Here’s A Great Contrarian Indicator

  • April 4, 2005
  • Peter Navarro

Navarro’s Broad Market Outlook: Smile for the CNBC Camera

My
week was a morose one, fighting a cold as I was.   My one bright spot was
watching a CNBC Roundtable all speculate on whether the jobs report would come
in over or under the consensus estimates. 

Each
of the smiling little bulls bet on the “over” except, surprisingly, for perma-bull
Larry Kudlow who, when pressed by the little bulls, relented that the number
would be only slightly under.  When jobs came in at about HALF of the consensus,
smug turned quickly to a big embarrassed ug.  It was positively priceless.

Ah,
those bullish fumes that so very often make the CNBC bubbleheads such wonderful
contrarian indicators.   Oil prices off the charts, interest rates moving
inexorably up, inflation pressures building.  No worries.  Be happy at CNBC —
cause bearish rhetoric makes for bad ratings — and besides, it’s not their money
they are losing for you.

Hedging Your Bets With Matt Davio:


Point #1:
We end the 1st quarter with the typical seasonal markups the mutual
fund companies like to play. Let’s call it like we see it, the game is played by
the institutional money which is the mutual funds — not the hedge
funds.  Why isn’t the monthly/quarterly mark up game on the SEC’s ledger? No
idea, but it’s a silly game that is bad for all believers of free markets and
good for the marketing folks at the mutual funds, nothing more nothing less.


Point #2:
“Stagflation” is characterized by slow growth, rapidly rising consumer prices,
and relatively high unemployment.  This sounds like where we are right now in
the US Economy.   Bulls like Larry Kudlow on CNBC will taket the other side of
that trade and that my friends, is what makes a market. I am long Stagflation
and sour on the near term prospects of US equity markets. 


Points 3-13
to wrap up Quarter one, 2005:


  1. S&P500 finished the quarter -2.59% which marks the worst quarterly return
    since Q1 2003    . 

  2. The
    quarterly range of 65.42 points is the smallest (in points) since Q2 1996 — a
    trading range market in spades.

  3. The
    S&P500 managed to post a daily gain of more than 1% just two times for the
    entire quarter.

  4.  In
    just 15 days, the S&P500 declined 5% from the quarter’s high (March 7) to the
    quarter’s low (March 29).

  5. The
    last time the S&P500 made a new 60 day high followed by a 60 day low in the
    same calendar month was (ironically) March 2004.


  6. Those looking for a 10% correction in the Nasdaq Composite got their wish on
    March 29 as well. On its low, the Composite was -10.2% from the Jan 3 high and
    -9.5% from the 2004 close.


  7. Fixed income and equity markets moved materially lower in the same quarter for
    the first time since Q2 2000. I say materially because both closed lower in Q1
    2002 but the SP was down less than .5% for the quarter. For this, I compared
    Bond and SP futures (not cash).

  8. The
    dollar gained more than 4% against the Euro for the first quarter since Q1
    2001 (for this I looked at futures on the Euro).

  9. The
    Nasdaq Composite finished the quarter down 8.10% which marks the worst quarter
    since Q3 2002

  10. The
    quarter was highlighted by strong opens and weak closes. The Nasdaq-100
    futures posted a combined gain of 6% for the overnight session and lost a
    combined -14% from the open to close. 

  11. Oil
    and commodities remain in their up-trends, so cost pressures remain high for
    business and interest rates are on the rise. Until this market resolves which
    way it wants to move in the short run, we remain muddled in the same 60 pt
    range the SPX has been locked into for nearly a year. 

I
maintain selling broad rallies is the smart way to position yourself in this
market while buying the dips is a sure fire way to get pelted with big potential
risk to the downside. 


Matt’s Trade Idea:
I believe oil is here to stay and with that, I would love to accumulate SU,
Suncor Energy.  However, the run it has had looks a tad stretched.  If you don’t
own it already put it on your watch list as these guys are the real deal in my
book. I would love to accumulate the name in the mid 30’s. With the stock
trading in the 36’s this past week, then taking off again to close in the 41’s,
we may have to wait again for lower entry prices. That is what I will do wait
for better entries into the name and if I miss it, I miss it. Enjoy the Stag
Party!!

Aloyan’s Technical Take: “It’s a Bull Market, April Fools!”

It was a volatile, but
mostly flat week.  The S&P 500 finished slightly in the green, and the “Dow”
and  Nasdaq Composite slightly in the red.  The first quarter of 2005 ended with
the three major indices negative.  The Nasdaq was down 8.1%, and the S&P and
“Dow” both down 2.6%. 

Here’s this week’s numbers:
The Dow closed down 39 points (.37%) at 10404, the S&P 500 was up 2 points
(.13%) at 1173, and the Nasdaq was down 6 points (.31%) at 1985.  Resistance
is around: 10471, 10600, 10867, and 10984 for the “Dow,” 1181, 1200 area, 1210,
1218, and 1229 for the S&P 500, and 2000 level, 2020, 2072, and 2100 area for
the Nasdaq Composite.  Support is at: 10387, and 10241 for the “Dow,”
1166 , and 1142 for the S&P 500, 1978, 1950 area, and 1926 for the Nasdaq
Composite.  

My sector breadth indicator
was mostly neutral, with 51% of the sectors in the red.  The Internet and Energy
sectors led the strong sectors, while “Biotech” and Semiconductors led the
weakness.  The dollar continued to rally last week, as bonds bounced (yields
fell), with the 10Yr Treasury Yield closing down at 4.45%. 

My trend indicators remain
down for the S&P, “Dow”, and the Nasdaq.  My breadth, momentum, and volume
indicators remain “bearish.”  My sentiment and economic/fundamental indicators
continue to support a defensive position.


Bottom Line:  My
market and economic indicators remain bearish,.  This is despite the
positive slant coming from Wall Street’s market analysts and pundits.   Even the
ECRI (Economic
Cycle Research Institute,  which I respect, remains bullish.  So who will be
right? 

We will see but here’s
another “tid-bit” from my analysis supporting the bear:  On the wage
growth side, the largest growth region in terms of wages has been the far west. 
This has largely been attributed to the big Microsoft dividend payout in 2004,
along with the construction and corresponding financial job boom (mortgage
banking, realtors etc.)—