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U.S. stocks are at a crucial decision point and theaction in the next few days could set the stage for what happens overthe next months and perhaps years.
Profit shortage predicted for banks. According to The Associated Press, citing central bankers, investorsshould be ready to accept lower profits from banks in the future, asthe institutions stash away more money in reserves in order to avoidanother global financial crisis. The articel cites a report, releasedSunday, from Bank for International Settlements, which reportedly saysthat investors and bankers are not fully prepared for the possibilityof higher capital requirements and higher interest rates which may lieahead. Report: Government to pass private sector as primarylender in U.S. According to Investor's Business Daily, citingFederal Reserve data, the U.S. government, perhaps "as early as thisquarter" is likely to "displace the private sector as the biggestsource of outstanding home mortgages and consumer credit." According tothe report: "At the end of Q1, government-financed home mortgages andconsumer credit outstanding totaled $6.32 trillion, up from $4.40trillion at the end of 2006. Private-sector financed loans fell to$6.58 trillion from $8.48 trillion over the same span." This is areversal of a trend that ended in 2006 when the private sector lentconsumers $2 for every $1 dollar lent by the government, the reportadded. Report: Natural gas may be the next "Ponzi" scheme. According to The New York Times, natural gas "may not be as easy andcheap to extract from shale formations deep underground as thecompanies are saying, according to hundreds of industry e-mails andinternal documents and an analysis of data from thousands of wells."The Times added: "In the e-mails, energy executives, industry lawyers,state geologists and market analysts voice skepticism about loftyforecasts and question whether companies are intentionally, and evenillegally, overstating the productivity of their wells and the size oftheir reserves. Many of these e-mails also suggest a view that is instark contrast to more bullish public comments made by the industry, inmuch the same way that insiders have raised doubts about previousfinancial bubbles." The Times reported the following, Enron like passage: '“Money ispouring in” from investors even though shale gas is “inherentlyunprofitable,” an analyst from PNC Wealth Management, an investmentcompany, wrote to a contractor in a February e-mail. “Reminds you ofdot-coms.”' And here is more: '“The word in the world of independentsis that the shale plays are just giant Ponzi schemes and the economicsjust do not work,” an analyst from IHS Drilling Data, an energyresearch company, wrote in an e-mail on Aug. 28, 2009.' According to the Times article: "The data show that while there aresome very active wells, they are often surrounded by vast zones ofless-productive wells that in some cases cost more to drill and operatethan the gas they produce is worth. Also, the amount of gas produced bymany of the successful wells is falling much faster than initiallypredicted by energy companies, making it more difficult for them toturn a profit over the long run." Analysts at the Federal Reserve in Dallas are saying that well data isnot "adding up." According to the Times Deborah Rogers, a member of theadvisory committee of the Federal Reserve Bank of Dallas "said shestarted studying well data from shale companies in October 2009 afterattending a speech by the chief executive of Chesapeake, Aubrey K.McClendon. The math was not adding up, Ms. Rogers said. Her researchshowed that wells were petering out faster than expected. " She toldthe Times that the wells "are depleting so quickly that the operatorsare in an expensive game of ‘catch-up,’' Indeed, the article notes: "Production data, provided by companies tostate regulators and reviewed by The Times, show that many wells arenot performing as the industry expected. In three major shaleformations — the Barnett in Texas, the Haynesville in East Texas andLouisiana and the Fayetteville, across Arkansas — less than 20 percentof the area heralded by companies as productive is emerging as likelyto be profitable under current market conditions, according to the dataand industry analysts." The bottom line is that natural gas could very well be the next crashand burn, leaving many in the dust, if this article is telling a truestory. And given the previous twenty years of history, it may well bethe truth. Consider this. States, investors, and municipalities are about to andhave been pouring money into natural gas in hopes of profits, but alsoof cheap, fairly clean energy for the long term. If this story istelling it like it is, big losses are coming along with higher energyprices for consumer. |
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| As it has been doing for most of themonth of June, the stock market finds itself at yet another significantjuncture. And the current technical action suggests that the stockmarket is within a few points of deciding wether the next few weeks tomonths are a resumption of a bull market or the start of a significantdown side correction and perhaps a bear market. Yet, as we analyze the current global situation beyond the charts, wecan see that there is a whole lot more at stake here than meets theeye.  Chart Courtesy of ahref="http://www.StockCharts.com">StockCharts.com A failure of that to happen will likely lead to either more selling ora market that bounces around a bottom for some time as thingsequilibrate. There is no way to know which way this market will shakeout. If we use June 15 as the momentum bottom, the first half of a "W"bottom, and count the next four days of up side action as the firstrally attempt, which failed on June 22 at the 20-day moving average,the week that ends on July 1st should give this market plenty of timeto make a decision as to what will happen next. The 200-day moving average for the S & P 500, which as of Fridaywas at 1263.87, will be a critical decision point for many traders,especially since much of the action in this market is computer driven,and computer programs rely on moving averages and momentum indicatorsas their major signal generating mechanisms. Technically, this market has enough on both the bullish and bearishsides to make it hard as hell to trade. On the bullish side, the NasdaqAdvance Decline Line (NAAD) seems to have made a bottom, just as the S& P 500 is trying to round out a double bottom. Also bullish is thenearly oversold status of the RSI indicator on the S & P 500. Yet,the MACD oscillator is nowhere near oversold, which means that we couldsee more selling. Volume is picking up on days in which the marketheads down. And the 20-day moving average has crossed below the 50-daymoving average, with both lines heading down. We are also in what istraditionally a dull trading period, the summer months. There is plenty of uncertainty in Washington, which if you're acontrarian, you could say may be bullish, as the feeling of negativityenhances the potential for a peak in bearish sentiment. The same thingcan be said for the situation in Greece, which remains uncertain. Perhaps, the biggest thing on the worry list is the fact that theFederal Reserve will stop printing money at the end of June. No oneknows what that will do as liquidity dries up in the markets.Corporations and small businesses are in no hurry to hire newemployees. And the situation in the Middle East is increasinglyuncertain as Saudi Arabia and Iran are circling each other. If you're looking for a completely outside the box issue, consider thereports of the failing health of Venezuela strongman Hugo Chavez. IfChavez dies, there is no way to know what will come next in the oilrich but highly ransacked country, which still provides significantamounts of oil to the U.S. More important will be what comes out of thefinancial situation that Chavez, if he passes, will leave. If we had to bet, we would expect a major set of surprises when itcomes to how much money there really is in the Venezuelan treasury.This raises the possibility of some more banking dominoes falling, asno one really knows which European and perhaps Middle Eastern bankshave been lending Chavez and his government money.  | Market Moves |
| Service HOLDRS Trust (NYSE: OIH)Predicts Lower Oil Prices Ahead Shares of the Oil Service HOLDRS Trust (NYSE: OIH) fell hard at the endof last week. Chart Courtesy of Anyone who reads this space regularly knows how we use the Oil ServiceHOLDRS Trust as a bellwether for oil prices. In the last few days, wehad turned slightly more bullish toward OIH, and thus toward oil. The problem with that viewpoint is that OIH is back to making lowerlows and lower highs. Also, last week it closed below its 200-daymoving average, which means that selling could increase in this sector. Selling in OIH is coming as selling is starting to hit all commodities,gold, silver, agriculturals and crude. That means that the selling isnow moving in lockstep fashion. Since we are now dealing with the 200-day moving average, OIH and crudecould well bounce. But the real test would come when prices run intothe 20 and 50-day moving averages. |
