The VRTrader.com VR Silver Newsletter - Monday6/18/2007
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Leibovit Files | by Mark Leibovit
Monday, June 18, 2007
'Remaining Patient and Watching'
Economic Data and other events scheduled for June 18-22:
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Monday, June 18:
4-Week Bill Announcement 11:00ET
3-Month and 6-Month Bill Auction 1:00ET
Housing Market Index 1:00ET
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Tuesday, June 19:
ICSC-UBS Store Sales 7:45ET
Housing Starts 8:30ET
Redbook 8:55ET
State Street Investor Confidence Index 10:00ET
4-Week Bill Auction 1:00ET
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Wednesday, June 20:
Bank Reserve Settlement
MBA Purchase Applications 7:00ET
EIA Petroleum Status Report 10:30ET
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Thursday, June 21:
Weekly Bill Settlement
Jobless Claims 8:30ET
Leading Indicators 10:00ET
EIA Natural Gas Report 10:30ET
Philadelphia Fed Survey 12:00ET
Money Supply 4:30ET
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Friday, June 22:
None
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Are 'they trying to make me look bad' or am I dead wrong on my forecast for furthernear-term market weakness?
There is much in the news background that may have shifted the heavy sellers back tobuyers. More on that below. Also, below potential bearish developments vis a vis Iran.
In the meantime, the market has followed my prescription for a decline and then arecovery, but it will take several weeks to confirm or contradict my near-term bearishmarket call.
The washout ended a week ago Friday, June 8 when the DIA touched 131.75, pretty darnclose to my first downside target of 131.60 which equates to the Dow Industrials at13,160. However, for some reason the ETF traders were more bearish than the actual indexwhich only traded at 13,251.53.
Equity markets couldn't make any headway to the downside Tuesday following a nastyclose Monday, especially since they were already trading in oversold territory. Events inCongress and in Tokyo had much to do with this (below). I reported to you then the marketswere oversold and were likely to stage a sharp rally and covering short positions madesense for at least part of your index holdings. In hindsight, I should have covered acrossthe board as I knew a rally was coming. The error I made was confusing my TIMER DIGEST'Sell' signal with a trading position.
I do not view my 'Sell' signal as a bear market signal. It is way too early to jump tothat conclusion.. However, I did expect to lower prices in the weeks ahead and alsoaccepted the risk of possibly seeing new highs before the correction resumed. That was weexperienced following my late January 'Sell' signal which focused at that time on aupcoming March low - an eventual bullseye!
There is no question that I could be wrong, but I've seen this pattern before, mostnotably in January and February - so I remain patient for now. Time as well as price areimportant and if we do not see a correction unfold in the next few weeks (during thesummer), then I will be forced to rescind the short-term bearish stance.
Currently, we're moving into short-term overbought territory with regard to the majorstock indexes, so let's see how far the PPT and the Yen 'carry trade' can take them.Unfulfilled upside measurements in the Dow Industrials (previously reported) to 14,100 andpossibly 14,600 are still 'on the books' and could still likely be fulfilled this year.
Longer-term investors should stay long, but should be willing to endure a correction topossibly 12,800 or lower this summer. That's pretty much the bottom line.
Friday's Quadruple Witching options expiration produced no downside volatility as I hadexpected.
The long-awaited US Senate trade bill, aimed at China and Japan, Asia's top-2 currencymanipulators, fell far short of expectations, by passing the buck to the US TreasuryDepartment. Senators Max Baucus, Charles Grassley, Charles Schumer, and Sen. LindseyGraham set out a series of actions that increase in severity over time, but are watereddown from the original Graham-Schumer proposal that had threatened China with 27.5%tariffs on its exports to the United States. If adopted by Congress and signed into law,the Treasury would need to show only that a currency is out of line with its real marketvalue based on government intervention and the accumulation of dollar reserves. If acountry is deemed to be misaligned, the US Trade Representative would have one year tofile a complaint at the WTO with that nation, and the Treasury Department would have toconsult with the Federal Reserve to consider intervention in currency markets.
The Senate bill is a legal morass, subservient to the WTO, and for now, leaves the yuanexchange rate in the hands of the Bush Treasury.
On June 13th, the Treasury Department refused to label China a currency manipulator inits semiannual report. But Democrats in the House are set to propose a tougher bill in thecoming weeks. The Bush administration rejected a request from Congress for a formalinvestigation into whether China's currency practices are an unfair trade practice."We do not believe that this Section 301 petition is likely to be the most productiveway to secure Chinese movement towards currency flexibility," said US TradeRepresentative Susan Schwab on June 13th. Rather, firm engagement with China offers thebest chance of success. We therefore decline to accept this petition."
Until a Democrat occupies the White House, the Congressional trade bill won't actuallybe fully put into practice, allowing Beijing or Tokyo more time to continue their cheapcurrency policies. And there is a lot riding on Tokyo's cheap yen policy, - the infamous$800 billion "yen carry" and massive purchases of foreign bonds and stocks byJapanese investors. So far in 2007, Japanese investors bought 5.72 trillion yen ($47billion) of foreign assets to 33.4 trillion yen in May, the highest since 1989. Japaneseinvestors are betting that the yen will continue to fall to multi-year lows.
Dismayed by paltry domestic interest rates that remain well below those abroad,Japanese households continue to plow their savings into higher-yielding and riskier assetsoverseas. Japanese are expected to buy more foreign bonds, especially since global yieldshave surged in May and June. Ten-year Treasuries yields are 332 basis points higher than10-year Japanese yields, the widest spread in four years. Japan earns more from dividendsand interest on foreign bonds and stocks, than it earns from foreign trade. Japan's incomesurplus exceeded the trade surplus in April by a four-to-one margin of 1.56 trillion yento 444 billion yen. Meanwhile, the cheap yen policy boosted Japanese exports by 7.3% inApril from a year earlier, and its economy grew 3.3% in Q'1, five times faster than the USgrowth rate of 0.6 percent. From a technical perspective, the US dollar's break-out above122-yen clears the way for an extended rally to the 125.75-yen area. If correct, it meansthe gusher of global liquidity from Tokyo is about to spring to new heights, and providestock market operators with more reasons to borrow in yen and pump-up stock markets aroundthe world. On June 15th, Bank of Japan chief Toshihiko Fukui doused expectations of a Julyrate hike, giving FX traders the green light to hammer the yen!
In economic news Friday, May total CPI rose 0.7% vs. consensus of 0.6%. The core raterose 0.1% vs. consensus of 0.2%. That pushed the year/year rate down to 2.2%. Also - theNY Empire State Index rose to 25.8 in June vs. consensus of 12.0. The index gave a readingof 8.0 in May.
Gold knows what no one knows, and now the rest of us know why gold's rallyshortcircuited at $675 /oz on June 4th, after the ECB said it would suspend its allotmentof gold sales thru Sept 26th. On June 14th, The Swiss National Bank said it would sell 250tons of gold over the next two years and use the money to increase its foreign exchangereserves. The SNB said the sales would reduce its gold holdings to 1,040 tons by September2009. The SNB said the sales, the first since 2005 by the world's sixth-largest holder ofgold, would be carried out in stages to avoid unsettling markets. "The SNB has chosenan approach for its gold sales that will avoid market unrest, with regular salestransactions," the SNB said in a statement. The SNB said its plans were in line withthe agreement among 15 European central banks to limit gold sales to 500 tons a year, asit would take over sales quotas unused by other central banks.
Gold was up modestly on Friday as the August contract gained 2.80 to settle at 658.70.Losses in the US Dollar and gains in crude oil were supportive. With regard to gold, weare staying long taking a long-term perspective, but there is clear risk that we coulddecline toward 600, especially if the Dollar rally gains upside momentum.
The countdown to war in the Middle East might be close than expected, lending supportfor crude oil. On June 14th, IAEA chief Mohamed El-Baradei said Iran could be runningclose to 3,000 uranium-enriching centrifuges by the end of July, the point of no return inthe start of a large-scale enrichment program. "The next few months will be crucial.Iran is building a capacity, a knowledge of enrichment that is irreversible, while notproviding evidence that this is a peaceful program." Yet El-Baradei described use offorce as "an act of madness that would not resolve the issue." But US SenatorJoseph Lieberman, a long-time supporter of the Iraq war, said on June 10th military forcemight be necessary to stop Iran from training and equipping extremists who are killing UStroops. "I think we've got to be prepared to take aggressive military action againstthe Iranians to stop them from killing Americans in Iraq. And to me, that would include astrike into Iran, where we have good evidence that they have a base at which they aretraining these people coming back into Iraq to kill our soldiers," he said."Iranian weapons are entering Afghanistan on such a scale that it is hard to believeIran's government is not aware of the movement," said US Defense Secretary RobertGates on June 13th. Gates said he believed the Iranian weapons intercepted in Afghanistanwere intended for Taliban insurgents. "Iran is trying to play both sides of thestreet, but whatever their motives are they are causing trouble for us.
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A Volume Reversal ™ is change from a Rally day to a Reaction day accompanied by anincrease of volume or a change from a Reaction day to Rally day accompanied by an increasein volume. Volume Reversals ™ coming off intermediate lows or highs have greatersignificance in helping to define those lows or highs and important pivot points in themarketplace.
List of Volume Reversals 6/15/07 - Sectors
*** Sectors Positive Volume Reversals ***
Computer Hardware - Computer Based Systems
NIPNY - NEC Corp
Health Services - Medical Practicioners
RTSX - Radiation Therapy Services
Leisure - Resorts & Casinos
MPEL - Melco PBL Entertainment Ltd
Media - Broadcasting - Radio
SALM - Salem Communications
Real Estate - REIT - Healthcare Facilities
SNH - Seniorhousing Properties Tr
*** Sectors Negative Volume Reversals ***
Specialty Retail - Toy & Hobby Stores
BBW - Build-A-Bear Workshop
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TSE and TSE Venture Commentary for our Canadian Clients updated for June 18, 2007:
TSE:
A rally day unfolded for the third day running yesterday with two days on increasingvolume has pushed the TSE to 14,146.11 as compared to the all-time high of 14,261.21posted on May 23. on increasing volume. If we're going to breakout to new highs, it shouldoccur between now and the end of the month and if volume continues to increase my workwill generate higher intermediate upside targets. As you know, on June 6 I flashed a TIMERDIGEST 'Sell' signal for the US markets. New highs do not necessarily negate this signal.What negates it is the passage of time. Subscribers to my Annual Forecast Model see thekey dates. I am not prepared to call for the onslaught of a bear market, but that isclearly a risk factor. Next downside support comes in at 13,300 if we should break under13,650.78, the June 8 low.
TSE Venture:
Volume declined into 3117.20 on Wednesday, June 13, setting the stage for a bounce andwe've rallied nearly 100 points touch 3202.87 on Friday. Support still lies at 2875 under3117.20 and any above 3372.00 still opens up potential to 3700, but I don't expect to seethat occur over the short to near-term horizon.
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TIMER DIGEST has named Mark Leibovit of VRTrader.com 'TIMER OF THE YEAR' for 2006 and hecurrently stands in the #9 Position for 2007! TIMER DIGEST also ranks Mark as the #1Intermediate Market Timer for the 10 year period ending in 2006!
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Suggestions? Comments? on the newsletter service. We would like to hear from each andeveryone of our subscribers. Our email is mark@vrsurvey.com.
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