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Sample Market Commentary (published to members on 1/4/09)

Market Commentary

Major stock market indices continued to push against resistance lines last week. On an intra-day basis, the DJIA index made a new high for the year yet AGAIN last Tuesday, December 29 at 10,606. But this high was just a little higher than recent highs achieved (i.e., the move higher has lost steam.) Also, Thursday, the last trading day of the week and the year, the DJIA index retreated sharply, and closed the week and the year at 10,428.

Our DJIA index timing signal correctly anticipated this move lower, as it stayed “Short” (warning our members to be cautious about the market) even in the face of overseas markets doing well, and the U.S. futures pointing higher earlier in the day prior to market open. The timing signal’s final +81.27% performance for the year 2009 was very impressive and we know if has benefited many of our members by having (or establishing) the right daily posture most of the time coming into the trading sessions!

See the 90-minute charts covering trading action over the last month for such major index averages and additional ETFs we are referring to in this article. As you can see from the charts, we continue to be in a slightly upwards pointing channel, with the major averages unable to make any significant move higher or lower as we ended the year 2009.

Although Thursday’s sudden market drop may be a warning that more may come in January 2010 (after all several of the daily timing signals switched to “Short” in the end of the trading day), we want to note that this was an one-day move only (at least so far.) Such an one-day move does not necessarily imply that a market reversal has started. We would need to see additional confirmation for that to be the case.

Although the weekly DJIA index chart is giving us a “Short” signal currently, all three of the other major indices (NASDAQ Composite, S&P 500, and Russell 2000) are still at a “Long” weekly signal. If these were to change as well, then we would be ready to call it a market reversal. But until that happens, we are still in a trading range with a slight uptrend bias as the charts in this article continue to show. In fact we do anticipate continued strength in technology and small cap stocks due to the fact they tend to do well the first month of the year.

The U.S. dollar (UUP: 23.66 0.00%) has stayed mostly within a trading range recently as well, although it still maintains its upwards sloping channel of the last month. We expect dollar strength to continue into 2010 as the economy continues to recover.

The price of oil (USO: 39.565 +0.04%) has broken to the upside over the last week. We expect it to continue moving higher over the next weeks and months.

The price of gold (GLD: 109.83 +0.10%) continued maintaining its downward sloping channel of the last month, although the last couple of weeks it has been mostly within a trading range within that channel. We expect the price of gold to resume its uptrend even on the face of a possibly higher U.S. dollar over the next weeks and months.

The S&P 500 volatility index (^VIX: 17.69 -1.28%) continues to trade in the low 20s, as the market trend of the last months has been maintained. We’ll be watching it carefully to determine if any change to such trend is about to happen.

The 10-year U.S. bond yields have been rising sharply over the last month.

The same goes for the 30-year U.S. Treasury yields. Our members have been able to capitalize on these moves through the timing signals we provide for ETFs and mutual funds impacted by such 10-year and 30-year yields.

It is worth noting that the transportation sector (IYT: 78.15 +1.19%) has broken to the downside last week.

However, the semiconductor sector (SMH: 27.28 +1.79%) has maintained its uptrend. We continue to believe that this sector will perform well in 2010, as it will benefit not only from the growth in the technology sector, but also from the growth in the alternative energy sector (e.g., solar panels are typically manufactured by companies with expertise in semiconductors.)

The major U.S. banks (KBE: 24.91 +2.30%), having sold as much stock as they could through equity capital raises to pay back TARP funds to the U.S. Treasury, have been under pressure over the last couple of months. However, we believe that 4Q09 earnings comparisons to 4Q08 will be very favorable, and this may give one last push higher to the sector. But that should also mark a sector top for a while, as the stocks involved digest all the dilution that has occurred over the last 6 months.

International markets continued to exhibit weakness recently. But note that positive expectations for high tech stocks has increased expectations for Taiwan’s market (EWT: 12.45 +0.57%) as well whose companies are heavily involved in exporting high tech gear to the U.S.

We expect increased market volatility, with an initial drop followed by an upwards move as we enter the first week of 2010. For the year, we expect approximately 18% upside from current levels to be achieved sometime within the year, although we have no way to know precisely where the markets will close a year from now. However, this is just part of the story.

The bigger part of the story is that we expect at least a couple mini-scares to occur that we are entering a double dip recession as a result of the Federal Reserve withdrawing liquidity in the early part of the year and raising interest rates in the latter part of the year. Also, we expect a couple of mini-scares regarding sovereign debt defaults or other international factors (e.g., increased tensions or a war somewhere overseas), with respective sell offs of 10-20% each within the year 2010.

This means we expect it to be a trader’s market, with increased volatility, and plenty of opportunities to make money both from the upside, as well as the downside of the markets.

But always remember our view that we published back in August of 2009: We are in the early stages of a well synchronized, worldwide, and multi-year V-type of economic recovery, where the BRIC countries (Brazil, Russia, India, and China) will continue to grow by more than the U.S. and Japan (currently the two major economies of the world) can accomplish.

It will not be clearly evident, as it will be slow and barely noticeable. But the panic of 2007-2008 is over, and now it is time to focus on the slow growth ahead and how to profit from it, rather than the scares we all experienced up to 9 months ago.

It turns out, every market sell off that happened in 2009 was with the intent of parting investors from the stocks they own, only for the markets to quickly recover, move higher yet again, and hit new highs for the year. We expect that to eventually be the case over the next couple of years as well, but with much bigger peaks and valleys, due to increased volatility.

Many risks remain that may cause things to unfold quite differently that described above. Any major U.S. dollar sell off (dollar crisis), oil price spike, or long term interest rate spike, may cause the market to move sharply lower by much more than the 10-20% sell offs we are currently expecting.

And any unexpected consequences of quantitative easing on the part of the Federal Reserve (e.g., a sharp rise in inflation sooner, rather than later that people are expecting it) will also cause similar or even worse problems. So we are not out of the woods yet, but we are hoping to get there without any new catastrophic failures. Time will tell.

Meanwhile, we’ll be using our Invetrics™ timing signals (including the trades in our portfolios) to figure out the short term direction of the markets, their sectors, and stocks involved to profit from it.

Happy trading!

Market Overview

The U.S. stock markets were last trading as follows: Dow Jones Industrial Average (DJIA) (^DJI: 10593.63 +0.28%), S&P 500 (^GSPC: 1146.94 +0.57%), New York Stock Exchange Composite Index (^NYA: 7337.38 +0.59%), NASDAQ Composite  (^IXIC: 2358.36 +0.76%), NASDAQ 100 (^NDX: 1915.31 +0.73%), Russell 1000 (^RUI: 630.41 +0.40%), and Russell 2000 (^RUT: 673.24 +0.54%). Investor anxiety as measured by the VIX was at (^VIX: 17.69 -1.28%).

Here is the chart indicating how the DJIA was last trading:

The stocks influencing the most the direction of the DJIA were last trading as follows: International Business Machines (IBM: 125.56 +0.01%), 3M (MMM: 81.80 -0.23%), Chevron (CVX: 74.17 -0.17%), Exxon Mobile (XOM: 67.20 +0.63%), United Technologies (UTX: 71.93 +0.21%), Johnson & Johnson (JNJ: 64.3375 +0.11%), Procter & Gamble (PG: 63.14 -0.25%), McDonald’s (MCD: 65.015 -0.13%), Coca Cola (KO: 54.11 -0.13%), Boeing (BA: 68.84 +1.55%), Wal-Mart (WMT: 53.93 +0.33%), and Travellers (TRV: 53.72 +0.28%).

Here is the chart indicating how the S&P 500 was last trading:

Selected NYSE stocks were last trading as follows: Bank of America (BAC: 17.21 +2.44%), Citigroup (C: 3.985 +4.32%), General Electric (GE: 16.51 +0.12%), Wells Fargo (WFC: 29.489 +1.76%), Pfizer (PFE: 17.28 +0.29%), JPMorgan Chase (JPM: 43.03 +1.44%), Ford (F: 12.8999 +0.78%), AIG (AIG: 36.63 +11.78%), Alcoa (AA: 13.70 +0.22%), Regions Financial (RF: 7.27 +5.21%), Sprint Nextel (S: 3.72 +2.76%), SLM Corporation (SLM: 12.20 -0.08%), Advanced Micro Devices (AMD: 9.00 +4.29%), AT&T (T: 25.62 +0.23%), Las Vegas Sands (LVS: 19.3305 +2.55%), and Motorola (MOT: 7.065 +1.36%).

Here is the chart indicating how the NASDAQ Composite was last trading:

Selected NASDAQ stocks were last trading as follows: E*Trade Financial (ETFC: 1.67 -0.60%), Microsoft (MSFT: 28.91 +0.38%), Intel (INTC: 21.27 +1.58%), Star Scientific (STSI: 0.7488 0.00%), Research in Motion (RIMM: 74.7599 +1.65%), Cisco Systems (CSCO: 25.929 -0.77%), Oracle (ORCL: 24.90 +0.08%), Fifth Third Bancorp (FITB: 12.97 +2.77%), Huntington Bancshares (HBAN: 5.20 +3.38%), Cell Therapeutics (CTIC: 1.10 +1.85%), DryShips (DRYS: 6.1699 +3.70%), Brocade Communications (BRCD: 5.791 -1.01%), Qualcomm (QCOM: 38.77 +0.23%), Apple (AAPL: 224.0201 +0.45%), Baidu (BIDU: 543.375 +0.79%), Google (GOOG: 564.87 +0.84%), Amazon (AMZN: 130.19 +1.06%), and First Solar (FSLR: 108.96 +2.58%).

Selected high volume ETFs representing major sectors of the U.S. stock market were last trading as follows: Health Care (XLV: 31.91 +0.31%), Utilities (XLU: 29.97 +0.17%), Technology (XLK: 22.63 +0.44%), Financials (XLF: 15.47 +1.11%), Energy (XLE: 58.25 +0.33%), Materials (XLB: 33.02 +0.18%), Home Builders (XHB: 16.85 +0.72%), Solar Energy (TAN: 8.2999 +1.71%), Semiconductors (SMH: 27.28 +1.79%), Retailers (RTH: 97.86 +0.11%), Banks (KBE: 24.91 +2.30%), Regional Banks (KRE: 25.3099 +0.96%), Transportation (IYT: 78.15 +1.19%), Real Estate (IYR: 48.26 +0.15%), Biotechnology (IBB: 90.4931 +0.77%), Gold Miners (GDX: 45.76 +0.39%), Commodities (DBC: 23.6238 -0.11%), Agriculture (DBA: 24.4299 -0.73%), Dry Shippers (SEA: 14.863 +0.43%), Consumer Discretionary (XLY: 31.88 +0.19%), and Consumer Staples (XLP: 27.42 -0.11%).

Additional ETF trading last indicated: U.S. Dollar (UUP: 23.66 0.00%), Crude Oil (USO: 39.565 +0.04%), Heating Oil (UHN: 26.90 +0.34%), Gasoline (UGA: 37.40 +0.21%), Natural Gas (UNG: 8.1307 -0.72%), Gold (GLD: 109.83 +0.10%), and Silver (SLV: 17.05 +0.77%).

Here is where markets were last trading in Asia:  Japan (^N225: 10563.92 -0.04%), Hong Kong (^HSI: 21208.289 +0.00%), China (000001.SS: 3048.927 -0.66%), Australia (^AORD: 4829.800 +0.01%), New Zealand (^NZ50: 3226.192 +0.40%), Taiwan (^TWII: 7779.08 +0.11%), Korea (^KS11: 1662.24 +0.08%).

Here is where markets were last trading in Europe: UK (^FTSE: 5628.24 +0.46%), Germany (^GDAXI: 5930.97 +0.77%), France (^FCHI: 3948.00 +0.97%), Switzerland (^SSMI: 6877.40 +0.13%), Netherlands (^AEX: 341.42 +0.69%), Belgium (^BFX: 2631.15 +0.95%), Norway (^OSEAX: 418.241 +0.73%).

Here is where markets were last trading in North and South America: Canada (^GSPTSE: 11959.60 +0.34%), Brazil (^OSEAX: 418.241 +0.73%), Argentina (^MERV: 2327.460 +0.36%), Mexico (^MXX: 32661.180 +0.45%).

Calendar for Earnings and Economic Reports

Earnings calendar for this week.
Economic report calendar for this week.

See the bottom of this page for links to a variety of news sources under “Financial News” and “Financial Portals”.

Timing Signals for the DJIA Index

Current market posture for the Dow Jones Industrial Average (DJIA) index is as indicated in the table below.

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Members Only: The remaining article with Invetrics™ market timing signals for the Dow Jones Industrial Average (DJIA) index is available to registered Bronze members of this site. All you have to do is register as a Bronze member. Bronze membership is FREE of charge. Access additional content with Invetrics™ market timing signals for selected ETFs and stocks, with an optional low cost Silver or Gold membership.

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IMPORTANT: If you are already a registered member, but you only see this “Public” post when you login, it is because the “member only” content for the next trading day is not published yet. You need to come back later in the evening or in the morning prior to market open to see the “member only” content with market commentary, trading signals, stock/ETF picks, and buy/sell/stop limit prices.

Although we strive to publish the “Public” version soon after the markets close, we typically wait until later in the evening to publish the “member only” content, so that we have a chance to see how markets in Asia and other parts of the world are trading. This allows us to provide our members with the best possible trading signals for the next trading day.

Members are also encouraged to check our web site around market open time, in case rapidly changing market conditions have necessitated a last minute change in a previously published timing signal, just prior to market open.