Update: Week Ending February 22, 2014

by: Nasser Khraishi

A hard to read week. That is the summary.

The NASDAQ Composite and S&P 500 indices have recovered, while the DJIA lagged. There was a noticeable topping off on the daily charts for the DJIA that also appeared for the SPX. The SPX though did (briefly) turn positive for the year. The Composite seemed to be immune to the trials of the financial world, and that is scarier, in my book, than aligning with the other indices.

My long awaited event of the release of the minutes of the last Fed meeting came, and the headline news has nothing with the content, but with the fractured opinions. Yet, the message is not if interest rates will rise, but when. It seems some members favored earlier rather than later. With that, the Bernanke era is folded and the new Yellen era unfolds.

I do not see any of my favorite measures on the economic calendar for next week. Yet the week after will have the February payroll, which should be a cleaner reading than that of January. You see, for the first time that I remember, weather was blamed in multiple sectors and regions. Whether it was some of the retail earnings reports or the housing starts, the talk about weather was prominent. If that is true, then one should expect explosive growth to come. After all, unlike a hurricane or an earthquake, this is a temporary situation - save the possibility of flooding. As such, one would think that a portion of the activity that was affected by weather would find a future point to take place. Especially that there was no particular timely event that got clobbered. We did not miss a major holiday or the like due to the Polar Vortex. Had it come a couple of weeks earlier, then it would have affected the holiday season, but that was not the case. After all, we all watched the 49ers and the Packers fight it out in a fully packed stadium.

More concerning is the water shortage in the West, where it had already gotten to the point of Farming vs. Others. Will it get to the point of Industry vs. Others? I do not think so, as some relief did take place, but that is an interesting situation as the rainy season in California has only a few weeks left. You see, unlike the unseasonal cold, which is a temporary event, lack of water will hurt for the rest of the year.

Overall, retail did well for the week. Even Nordstrom (NYSE:JWN), which got a few downgrades, recovered well; Wal-Mart (NYSE:WMT) - which is not in my trading set - did not though. The Gap (NYSE:GPS) and Abercrombie & Fitch (NYSE:ANF) held a very interesting technical pattern for the week, before showing some signs of price appreciation on Friday. In particular, this was another week for ANF where management news was major news.

Technology issues in my trading set got somewhat of a beating, including HP's whipsaw after earnings release. Energy and Utilities fared quite well during the week, and less so did Verizon (NYSE:VZ).

Geron (NASDAQ:GERN) had some interesting news both in the form of the release of the institutional ownership, which seems to have grown significantly, and in the Scripps 34th conference, where GERN's medicine Imetelstat was favorably mentioned in Dr. Tefferi's presentation about diagnosis and treatment of myeloproliferative diseases.

The bottoming in Treasury rates was more apparent this week. Yet, Gold (NYSEARCA:GLD) was unphased due to that. On the other hand, Annaly (NYSE:NLY) was showing some topping off. It is not clear whether this is due to the rates or the recent news about exiting senior managers. I still maintain that, long term, rates are going up and gold is going down. The only wrinkle I see here is that the inflation numbers released during the week (CPI and PPI) were tamer than expected.

You see, my expectation, as stated multiple times, is that the Fed will be able to achieve its target inflation rate of 2%, implying a 10-year treasury rate in the neighborhood of 4%, before inflation heading back south, as it should. If the Fed fails at raising inflation, then Japan here we come! After all, deflation, should be the norm for humans due to all the technological advances that have reduced overall cost and increased overall productivity. That is something that the Fed can delay but, as the Japanese found out the hard way, nobody can escape!

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 Positive Positive Positive
DJIA Dow Jones Industrial Average Positive Positive Positive
COMP NASDAQ Composite Index Positive Positive Positive
GLD SPDR Gold Trust ETF Positive Neutral Positive
VIX CBOE Volatility Index Negative Positive Neutral
FVX CBOE 5 Year Treasury Note Yield Index Negative Positive Positive
TNX CBOE 10 Year Treasury Note Yield Index Neutral Neutral Positive
TYX CBOE 30 Year Treasury Bond Yield Index Neutral Neutral Positive

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 a "neutral" value of 10% on Friday. The longer term indicators were also neutral. This coincides with what we discussed in the opening paragraphs about the signs of topping on the indices. We shall see who wins next week, even though it is the week after that will have the payroll number.

It is worth noting here that I am using a different source of data starting from this week. I did compare prior weeks' results and they seem to conform well. As such, I am not expecting any discrepancies going forward.

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?
GERN Geron Corporation Positive Positive Negative Yes
JPM JPMorgan Chase & Co. Positive Positive Positive Yes
GS The Goldman Sachs Group, Inc. Negative Neutral Neutral
WFC Wells Fargo & Co. Positive Positive Neutral
NLY Annaly Capital Management, Inc. Positive Negative Positive
MO Altria Group, Inc. Negative Negative Negative Yes
T AT&T Inc. Negative Negative Negative Yes
VZ Verizon Communications Inc. Neutral Negative Positive Yes
GPS The Gap, Inc. Positive Neutral Positive
ANF Abercrombie and Fitch Co. Positive Negative Neutral
JWN Nordstrom, Inc. Neutral Negative Positive Yes
TGT Target Corporation Negative Negative Negative Yes
DIS The Walt Disney Company Positive Positive Positive
MCD McDonald's Corp. Positive Negative Positive Yes
MDLZ Mondelez International, Inc. Positive Positive Positive Yes
BA The Boeing Company Negative Neutral Negative
LMT Lockheed Martin Corporation Positive Positive Positive
CAT Caterpillar Inc. Positive Positive Positive
DE Deere & Company Negative Neutral Negative Yes
EMR Emerson Electric Co. Negative Neutral Negative Yes
DOW Dow Chemical Co. Positive Positive Positive
ADM Archer, Daniels, Midland, Co. Neutral Neutral Negative Yes
MON Monsanto, Co. Neutral Positive Positive
POT Potash Corp. of Saskatchewan Inc. Positive Neutral Neutral
PFE Pfizer Inc. Positive Positive Neutral
BMY Bristol-Myers Squibb Company Positive Positive Positive
ABC AmerisourceBergen Corporation Neutral Positive Positive Yes
AAPL Apple, Inc. Neutral Positive Negative Yes
INTC Intel Corporation Negative Positive Negative Yes
CSCO Cisco Systems, Inc. Positive Neutral Negative Yes
HPQ Hewlett-Packard Company Positive Positive Positive
CVX Chevron Corporation Negative Negative Negative
BP BP plc Positive Positive Positive
NGG National Grid plc Positive Positive Positive Yes
NI NiSource, Inc. Positive Positive Positive
WMB Williams Companies, Inc. Positive Positive Positive
WM Waste Management, Inc. Negative Neutral Negative Yes
CNW Con-way Inc. Negative Negative Negative Yes
CSX CSX Corp. Neutral Positive Neutral
NSC Norfolk Southern Corp. Neutral Positive Negative

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.