Is The Market Is Setting Up For A Major Break?
Market
Trend: Topping Pattern
continues
Market Outlook: Bearish
Sector Watch: Tech (-); Precious metals,
Drugs (+)
Media
Watch: Jacqueline
Doherty’s “That 70’s Show†in Barron’s
David’s Pick:
Holding Shorts; Long term buys of
(
NOVL |
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News |
PowerRating),
(
AMD |
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News |
PowerRating),
(
COMS |
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PowerRating) on weakness
Peter’s
Pick: Short RTH and/or HOTT
The Broad Market Outlook: David
Aloyan’s Take
Navarro: I will defer to my partner
David Aloyan this week on the market take and only mention an interesting conversation
I had with a fellow macroeconomist and forecaster who, like me, is both puzzled
at, and a bit suspicious of, the blowout 7% GDP number we got a few weeks ago
— as well as the incredibly high productivity numbers we’ve been
seeing. He further sees only moderate GDP growth at best over the longer term.
We’ll see.
Aloyan: All three major indices finished the week in the red
as we called for last week. On Wednesday of last week, the media’s bullishness
was intense, completing ignoring that the market had just sold off on Monday
and Tuesday. This has been the norm, in fact, the media and the masses are celebrating
so hard that they don’t even realize that the SP 500 has gone absolutely
nowhere for the past month, and has gained a mere 3.8% over the past five months!
So what are they celebrating?
Well, we know that it’s
the job of Wall Street, the Government, and its emissaries (the media, brokers,
etc.) to get you hyped up and feeling good, and apparently it’s been working,
judging by the investor sentiment readings (and some of the bullish e-mails
we’ve been getting). But, this rhetoric shouldn’t be working on
you if you have been following this column.
The coming week brings more earnings from the likes of Agilent Technologies,
Lowe’s and Home Depot, Network Appliance, Hewlett-Packard, Intuit, Brocade,
Disney, Nordstrom, and Krispy Kreme Doughnuts to name a few. On the economic
side we have Business Inventories, CPI, Building Permits/Housing Starts, Initial
Claims, and Leading Indicators, and Greenspan speaks at the Cato Institute about
the future of the Euro, just to name a few. We will be paying attention to these
and many other reports and indicators.
I will keep it “short and sweet†this week as to why I am bearish
and why you should at least be protecting your capital. The length of the negative
divergences and the recent stagnant price action, coupled with other indicators,
leads me to believe this market is setting up for a major break which has a
higher probability to be towards the downside. This will catch both the bulls
stuck with their long positions, and the bears (other than those like me who
have a core short position) unable to get short. If you care for a repeat of
some of the reasons why I remain bearish on U.S. Equities, read the archives
over the past months at: platinumcapitalmanagement.com, and/or e-mail me your
questions to: david@platinumcapitalmanagement.com.
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We had a good call on both
the trade data and PPI moving the markets last week. We are particularly concerned
about inflation at the producer level caused by rising commodity prices and
will monitor that closely. This week, watch for any alarm bells in the CPI,
any softness in housing, and robustness in Internet sales for a tech sector
spark. Keep your eye on the ECRI as well as it has been diverging negatively
from a lot of the other data.
Up:
The Broad
Markets—