CAPITAL MARKET COMMENTARY
STOCKS ARE GREEN FOR THE MOST PART: And those gains are rather wide spread and are modest. If we must takeaway a reason for this, we would turn to yesterday’s route across many of the commodity markets. Crude oil began the decline, which was coupled with silver’s “stunning decline”, gold even followed as did all the base metals. There was liquidation across the entire speculative sector yesterday, and this morning liquidation has begun once again after a period of stabilization. Crude oil is lower by 53 cents, silver is down another 41 cents; gold is lower by $1.0, but copper is higher by a few cents.
We fear yesterday’s plunge in the metals was perhaps only the beginning; margin requirements have been raised at the NYMEX and the COMEX, and the margin clerks have taken over the market. Less capitalized players are exiting, and if we see another down day today…then we fear a literal panic brewing in the weeks ahead. Silver has been, and continues to be one of the “poster children” for speculation; it has now fallen – if copper and the base metals can follow – then this
could become real interesting and very quickly. Could stocks then be next…’tis a good question that can’t be answered just yet. Bonds were the first asset class to falter; now the metals seem to be doing so – and then perhaps stocks. These are our thoughts in the least.
TECHNICAL THOUGHTS: Quite clearly we think a top is being built; yesterday’s new high in the Dow Industrials, S&P 500 and Russell 2000, and NASDAQ Composite wasn’t accompanied by the NASDAQ 100 or a majority of stocks. The advance/decline showed 1569 up/1736 down, while the NASDAQ Comp. showed 1344 up/1683 down. This was hardly an impressive showing, and thus it remains “suspect” in our opinion. And with the percentage of stock above their 10-day moving average at “overbought levels” and our shortterm model still in decline…the probability still favors a decline from current levels.
In terms of our portfolios, we have obviously not traded well in terms of the overall market; however, our PTP Portfolio has done rather handsomely. As the recent range gets narrower and narrower, our propensity to watch more and more until it is clear that a direction is emerging. Of course we think there is “inordinate risk” in the current market environment, with our S&P target zone between 1180 and 1225. We think this a reasonable correction indeed.
THERE ARE NO ECONOMIC REPORTS TODAY: And given such, we will review yesterday’s reports. In terms of the jobless claims – we are modestly interested here given the April US non-farm payroll report surveying period occurred at the same time; therefore, we expect economists to extrapolate these figures when developing their unemployment estimates. Claims fell by 10k to 303k, with the 4-week moving average at 305k, which is lower than the 312k prevailing at the survey time of the March report. Hence, it would seem employment is picking up and thus it would negative impact the bond market and give the Fed pause.
As far as the Conference Board’s leading economic indicators are concerned; March’s figures moved lower by -0.1% from a revised lower -0.5% in February. The Conference Board stated, “The growth of the leading index has slowed steadily since mid-2004 while fluctuating around a moderate upward trend. At the same time, economic activity has slowed from strong to more moderate growth through the first quarter. The current behavior of the leading index suggests economic growth should continue moderately in the near term.” We think that says it all.
And finally, the Philadelphia Fed’s April business outlook survey rose to 13.2…which was less-than-expected. However, the sub-indices showed strong gains in the number of employees index and the average workweek index. This was artially offset by declines in the new orders and shipments indices. But the most important part of the report we noted were summary comments: “Indicators of current activity all point to continued growth of the region’s manufacturing sector this month: Indexes for general activity, new orders, and shipments all remained positive, and the employment index showed improvement. A large percentage of the firms continue to report price pressures [Emphasis ours]. Manufacturing firms continue to anticipate increases in activity over the next six months, with most indicators of future growth showing improvement from their March readings.” Indeed, the 6-month outlook index jumped 13.6 points to 28.2. We believe the above underlined sentence says it all; with the bond market having understood this and is trading at multi-year highs, with the prospects of going still higher.
S&P 500 BROAD MKT INDICATORS TRADING RADING MODELS
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