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Monday - August 30, 2010 The Current Market
![]() The DOW 30 has closed back over the 10,000 level for 1 day Eight
indices ended the week in negative territory
for the year vs 7 the week before The indices closed mostly lower on the week, but not too much lower, and mostly because if we take out air-o-planes from the durable goods orders we end up not so good. The economic recovery appears to be stalling as companies cut back last month on their investments in equipment and machines and Americans bought new homes at the weakest pace in decades. The Commerce Department said orders for big-ticket manufactured goods increased 0.3 percent in July, but that was only because of a 76 percent jump in demand for commercial aircraft. After removing the volatile transportation category, orders for durable goods fell at the steepest rate since January. And business orders for capital goods took their sharpest drop since January 2009, when the economy was stuck in the deepest recession in decades. The Commerce Department told us new home sales fell 12.4 percent in July from a month earlier to a seasonally adjusted annual sales pace of 276,600. That was the slowest pace on records dating back to 1963. The past three months have been the worst on record for new home sales. The weak sales mean fewer jobs in the construction industry, which normally powers economic recoveries. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders. The two reports are likely to increase worries that the economy could easily slip back into a recession. Also, a report that showing sales of previously owned homes fell last month to the lowest level in decades. Unemployment remains near double digits and job growth in the private sector is slowing. More than 600,000 new homes were sold annually from 1983 through 2007. After the housing bubble broke, sales plunged to 375,000 last year and the weakest yearly total on record. Builders have sharply cut back construction in the face of weak sales. The number of new homes up for sale at the end of July was unchanged at 210,000, the lowest level in about 40 years. Due to the sluggish sales pace, it would still take more than nine months to exhaust that supply, above a normal level of about six months. New home sales were down nationwide. They fell by more than 25 percent from a month earlier in the West, 14 percent in the Northeast, 9 percent in the South and 8 percent in the Midwest.
The story never seems to change much anymore. Its the same-o - same-o, over & over again. No jobs, houses remain a bad investment and the government, for lack of any common sense, keeps throwing money at all the wrong places. The Obama Administration is attempting to sell us on the idea the economy is growing, but it seems to be quite obvious the wrong message. As long as they believe their strategy is working the longer it will be before they realize it is not and the worse the economy will get. We cannot buy our way out of the worst recession ever to hit the USA, if we continue to award banks and brokerage firms for the mess they created. Some one needs to tell this current administration that you start out by feeding the bottom of the fish bowl first, not by feeding the sharks first. With most of the indices hanging around in correction territory, with discounts to the 52 week high greater than 10% and a few closing in on the 20% discount level (bear market), the road ahead appears to be weaker than anything else. I am having trouble believing the markets have found their low points yet and we could easily see new lows on the markets. If the indices fall to bear market territory we could see further falling. Finding reasons to feel more bullish are few and far between. There are few reasons to believe the dollar will climb much at all, and few reasons to believe other currencies will jump in to replace it over the near term. This will have a tendency to keep the precious metals high for some time to come, but like all others, once the &%$ Lady sings the metals will fall fast, just not yet. The government lowered its estimate of second-quarter economic growth to a 1.6 percent annual rate from 2.4 percent, although the figure on consumer spending was revised higher, and this is telling us the recovery is slowing down, although it never was moving forward all that fast in the first place. Federal Reserve
Chairman Ben Bernanke told us that the U.S. central
bank's would act to kick start the recovery should the outlook
deteriorate. He said the Fed could support growth by purchasing more
government debt or by promising to keep rates exceptionally low for a
much longer period than currently priced in by financial markets. The
biggest problem with this is the banks have not
passed on the low rates to consumers in the so-called recovery so far and
there is no reason to believe they are prepared to do any better
now. I still lean toward the mining and energy related industries for the longer term, simply because precious metals could fall back quite a bit and still be at a strong profit point for the companies mining them. I still like high tech stocks and companies with products that will work in any economy. Too many stocks are trading too high for entry and this has me worried there is more downside right now than upside. It will not take much to push the indices into bear market territory. Gold is still strong, climbing back over the 1200 level for week 4, after staying under it for 3 weeks, after staying over it for 7 weeks. Closing at $1,236.00oz, up + $8.80on the week and up + $75.60for August. Gold closed off - $95.40 for the month of July. Gold hit a record of $1,263.70 to the ounce 11 weeks ago before retreating slightly to $1,257.20, a new record closing high . Gold closed back over the $1100 level for week 27, after staying under it for 4 weeks. Oil prices closed the week at $76.17 a barrel (October's futures on Friday's close),up + $1.71 on the week and off - $3.78 for August (weekly close). Friday's close is back over the $50 level for week 71, back over the $60 level for week 57 week, back over the $70 level for week 38 and back under the $80 level for week 3, after trading over it for 1 week, after trading under it for 13 weeks. The record "weekly" closing high is $145.29 a barrel, set 7/3/08. The $75 to the barrel mark is a very strong support level, and staying close to it could last awhile. The increase this past week has to do with a possible supply shortage that probably has little merit. The table below shows the how far the indices have moved from the 52 week low in the last 12 months.
The
table above shows the strength in the big OTC stocks as the VL
(up 16%) and the SPREAD (up 21%, both indices that favor the big OTC stocks, still lead the
pack, with the DJT overtaking the SPX and the RUT for 3rd place (6th week). The DJT had
held 3rd place since the March 9 lows until the RUT replaced it 7 weeks ago and the SPX replaced the RUT 6 weeks ago.
Earlier on the year the DJT was up
as much as 96 percent since the March 9, 2009 lows. The DJT is an
index of only 20 stocks and this makes it hard to put a lot of faith into,
but its telling us the transportation industry is outperforming many other industries. Advanced Micro Devices (AMD) (52 week range 3.22 - 10.24), now at $5.78. Under $6 is OK for long term, but lower ground is still possible. Wait! Exterra Energy, INC (EENI) (52 week range 0.25 - 4.25), now at $2.00. Hold here with entry best under $1.40! Fonar Corp. (FONR) (52 week range 0.62 - 4.60), now at $1.49 .Buy when under $1.40! Watch close! TetraTech (TTEK) (52 week range 19.51 - 32.00, now at $18.36. Buying under $18 would be a good bet! Brand Neue Corp. (BRNZ.OB) (52 week range 0.13 - 1.71), now at $0.44. Buy here! The below table shows how far each index
is up
Looking Forward The markets are continuing to find it easier to fall than to climb. The biggest problem is Americans not being able to work and a preliminary guesstimate for the jobless numbers due out Friday has more Americans out of work and the private sector still not hiring anywhere near the required number of new jobs needed to even begin to lower the unemployment rate. If the U.S, economy is still in a recovery, it is much weaker than previously hoped for and, at this point, appears to be softening quickly. Some of it can be blamed on the slower summer months and some can be blamed on the earnings reporting season behind us, but the real blame is going to on a consumer that is worried and confused and is trying to save money instead of spend it. This is great for the longer term U.S, economy, but not too great for the near term since consumer spending is responsible for 2/3 of the gross national product (GDP) which we heard last week it has slowed to about a 1.6% growth in this last quarter. Lower ground still looks possible and the better bets are going to be in the smaller caps. Continue to use caution and stay with the small stocks for the better bet! Buy
- Remember - This
is the kind of market where the smaller companies and the newer companies may be the better place to be. Small
stocks tend to move on their own and not so much with current events. A choice small stock is a great place to
be in such confusing markets. If the move is a good one, the smaller stock will climb at a greater percentage,
allowing a stronger return on fewer dollars. Two Very Important Rules To Follow Be sure to visit "The Past Week" for
a look at additional
"If in the right stock, at the right price, the market direction will mean little!" There
are still many negatives with the economy, and the markets, so continue to use caution and stick with value stocks
for safety. Close all PUTS. Choose wisely!
J.R. Budke was a stock broker from 1981 to 2000, an options principle
since 1982 and a branch office manager since 1987. JR became inactive as a stockbroker on 12/31/99. J.R. writes
most of the articles and opinions for the Stocks in the Spotlight. The
stories and stocks found on this site, or any "Stocks in the Spotlight" written material, are the opinions
of J.R. Budke, unless other wise stated, and should not be considered as advice.
You should not purchase any stocks solely on the opinions found on the "Stocks in the Spotlight's" web
site or in any of its written material. You should also be aware that options are not for everybody and carry a
high degree of risk. |
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