Daily Market Reports | May 17 2008
By Rudi Filapek-Vandyck
A bit disappointing, perhaps, but by no means unexpected, the US share market stopped for a breather in sight of those all-indicative 200 day moving averages. So next week will bring the big decider? Possibly, yes. If the view of US based trading guru Dennis Gartman is anything to go by, US share markets are likely to show some hesitance when surging through these resistance levels, but Gartman has little doubt it will be a matter of time only before the world awakens to the fact that a new bull market has already begun.
In a new bull market, Gartman again explained on Friday, one can only be long (positioned in favour of rising share prices), very long or neutral. Earlier this week, as we reported on Wednesday evening, Gartman decided to temporarily sell out of the US share market as he wanted to see first how the market would respond when confronted with those 200 day moving averages. But make no mistake, Gartman explained on Friday: by the very first signals that US shares are able to overcome current technical resistance levels, he’ll be stepping in at full force.
Says Gartman “we are more and more convinced that a global bull market is in gear as the world is more and more peaceful than it has been in decades”. But even more importantly, Gartman explains that while most other analysts, strategists and market experts are still focusing on the fact that corporate earnings are yet to take some serious hits in the year ahead, globally, investors better ignore these doomsayers.
“We are amused that we hear so many wise, even seasoned analysts tell us incessantly that they are bearish because earnings shall be weak”, writes Gartman in Friday’s The Gartman Letter. “The greatest bull markets in history have occurred when earnings are not only weak, they are non-existent. In the dark days of the autumn of ’74 or the autumn of ’82, as shares were rising smartly… even violently.. .from their bases, the news of earnings were that they were non-existent. Earnings did not come about until long… indeed very long… after the market’s lows. The market does not care about, nor should it care about, earnings. The market cares about liquidity, and the Fed is making certain that there are ample supplies of that lying about”.
Gartman turned bearish the US dollar earlier in the week, again despite many a commentator issuing positive if not plain bullish predictions on the greenback via financial and mainstream media over the past days and weeks. On Friday he backed up this view by turning positive on gold again. Gartman has re-entered the gold market with a long position, arguing the metal appears to have found a solid base and renewed weakness for the US dollar will simply do the rest. FNArena noticed other market watchers and technical chartists equally issuing positive reports and commentaries on the precious metal.
Main event on Friday was the release of the University of Michigan’s preliminary index of consumer sentiment revealing US consumer confidence had dropped to the weakest level since Jimmy Carter was president. For those too young to remember (or too old, for that matter) that was 28 years ago. The index dropped to 59.5 in May, compared with an average reading of 85.6 in 2007. The market was expecting a number in the vicinity of 62.
Add crude oil at US$127 per barrel and it is clear why the market’s worries about prospects for US consumer spending rose once again to the surface. Retailers and banks took the rest of the market down sharply, but gradually the market zoomed in on energy and resources companies instead and by the closing bell only marginal losses for the main indices remained.
All in all, eight stocks dropped for every seven that rose on the New York Stock Exchange on the final day of the week. The S&P 500 even managed to end the day 1.78 point in the positive at 1,425.35. Probably of more importance is that this means the index has managed to extend its weekly climb to 2.7%. The Dow Jones Industrial Average ended with a loss of 5.86 points at 12,986.8. The Nasdaq Composite Index lost 4.88 points and closed at 2,528.85.
The slide in financial stocks was further assisted by the fact that analysts at Merrill Lynch issued a few downgrades for some smaller members of the sector. Homebuilders and everything related to the sector had another off-day as well following an announcement by the Commerce Department that construction of US single-family houses in April dropped to the lowest level in 17 years. Builders broke ground on 692,000 single-family homes at an annual rate, the fewest since January 1991 (marking another one of those multi-year lows we’re getting quite accustomed to read about).
Oil reached new highs with Goldman Sachs reportedly increasing the forecast for this year to US$144 per barrel, and this, plus weakness in the US dollar, provided gold with a welcome boost. Base metals had a positive session as well. The result, as stated above, was a positive session for energy and resources stocks which largely offset weakness elsewhere in the market.
The end result was for minor losses at the closing bell, and for US indices still staring at 200 day moving averages in front of them. That’ll be the battle for the coming week.
Greg Peel is currently on television (Business View 9-10am on Sky Business). He’ll resume writing the overnight report on Tuesday.