Market Talk / Nov. 26 - Dec. 2

[Spaf]

The Kingdom of TSP
Sunday-Weekly
Early Edition
November 26, 2006 ​

Yak, Doodles, Tea Leaves & The Tin Box

Kingdom Yak:
Pro-Yak....................................What happened to the momentum?

Con-Yak...................................Socks are tired, need to rest!

Jester-Yak................................Did I hear a growl?

Doodles:
Socks [$SPX] Closed at..............1400.95, dn -0.25 for the week!
Stops [$SPX]............................Alert (-1%): 1393. Trail (-2%): 1380.
Trend (MACD-Hist).....................decreasing at +0.420.
Overbought/Sold (S-STO)...........[80] 92.22 [20] decreasing

Lube (NYM) Closed at..................59.24, up +3.43 for the week.
Oil Markers................................<70= ok, 70-75= worry, >75= panic.

Tea Leaves:
Yakndoodles..............................Red.

Tin Box:
TSP:........................................Safe; capital preservation.

TSP (week ending)......G=11.66..F=11.15..C=15.47..S=18.78..I=21.31
....(1 week past)........G=11.65..F=11.12..C=15.46..S=18.60..I=21.11
....(2 week past)........G=11.64..F=11.11..C=15.23..S=18.24..I=21.17
....(3 week past)........G=11.63..F=11.03..C=15.04..S=17.88..I=20.89
....(4 week past)........G=11.62..F=11.04..C=15.18..S=18.08..I=21.01

Le Chart​

This week's chart substituted the Chaikin Money Flow (CMF) for the Relative Strength Index (RSI).
The CMF is showing that buying pressure has been decreasing since the start of November??​

Chart courtesy of www.stockcharts.com​

 

[airlift]

Spaf,
Thanks for posting this. The money flow is decreasing, and the Slow STO is showing a cross under. Seem to be good warnings! Even though you did not show the RSI this time, my settings show RSI(14) 66.91 (dropping under 70, when it had been in overbought territory lately).

 

[robo]

Sunday, November 26, 2006

Federal Reserve Cavalry Rescues Economy
or, Things Really Are Different Now!

The Fed is coming to the rescue of the floundering US economy by injecting large sums of cash into it. Counteracting the drag of a plummeting housing sector, the Fed is making sure a recession does not take hold next year by pumping a flood of cash into the banking system. The usual pattern when this happens is for excess cash to go to work in the stock market and eventually work its way into the real economy when profits are taken. This excess cash is also having the effect of putting strong downward pressure on the US Dollar.

If the USA were a company, and the dollar represented a share in the USA company, it would be as if additional shares were issued out of thin air, diluting current shareholder value over a larger share float and thus driving the price of each individual share lower. The total value of the company would not change, but the value of each share would decline due to the simple fact that there are many more shares to spread that value over. The dollar has to go down as long as the Federal Reserve Bankers continue to flood the market with cash. That is not bad news for shareholders in USA as a whole (although individual shareholders lose value) because the value of their "company" will continue to rise as long as earnings rise. An earnings decline (recession) would be very bad news for stock USA, so avoiding a recession is job #1 for the Fed. And, that is exactly what the Fed is doing: keeping a recession at bay, keeping earnings up and building shareholder value (even though the value of each of those shares is declining). A beneficial side-effect of lowering the value of each dollar share is that the company's products, the exports of USA, become cheaper relatively to other companies' (nations') products, and thus relatively more attractive on the world market.

On the other hand, excess cash can potentially end up creating an inflation problem. The "Conundrum" -- an inverted yield curve where long term bond rates are considerably below short term rates -- has been in effect long enough now to project at least a 50% chance of recession (more like 80-90% given the weak economy and other indicators). The bond market has been looking forward to a "nice" recession in 2007 to cure the already too-high rate of core inflation, but it appears that only disappointment is ahead for bondholders -- and that means higher interest rates are on their way to rein in what could be an explosive problem with inflation. Thus, the way to look is down for bonds and up for stocks as money flows out of the bond market and into the stock market. The only fly in the ointment is inflation as high inflation rates cheapen even higher stock prices. And, the combination of a falling US Dollar and rising inflation also discourages foreign investors from buying US stocks. Still, the falling dollar is almost always a very bullish indicator for stocks, at least in the short term.

http://marketclues.blogspot.com/

 

[airlift]

Robo,
Good post! Robo, this article seems to favor U.S. exporters, and therefore the S&P500. Birchtree, would this benefit the S&P500 more than the EAFE and I fund, or would you say that the falling dollar (as a consequence of the Fed's injecting cash into the economy), would the first beneficiary continue to be the I fund with better returns?

 

[robo]

Robo,
Good post! Robo, this article seems to favor U.S. exporters, and therefore the S&P500. Birchtree, would this benefit the S&P500 more than the EAFE and I fund, or would you say that the falling dollar (as a consequence of the Fed's injecting cash into the economy), would the first beneficiary continue to be the I fund with better returns?

Sponsor,

One would think, but the folks I follow are still recommended US large caps. Keep in mind these guys are investors, holding postions in weeks and days as we do, puts us in the trader category. What will the dollar do this week? I did receive sell signals for the dollar, but I'm not going to short it.


However, one should always have a well-diversified portfolio with some International exposure. The L Funds have a pretty good recommended break down of that mix for your age and risk. You will never get any professional to recommend high exposures to international funds for investors.

The rewards are huge, but so are the risks. I like the I Fund, but keep my allocations under 25% of my total portfolio when I'm long. Keep in mind I'm a conservative investor compared too many on the board. I think the 2040 L Fund has 25% in the I Fund. Risk/reward is the way I play it, but not the way to make the highest returns. Whatever you do I hope it's a winning trade. The I Fund has done well this year again, and continues to benefit from the falling dollar.

Many of us do move in and out of the I Fund with large percentages. But I'll ask you this. What happens if the dollar turns quickly and rallies the next two days up 1.40 or so and the Markets are selling off. That's the risk. I wouldn't play the I Fund on the bet of the dollar. Use the L Funds as a guide. Again, the dollar could turn on a dime! Stay diversified when investing is what all professionals will tell you. I'm looking to go long this week on weakness with a balanced mix of C, S, and some I Fund. ( Very short-term play based on calendar studies and seasonality.) In my opinion one should never have more then 25% in the I Fund. I'm not recommending this for you only pointing out my opinion based on the investment material I read.

Get a beer and read some comments about the dollar below.


http://www.safehaven.com/article-6373.htm

http://www.safehaven.com/article-6370.htm

http://www.safehaven.com/article-6368.htm
http://www.safehaven.com/article-6367.htm
http://www.safehaven.com/article-6365.htm

http://www.safehaven.com/article-6364.htm

 

[airlift]

Robo,
Thanks for the good advise!

 

[Birchtree]

Sponsor,

I wouldn't worry about the sanguinary dollar - we like it cheap, especially the SPX. Despite some negative indicators recently, data continues to show that the Japanese economy overall is expanding moderately. I would watch the I fund companies profits. There have been seven straight quarters of expansion - and a lot of their exports are going to the U.K. and China - not necessarily the USA. I do think the C fund is primed to outperform. Here are some statistics from the past: 1995 - up 37.41%, 1996 - up 22.85%, 1997 - up 33.17%, 1998 - up 28.44%, 1999 - up 20.95%. Does history repeat - sometimes even better. Snort.

 

[airlift]

Thank you Birch.

Sponsor,

I wouldn't worry about the sanguinary dollar - we like it cheap, especially the SPX. Despite some negative indicators recently, data continues to show that the Japanese economy overall is expanding moderately. I would watch the I fund companies profits. There have been seven straight quarters of expansion - and a lot of their exports are going to the U.K. and China - not necessarily the USA. I do think the C fund is primed to outperform. Here are some statistics from the past: 1995 - up 37.41%, 1996 - up 22.85%, 1997 - up 33.17%, 1998 - up 28.44%, 1999 - up 20.95%. Does history repeat - sometimes even better. Snort.

 

[Birchtree]

Time cycles present probabilities and not certainties. The consensus among 56 economists surveyed last month by WSJ.com was that the economy would expand by an average of 2.5% in the fourth quarter, which would be below its long term trend growth rate of about 3%. We are now into the 4th month of an officially inverted yield curve. What makes this interesting is that the last time we saw an officially inverted yield curve was in Mar-Apr 2000 time frame. It was not until approximately 6 months later or around Sept 2000 when the major indicies fell off a cliff. The market may de-link from the economy and look over the valley to lower rates in the Mar'07 time frame. Until then the C fund is safe from destruction.

 

[Spaf]

Spaf,
Thanks for posting this. The money flow is decreasing, and the Slow STO is showing a cross under. Seem to be good warnings! Even though you did not show the RSI this time, my settings show RSI(14) 66.91 (dropping under 70, when it had been in overbought territory lately).

Sponsor,

The CMF is still positive, but it's drop did seem to be more relevant than the RSI for this week.
Just something to share.

Regards........ .........Spaf

 

[weatherweenie]

06:21 am : S&P futures vs fair value: -2.2. Nasdaq futures vs fair value: -6.9.

NIKKEI 300 309.87+ 0.91%
NIKKEI 225 15,885.38 + 0.96%

 

[weatherweenie]

08:06 am : S&P futures vs fair value: -1.9. Nasdaq futures vs fair value: -6.2.

 

[weatherweenie]

09:02 am : S&P futures vs fair value: -1.7. Nasdaq futures vs fair value: -5.7.

 

[VirginiaBob]

Looks like it's taking a nose-dive this morning. Hopefully thier will be a full or partial recover today.

 

[VirginiaBob]

So much for a recovery, it's down twice as much.

 

[sugarandspice]

Might be a good time to join me in the parking lot and let things shake out a bit.

Will today set off the triggers to temporarily halt trading?

First hour down 100.

 

[Birchtree]

The sanguinary Dow is nothing to worry about - it's the pause that refreshes and will be over before anyone notices. This is an opportunity to buy - don't hide. Would you believe that lumber prices are at their lowest levels in nearly 4 years. Will the dollar put in a double bottom at 80 - let's hope so.

 

[James48843]

I'm thinking hard about going all "G" today. Will wait another half hour and see what recovery, if any, there is.

 

[sugarandspice]

I'm an opportunist. I don't hide. I'm not afraid. And..ANd...AND...I don't ride it out telling myself how good it is.

 

[fedgolfer]

... the media seems to be pinning a lot of today's decline on the markets reaction to Walmart. Which to me, may be short lived. Since Walmart is a discount store and when discounts do poor usually other retail picks up, which may meen consumers aren't feeling as much of pinch as bad as the latest CPI/reports lead us to believe. But maybe this is just what the media is just attaching the decline to, when in reality everyone knows stocks are just overbought. I can see what S&S has a split personality!