« Market Musings | Main | Market Musings »
October 19, 2005
Market Musings
***Overview***
There is lots of chatter about how oversold the market it. It is indeed, but the market is oversold and built to stay that way.
The inflation yo-yo is up and running. Led by the Finance sector, stocks surged on Friday as core CPI was benign.
Wholesale prices surged 1.9% - the largest gain since 1974. This led to weakness in stock as inflation fears were sparked.
Rising inflation means higher interest rates and higher interest rates mean a stronger dollar as investors are paid more to hold dollars.
Greenspan says that oil is taking its toll on the economy. Hmm…. A slowing economy + rising inflation = stagflation.
Despite a rising dollar, Citigroup is upping its targets for gold. It looks like the 70's all over again.
Even though producer prices jumped 1.9%, the iShares ~20-year T-Bond Fund (TLT) held firm and did not react negatively to the bad news.
In addition, the Phila. Gold & Silver Index ($XAU) and Gold declined.
Wilma is now a category 5 hurricane that is projected to hit the Florida tip and possibly run up the eastern seaboard.
***Indices, Sectors and Industry Groups***
The Dow Transports failed to hold the breakout and the Aug-Sep decline looks set to continue with 3400 the next target. These stocks cannot hold up even when oil prices are soft.
The Dow Diamonds (DIA) formed a bearish engulfing at broken support.
The S&P Midcap ETF (MDY) and S&P 500 Equal Weight Index (RSP) did not even make it back to broken support.
The Consumer Staples SPDR (XLP) formed a big harami over the last two days - watch 23.05 for confirmation
The Energy SPDR (XLE) gapped down to firm an island reversal.
The Industrials SPDR (XLI) looks poised to break support at 29.1
The Internet HOLDRS (HHH) formed a dark cloud pattern and failed near resistance.
Kraft (KFT) is the latest company to blame high commodity and energy prices for an earnings miss. Expect this trend to continue throughout earnings season.
The Oil Service HOLDRS (OIH) broke back below support at 110.
***Stocks***
Merrill Lynch downgraded Ford and GM to sell. Good timing!
JNJ's profits were up 12%. Companies don't get more solid than this Consumer Staple/HealthCare stock.
INTC reported good earnings, but guidance was weak. The song remains the same.
SHW formed a consolidation over the last few weeks and a break below 42.5 signals a continuation lower.
DRI formed a rising wedge the last few weeks and a break below 29.5 starts the move lower.
HTLD formed a head-and-shoulders over the last five months and a break below 18.9 would be bearish.
DY could not breakout.
UTX is testing neckline resistance at 49
SCHN retraced 62% of its Mar-May decline with a rising wedge and broke the lower trendline this month. .
GMR is sinking below support at 34.
Posted by Arthur B. Hill at October 19, 2005 07:08 AM