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Nadeem
Veteran Investor
Joined: 11 Jul 2004
Posts: 639
Cash Points ££ 13955.74
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 Posted: Wed Jan 31, 2007 3:35 pm Post subject: Market Analysis - Stocks, Bonds & Commodities |
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Economy
The Commerce Department reported sales of new homes were up 4.8% to an annual pace of 1.12 million units. New orders for durable goods gained 3.1%. Durable goods for non-defense capital goods, excluding aircraft, was up 2.4%. Spending on equipment and software increased at an annual rate of 7.7% in the third quarter, after a 1.4% decrease in the prior quarter. Orders for commercial aircraft increased 27% after rising 3.8% in November. Orders excluding military equipment rose 3.9% last month.
The economy expanded at a 2% annual pace in the third quarter, the slowest rate so far reported. Motor vehicle and parts bookings jumped 6.8% in December - not an insignificant amount. Orders for machinery rose 5%, largely attributed to an increased demand for communications equipment. Existing Homes sales for 2006 were down 8.4% from 2005 levels of 6.648 million. And while 2006 was the weakest year of sales since 2003's 6.175 million, keep in mind that existing home sales averaged 3.99 million units annually during the nineties.
For the year, New Home Sales dropped 17.3% from record 2005 levels, to the lowest sales since 2003. For comparison, sales averaged 698,300 during the nineties.
Stocks
U.S. stocks chalked up the worst week this year, after the above government reports on housing and manufacturing growth raised the odds that the Federal Reserve won't cut interest rates in the near future. The Dow and S&P 500 both gained 0.6%. The Utilities were up 0.5%. The Transports lost a significant 3.0%. The NASDAQ 100 was down 1.3%.
Canadian stocks had their biggest weekly gain in two months, as energy producers including Suncor advanced on higher crude oil prices and takeover speculation. The chart below shows the Dow ascending from the bottom left hand corner of the chart - upwards to the right hand corner of the chart: a bullish signature with higher highs and higher lows.
Of concern, however, are the RSI and MACD indicators. RSI peaked just below the 70 level and has been steadily declining with the 50 level coming up quickly (51.51 presently). The RSI indicator also shows a negative divergence from the Dow, which made a series of new highs while RSI was making lower highs. MACD indicates the same negative divergence. MACD also shows a negative cross over headed downwards.
Caution is warranted for the Dow at the present time. A fairly significant correction may be looming on the horizon. If the 50 ma is breached to the downside - look for a fall towards the 200 ma.
Bonds & Rates
Those familiar with our report know that we have continually stressed the importance of interest rates in the present market environment. Interest rates are basically the cost of money - at least of borrowing money, which has unfortunately, become a national pastime. The Fed has been inclined towards an inverted yield curve (short term rates higher than long term rates), which they have been successful at obtaining. We have always said that such was their goal, but that it may prove difficult to maintain for any significant amount of time; as the market dictates long term rates - not the Fed.
Now, long term rates are on the rise and have broken above their highs from October and even back to August. If the present action continues it will result in a very bad trend for the bond market, the mortgage market, the housing market, and the stock market as well. Needless to say it warrants watching.
The chart below shows the 10 Year Note Yield breaking out to new highs, which if it continues will be tough on those with variable rate mortgages - of which there are a few around. This would just be the first market deleteriously affected. The derivatives markets, especially the interest rate derivatives - could experience declines of more than 3 standard deviations - for which they were not created to handle. Uncharted waters without a paddle.
Full article - http://www.marketoracle.co.uk/Article287.html |
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