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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Mao II who wrote (11300)	4/17/1999 9:49:00 AM
From: HairBall	Read Replies (3) \| Respond to of 99985

Mao II: What do you make of the cross the board rise in basic materials and energy? It'snot just oil, you know. In a post several weeks ago, I pointed out that I expected funds to begin to rotate out of the large cap issues, hi-tech and “internuts” that have shouldered the dramatic rise of the NDX/COMPX, DJI/NYA, DOT and a few other Indices off the Oct 98 low. I expected funds to rotate out of the previously in favor large caps, hi-tech and “internuts”, into previously out of favor large caps, some medium and small caps, commodity/energy based issues and vehicles of safety such as T-Bonds. I expected that some of the high flying Indices would show the fund withdrawal initially. (IE: NDX/COMPX/DOT) However, in the Dow 30 funds are rotating into some of the components that had been less in favor. This has boosted the Dow 30 even though I believe funds have begun to rotate out of the previously more in favor issues. If this continues, as I suspect it will, eventually the TRAN will note the rise of the XOI. The rotational buoying effect on the Dow 30 will be over come by rotation out of the previous high flyers of that Indice and a continued rotation to safer ground could take its toll. Was the overall Market top (at least medium-term) staggered in last week as I have suspected since last January or am I early or wrong? As we often say on this thread which is oh so appropriate...time will tell...<g> Regards, LG Disclaimer: My posts are my opinions only and I reserve the right to be wrong on occasion. Do not base any investment decision solely on anyone's views or analysis. Do your own research and take responsibility for your own investment decisions.

To: Mao II who wrote (11300)	4/17/1999 1:18:00 PM
From: Chip Anderson	Read Replies (3) \| Respond to of 99985

What do you make of the cross the board rise in basic materials and energy? It's not just oil, you know. Great point. Keep in mind that the sector indices I chart reflect the price of the stocks for companies in those areas, not the underlying commodity prices. Additional factors such as the "Jump on the Bandwagon" Effect can skew these indices. That said, let's look at the actual underlying commodity prices and examine that "across the board rise" you mentioned. Start with the two "All Markets" Charts on coolhistory.com and look at the red CRB Index line, which reflects overall commodity prices and thus is a leading indicator of inflation. While it has risen slightly since the beginning of March, it has been flat for the past 30 days (+1%) and moved sideways last week. That must mean that commodity prices (and therefore inflation) is under control, right? NOT NECESSARILY! <<shudder>> The CRB Index is more heavily weighted towards agricultural commodities (62% weighting) and may not be reflecting the rise in non-food markets (38% weighting). Now check out stockcharts.com which charts the relative performance of the Goldman Sachs Commodity Indices and the CRB for the past month. The GS Energy Index (black) is up almost 20% for the month, yet the CRB Index (red) is up only 1%. The reason for that is found in the GS Agriculture Index (green) which is down 3.5% this month. Commodity Grain prices makes up 28.6% of the CRB index compared with only 9.5% for Energy. BTW: Industrial Materials (blue) are up 10% for the month but make up only 14.3% of the CRB index. BTW2: Livestock is brown, Precious Metals is yellow. So this must be a temporary thing that has only been going on for the past month or so, right? NOT NECESSARILY! <<shudder, shudder>> Check out stockcharts.com for a 12-month perspective. Falling grain prices have kept the CRB artificially low for quite some time now. All of the other commodities are more than 5% above the CRB for the past 12 months. Bottom line: Important commodity prices ARE rising BUT the most widely followed commodity price indicator is NOT reflecting that trend yet. What will happen when the market figures this out? Lord help us if Alan Greenspan is the first one to point this out to "the wise." Chip coolhistory.com