for a long time, since you sort of stumble into
those after they've been in place for a good while. The other thing to remember
is that secular bull markets can have some cyclical bear markets interspersed
with the rallies.
And while we could argue the semantics and the academics of whether this is one
kind or another bull market, it’s hard to argue with the fact that this is a
bull market of some sort. And that may be good enough for now, especially if
you’re invested in the right sectors of the market, especially in some of the
smaller stocks, such as those contained in the Russell 2000 Index of small stocks.
Chart Courtesy of StockCharts.com
The smaller stocks have moved higher faster than the blue chip stocks of late.
This is a good thing for investors, as it shows that money is flowing into growth
stocks. Growth stocks tend to rise when investors are starting to become more
positive about the potential for improved earnings. And improved earnings tend
to happen more often when the economy is in decent shape.
Chart Courtesy of StockCharts.com
We also like the action in the NYSE advance decline line, which continues to
make new highs, confirming the action in the indexes. You want to see the advance
decline line make new highs with the markets as it's a sign that upward momentum
is still operational. Most bear markets start to form when the indexes continue
to make new highs but the advance decline ratio starts to roll over. That's known
as a divergence, and when we notice one, we'll let you know, as it is likely
a signal that some kind of trouble lies ahead for stocks.
Another interesting point to consider is the fact that the subprime mortgage
mess also changed a widely followed dynamic, the presidential cycle. If this
cycle was operational, last year would have been a down year, and this year would
be worse in some cases. Although the jury is still out on this year, the fact
that last year was a great year for stocks brings some doubt as to whether the
presidential cycle is reliable at the current time, or whether it's reversed.
If it is reversed, then we can expect that the potential for bad markets will
rise in years three and four of the Obama presidency.
And that makes sense, especially if the 2010 midterm election evens the make
up of Congress and gridlock increases further, while at the same time the economy
starts to show enough growth to make the Federal Reserve raise interest rates
aggressively.
But all that could be a long way off, or not. It’s clear that the kind and length
of any economic recovery is uncertain at this point. Yet, the longer that the
economy doesn’t fall apart altogether serves to give investors more confidence.
And that’s where we may be right now, at a point where investors realize that
it could be worse and that putting some money to work makes sense.
The problems could rise a few weeks, or a few months down the line, if stock
prices get too far ahead of reality. For now, there are few signs of that, and
that’s why the stock market keeps moving higher.
Conclusion
Anniversaries give us opportunities to look both behind us and ahead. In this
case, the market remains in decent shape. The fact that small stocks are starting
to outperform the blue chips is good for now. At some point it may be negative,
though, as it could be a sign of rising speculation.
Every bull market is different. And this one is no exception, especially since
it was born in the first year of the presidential cycle, which is traditionally
a bad year for the stock market.
What makes us somewhat more bullish about this one having some legs is that so
far the number of people that are convinced that this market could go steadily
higher isn't very large. From a contrarian standpoint, that's comforting.
Nevertheless, we remain vigilant about any signs of a potential correction.
Know when to sell and how to make money when the market falls. Get a detailed
trading plan in your pocket. Read 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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Verizon (NYSE: VZ) Shares Perked Up On Cisco Systems (Nasdaq: CSCO) News
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Shares of Verizon
(NYSE: VZ) broke above their 200 day moving average on
Tuesday, on the heels of Cisco Systems'(Nasdaq: CSCO) announcement
of a new generation of Internet router.
Chart Courtesy of StockCharts.com
Verizon has gone nowhere in the last few months, even as
the market has rallied. Yet, news that it's going to feature
new NFL content, and the convenient unveiling of a faster
router from Cisco.
It makes sense that Wall Street would get excited at this combination. More content,
delivered faster and more efficiently would give the telecom companies an opportunity
to raise prices or put more advertising into the programming. Either way the
potential is there for more money being thrown at cell phones. And that's something
that the telecom companies have needed, a new revenue opportunity.
Still, with telecom it's always unpredictable as to how things will turn out.
It always seems to cost more, and to take longer than anyone expects to roll
out something new and profitable. And the setup always takes more money to roll
out than expected.
But at least it made for one good day for Verizon. We'll see if the move has
legs. A sustained move above the 200-day moving average, though, would be a signal
that the long term trend has turned up for Verizon. And that would be a significant
change in the fortunes of this company.
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