Russell 6/7
June 7, 2002 -- I guess we can start with some news. Confirmed -- the broad M-3 money supply was up $27.7 billion for the latest week. Recent M-3 is growing at an annualized rate of 13% . Geenspan becoming frantic? The Fed panicking? It sure looks like it.
But is the money being used? Evidently not. In the first quarter business debt grew at an 1.8% annual rate. This was the slowest pace since late-1993, the Fed said. Commercial paper and bank loans shrank. However, household debt grew at a 9% rate vs. 8.3% in the fourth quarter.
So what we see is corporations backing off on taking on debt while consumer continue to borrow their heads off.
Market Comments -- If stocks close down today this will be ten declining weeks out of the last twelve. It's a bear market, ya know. But it's also an oversold market.
For the year so far (as of yesterday) the Dow was down 3.9%, the S&P was down 10.36%, the Nasdaq was down 20.28%. For America's mutual fund holders, note that Investor's Business Daily's Mutual Fund Index was down 14.0%.
From my perspective, the remarkable fact about this bear market decline is that it has, so far, it's failed to generate panic conditions.
On March 19 the Dow was at 10635. Since then the Dow has fallen below 10,000, it has broken below the 50% Principle level of 9978, and on June 3 the Dow broke below is 200-day moving average (98707). Today the Dow is in the 9480 area -- down 1150 points since mid-March.
And the amazing part of it -- evidently investors are still hopeful. They may no longer be outright bullish, but they remain hopeful. The just don't seem to be taking this bear market seriously.
So I'll say it again -- I don't think that Wall Street's analysts or the stock-buying public understand what it means when the primary trend of the market turns down. They just don't understand. Sure, it's been a generation since the last bear market. Sure we've had 22 years of rising stock prices. Maybe it's just been too long since the last bear market. Maybe the Wall Street propaganda machine along with CNBC and perma-bull Lou Rukeyser have addled people's minds.
But from everything I've seen, people just don't understand what it means when the greatest bull market in history tops out and a primary bear market takes over. Maybe it's too frightening to comprehend. I dunno.
What we have to realize is that in a primary bear market one of the processes is that price/earnings ratios head down. If price/earnings ratios, which are high today, head down, and two or three or five years from now P/E ratios are 10 or 8 or 6, I don't care how well your favorite stocks is doing, that stock is going to be hurt by declining P/E ratios.
I've done my best ever since September 23, 1999 -- that was the date of the Dow Theory bear signal -- to warn my subscribers that "it's over -- fun's over. A bear market is here. It's time to protect ourselves and prepare for the ravages of the bear."
A good motto for this bear market (post it over your desk). DON'T GO FOR GROWTH -- GO FOR INCOME AND THE SAFER THE INCOME, THE BETTER!
Short-term -- The short-term is always more difficult than the long-term. The market has been down 10 out of the last 12 weeks, which marks it as oversold. Yesterday the McClellan Oscillator was at minus 138, oversold.
This is important. On May 10 the Transportation Average recorded a closing low of 2643.10. Although the Dow has plunged well below its own May 10 closing low of 9939.92, the Transports have NOT confirmed. This is the strongest plus in the price structure, and it could be signaling a forthcoming rally.
So watch that 2643.10 level on the Transports. If it continues to hold, it could signal a temporary low and a rally to come.
If I had to guess, I'd guess that somewhere along the line we ARE going to see panic conditions, and that means one, or more probably a series, of 90% down-days as defined by Lowry's.
TODAY'S MARKET ACTION -- A standoff with the PTI unchanged at 5278 and the moving average at 5310.
Dow opened down over a 100 points, and it spent the rest of the day trying to rally. But the Dow never could get to the plus side, which I consider bearish action. Dow closed down 34.97 at 9589.67.
There was one mover, INTC down 5 .00 to 22.00. Hey Dow Jones, aren't you glad you added INTC and MSFT to the Industrial Average back in 1995? Yeah, right.
July crude down .04 to 24.75. Lumber down 630 points today. Lumber has definitely topped out.
Transports NOT confirming the Dow on the downside, Transports were up 25.99 to 2686.66.
Utilities were up .23 to 272.80.
There were 1793 advances and 1367 declines.
There were 43 new highs and 131 new lows, most lows for the year.
Total volume on the NYSE was 1.81 Billion shares.
S&P was down 1.62 to 1027.57, new low for the move.
Nasdaq was down 19.40 ti 1535,48 on a large 2.09 billion shares and at a new low for the move.
My Big Money Breadth Index was up 2 to 789.
June Dollar Index was up .232 to 111.10. June euro was down .21 to 94.32. June yen was down .12 to 80.39.
Bonds were weak -- Sept. 30 year T-bond was down 19 ticks to 100.24 to yield 5.65%. Sept. 10 year T-note was down 10 ticks to 105.09 to yield 5.06%. Sept. muni futures were down 12 ticks to 102.30.
August gold was down .40 to 325.40. July silver was down 1 to 4.98. July platinum was down a dime to 563.60. Sept. palladium was down 1.60 to 351.40.
XAU was down 4.90 to 78.83. The 50-day MA was 76.86. NEM down 2.30, AU down 2.36, AEM down .96, ABX down .93, PDG down .39, HL down .32. The stocks correcting while gold holds quite well -- at least so far. Market trying to get rid of the joy-riders; only the serious will stay.
BGO closed at 1.28, CBJ at 1.45, DROOY at 4.95, HGMCY at 14.55, KGC at 2.57, GG at 10.46, GLG at 8.97, GFI at 12.53, GSRSF at 1.92, MDG at 17.88, ECO at 1.20.
STOCKS -- When they hit individual stocks, they just kill 'em as per INTC and LGND today. My Most Active Index was down 5 today to a new bear market low of 364. We had to paste another sheet of chart paper on the bottom of the Most Active Index chart today. When that happens, you know it's a bear market.
Today's 15 most active, better known as "where the action is" -- TYC down 4 .50 to 10.10, LU down .24, GE up .90, AOL up .05, NOK down .72, DC down 1.00, AGR'B down .05, T down .35, PCS down .54, TXN down 1.30, WMB down .23, EMC up .05, BMY up .88, DUK down .68, HPQ up .34.
Others -- GM up.14, DCX down .85, CSCO up .27, MSFT up .08, ORCL up .21, MRK down .52, WMT up; .33, COST up .04, TGT down .17, IBM down 1.36, TXU up .57, ETR up .44, JNJ down .44, EBAY up 1.81, AMZN up .41, AA down .37, DIS down .05, DD up .74, MMM up .89, DELL down .19, KBH down .94.
McClellan Oscillator closed negative at minus 94.
CONCLUSION -- The good part was that the Transports are not confirming the weaker Dow. The bad part is that the Dow could not end the day in positive territory -- also that new lows expanded to a high for the year.
I call this market "killing them softly." Stock after stock group after group gets killed. And still nobody seems to be frightened. This bear is sly, the bear is merciless.
All the pros are praying for a "final wipeout, a capitulation that will end this phase of the bear market." And we never get it. We just get erosion, erosion and more erosion.
Frankly, I'm amazed that this market doesn't "wash out" on the downside with say a series of 90% down days. But it never happens. The averages just slip lower and lower, with never the long-awaited "clean out" on the downside.
You know something, I think the bear is playing with us. I think he's having fun. I just saw a nature film and it shows a killer whale catching a seal. The killer whale didn't kill the seal. It swam with the seal to about a hundred yards off shore, and then let the seal go. The seal would dash off and the killer whale would catch it, throw it up in the air, and then let the poor seal dash off again. Again the killer whale would grab the seal and toss it. This continued for about twenty minutes until finally the killer whale mercifully killed the seal. That, I'm afraid, is what this market action reminds me of.
Will be here tomorrow with the weekly wrap-up.
And by the way, welcome to all my new subscribers.
Four of my five kids will be with me this weekend. Doesn't happen very often, so I'm preparing. Ryan just got back from seven months traveling through Central and South America. I'm trying to get Ryan to write a few pages about his adventures, and believe me, he did have adventures.
Adios for Friday --
Russell |
