Don't Trust the New Rally Until You See This Signal
By Tom Dyson
Monday, July 27, 2009
The bull market is back on... almost.
The S&P 500, the most important stock index in the world, is racing to new highs. Two weeks ago, I was ready to proclaim the bear market rally "dead." Then the market whipsawed. It broke to new nine-month highs last week and is now closing in on the 1,000 milestone...
But wait... what about Russia?
To help me keep track of the major trends in the market, I maintain a list of 87 exchange-traded funds (ETFs). These ETFs represent every major stock sector, currency, commodity, and country index. I calculate the three-month performance of each ETF and then order them first to last. By analyzing this list, I can immediately tell which sectors the money's flowing into and which sectors it's leaving.
Russia represents everything stock-market bulls are in love with: Growth in third-world consumption, scarce commodities, global trade, and cheap labor.
Russia topped my ETF performance list from the moment the stock market started rallying in March... until it topped out in June. If Russian stocks aren't soaring, there's a problem.
Below is a chart of Russian stocks, as measured by the Market Vectors Russia ETF (RSX). They made new bull market highs in May, pulled back during June, and started rising again in July. Unlike the S&P 500, Russia has not made new highs.
As Jesse Livermore, the original and most famous trend trader used to say, "As the leaders go, so goes the entire market."
Besides Russia, financials, homebuilding, and Indian stocks led the recent market rally. All those charts look a lot like the one above.
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Until you see these sectors make new highs, you should remain skeptical of the current rally in the S&P… even though it's enticing.
When I see these sectors make new highs, I'll be ready to issue the "all clear." Until then, I recommend you keep your powder dry...
Good investing,
Tom |
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NEW HIGHS OF NOTE LAST WEEK
Inergy LP (NRGY)... pipelines
TC Pipelines LP (TCLP)... pipelines
Buckeye Partners (BPL)... pipelines
TEPPCO Partners LP (TPP).. pipelines
Sunoco Logistics Partners LP (SXL)... pipelines
Cerner (CERN)... health care IT
Hatteras Financial (HTS)... mortgage REIT
DynCorp (DCP)... military contractor
Baidu (BIDU)... Chinese search engine
China Life (LFC)... China's largest insurance company
China Housing & Land (CHLN)... Chinese real estate
Aluminum Corporation Of China (ACH)... aluminum
Starbucks (SBUX)... expensive coffee
P.F. Chang's (PFCB)... expensive Chinese food
Bed Bath & Beyond (BBBY)... expensive furnishings
AmeriGas Partners LP (APU)... propane distribution
P.T. Telekomunikasi (TLK)... Indonesian telecom
NEW LOWS OF NOTE LAST WEEK
Central Pacific (CPF)... bank
S&T Bancorp (STBA)... bank
Popular (BPOP)... bank
First Merchants (FRME)... bank
UCBH Holdings (UCBH)... bank
First Busey (BUSE)... bank
Susquehanna (SUSQ)... bank
KeyCorp (KEY)... bank
Green Bankshares (GRNB)... bank
Pinnacle Financial (PNFP)... bank |
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Fannie Mae and Freddie Mac, the government-sponsored mortgage finance firms, have already received a total of more than $85 billion as part of the Federal bailout program.
But it seems that's not enough, by half. Estimates now forecast the two giants will need about $200 billion total before they can stand on their own two financial feet again.
"We're assuming they each will cross the $100 billion mark fairly soon," Bose George, a mortgage analyst at Keefe, Bruyette & Woods, told CNN.
That figure is pathetically under the $25 billion the Congressional Budget Office forecast last year that Fannie and Freddie would need to regain solvency.
When the CBO made that prediction in July, 2008, it said there was only a 5 percent chance that Fannie and Freddie would ultimately need $100 billion combined, according to CNN.
– Newsmax
Forget sizzling China or bubbling Brazil. The world’s best performing stock market this year, with bulls even more rampant than machos on an alpaca farm, is Peru’s. Lima's general index has more than doubled; Shanghai has risen by "only" 85 per cent.
The boom is due to the resource companies that dominate the local market; Peru is the world’s third largest copper, zinc and tin producer, the largest silver miner and fifth biggest gold producer.
Liquidity is tight, but recently launched exchange-traded funds provide a painless way for foreign investors to join the Independence Day celebrations on Tuesday.
–Financial Times
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