Do the Markets Need a Rest?

[Excerpted from Bill Cara's Daily Report]

The first clue to the possibility that US equity markets may have reached an intermediate-term cycle top, i.e., -8 to -12 percent or three months or more of falling prices to come, occurred on Friday afternoon when over-excited talking heads on Financial Entertainment TV caused me to turn off the noise. Monday, Goldman Sachs confirmed the views of many market analysts that the market is in need of a rest.

At the closing bell on Monday, the S&P 500 (1,003.12 -7.36 -0.73%), the DJIA (9,306.36 -63.71 -0.68%) and the NASDAQ Composite (1,983.26 -16.99 -0.85%) failed to match the 2009 highs set on Friday, and after a late morning attempt fizzled prices began to fall, all of the major indexes closing down on the day.

The leading sector in the US equity market was defensive-oriented Healthcare (XLV +0.7%), while the biggest losing sectors were Basic Materials (-1.6%) and Consumer Discretionary (XLY -1.3%).

On Friday the only losing industry group was Goldminers ($XAU -2.5%), and the pressure stayed on yesterday as $XAU dropped -2.4% as a strong $USD (+1.25%) pushed commodities lower. Crude Oil ($WTIC 70.93 -1.01 -1.40%) and $GOLD (955.70 -7.60 -0.79%) were both losers.

For Cara 100 company stocks, the leading winners were Brunswick Corp (BC +10.5% after being up Friday +7.7%) and Embraer (ERJ +5.4%). A loser was Whirlpool (WHR -4.6% after being up on Friday +6.8%). Bigger losers were ICICI Bank, Best Buy and Research in Motion (IBN -5.9% BBY -5.3% RIMM -4.9%).

With the surprising monetary expansion statement from the BoE last Thursday, and more apparently to come from other central banks in the world, the US Dollar gained further strength (78.97 +0.97 +1.25%). Against the stronger Dollar was a stronger Yen (103.11 +0.51 +0.50%), but a weaker Euro (141.43 -0.44 -0.31%), Pound (164.60 -2.23 -1.34%) and Canadian Loonie (91.80 -0.75 -0.81%). The two-day loss in the Pound is significant, and helping push up the Dollar.

The US long bond ($USB 116.41 +1.09 +0.95%) was stronger for the second day in the past three. Treasury yields dropped for the 30-year (4.542 -0.61 -1.33%), 10-year (3.788 -0.66 -1.71%) and the 5-year (2.752 -0.73 -2.58%) instruments. The Treasury bill yield (0.160 -0.10 -5.88%) dropped a tad.

Earlier Tuesday, Austral-Asian markets closed higher by about +0.6% across the board. Japan’s Nikkei 225 (10,585.5 +0.58%), Hong Kong (21,074.2 +0.69%), Shanghai (3,264.7 +0.46%), Australia (4,334.4 +0.58%) and India (15,074.6 +0.43%) all lifted a bit.

Around 7am ET Tuesday morning, the French CAC (3,509.3 7:18AM ET +0.14%), German DAX (5,410.0 7:03AM ET -0.15%) and FTSE 100 (4,718.0 7:03AM ET -0.09%) were quiet, under a bit of pressure from banks as traders are focusing on loan losses, extension of the recession and falling real estate prices.

The spot (cash) market this morning saw the price of gold, palladium, platinum and silver fairly benign at: (947.02 +1.11 +0.12% 07:20am ET); (270 -2 -0.74% 07:20am ET); (1248 +2 +0.16% 07:20am ET); and (14.35 -0.05 -0.35% 07:20am ET), respectively.

Euro:Dollar futures (1.4166 +0.0034 +0.24% 07:07am ET) were a tad stronger.

Crude Oil futures (70.75 +0.15 +0.21% 07:07am ET), like $GOLD, were marginally higher with the small pullback in the Dollar this morning.

US equity market futures were a tad softer (9309 -11 -0.12% 07:04am ET).