It was a tough week. Yet, the consolidation - as it seems it is one - was highly needed. Unfortunately, it appears that the DJIA is the one that actually felt the brunt of the market action. For the S&P 500 and the NASDAQ composite, the action was short lived, even though it was perceptible size-wise.
In conclusion, the DJIA touched the high of mid-September, and is not yet in a recovery mode. The NASDAQ composite hardly touched the values of mid-December, while the S&P 500 did achieve the lows of mid-December.
What is next? I guess technical traders are supposed to be able to read tea-leaves. I have normally shied away from that. In this case, I really cannot tell! My short term oscillator has bottomed on Monday at around -75% - not seen since October - while the mid-term oscillator (I do not publish it here) is still at the bottom of -45%, which we did not see for longer than that. My long term indicators are still very negative!
If I were in the tea-leaves-reading business, I would say that this is indicative of a rolling correction. That is, we will get a number of consolidations over a long enough period of time that the total effect will be an overall multi-week correction. Yet, the jury is out and the verdict will come in the form of the January labor report - this coming Friday - and the Fed notes - February 19th. After all, the Fed meeting and the GDP numbers both gave the economy a vote of confidence. Further, since many retailers will report earnings this coming week, I think by the time the labor report is out on Friday, things will be primed either for a recovery or for a correction. We can still call the action of these last couple of weeks a certified consolidation - except for the NASDAQ.
For trading set action, Dow Chemical (NYSE:DOW), Apple (NASDAQ:AAPL), and Caterpillar (NYSE:CAT) had earnings related action, which gyrated given the impact of Monday. Yet, AAPL was the biggest loser of the week.
In other news, Geron (NASDAQ:GERN) had the most-feared event by small company investors: stock secondary offering at a below market price. Guess what: market capitalization grew by 50% on the day of the offering! Was this an overhang that was removed or a typical market idiosyncrasy? I do not know, but I guess the market does what it wants to do.
Verizon (NYSE:VZ) got the approval for the takeover of the remaining portion of the Verizon Wireless business. This actually resulted in the company stock price defying gravity for most of the week. Actually, given the return on equity and growth of the wireless business, this is a very good transaction for VZ.
In sector notes, some budding recovery in retail, industrials and railroad is starting to show. Of course a rising market will magnify that, especially if the Friday labor numbers are good. As these sectors are highly sensitive to the overall macroeconomic environment, this makes sense.
Treasuries acted in an awkward way this week. The net result was a significant drop in rates. Just like the prior week, this played well for mREITs in particular, as Annaly (NYSE:NLY) is in my trading set. Yet, I would be very careful, as the macroeconomic numbers-- to be confirmed by the labor numbers and the Fed meeting notes-- seem to be good. Hence, rising interest rates, given the Fed's stated goal of a 2% inflation, still seem inevitable in the mid- to long-term. For NLY in particular, it should be releasing earnings this coming week (or next), and in these earnings you need to look at book value. In the accompanying presentation you need to look at portfolio, hedge, and financing structure, including company reported sensitivities, which they did a good job in reducing the period before from the period prior.
Gold (NYSEARCA:GLD)'s attempt to stage a reversal halted, even thought prices swung violently. Yet, despite the consolidation in the equity markets, GLD ended the week below where it started.
Looking at the Fed balance sheet, I still cannot see the reduced purchases manifesting themselves in January, but I guess that is just me!
My regular table for the indices follows.
|Index/ETF Symbol and Name||Daily 3-EMA-7||Weekly 3-EMA-7||Perceived Trend|
|SPX||S&P 500 Index||Down||Up||Negative|
|DJIA||Dow Jones Industrial Average||Down||Up||Negative|
|COMP||NASDAQ Composite Index||Neutral||Up||Negative|
|GLD||SPDR Gold Trust ETF||Up||Down||Neutral|
|VIX||CBOE Volatility Index||Up||Neutral||Positive|
|FVX||CBOE 5 Year Treasury Note Yield Index||Down||Up||Negative|
|TNX||CBOE 10 Year Treasury Note Yield Index||Down||Up||Negative|
|TYX||CBOE 30 Year Treasury Bond Yield Index||Down||Neutral||Negative|
As usual, the reminder is that the movement of the treasury yields is negatively correlated with the price of the underlying instrument.
As for my trading set, my short term "Perceived Trend Oscillator" stood at "sold" value of -40%. The lowest value was a clear "oversold" of -75% on Monday - similar to the reading in mid-October. This is in contrast of the nearly "oversold" reading of -63% in the previous week. This improvement is indicative of an improving short-term sentiment. This, as noted above, is not shared by the mid-term indication of the "Daily 3-EMA-7″ column in the table below.
The full trading set table is as follows.
|Symbol and Company Name||Daily 3-EMA-7||Weekly 3-EMA-7||Perceived Trend||Is a Current Holding?|
|JPM||JPMorgan Chase & Co.||Down||Up||Negative||Yes|
|GS||The Goldman Sachs Group, Inc.||Down||Up||Negative|
|WFC||Wells Fargo & Co.||Neutral||Up||Negative|
|NLY||Annaly Capital Management, Inc.||Up||Down||Positive|
|MO||Altria Group, Inc.||Down||Neutral||Negative||Yes|
|VZ||Verizon Communications Inc.||Down||Down||Neutral||Yes|
|GPS||The Gap, Inc.||Down||Down||Neutral||Yes|
|ANF||Abercrombie and Fitch Co.||Up||Down||Positive|
|DIS||The Walt Disney Company||Down||UP||Negative|
|MDLZ||Mondelez International, Inc.||Down||Up||Negative|
|BA||The Boeing Company||Down||Up||Negative|
|LMT||Lockheed Martin Corporation||Neutral||Up||Positive|
|DE||Deere & Company||Down||Up||Negative||Yes|
|EMR||Emerson Electric Co.||Down||Up||Negative||Yes|
|DOW||Dow Chemical Co.||Up||Up||Positive|
|ADM||Archer, Daniels, Midland, Co.||Down||Up||Negative|
|POT||Potash Corp. of Saskatchewan Inc.||Down||Neutral||Negative|
|BMY||Bristol-Myers Squibb Company||Down||Up||Negative|
|CSCO||Cisco Systems, Inc.||Neutral||Down||Negative||Yes|
|NGG||National Grid plc||Up||Up||Neutral|
|WMB||Williams Companies, Inc.||Up||Up||Positive|
|WM||Waste Management, Inc.||Down||Neutral||Negative||Yes|
|NSC||Norfolk Southern Corp.||Up||Up||Positive||Yes|
Disclosure: It is important that you understand and agree that all information provided in this newsletter rely on publicly available data and tools with no guarantees of quality or suitability for any purpose, and that I can be long or short in any of my trading-set equities, at any time, with or without regard to indicated trends and described analytics, and that I do not give buy or sell or any other financial recommendations, and that any and all actions based on this commentary are solely the responsibility of the reader.