The Apprentice Millionaire Market Letter
June 8/09
http://www.amprogram.com/A ) Positioning The AMP for The NEW Bull Run
Indicators - Posting 3042
1. All three major U.S. indices have now closed above their respective 200-day simple moving averages (SMA) and have made a series of higher highs and higher lows. These are the first steps in the transition from a bear to a bull market. Look for the 200-day SMAs on all three indices to slow their respective rates of descent, turn sideways, and ultimately turn higher as confirmation of this new bull trend.
2. Credit markets continue to improve. Most noticeably, the TED Spread has come back down into the .50-.55 range. As we have discussed before, the TED Spread has been a leading indicator for future moves in equities. In its own bear market, the TED Spread has now made a series of lower highs and lower lows since topping out last October. Even with this improvement, it should be noted that the TED Spread needs to fall even further, to the .30s, before it returns to the pre-credit crisis levels of 2007.
3. Breadth is increasing. While volume has been not been overwhelmingly effusive as is typical at the start of a new bull cycle, breadth has been very positive. The Advance/Decline Line on the NYSE made a higher high late last week, ahead of the Dow and the S&P 500's break above their respective 200-day SMAs. This shows strong underlying demand with most groups participating in the early stages of this nascent bull. Noticeably weak groups like the biotechs and utilities are also showing signs of bottoming, two groups which have historically led in the early stages of new bull markets.
4. Banks are raising capital easily. Bad news continues to be ignored and any slight hint of good news is embraced with open arms. This is bull market behavior. North Korea launched two new missiles last week and stocks barely budged. Jobless claims are still above 600k and the market feels good that they are not at 700k. Hewlett Packard’s earnings disappointed a few weeks ago and yet the NASDAQ was the first index to break to higher highs. Keep a sharp eye on how the market responds to bad news over the coming months for a sign of a change in investor sentiment and psychology.
6. Like the TED Spread, the $VIX is also in its own bear market, making lower highs and lower lows in the 40s and most recently in the 30s. Look for the $VIX to work toward the lower 20s as more money gets funneled into equities in the coming months. Lower volatility creates one of the most important backdrops necessary for any market to work higher: fresh money flows. With mutual fund cash piles at the highest levels in years, look for a continued move lower in the $VIX to bring in more money from the sidelines as intra-day volatility continues to decline.
7. The U.S. is following the lead of emerging nations already in bull markets. China, Russia, Taiwan and Chile have been in established bull markets for the past two months. A new paradigm continues to be created, with the U.S. slowly losing its economic might and emerging markets beginning to flex their collective muscle more forcefully than has ever been observed in our lifetimes. Look for this trend to continue in the coming decade.
8. A good number of pension funds and hedge funds have missed the move so far. With notable economists like Nouriel Roubini still calling for a retest of the March lows, the institutional money that has remained bearish has missed much of the upside move to this point. Fund managers who want to keep their jobs must now put massive amounts of money to work in an effort to play "catch-up" with the indices for the remainder of the year.
9. The “average Joe” market participant is still shell-shocked and too frightened to return to the market after selling out at the March lows. Odd lot selling activity on the NYSE is at the highest level in seven years, indicating that the small investor is selling into this rally as opposed to supporting it. Look for retail interest to improve as the year progresses.
10. Takeover activity has spiked of late. While the prices paid for some of these buyout are a bit befuddling - namely Intel's takeover of WIND for a 40%+ premium and EMC’s bid up for Data Domain over NetApp’s offer - this activity is very encouraging for the overall market.
11. As the market rallied off the March lows, a rare bull market indicator was triggered – the Martin Zweig Breadth Thrust (ZBT). According to Dr. Zweig, who authored the seminal book “Winning On Wall Street,” when the ZBT rises from below 40% to above 61.5% in the span of 10 trading days, a bull market is just around the corner. What makes this so special is there have been only 14 ZBTs since 1945 up until now. Let’s take a look at number 15:
12. With summer swinging into full gear, June and July will be busier than usual as institutional money goes to work so that money managers can enjoy August in the Hamptons. By getting fully-invested in the next two months, managers will still be able to take that August vacation, secure in the knowledge that they will not miss any further upside in the market. While this may sound outlandish now, things could very well play out this way. Never under-estimate a fund manager's desire to kick back and relax.
The 13-week surge that followed the Dow Jones Industrial Average's early March lows is second only to the post-Depression bull run, with odds favoring a further rise during the next three months, one strategist said.
"I say this with the utmost confidence and my fingers tightly crossed: This is the start of a new bull run," said Hugh Johnson, chairman of Johnson Illington Advisors.
The 13-week stretch from March 9 through last Friday, in which the Dow industrials soared 28.3%, ranks second only to the Dow's 94% run-up in the two months following its early July 1932 bottoming.
Going back to 1900, Johnson counts 18 surges of 20% or more in any given quarter.
Looking at the trends, odds are even that the Dow industrials will be higher in three weeks, yet those chances strengthen in the index's favor three months from now.
"Based on history, who knows where we're going to be four weeks from now? But in 12 weeks, the odds are we'll be 3.8% higher," said Johnson.
Roll of the dice
But Johnson offers no guarantees, saying the history books also offer at least one example of a more gruesome outcome.
"There was a time when we not only didn't go higher, but we got killed. In May 1929 we had a big surge up of 26% over 13 weeks, and in the next 12 weeks after that surge, the market fell 38.9%. You can get beat up bad," he said.
On Wall Street, U.S. stocks pulled higher Friday after wavering in both directions as traders questioned a surprising unemployment report. The government reported that 345,000 jobs were cut, less than the expected 500,000, while the rate of unemployment climbed from 8.9% in April to 9.4% last month.
"There is also some logical profit-taking," Art Hogan, chief market strategist at Jefferies & Co., said of Wall Street's about-face.
Both the Dow Jones Industrial Average and the S&P 500 Index on Friday were headed to a third consecutive week of gains, with industrials and consumer-discretionary shares leading gains.
Turning positive for the first time this year, the Dow industrials added 44.31 points, or 0.5%, to 8,794.5. The S&P 500 rose fractionally to 943.03, while the technology-laden Nasdaq Composite was also ahead less than one point to stand at 1,850.8.
The message of the market is "the economy and earnings are going to recover, and investors are usually right," said Johnson.
B ) Recovery In Canadian Housing Market
Anecdotal evidence:
Story on Toronto in this weekend Financial Post
A couple was being continually scouped from good homes in " hot areas ".
Even arriving at Open Houses they found the properties sold.
Finally they acted - arriving the day before an Open house they put in their fully priced bid and got the deal.
Vancouver
My cousin just told me the story on West Vancouver.
Their new pastor put in a bid $3000 over the asking price to find that they were one of three bids in that range.
Chilliwack ( small town Canada)
Our area is seeing a rise in sales and in mutiple bids for properties - but the average price is still 7% below a year ago.
Watch the U.S, sales stats .
We still need a decline in :
a) the foreclosure pace and numbers
b) a further decline in inventory of unsold homes - which depresses the overall market and prices.
The U.S. Story
Many more new homes are currently being purchased than they are being built. In fact, this process has been occurring for a span of almost two years now, as builders have slashed construction at a faster pace than buyers have reduced purchases. This has caused steadily decreasing housing inventories,
A continuation of this decrease in inventories is not sustainable, as eventually a scarcity of available homes will cause prices to rise and thus invite builders to ramp up construction, which is a bullish sign for the economy. However, that's not to say that such a turnaround is right around the corner. As we saw when we looked at new home inventories over the last two decades, the housing bubble caused a huge upsurge in inventories that buyers are still working their way through.
It is worth noting that the current inventory number still represents a full 10+ months of supply at the current pace of purchases vs just 7 months in January 2007. This is due to the fact that the number of purchases has dropped substantially, despite the now lower inventory level. However, housing demand does fluctuate dramatically; therefore, when judging the level of housing inventories from a long-term perspective, it is often more relevant to consider the absolute level
Employers eliminated the fewest jobs in eight months in May, strengthening signs that the recession is easing, while a drop in wage growth offered a warning the recovery may be muted.
Payrolls fell by 345,000, less than forecast, while the unemployment rate hit a 25-year high of 9.4 percent, partly because more people joined the workforce to look for jobs, Labor Department figures showed. The annual rate of average hourly earnings growth touched its lowest since November 2005.
“The rate of decline has slowed some, but the losses to date are causing sharp declines in U.S. per capita income,” David Malpass, an economist and president of Encima Global in New York, wrote in a note to clients. Malpass predicted a “slow recovery” from the deepest recession in half a century.
Some investors focused on the report’s relief from payroll losses that surpassed half a million in each of the previous six months. The dollar rallied, Treasury yields rose and some traders added to bets the Federal Reserve will raise interest rates this year. The head of the panel that dates U.S. recessions warned it’s still “too early” to call an end to the slump.
A general rise in the economy will bring stable house prices which matched with low interest rates and the Federal incentive for buyers - will reinflate the market.
Until then - buy very cautiously among home builders.
As I entered on Twitter ( as Jack25bc) I am not a day trader but I have picked up all of the Bank of America position I sold at $ 13,88 at about $2.00 a share lower.
The U.S. may suffer additional “sizable” job losses, Fed Chairman Ben S. Bernanke said this week in testimony to lawmakers. While economic growth will return “later this year,” he said, unemployment will rise “into next year.”
“We are starting to see indications of economic progress as the recovery package begins to take hold,” Representative Carolyn Maloney, a New York Democrat who chairs the congressional Joint Economic Committee, said in a statement. Rising unemployment “is a sobering reminder that we still have a long way” to go, she added.
The Bottom Line for The AMP Financial Watchlist
I believe BAC ( see next story ) and Wells Fargo and JPMorgan ( JPM) will benefit from the refinancing boom NOW and the general housing and economic recovery that is unfolding.
Author