A few thoughts for tonight...
March 29, 1998
Last week, the Dow Jones Industrial Average was down 110.35 points to
8796.08 (-1.24%), the Nasdaq Composite was up 34.46 points to 1823.62 (+1.93%), the S&P 500 was down 3.72 at 1095.44 (-0.34%) and the Russell 2000 index of small cap stocks was up 2.90 to 477.15 (+0.61%).
A nine-week winning streak for the Dow came to an end last week.
The coming week will prove to be quite enlightening.
For starters, the FOMC meets on Tuesday to decide on whether to raise or lower or just leave interest rates alone. Some of the newswire stories throughout the week were hinting that maybe a rate hike could be in store.
However, such a move would send this highly valued market, that is depending on a low interest rate and non-inflationary environment, into a tailspin.
So maybe the status quo will be the outcome.
And speaking of inflationary.
Has anyone noticed the move in gold stocks over the past few weeks? Many are up 15 and 20 percent. The XAU index appears to have quietly broken out to the upside. There really hasn't been much ado about the movement of these stocks. The Commodity Research Bureau's (CRB) index has also crept upwards in the past few weeks..and oil appears to have bottomed out.
Looking at some of the preliminary news stories from Vienna over the
weekend, it seems that the production cuts have already started for some of the oil producers. It may turn out to be another good day for the oil service and the oil stocks tomorrow. Are these signs that inflation is creeping upon this economy.maybe and maybe not. Time will tell.
A little more bad news.
The consensus estimate on the Dow 30 stocks has moved down again over the past week. It now stands at $455.36 for the calendar year 1998. This puts the Dow at a p/e of 19.31.high but it has been there before.
Another disturbing indicator is the percent bulls of the latest Investors Intelligence Sentiment Index (3/25/98). It now stands at 49.6%. This is the highest reading in over one year..(maybe more than one year, I only have the data going back to last winter). Last October, it peaked at 48.8%.
Having written all of the above.some of the indicators mentioned over and over again in this newsletter are still saying, "things are ok".although not as strongly as they were just a few weeks ago. The new lows on the NYSE are still below 40 on a daily basis, although the 20's are more occasional lately. Even on the Nasdaq, the new lows are relatively low in number. The new highs on the other hand have contracted a bit..although during the beginning of the week they were in the low 300's. The cumulative breath on the NYSE is in its all time high range although this past week it flattened out a bit.
And on the Contrarian Side..
The put/call ration on the Dow index options on the CBOE for the month of April is 2.6..As a matter of fact, only the April 90 strike has more open calls than puts.why??(here's my guess)
Last weekend, most of the financial media assumed that Dow 9000 was only a matter of a few days away. Well, it wasn't. Many placed their bets on Monday and Tuesday, only to be rudely awakened during the rest of the week.
I also calculated the put/call ratio on the April S&P 500 (SPX) index
options with the three closest strike prices. It is at 1.214. The put/call ratio is usually used as a short-term contrarian indicator.that is, it seems that another upward thrust is in store.the question is, does it only come after the FOMC meeting?
And its time to bring the CBOE Volatility Index (VIX) back to the spotlight.
This past week it moved up sharply into the mid twenties. It implies that things are getting a little choppier (as the end of the week demonstrated).
It is worth keeping an eye on this index. A continuation of the sharp
upward movement would be quite troublesome. At the beginning of last
August, the VIX had a sharp upward move in a matter of a week and then
stayed there over the next 4 weeks as the market was putting in a top. Is the same happening now??? This bears watching.
It is obvious that the newsletter has turned a bit more cautious over the past few weeks. I am certainly not as comfortable as I was in the middle of January, when many indicators were pointing up strongly. About a month ago, the newsletter stated that the best case scenario for this market would be a slow gradual rise to 9200 or so by the end of the year.the market hasn't given us that.
The alternative was a big thrust up and some indigestion to follow. We've gotten some thrust.Is there more to come.some indications say yes but others are saying hold on.
We are at an interesting period also. IRA money will be drying up in the coming weeks. First quarter reports are going to start in the coming weeks also. We already know that some of the tech heavyweights are going to disappoint. Are their customers also going to disappoint? Probably.
Microsoft announced "good" news about their earnings this past week, but they also said that this should be the peak for the year.
Stay tuned...
That's it for this week.
By the way, I'm still up on the oil service stocks...some
favorites are MAVK, ESV, RIG and GLM.
Paulo
www3.edgenet.net. |
