Watch These Reports For Signs Of Weakness
Market
Trend: Up
Market Outlook:
Suddenly cloudy. Navarro (On the fence); Aloyan (Bearish)
Sector Watch:
UP — REITs, Chemicals, Tobacco, Health Services, Wholesale, Leisure, Consumer
Non-durables, Food & Beverage;
DOWN — Metals and Mining, Transportation, Manufacturing
David’s Pick: PLP
Peter’s Pick: Cash
Navarro’s Broad Market Outlook:
No Margin for Error
It would have really been
nice if Alan Greenspan had waited to signal a change in interest
rates until AFTER Friday’s GDP number came in. The lower GDP number changes
just about everything. Sure, the bulls are saying that the number was still
healthy — even though it fell below expectations. But 4% is just about
consistent with the kind of growth rate we are going to need to get everyone
back to work. That means that now there is no margin of error.
More subtly, the drop came from what we’ve long been worried about —
a falloff in consumption as re-fi money goes away. Will business investment
step up to the plate in time to offset weakening consumption, lead to another
round of hirings and stimulus and keep everything hunky dorey? Stay tuned. Life
just got riskier. Note the two weakening signals in the table below.
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The
Week’s Macro Data Market Movers: Front Loaded
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The first week of the month
is loaded with big reports. I will be watching the ISM Index and factory orders
for any signs of weakness to go along with last week’s GDP surprise.
My pick of the week for a possible negative surprise is productivity. At some
point, productivity has to fall back from its lofty heights and when it does,
the markets will feel the hot breath of inflation, albeit still in the distance.
It won’t be pretty.
Sector
Watch: Rotations “R” Us
Up — REITs, Chemicals,
Tobacco, Health Services, Wholesale, Leisure, Consumer Non-durables, Food &
Beverage sectors making multi-year highs.
Down — Transportation,
Metals & Mining, and Manufacturing sectors, coupled with a broad decline
in technology.
David’s
Pick: Long Phosphate Resource Partners
(
PLP |
Quote |
Chart |
News |
PowerRating)
This one is a play in the Agricultural Chemicals sector, which is in a bottoming
and turnaround stage. This company is currently being bought out by IMC Global
which is a global leader in agricultural chemicals. The purchase of this stock
will get you .20 shares of IMC Global. To top it off, Cargill (one of the largest
food, agriculture, and industrial products companies) has made a bid to take
over IMC Global; which would give overseas marketing abilities that include
China and Brazil.
PLP closed Friday at $2.18. Support on this stock comes in at the $1.80, $1.70,
and the $1.50 areas; so build your position now with these downside targets
in mind. I see the first upside target in the mid $3s, but looking for a lot
more longer term. The weekly chart below shows the stock has put in a bottom,
and the trend is turning up. The MACD is above the zero line, Stochastics are
trending up, and On Balance Volume (OBV) is above its upward trending regression
line. Good luck!
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Peter’s
Pick: Cash
With the GDP numbers breathing doubt into the bull move, this would be a good
week to look at the new data and see what shakes out. Depending on the market’s
action, I will also be trimming some positions.
Aloyan’s Technical Take:
All three major indices finished the week in the red, with 71% of the sectors
declining. Of note last week was the sharp rise in the volatility indices, with
the VIX rising over 12%; the daily trend in volatility still remains down, but
we are on watch. The dollar had a small rally last week, but nothing changing
the overall downward trend as yet; this coupled with downward pressure on the
Gold and Oil indices.
Last
week I warned about the action in the bond market and semiconductor sector,
which raised a red flag for a market sell off centered on technology and the
semiconductor sector; that is what we got. As the Fed removed the “considerable
period†language at last week’s FOMC meeting, the market pundits
(Kudlow & Cramer, and the rest of the CNBC simpletons) remain puzzled by
the action in the bond market with relation to stocks; interest rates rising,
on the mid-to-long end of the curve, while stocks fall. This is the type of
action I had predicted over a year ago, and that I believe will continue in
the future. In the
previous column I explained one main reason that I believe is the force
behind this action.
^Next^
I remain of the view that this so-called “economic recovery†will
not sustain itself, and last week’s lower-than-expected GDP numbers were
of no surprise to me at all! This artificially financed, political charade entitled“economic
recovery†is nothing but an inflated asset bubble in bonds, real estate
and stocks; which has enticed and enabled the “ever-wanting†consumer
to borrow to the hilt, and spend, spend, spend! Greed has also brought back
massive amounts of “ignorant capital flows†into the stock market,
once again, chasing another get-rich-quick scheme. When the fuel runs out from
the borrowing and spending, and gambling; this party is going to end badly.
Bottom
line: My shorter-term view is Bearish-to-Neutral, and my longer-term
view remains Bearish. I continue to believe this is no more than an impressive
secular bear market rally which will come to an end.
We enter this week: Bearish-to-Neutral
.
DJ-30
The Dow finished the week
down 80 points at 10488. The daily chart below shows prices have pulled back
towards their multi-year downtrend line, and may continue down towards their
breakout of the consolidation pattern from December ’03. OBV (On Balance
Volume) is below its uptrending regression line. Stochastics have turned down
below 80, and the MACD is below the zero line. Support is at: current levels,
10353, 9921, 9800 area, 9700 area, 9600 area, 9500 area, 9353, 9277, 9219, 9127,
9077, the 9000 area, and 8855. Resistance is at: 10543, the 10600 area, 10700
area, and 11100.
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Nasdaq
Composite Technicals
The Nasdaq Composite closed
the week down 58 points at 2066. The daily chart below shows prices are pulling
back towards the breakout area which occurred at the beginning of January ’04.
OBV (On Balance Volume) is below its uptrending regression line. Stochastics
have turned down below 80, and the MACD is below the zero line. Support targets
are: 2059, 2020, the 2000 area, 1978, 1950, 1900, 1921, 1883, 1866, 1843, 1800
area, 1787, 1750 area, 1700, 1661, 1600, 1550, 1521, 1501, 1449, the 1400 area,
and 1359. Resistance on the Nasdaq is: around 2080, 2100 area, 2120, 2169, the
2200 area, and the 2300 area.
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S&P
500
The S&P 500 finished the trading week
down 10 points at 1131. The daily chart below shows that prices are pulling
back, but remain above the breakout level of their ascending wedge formation.
OBV (On Balance Volume) is below its uptrending regression line. Stochastics
have turned down below 80, and the MACD is below the zero line. Support is around:
1120, 1107, 1091, 1072, 1059, 1050 area, 1040, 1030, 1020, 1015, 1010, 996,
984, 974, 965, 956, 927, and the 900 area. Resistance is at: 1134, 1174.
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If you
have a favorite macroplay or stock you would like us to consider in this column,
send an e-mail to peter@peternavarro.com or go directly to https://www.peternavarro.com.
We’d love to hear from you.