Stocks Fall On Bank Woes
by Richard Gorton, The Resourceful Bear Blog | June 4, 2008
PrintMadlen Read, AP Business Writer writes
that stocks fell sharply on downbeat economic data, and new worries
about financial sector health.
Two key economic reports indicated that the economy is still
struggling. As expected, the Institute for Supply Management's
manufacturing index for May showed its fourth straight monthly
decline, and the Commerce Department said construction spending dipped
in April for the sixth time in seven months due to a drop in home
building.
S&P's review of the financial sector suggested there could be more
write-downs coming, though likely not as large as in recent quarters,
and "further sharp deterioration" in mortgage loan
portfolios and residential construction."
Brian Gendreau, investment strategist for ING Investment Management,
said the markets have been "hypersensitive about anything to do
with credit" in recent months, and the combination of the S&P
cuts, the bank news and comments in an overseas speech by U.S.
Treasury Secretary Henry Paulson weighed on the market.
"Basically, he suggested that there were further problems to come
in the banking and financial sector," Gendreau said. "That's
just toxic for stocks."
Sectors leading the way down today included:
KCE,
Investment Bankers, -2.3%
KBE,
Banks -1.5%
RWR,
Reits -1.5%
IYR,
Real Estate, -1.4%
The chart of the Russell 1000 Growth Shares, IWF,
manifested bearish engulfing, relating that the TAF,
TSLF, PDCF, and yen carry trade rally, that began on March 18,
2008 with the Federal Reserve assisted JP Morgan buyout of Bear
Stearns is over. Confirmation of an immediate downturn in the stock
market and the need for a short seling investment strategy or a
commodity investment strategy comes from the chart of the overall
stock market, VTI, relative to the financial sector, IYF: VTI:IFY.
The dark cloud covercandlestick two weeks ago and this weeks lollipop,
means that the overall stock market is going to be drawn lower by the
financial sector.
The dollar, $USD, was basically unchanged at 72.96; gold, $GOLD, was
unchanged as well at $891.
Overseas, Japan, EWJ,
closed up 0.22% manifesting a darken lollipop hanging man candlestick
serving as a dark cloud cover finale to its nine week long rally.
Germany, EWG, fell 1.52%, France, EWQ, fell 1.84%, Italy, fell 1.77%,
Spain, EWP fell 2.42% and the BRICS, EEB,
fell 1.25%.
The EUR/JPY, FXE:FXY,
which is the barometer for the yen carry trade, fell to close at 1.63.
The Yen, FXY, rose 0.79% while the Euro, FXE, fell 0.40%: I see risk
aversion rising; and thus the yen carry trade unwinding. Confirmation
comes from the evening
star in the yen carry trade darling Mexico shares EWW.
Interest rate differential loans unwound today as the Loonie, FXC,
and the Aussie, FXA,
fell sharply.
The short term US Treasury bonds, SHV,
finally broke loose to fall lower, in sympathy with their longer term
peers, such as TLT,
which have already sold off: now there is a run on all
US government bonds. Market place interest rates, such as the rate on
the 30 Year US Bond, $TYX, are on the way up destroying long term
bond, $USB, and zero coupon, BTTRX, bond wealth. One should, at the
very least, be short bonds, via investing in the bear ETF, TBT, or the
Rydex mutual fund RYJUX.
I see some things as having such terrific fall potential:
QTEC,
Nasdaq 100
QQQQ,
Nasdaq
IYT,
Transportation
SMH,
Semiconductors
BDH,
Broadband
EWJ,
Japan
The chart of $VIX,
shows volatility rising. Fear is rising to terminate calm and and
confidence, so one could go short:
1) Go short with any some
of these 55 ETFs that I've selected as having the greatest falling
potential.
Possible ETFs, include, NLR,
which is overbought with a Declining RSI; and XSD,
semiconductors which has manifested a lollipop hanging man candlestick
in a pennant in its weekly chart.
2) Go short with these 11
bear market ETFs and ETNs.
One of these is EWV,
200% short of the Japanese stock market, which fell to almost a double
bottom at 68.60, making it an excellent short selling opportunity
given the Toru Fujioka and Jason Clenfield Bloomberg report
that: "Japan’s household spending fell the most in 19 months,
factory production dropped and unemployment climbed, stoking concern
the longest postwar expansion is coming to an end. Spending decreased
2.7% in April from a year earlier… The jobless rate rose to a
seven-month high of 4% and industrial output fell for a second
month." Another bear ETF, is QID
which rose today from a double bottom to close at 38.20.
3) go short with these stocks,
or even these stocks
as well; these seemed viable as short selling opportunities a week
ago; but may have sold off in the last week to become less desireable
options. Excellent sellers include:
Subprime automobile lender Nickolas Financial, NICK,
closed at $6.99, that is at the middle of a pennant; stocks usually
fall from such patterns.
Also the chicken producers, Sanderson Farms, SAFM,
as it is overbought with a declining RSI, and has risen in a terrific
ascending wedge; and Tyson Foods, TSN, whose daily
chart shows bearish engulfing; and whose weekly
chart shows rising price on falling volume.
And consumer discretionary sector leader, Children's Place Retail
Stores, PLCE, which on the weekly
chart shows a return to its July 2007 value; and on the daily
chart shows a parabolic turn lower.
Bombardier, BBD/A.TO
has likely topped out manifesting a hammer with three white soldiers
topping out due to likely short sell covering.
However, I do not recommend short selling as it involves having a
dollar denominated portfolio. The TAF,
TSLF and PDCF rally, which by today's action is definitely over,
sent the US Dollar, USD, relative to the Yen, FXY, zooming up as seen
in the Andrew Sheldon chart and article The
USD-JPY On A Knife Edge: gains coming from short selling will be
quickly destroyed by a falling US Dollar. Yahoo
Finance shows that the USD/JPY fell today from 105.5 to 104.5.
I suggest that one dollar cost average an investment in gold at
BullionVault.com over the next three weeks as I see a financial
emergency likely coming via the current
"credit crunch" morphing into "credit gridlock"
as the banks and commercial credit providers conditions further
deteriorate.
The US went from being the largest creditor nation to the world's
largest debtor: President Nixon took the US off the gold standard
because of bankruptcy due to the military industrial complex
aggressive spending in the Vietnam war.
President Clinton repealed the Glass Steagall Act and the banks and
investment bankers financialized, that is securitized investments to
the ruination of capitalism and sound investing; and today the bill
has come due.
The Laissez Faire Ones such as Charles
Prince, using neoliberal Milton Friedman economic principles, have
had free reign over capitalism and investment, and their party is
over. No amount Ben Bernake 'Cat In The Hat' magic can restore
financial stability.
Elaine Meinel Supkis in Bernanke
Will Hand Out $225 Billion In June provides the Jeannine Aversa
Associated Press report that The
Fed To Make Fresh Batch Of Bank Loans". Such loans are
unlikely to help the banks, the liquidity is most likely going to
effect speculative loans in the futures market, or to buy currencies
which would be used to short the US dollar, or to go short stocks.
Through the bankers' financialization, the US currency has been
debased; the debasement that came through securitization has inflated
the Euro, and commodities, especially oil and gold.
I do not know if Commodity prices, $CRB, which is traded by the ETN,
RJI, will continue to soar; and I do not know if oil, $WTIC, which is
traded by the ETF, USO, will pause only to go higher.
The current chart of the gold EFT, GLD,
shows a pennant; prices usually fall from such patterns, that is why I
recommend that one 'dollar cost average' buy gold at BullionVault.com
over the next three weeks. Should gold fall in value, its fall will be
substantially less than that of stocks and bonds. The value of gold
relative to stocks as seen in GLD:VTI is stabilizing and is for sure
going higher over time.
Related
Jesse's
Charts of the Nasdaq Composite, $COMPQ, the Down Jones Industrial
Average, $INDU, the US Dollar Index, and the S&P 500 $SPX, show
today's trading action.
The
Capital Provisioning Infrastructure Is Burned Out And Bone Dry ...
Lending Resources Went Into Commodity Futures is my article of
last Friday, which serves as a helpful introduction to today's
article.
Lamdar's
monthly chart of the S&P, $SPX shows a 'broadening top
pattern' going back to November 13, 2006; it's as Street Authority
says: "When you see the broadening top, the market will
eventually drop": it's ripe for a drop.
Keywords
billcomedue, charlesprince, catinthehat, LaissezFaire
Copyright © 2008 Richard Gorton, The
Resourceful Bear Blog
Editorial Archive
Short Bio My investment statement is simple: in a bull market be a bull; in a bear market be a bear. In a bull market, one buys on dips; in a bear market, one sells into strength. Research indicates that the stock market has transitioned from bull to bear; and that one's wealth is now best garnered and protected by investing in gold.
contact information
Richard Gorton 360-756-5431 | Bellingham, WA USA | Email | Website
The opinions of FSU contributors do not necessarily reflect those of Financial Sense.
