Dr. John L. Faessel
ON THE MARKET
Commentary and Insights
Quotes of the day
“Government deficit spending to maintain consumption can be compared to flushing money down an economic toilet."
~ Bill Gross ~ *
“Economic insecurity is now higher than at any time on record.”
~ Jacob Hacker ~ **
CHART REPAIR LOOMS
Narrow Range Back-to-Back Days in McClellan – Big Move Due
STOCK OF THE DAY ***
The McClellan Oscillator registered one of those fairly rare "minor-change" readings. Fridays Oscillator posted a slightly OVERBOUGHT at plus 125, Thursday’s was a read of 123, i.e. a Narrow Range Alert. This close approximation has historically suggested a 2 or 3% move over the next few days, in this case, judging from the early S&P futures that are up over 13 points and sticking that pop on charts looks like a breakout could fire. We've come off some terrible sentiment and extremely deep oversold readings after the 13% market retreat from the April highs. Last month we made up about 7% of that and as I've mentioned numerous times, big picture wise the economic still remains terrible. Thankfully, the economy and the market are two completely different and separate animals. Last Friday government data indicated that the economy slowed down to a 2.4% growth for Q2. Over the last month or so investors have extracted more than $40 billion from stock mutual funds and cash on the sidelines is huge; supposedly several trillion dollars. There could be a buying panic brewing in the recent trading range could finally be blown out on the upside. European debt worries are ebbing, the gusher in the Gulf has been capped (and they can't find any oil float around anywhere), the double-dip recession looks to be avoided (by the skin of our teeth), the tax and spenders look like they're going to be booted out of power (thank God), and hopefully we will have a Congress coming up that won't pass a damn thing and hopefully out in time will repeal the catastrophes of recent months.
There's also all-time record corporate cash and 75% of the S&P 500 (SPX) have beat earnings estimates, plus analysts are looking at all-time record earnings in the (SPX) in 2011.
On the other hand (and maybe Congress will now lay off letting the Bush tax cuts die out) that trillion dollar sea anchor that will slow the economy comes due on January 1, 2011 in addition to the other multitude of tax increases. Also, if you've got a family business or net assets over $1 million it would be best for your family’s finances going forward if you died in the next five months as the huge death tax of 50%-ish also gets applied on January 1. This one makes me sick; what the hell kind of government do we have nowadays? Unbelievable! Anger! Rage!
In any event the market backdrop looks ripe for a nice push higher. Just may be we'll get a volume push to kick in here soon too. "Price" has gone to the right side of the charts far enough to now balance out that huge drop we had in May and the back and fill with a reverse head and shoulder bottom look could change this whole market picture from down, to at least sideways with a shot at revving up to an attempt at the old April 2010 highs of (SPX) 1219.
Sub-Index Chart of the day: the NASDAQ Transportation Index (TRAN) is composed of 65 stocks and, while not as well known as the Dow Transportation Index, it's quite a bit broader. "Price" is now quite close to its old high of late April and if it takes that out it jumps up into the October 2008 trading range. It's likely that this sub-index could be the first to demonstrate recovery (at least from a technical perspective) from the hellish market rip we've experienced.
Resistance in the (SPX) is at 1106/1108 then at 1116. The next stop / resistance would be the resistance at the July 27 highs of 1121.
* Bill Gross manages over $1 trillion. The PIMCO Total Return Fund one of the bond funds he manages returned 13 % in the past 12-months, beating 63 % of its peers.
** Jacob Hacker, the Yale political scientist who developed the Economic Security Index [ESI] using figures from the Census Bureau measures the percentage of Americans, whose income has fallen by 25% or more each year. In 1985, the ESI reached 12%. On the heels of a downturn in 2002, it hit 17%. And for 2009, it is estimated to reach 20%. For those 60 million Americans, it will take an average of six years to reach their previous income level.
· Fridays McClellan Oscillator posted a slightly OVERBOUGHT at plus 125, Thursday’s was a read of 123, i.e. a Narrow Range Alert
· The Treasury 10-year yield 2.91%
· 3-month LIBOR slips to 0.454
· CBOE Put / Call Exchange Volume Ratio at 0.81
· (VIX) at 23.50
· Euro at 1.3049 - yesterday post was highest since early May
· Copper at 3.307 - highest since late April
The 3-month London Interbank Offered Rate [LIBOR] which banks pay for dollar loans, declined for an 12th day on Friday, to 0.454 percent as funding pressures continue to ease.
WEEKLY SENTIMENT WATCH:
All long-term BULLISH investor sentiment readings have come off their absolute lows of a month ago or so, but continue to remain somewhat subdued. The BEARISH readings have moved down to 5-week lows. There's lots of room here for investors to get more bullish―that's for sure.
(High BULLISH readings in the Investor Sentiment Readings usually are signs of Market tops; low ones, market bottoms.)
· The AAII Investor Sentiment Survey BULLISH read was 40%. The prior 11-weeks were ― 32%, 39.4% 20.9%, 24.7%, 34.5%, 42.5%, 34.5%, 37.1%, 29.8%, 41.3 % and 36%.
· The AAII Investor Sentiment Survey BEARISH number dropped to 33.3%. The prior 6-weeks were 45%, 37.8, 57.1%, 42%, 32.4% and 30.7%.
· The Consensus Index Bullish investor sentiment survey recorded a 44%. The previous week was the low of this market retreat at 34%. The prior 12-weeks were ― 37%, 39%, 37%, 43%, 49%, 40%, 39% 42%, 44%, 56%, 60% and 76%.
· The Market Vane (Market Letter Survey) posted a BULLISH read of 50%. The preceding 12-weeks were ―44%, 46%, 39%, 40%, 47%, 49%, 42%, 43%, 42%, 46%, 49% and 53 %.
The BARRON’s Confidence Index came in at 78.3 and tells us that the economic recovery continues. The prior week was 77.2. Importantly, the Index registered new highs of the cycle 9-weeks ago at 79. One year ago it was 70.3.
The Confidence Index is the High-grade bond index divided by the Intermediate grade and is a premier measure of how the bond markets many $ trillions are allocated. The discrepancy between the yields is indicative of investor confidence. There has been a solid improvement in the spread ratio since its all-time low in November / December 2008, indicating that bond investors are growing more confident and have started opting for more speculative bonds over high-grade bonds.
*** STOCK (& CHART) OF THE DAY:
Portfolio Recovery Associates Inc. (NASDAQ:PRAA) $69.68 NASDAQ
(PRAA) advanced to near a breakout on a 450% volume increase on Friday. Has a market cap of $1.18 billion, and it has $23 million in cash. The chart has a terrific look as “price” now appears about ready to break out of a 15-month consolidation. And I think it will, as it's reversing off of a deeply oversold plunge and now it's perched right next to its all-time highs of $72.80. Volume studies and the On Balance Volume picture look exceptional.
When times are tough there are always certain companies that thrive based on their business model. Some of the more popular areas that investors turn to include "dollar stores" or "consumer staples". One niche sector that is overlooked is the debt collection business.
(PRAA) engages in the purchase, collection, and management of portfolios of defaulted consumer receivables. It acquires these receivables of Visa, MasterCard, and Discover credit cards; private label credit cards; installment loans; lines of credit; bankrupt accounts; deficiency balances of various types; legal judgments; and trade payables from various debt owners.
(PRAA) is widely held by189 institutional investors. In Q2 it earned $19.5 million, or $1.14 a share, compared with $11.7 million or 76 cents a share, in the year-ago quarter.
For my list of Best Ideas for 2010 please send an e-mail request to: Dr.Faessel@onthemar.com
Disclosure: No Position