CRB

Mid-Week Update 09-23-09

Commodities have been rising across the board. Since bottoming in late February, the Reuters/Jefferies CRB Index, a widely used gauge of prices for almost two dozen commodities, has rallied almost 30 percent – helping to fuel a rally in energy and material stocks. There are several reasons why this rally is one of the strongest on record. Materials have reacted to the re-emergence of growth in developing economies around the world; their appeal as a hedge against a weakening dollar has contributed strongly to the ongoing demand. Read more...

Market Update 08-04-09

On Monday, the S&P 500 Index eclipsed the 1,000 mark for the first time since last November, boosted by the release of some more positive economic data points and continually rising commodities prices. Treasury yields gained 4 percent yesterday to 3.63, signaling higher risk tolerance in the market.Read more...

Market Update 08-04-09

The stock market continues to steamroll higher, with S&P yesterday crossing the 1000 mark for the first time in nine months. What has been most unusual about the move in equities—and there are plenty of red flags from where we stand—has been the fact that it has occurred even as commodity prices were in the midst of an historic run of their own.
 
The Reuters/Jefferies-CRB Index, for instance, is up by a third from February lows. This is only the third occasion in Post War history in which we’ve experienced such big advance in commodities.
 
The first of these took place in 1950. At the time, the U.S was the undisputed economic powerhouse, growing at double-digit rate as the world rebuilt from the devastation wrought from the recently concluded global conflict. Oil prices back then were the equivalent of about $23 in today’s terms. Stocks, not surprisingly, soared during this time.
 
The next time commodities has rise by a similar amount as today was in 1973. Here, again, the U.S. economy has humming along with “real” (inflation-adjusted) GDP was rising at a 6.4 percent clip.
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Market Update 11-11-08

Last Friday, the U.S. Department of Labor announced that the unemployment rate had risen to 6.5% in October, the highest rate since 1994. More than 1 million American jobs have been lost so far in 2008, and the job loss rate is accelerating- over half of those jobs were lost in August, September and October. Clearly this bad news is confirmation that we're in a recession. The worst of the financial crisis is over, but it will take time for the liquidity injections to work its way through the economy and companies' bottom-lines. In the meantime, Main Street is feeling the full brunt of the crisis.

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Market Update 08-05-08

Today, the Federal Open Market Committee decided to leave the benchmark interest rate at 2 percent- a move that was widely anticipated. This was the second consecutive meeting in which the rate wasn't changed. The statement accompanying this decision cited both downside risks to growth and upside risks to inflation. While the Fed still expects inflation to cool later this year, the outlook remains uncertain.

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RECESSION WATCH NEWS 05-05-08

We seem to be witnessing a battle between two sets of indicators at the moment, each with its own opinion on which way the market is headed.

On the one hand, as we have been expecting, our Long-Term Master Key has dropped below -80%, which is a “sell” signal. On the other hand, we have a lot of technical and economic evidence that argues against a sharp fall in the market.

In your last update, we explained why a so-called “sell” signal in the Long-Term Master Key would not send us into a panic mode. Before you start dumping good stocks, let's review the situation.

In the first place, the market has already retreated significantly from its highs last fall, perhaps in anticipation of this week's “sell” signal. So prices today are quite reasonable.

We should also remind you that there's nothing magical about the -80% figure. It's just a rule of thumb based on historical data. But we can't really say that there's much difference between -80% and -79%.

More importantly, we should point out that the Master Key has a certain built-in bias due to the fact that it relies on the price of oil as measured in U.S. dollars. This bias towards U.S. currency might not be as appropriate anymore when considering global oil prices. For instance, if we measure oil prices in terms of the Euro or other world currencies, they are nowhere near the -80% threshold.Read more...

THIS FALL’S BIG OPPORTUNITY 10-02-06

As we expected, the S&P 500 hit new recovery highs last week, closing at just over 1335. Meanwhile, the Dow, at 11,679, is only marginally below its all-time high.

 

Most likely, this rally in stocks will continue a little longer. However, as we also expected, a few small rips are starting to form that could eventually let the wind out of our sails. For one, although the Dow Transportation Index is well off its lows, it has dramatically underperformed the other major averages. Of course, it could still catch up, but if it doesn’t, don’t expect the current rally to last.

More worrisome, the relative strength of the broad market has begun to lag. We were hoping the new high in the S&P would be accompanied by a similar high in the relative strength of the broad market. But it wasn’t. The money flowing into the market today appears to be concentrated in a few safe stocks, while stocks in general are failing to excite investors.

On the plus side, the recent gains are supported by a big pool of money sitting on the sidelines waiting to be spent, while selling activity remains low. And the sentiment indices remain favorable.

But we’re not happy to see that momentum has faded somewhat. Last week, market gainers only exceeded decliners by a ratio of 2 to 1. In past rallies, the ratio has typically been 4 to 1. This is nothing to panic about, merely a warning that the new highs may not be the breakout many investors are hoping for.Read more...

EMERGING OPPORTUNITY IN COMMODITIES Update 05-22-06

Much Ado About Nothing

Last week stocks retreated another 2%, when the inflation figures came out a little higher than expected, raising fears that the Fed won’t stop raising interest rates. But don’t panic. We don’t think the market has peaked.

Two weeks ago, almost all the averages made new highs – transportation, financials, unweighted averages, everything. And while that sounds “peaky” to the untrained, we cannot recall an instance where such a convergence has coincided with a major market peak. A setback perhaps is in order – 6% or 7% -- but not likely a peak.

This means that while stocks over the next week or two could fall another few percent, there should be further gains before long. If we had to suggest a likely scenario (and you must remember that the most likely scenarios seldom unfold exactly as expected), we could easily envision the Dow making an all-time high in the near future – somewhere in the neighborhood of 12,000.

An all-time high in the Dow could very well be followed by a major correction, along the lines of 15% to 20%. But that’s down the road. For the short term the technical indicators are simply too strong to be consistent with a major decline. Sure there could be a bit more weakness but over the next few months the risk reward ratio is dramatically in favor of the bulls.Read more...

Where Oil Prices Are Headed 05-08-06

Things couldn’t look rosier for stocks these days. Virtually every index we follow is making highs – either recovery highs or in some cases all-time highs. Even utilities had a nice move last week, and are close to a recovery high. Financials too are doing well. The S&P is at a recovery high of 1325, and the Dow, at 11,577, has passed its 2000 high.

Strong too are most of the commodities. The CRB index has made historical highs. Copper prices are soaring. So are aluminum and silver. In fact, no one seems to be in the mood to sell anything these days. Least of all the market specialists who are still declining to go short. And when specialists don’t short, it’s because there are no sell orders.

Well, if the smart money can’t find any reason to sell stocks at these prices, who are we to argue? Growth too is certainly a powerful tonic for stocks, so as long as the economy is growing, we’re comfortable owning stocks.

The only thing that could spoil things for stocks is inflation. But so far, despite the rally in commodities, inflation figures remain relatively subdued. How long they will stay subdued is anyone’s guess. The seeds for higher inflation have been planted, but they have yet to bloom, and the market sees it as no threat.

Looking beyond the horizon, however, we do see some cause for concern …

GROUPTHINK FROM THE MERCHANT’S HOMETOWNRead more...

GLOBAL WARMING, HURRICANE SEASON, AND OIL 04-17-06

Last week, the S&P 500 dropped half a percentage point. Or was it the week before? At any rate, we can’t get too worried. Our Master Key has lost a little ground, but at 1.06 it remains positive, telling us that stocks are more likely to rise short-term than fall. 

We are a somewhat disappointed that small cap stocks have lost a little fire over the past few weeks, but nothing has happened yet that would indicate a sell signal. Meanwhile (you know these words now by heart) … specialist shorting remains historically low, adding support to the market. 

One negative that draws our attention is the ongoing bull market in commodities. Last week the CRB Index rose 1.52%, and it looks like it wants to challenge its all-time high of around 350. But fortunately, commodity prices have not been rising steeply enough to cause problems for stocks. 

Meanwhile, our other eye remains focused on the bond market. Bond yields have been rising, but not fast enough to outpace commodity prices. That is a good thing, because it means they are not rising fast enough to put the brakes on economic growth. A spike in bond yields, of course, would be a different story – but we’re not there yet. 

Overall, therefore, we continue to give the bull market in stocks the benefit of the doubt, and we continue to ride it up. 

However, there is another urgent matter, which our third eye (the geopolitical one) is staring down … Read more...