Dr. Joe Duarte's Market I.Q.
The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy ForTraders and Investors
Tipping In The Balance. Oil & Commodities: New All Time Highs InEnergy Stocks. Stocks: Selectivity Equals Success.
Pre-Market Summary:
Traders will be making some fairly stout decisions this week.
Today's Economic Calendar: 8:30a.m. Apr Chicago Fed Natl Activity Index. Previous: +0.01.Sources: Wall Street Journal.com, Marketwatch.com.
Tipping In The Balance
Critical Juncture
The financial markets are at a critical point, and many decisions taken over the next fewdays to weeks may affect the way things work out for the rest of the year.
First, there is the situation in Iraq, where U.S. casualties are once again mounting andthe pressure is building on the White House to forge some kind of exit strategy.
The net effect of this, along with the rise in violence in Lebanon, Gaza, Afghanistan,India, and Pakistan over the last few days, suggests that no matter what anyone says, thewar is starting to spread regionally.
As a result, the financial markets are starting to react, in a most predictable fashion.
Chart Courtesy of StockCharts.com
The bond market, regardless of what anyone says, is really the hub of the financialmarkets. It's the ease of difficulty or ease in obtaining credit that drives the globaleconomy.
And money flows are clearly moving out of the U.S. Ten Year note (TNX, above), as itsyield crossed over 4.8% last week. Two factors were blamed. One was higher oil prices. Andthe second, was a rise in consumer confidence. The fact is that while those two factorsmay have short term implications, it is again the war, that is causing interest rates torise.
Wars are inflationary. And inflation is the bane of the bond market, and although consumerand producer prices are not climbing feverishly, both indexes are well off of their late2006 lows, a fact that has coincided with the steady climb of long term bond yields.
At the same time, there is a quiet deflation ongoing, that of the real estate investmenttrusts, a sector that has begun to plunge, perhaps suggesting that the top in thecommercial building boom is already well on its way.
Chart Courtesy of StockCharts.com
Chart Courtesy of StockCharts.com
The Wilderhill Clean Energy Index is lagging the traditional energy sector.
Chart Courtesy of StockCharts.com
Crude oil prices are trying to move above $65.
Chart Courtesy of StockCharts.com
The Philadelphia Oil Service Index (OSX) broke out to a new all time high on 5-18
Chart Courtesy of StockCharts.com
The Amex Oil Index (XOI) also delivered new all time highs.
Chart Courtesy of StockCharts.com
Into The Weekend
Stocks look set to continue their sector specific rise, with the energy sector once againmoving to the top of the momentum list.
The trading pattern improved at the end of last week, as the rallies came on risingvolume, just what you want to see.
But the big money is still moving into large cap stocks, favoring the rise of the S &P 500 and the Dow Industrials over the Nasdaq Composite.
Market breadth continues to be better on the NYSE than on the Nasdaq, again confirming theleadership of the big cap stocks.
The small cap sector, as measured by the Russell 2000 and the S & P Small Cap 600continues to lag, although the trend is still to the up side.
And although this is less than ideal, from a practical point of view, the trend remains tothe up side, as long as you are invested in the right stocks.
It is also possible that one or two more days of heavy selling might be enough tosignificantly hurt the rally, making the entire market vulnerable.
For now, there are some pockets of strength infamiliar areas, such as energy, where natural gas stocks look to be making a move towardthe top of the list, at least in the short term.
From a longer term stand point, based on historical trends, this should be a positive yearfor stocks, given the fact that it's the third year of the Presidential Cycle, which callsfor rallies in the third and fourth years of a presidency.
Our long term forecast remains upbeat, unless the major indexes fall convincingly belowtheir 200 day moving averages.
What To Do Now
Selectivity is still the key to success. Look for strength, either on a continued basis,or in turn around areas, such as the semiconductors.
Visit all our individual sections, both our ETF and individual stock picks daily for newideas, and changes to open positions.
Be very methodical about monitoring portfolios, adhering to trading rules, and ratchetingup sell stops is clearly still here.
Second guessing decisions, and hoping that things will turn out o.k. in the long haul, isthe recipe for disaster at a time like this in the market.
Check all our sections daily. See tech, biotech, Fallen Angels, and timing systems forthe latest adjustments. Our ETF trading systems for energy, Spyders, Small Caps, andtechnology have also been updated.
Chart Courtesy of StockCharts.com
Chart Courtesy of StockCharts.com
Oil service stocks are on a tear, as the message is clear, oil exploration has to rise inorder to meet demand, as well as to avoid the inherent danger of doing business in placeslike Venezuela and Nigeria.
To be sure, no one expects major oil companies to give up existing agreements unless theyare forced out, as some of the majors have been pushed out of Venezuela lately.
But, one thing is clear. Exploration is going to have to get creative. So, in the future,we can expect to see more aggressive exploration in the oceans, as well as in regions ofplaces like the United States where reserves were thought to be tapped out.
New technologies are likely to be applied to such areas, as Texas, as well as Louisiana,where reserves may require angled drilling, and so forth.
This is the perfect environment for oil service companies. And that's the major reason forthe rise in the group.
Chart Courtesy of StockCharts.com
Chart Courtesy of StockCharts.com
Chart Courtesy of StockCharts.com
Chart Courtesy of StockCharts.com
Small stocks are just keeping up with the market.