Market Commentary

Sterling Market Commentary for Tuesday October 2nd, 2012

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Sterling Market Commentary for Tuesday October 2nd, 2012

A Look at Monday’s Market:  The overall market was mixed on Monday with the S&P 500 and the Dow Jones Industrial Average finishing the day moderately higher while the NASDAQ finished the day slightly lower.  Among the indices I track there was strength in the Airlines, Natural Gas, Gold/Silver, Biotech,  Insurance, Healthcare related, Commodities, Transports, Retailers, and Financials.  There was weakness in the Telecoms, High Tech, and Utilities.  In the commodities markets,  Oil was higher by $0.29 to $92.48 per barrel, and Gold was higher by $9.40 to $1,780.50 per ounce.  In the Grain markets,  Wheat was lower by $0.182 to $8.842 per bushel, while Corn was higher by $0.004 to $7.566 per bushel, and Soybeans were lower by a whopping $0.406 to $15.602 per bushel.

A Few Thoughts on Tuesday’s Market: In reviewing the charts from yesterday’s trading activity, I did not see any indications of real strength in the market.  The charts with the clear patterns appear to be breaking to the downside.  To me this is a sign of continuing weakness; and it creates a strong belief that if it were not for the market manipulations of the Fed, and if it were not for the Fed manipulating the market it would be a lot lower.

The Dow Jones Industrial Average: The Dow Jones Industrial Average closed Friday at 13,437.13.  I continue to see upside resistance on the Dow at 13,558.92.   With Friday’s close of 13,437.13 the Dow Jones Industrial Average broke our support level of 13,345.  I now see downside support coming in at 13,279.32  Current Expectations:  I am expecting the Dow to continue to move lower and test 13,279.32 on a closing basis.

Dow Jones Transportation Average:  The Dow Jones Transportation Average closed Monday at 4,899.73.  I continue to see upside resistance on the the Dow Transportation Average at 4,951.07 and downside support at 4,873.76  and then at 4,795.28  This is obviously a very narrow trading range.  Current Expectations:  The Dow Transports appear to be in a downward trend.  I am expecting Dow Transports to continue to move lower and test 4,873.76 on a closing basis.

The Bottom Line:  I just do not see any strength to the market, and continue to have concerns about it moving lower.

Sterling Calendars for the Week of October 1st, 2012
Economic Calendar
Date Est.
Time		 Release For Consensus Prior
10/01 10:00am ISM Index Sep. 49.7 49.6
10/01 10:00am Construction Spending Aug. 0..4% (0.9%)
10/02 2:00pm Auto Sales Sep. N/A 5.3 M
10/02 2:00pm Truck Sales Sep. N/A 6.3 M
10/03 7:00am MBA Mortgage Index 09/29 N/A 2.8%
10/03 8:15am ADP Employment Change Sep. 133K 201K
10/03 10:00am ISM Services Sep. 53.0 53.7
10/03 10:30am Crude Inventories 09/29 N/A (2.466M)
10/03 2:00pm FOMC Minutes 9/12
10/04 7:30am Challenger Job Cuts Sep. N/A (36.9%)
10/04 8:30am Initial Jobless Claims 09/29 365K 359K
10/04 8:30am Continuing Jobless Claims 09/22 3,273K 3,271K
10/04 10:00am Factory Orders Aug. (6.0%) 2.8%
10/05 8:30am Nonfarm Payrolls Sep. 120K 96K
10/05 8:30am Nonfarm Private Payrolls Sep. 130K 103K
10/05 8:30am Unemployment Rate Sep. 8.1% 8.1%
10/05 8:30am Hourly Earnings Sep. 0.2% 0.1%
10/05 8:30am Average Workweek Sep. 34.4 34.4
10/05 3:00pm Consumer Credit Aug. $5.0B ($3.3B)

Market Commentary, Weekly Newsletter

Sterling Weekly for the Week of October 1st, 2012 – 3rd Quarter Performance Report

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3rd Quarter Index Performance Report

Since the previous edition of the Sterling Weekly, the Dow Jones Industrial Average rose 237.58 points or approximately 1.8% to close at 13,437.13 It has been a busy 6 months since I last published the Sterling Weekly,  I am very happy to announce that during the last 6 months, my wife and I saw the birth of our 1st child, a very healthy baby boy that we are very excited to have in our lives.  Over the course of that period of time the market has moved slightly higher.  However the continued bond buying and quantitative easing policies of the Fed continues to cause me a great deal of concern;  specifically that the Fed is creating a financial bubble unlike the world has ever seen before.  I have concerns that when this bubble finally bursts there will be negative consequences that are devastating for the world economy.

We saw the end of the 3rd quarter last week.  As usual, I like to take a look at the performance of the various sector indices I track and see what the market is telling us.  I usually find these results somewhat interesting.  I have published the results below for your review as well.

Sterling Investment Services 2012 3rd Qtr.  Index Performance Report
  Ticker  Closing Level 3rd Quarter
Index Name  Symbol 28-Sep-12 28-Jun-12 Points Percent
1 Phlx. Gold/Silver Index XAU 191 157.54 33.46 21.24%
2 Amex Gold Bugs HUI 513.81 427.77 86.04 20.11%
3 Amex Gold Miners  GDM 1479.6 1,237.18 242.42 19.59%
4 North Am. Telecom Index XTC 1078.65 918.44 160.21 17.44%
5 Phlx. Oil Services Sector OSX 224.09 201.36 22.73 11.29%
6 CBOE Technology Index TXX 1069.85 987.33 82.52 8.36%
7 KBW Banking Index BKX 49.58 45.79 3.79 8.28%
8 Amex Oil & Gas XOI 1258.11 1,165.53 92.58 7.94%
9 Amex MS Commodities CRX 847.25 785.93 61.32 7.80%
10 S&P Healthcare Index  HCX 465.29 433.61 31.68 7.31%
11 Computer Tech. Index XCI 1175.3 1,096.22 79.08 7.21%
12 Natural Gas Index  XNG 669.794 624.78 45.01 7.20%
13 NASDAQ 100 Index  NDX 2799.19 2,615.72 183.47 7.01%
14 Amex Interactive IIX 321.24 300.99 20.25 6.73%
15 S&P Retail Index  RLX 655.46 614.29 41.17 6.70%
16 S&P Insurance Index  IUX 193.81 181.91 11.90 6.54%
17 S&P 100 Index  OEX 663.8 623.82 39.98 6.41%
18 Amex Pharmaceuticals DRG 369.94 348.08 21.86 6.28%
19 MS. High Tech. Index MSH 684.4 644.08 40.32 6.26%
20 MS. Healthcare Providers RXP 2151.633 2,026.60 125.03 6.17%
21 Amex Biotech Index BTK 1558.24 1,469.21 89.03 6.06%
22 S&P Banking Index  BIX 163.45 154.33 9.12 5.91%
23 S&P 500 Index  SPX 1440.67 1,362.16 78.51 5.76%
24 Russell 1000 Index  RUI 793.74 750.61 43.13 5.75%
25 MS Cyclical Index  CYC 968.695 918.96 49.74 5.41%
26 MS Consumer Index CMR 835.843 798.24 37.60 4.71%
27 Dow Jones Industrial Avg. DJ-30 13437.13 12,880.09 557.04 4.32%
28 Amex Disk Drive  DDX 109.8 105.42 4.38 4.15%
29 S&P Chemicals Index  CEX 346.2 338.39 7.81 2.31%
30 Phlx. Semiconductor Index SOX 382.27 385.46 (3.19) -0.83%
31 Dow Jones Utilities Index DJ-15 475.75 481.36 (5.61) -1.17%
32 Amex Networking  NWX 207.34 211.70 (4.36) -2.06%
33 Phlx. Utility Sector UTY 481.71 493.01 (11.30) -2.29%
34 Amex Airlines Index XAL 37.65 39.05 (1.40) -3.59%
35 Amex Sec. Broker/Dealer XBD 82.59 87.82 (5.23) -5.96%
36 Dow Jones Transportation DJ-20 4892.62 5,209.18 (316.56) -6.08%
———- ———-
Average 54.26 6.06%
Sterling Investment Services 2012 3rd Qtr. Interest Rate Index Performance Report
Ticker Closing Level 3rd Quarter
Index Name Symbol 28-Sep-12 28-Jun-12 Points Percent
CBOE 10 Yr. Treasury Yield TNX 16.37 16.59 (0.22) -1.33%
CBOE 30 Yr. Treasury Yield TYX 28.34 27.63 0.71 2.57%
CBOE 5 Yr. Treasury Yield FVX 6.3 7.29 (0.99) -13.58%

In looking at the results from the 3rd quarter, several items stood out.  The 1st being that the average index was higher by 6.06% for the quarter.  The Dow Jones Industrial Average and the S&P 500 both underperformed the average index, with results of 4.32% and 5.76% returns respectively.  The NASDAQ 100 posted a gain of 7.01%, outperforming the average index.  The 2nd thing I noticed was the the 6 of the top 9 performing indices were commodities related indices.  They were the Philly Gold/Silver, Amex Gold Bugs, Amex Gold Miners,  Philly Oil Services, Amex Oil & Gas, and the Amex MS Commodities.  The KBW Banking Index ‘BKX’ also made the top 9 indices.  What I see all these indices having in common is that they are subject to manipulation higher by the Fed’s Quantitative Easing policies.  Additionally the 1st six I mentioned all seem to be somewhat an indicator of future inflation being a problem.

The 3rd thing I noticed was that 5 of the 6 worst performing sectors were either related to transportation, utilities, or the brokerage industries.   The utilities and brokerage industries are subject to expansive new regulations through either Dodd-Frank or the EPA; while I consider the Dow Transportation indices to be the canary in the coal mine for the US economy.  The poor performance of these indices indicates a slowing economy in my book.

I also wanted to take a look at the year to date results.  Which I have posted below for your review.

Sterling Investment’s 2012 3rd Qtr. – Year to Date Stock Index Performance Report
Ticker Closing Level Year to Date
Index Name Symbol 28-Sep-12 30-Dec-11 Points Percent
Amex Biotech Index BTK 1558.24 1,091.42 466.82 42.77%
KBW Banking Index BKX 49.58 39.38 10.20 25.90%
CBOE Technology Index TXX 1069.85 851.59 218.26 25.63%
S&P Retail Index RLX 655.46 523.20 132.26 25.28%
S&P Banking Index BIX 163.45 130.52 32.93 25.23%
MS. Healthcare Providers RXP 2151.633 1,733.89 417.74 24.09%
NASDAQ 100 Index NDX 2799.19 2,277.83 521.36 22.89%
North Am. Telecom Index XTC 1078.65 881.99 196.66 22.30%
Computer Tech. Index XCI 1175.3 973.96 201.34 20.67%
S&P 100 Index OEX 663.8 570.79 93.01 16.29%
MS. High Tech. Index MSH 684.4 588.88 95.52 16.22%
Amex Airlines Index XAL 37.65 32.44 5.21 16.06%
S&P Chemicals Index CEX 346.2 298.73 47.47 15.89%
S&P Healthcare Index HCX 465.29 401.90 63.39 15.77%
S&P 500 Index SPX 1440.67 1,257.60 183.07 14.56%
Russell 1000 Index RUI 793.74 693.36 100.38 14.48%
Amex Interactive IIX 321.24 281.74 39.50 14.02%
S&P Insurance Index IUX 193.81 170.17 23.64 13.89%
Amex Pharmaceuticals DRG 369.94 332.94 37.00 11.11%
MS Cyclical Index CYC 968.695 874.14 94.56 10.82%
MS Consumer Index CMR 835.843 759.13 76.71 10.11%
Dow Jones Industrial Avg. DJ-30 13437.13 12,217.56 1,219.57 9.98%
Amex Disk Drive DDX 109.8 101.79 8.01 7.87%
Phlx. Gold/Silver Index XAU 191 180.64 10.36 5.74%
Natural Gas Index XNG 669.794 636.15 33.64 5.29%
Phlx. Semiconductor Index SOX 382.27 364.44 17.83 4.89%
Phlx. Oil Services Sector OSX 224.09 216.28 7.81 3.61%
Amex Gold Miners GDM 1479.6 1,428.98 50.62 3.54%
Amex Gold Bugs HUI 513.81 498.73 15.08 3.02%
Dow Jones Utilities Index DJ-15 475.75 464.68 11.07 2.38%
Amex Oil & Gas XOI 1258.11 1,229.10 29.01 2.36%
Amex MS Commodities CRX 847.25 844.94 2.31 0.27%
Phlx. Utility Sector UTY 481.71 481.45 0.26 0.05%
Amex Sec. Broker/Dealer XBD 82.59 83.27 (0.68) -0.82%
Dow Jones Transportation DJ-20 4892.62 5,019.69 (127.07) -2.53%
Amex Networking NWX 207.34 215.15 (7.81) -3.63%
———- ———-
Average 120.20 12.39%
Sterling Investment’s 2012 3rd Qtr – Year to Date Interest Rate Performance Report
Ticker Closing Level Year to Date
Index Name Symbol 28-Sep-12 28-Jun-12 Points Percent
CBOE 10 Yr. Treasury Yield TNX 16.37 18.71 (2.34) -12.51%
CBOE 30 Yr. Treasury Yield TYX 28.34 28.29 0.05 0.18%
CBOE 5 Yr. Treasury Yield FVX 6.3 8.30 (2.00) -24.10%

I do not see quite as a clear of a message in the year to date results.  The fact that the Amex Biotech Index ‘BTK’ is the top performing index is not surprising to me.  For quite some time now it has been one of the few industries where new technology was being developed; and I have long said that bull markets are the result of either government regulation or new technologies.  The heavy re-regulation of the American economy by the Obama administration is definitely weighing on parts of the market.  I have suspected that we saw increased capital spending earlier in the year as companies moved to take advantage of tax breaks and other incentives that will expire at the end of this year; and that is why the tech sector has been a more solid performer year to date.

Again, I continue to have concern about the poor performance year to date by the transportation sectors.  I do believe that there is merit to the Dow Theory, and I see a slowing economy that I think will catch people unprepared.

 

Sterling Calendars for the Week of October 1st, 2012
Economic Calendar
Date Est.
Time		 Release For Consensus Prior
10/01 10:00am ISM Index Sep. 49.7 49.6
10/01 10:00am Construction Spending Aug. 0..4% (0.9%)
10/02 2:00pm Auto Sales Sep. N/A 5.3 M
10/02 2:00pm Truck Sales Sep. N/A 6.3 M
10/03 7:00am MBA Mortgage Index 09/29 N/A 2.8%
10/03 8:15am ADP Employment Change Sep. 133K 201K
10/03 10:00am ISM Services Sep. 53.0 53.7
10/03 10:30am Crude Inventories 09/29 N/A (2.466M)
10/03 2:00pm FOMC Minutes 9/12
10/04 7:30am Challenger Job Cuts Sep. N/A (36.9%)
10/04 8:30am Initial Jobless Claims 09/29 365K 359K
10/04 8:30am Continuing Jobless Claims 09/22 3,273K 3,271K
10/04 10:00am Factory Orders Aug. (6.0%) 2.8%
10/05 8:30am Nonfarm Payrolls Sep. 120K 96K
10/05 8:30am Nonfarm Private Payrolls Sep. 130K 103K
10/05 8:30am Unemployment Rate Sep. 8.1% 8.1%
10/05 8:30am Hourly Earnings Sep. 0.2% 0.1%
10/05 8:30am Average Workweek Sep. 34.4 34.4
10/05 3:00pm Consumer Credit Aug. $5.0B ($3.3B)

 

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Market Commentary

Sterling Market Commentary for Monday October 1st, 2012

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Sterling Market Commentary for Monday October 1st, 2012

A Look at Friday’s Market:  The overall market moved moderately lower on Friday in a broad based move that saw the majority of the sector indices I track move lower on the day as well. The weakest sectors were the Airlines, Commodities,  Telecom, Cyclicals, High Tech,  Healthcare related, Financials, and Consumer indices.  There was strength in the Utilities,  Biotech, and Bonds.  In the commodities markets,  Oil was higher by $0.34 to $92.19 per barrel, and Gold was lower  by $6.50 to $1,771.10 per ounce.  In the Grain markets,  Wheat was higher by $0.47 to $9.024 per bushel, and Corn was higher by $0.40 to $7.562 per bushel, while Soybeans were higher by $0.302 to $16.01 per bushel.

A Few Thoughts on Monday’s Market:  In looking at the charts from Friday’s market, I noticed a couple of items that caught my attention.  The 1st being that the vast majority of the indices I looked at are showing weakness; and nearly every index that showed any clarity on its movement appears to be moving lower.  To me this is a clear indication of a market pullback.  The 2nd thing I noticed was that the Dow Jones Transportation is on the verge of pushing a new yearly low.  As I stated in the September 24th edition of the Sterling Market Commentary, I do not see the Transports benefiting from the QE3.  If we see the Dow Jones Transportation Average close below 4,847.33 in the near future, then I think it is going to attract a lot of attention to the probability overall market following it lower.

Additionally, the Dow Jones Industrial Average appears to be sitting on an upward sloping trendline.  If we see continued weakness over the course of the next couple of days,  then I would consider this trendline to be broken; with a high probability that the Dow Jones Industrial Average could move lower and test its 200 day moving average at 12,803.40 (or what ever level it will be at that point in time.)

Dow Jones Industrial Average:  The Dow Jones Industrial Average closed Friday at 13,437.13.  I continue to see upside resistance on the Dow at 13,558.92.   With Friday’s close of 13,437.13 the Dow Jones Industrial Average broke our support level of 13,345.  I now see downside support coming in at 13,279.32  Current Expectations:  I am expecting the Dow to continue to move lower and test $13,279.32 on a closing basis.

Dow Jones Transportation Average:  The Dow Jones Transportation Average closed Friday at 4,892.62.

The Bottom Line:  I think the overall market is looking weak, and I think we could see a pullback in the next couple of days.  I see upside resistance on the Dow Transports at 4,911.83 and downside support at 4,873.76  and then at 4,795.28  This is obviously a very narrow trading range.  Current Expectations:  The Dow Transports appear to be in a downward trend.  I am expecting Dow Transports to continue to move lower and test 4,873.76 on a closing basis.

Market Commentary

Sterling Market Commentary for Friday September 28th, 2012

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A Look at Thursday’s Market: The overall market moved moderately higher on Thursday in a broad based move that saw the vast majority of the various sector indices we track move higher on the day as well.  In the commodities markets,  Oil was higher bu $1.87 to $91.85 per barrel, and Gold was higher by $26.90 to $1,777.60 per ounce. In the grain markets,  Wheat was lower by $0.136 to $8.554 per bushel,  and Corn was lower by $0.084 to $7.162 per bushel, while Soybeans were lower by $0.022 to $15.706 per bushel.

A Few Thoughts on Friday’s Market:  In looking at the charts from yesterday’s market activity I noticed that every single sector index I track moved higher on the day.  My feelings are that we have a market that is dominated by a combination of computer programs taking their trading signals from news headlines and what is essentially market manipulation by the Fed.  In my opinion, both of things are ultimately bad for the overall market and the health of the U.S. economy.  My concerns are that the overall market is vulnerable to headline risk that could result from adverse news coming from either Europe or China.

Dow Jones Industrial Average:  The Dow Jones Industrial Average closed Thursday at 13,485.97  I continue to see upside resistance at 13,558.92 and downside support at approximately 13,345.  Volume on the Dow Jones Industrial Average continues to be light. I generally consider this to be a negative sign when the Dow Jones is trading at multi-year highs.

The Bottom Line:  I think that the U.S. economy is showing weakness as demonstrated by yesterday’s announcement of 2nd quarter GDP being revised lower, and weak durable goods report.  My estimate is that barring some change in Washngton, DC this year, we will see the U.S. economy will probably drop back into a recession in the 1st half of 2013.

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Market Commentary

Sterling Market Commentary for Tuesday September 25th, 2012

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A Look at Monday’s Market:  The overall market moved moderately lower on Monday in a relatively broad based move that saw the majority of the sector indices I track move lower as well.  There was weakness in the Gold/Silver, High Tech, Biotech, Oil Services, Commodities, Broker/Dealers, Retailers, Natural Gas, Chemicals, Cyclicals, and Oil & Gas indices.  There was strength in the Utilities,  Bonds, Transports, Banking, Airlines, Consumer, Telecom, and Healthcare related indices.

In the commodities markets,  Oil was lower by $0.96 to $91.93 per barrel, and Gold was lower by $13.40 to $1,762.20 per ounce.  In the grain markets,  Wheat was lower by $0.052 to $8.920 per bushel, and Corn was lower by $0.034 to $7.446 per bushel, while Soybeans were lower by $0.1160 to $16.10 per bushel.

A Few Thoughts on Tuesday’s Market:  I continue to look at the market with a nervous eye.  I do not believe that the strength of the overall economy is nearly as strong as the major market indices would have us believe.  This causes me to be concerned that we could see a severe and lasting downturn when the music stops.  I think that the Fed has grown increasingly desperate, and it is running out of arrows in its quiver.

Dow Jones Industrial Average:  The Dow Jones Industrial Average closed at 13,558.92  I see upside resistance on the Dow at 11,596.93 and downside support at approximately 13,345  Volume on the Dow Jone Industrial Average has been light recently,  and I generally see that as a negative sign when the Dow is trading at multi-year highs as it is.

The Bottom Line:  I think that the economy is showing signs of weakness and we could see a pullback in the near term.

Market Commentary

Sterling Market Commentary for Monday September 24th, 2012

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A Look at Friday’s Market: The broad market indices moved slightly lower on Friday in a relatively lackluster trading session.  In the commodities markets,  Oil was higher by $0.47 to $92.89 per barrel, and Gold was higher by $7.80 to $1,775.60 per ounce.  In the grain markets,  Wheat was higher by $0.176 to $8.972 per bushel, while Corn was higher by $0.022 to $7.482 per bushel, and Soybeans were higher by $0.030 to $16.216 per bushel.

A Few Thoughts on Monday’s Market:  The major market indices and a large number of the various sector indices that I track are obviously benefiting from the Fed’s 3rd round of quantitative easing, otherwise known as QE3.  However to be very clear,  I consider QE3, and the previously quantitative easings’, QE1 and QE2, to be an unprecedented form of market manipulation that is not only ineffective, but one that has very serious, negative unintended consequences that are detrimental to the US Economy.  Manipulating interest rates to artificially low levels will not make up for bad fiscal policy out of our elected officials in Washington, DC.  Worse yet, these artificially low interest rates are creating a bubble in all bond classes as savers either search for higher yields or safety;  these artificially low interest rates punish savers with reduced interest income, and create a sense of uncertainty that is holding back business development.  It seams that the only group benefiting from these artificially low interest rates is the largest companies in the US and global economy.  These are the companies that dominate the major market indices; and that is why these indices are doing so well, while the rest of the economy is seems to be disconnected from the stock market.

One sector that is not benefiting from the quantitative easing is the transportation sector.  There is a very good reason for this.  The transportation sector by its very nature deals with a lot of small businesses and consumers, two groups that are struggling.  Additionally,  capital goods that can be financed with borrowed money are not the only factor in these companies bottom lines. I bring this up because the Dow Jones Transportation Average has not participated in the recent market rally.  Dow Theory basically states that the Dow Jones Industrial Average will not continue upwards to new highs for very long without the Dow Transports moving higher as well.

Now one of two things is likely to happen.  Either the Dow Transports is going to rally or the Dow Jones Industrial Average is going to move back lower.  I think we would be looking at the Dow Jones Industrial Average well below 13,000 if it wasn’t for QE3.  My best estimate is that it is more likely that the Dow Jones Industrial Average will move lower than we will see the Dow Transports rally.

The Bottom Line:  I remain skeptical about the recent market rally.  To me all of the quantitative easings are a form of musical chairs, in which the person left standing when the music stops is going to be left with big losses.