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Issue No. 42 – September 5, 2005 Prescott, Arizona Systems@WiserTrader.com
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1.0 Trading
Large scale construction should flourish from the disaster on the Gulf coast.
1.1 Nature’s Sell Signal
Our hearts go out to those in distress on the southern coasts. A dozen or so subscribers seem to have been affected based on the unusually high number of undeliverable emails this past week. I hope that all affected will come out of it well.
Nature just presented the city of New Orleans with a strong sell signal. For the first time in memory a major US city was evacuated. This is entirely different from other natural disasters. Normally the government sends food and water, nurtures the injured, recovers the dead, cleans up and rebuilds. On rare occasions rebuilding is restricted to certain areas but always with future safety in mind. In this case nature said that nowhere in the city is safe from her, including pockets of dry land that are isolated from the outside.
The first impulse is to bring things back to normal by reclaiming the city from the sea. But there is something questionable about the long term economic and cultural viability of a city resting on the status quo several feet below sea level in a hurricane corridor between an ocean, an untamable river and a large lake. The cost of allowing the sea to permanently claim the area would be high as an environmental cleanup will be needed in any case. An incalculable investment in lives, culture, family institutions, industry and infrastructure is tied up with the city. To successfully reclaim the city there is much to be learned from the Dutch who have replaced earthen dikes with reinforced concrete structures, flood control gates and highly sophisticated warning systems. They view these as part of the cost of living there.
It is doubtful if one could ever separate the economics of surrendering such a city to the sea from the emotional investment in its human hopes and activities. As traders we are more fortunate to be able to easily weigh the importance of emotions and economics. In trading we are forced to recognize that emotions must be given no weight at all.
© 2005 Desert Mountain Systems, LLC. Members of wisertrader.com are neither licensed brokers nor licensed advisors. Trades discussed represent recommendations made by the editor for the wisertrader.com portfolio. The newsletter and web site are for information only and should not be considered as personal advice. While it is believed that the posted information is factual, mistakes can be made in transcription. Investors should trade stocks only after verifying all information and consulting with a licensed broker or adviser. Desert Mountain Systems markets third party trading systems but has no other affiliation with trading system companies.
2.0 Market Analysis
Major indices continue their alternating up and down movement on successive days with net sideways movement. September is historically the worst month of the year. Yet before the disaster along the southern coast, some analysts expected a short term bounce to begin after Labor Day. It isn’t clear whether the net upward movement in the major averages this week after the hurricane was a corroboration of that opinion or something different entirely. The rise in energy prices and associated stocks did much to move the major averages. Anticipation of electrical, drilling, pipeline and transportation infrastructure rebuilding affected others. Overall, investors are primed for a fourth quarter rally.
Figure 1 compares index tracking stocks for the major averages with Sector SPDR’s.
.
FIGURE 1
Market sentiment is shown in Table 2A.
Table 2A
VTO Market Sentiment Indicators
|
Sentiment Indicator |
Current |
Last Week |
2 Weeks Ago |
Complacent |
Cautious |
|
VIX ** |
13.57 |
13.72 |
13.42 |
< 20 |
> 50 |
|
VXN *** |
15.67 |
15.37 |
16.16 |
< 30 |
> 70 |
|
Put/Call Ratio |
0.612 |
0.814 |
0.576 |
< 0.6 |
> 0.7 |
|
%Bulls - %Bears |
23.8% |
31.9% |
34.8% |
> 29% |
< 20% |
|
** Above 20 day SMA = Sell signal. *** Above 20 day SMA = Sell signal. |
|||||
Figure 2 compares index tracking stocks with five leading ETF’s for the week.
FIGURE 2
In Table 2B, the broader market edged upward for the week. Key industry ETF’s in Table 2B are Biotech and Semiconductors which confirm the NASDAQ. Transportation confirms the Dow Jones Industrial Average according to Dow Theory. Banking and Financials are confirming indicators for the S&P 500. Gold and Real Estate are respective indicators for the inverse health of the currency and consumer spending.
Table 2B
Index Tracking Stocks, Key Industry ETF’s and Sector SPDR’s
|
|
1 month |
1 wk ago |
2 wks ago |
3 wks ago |
4 wks ago |
|
SPY (S&P 500) |
-2.4% |
-1.4% |
-0.5% |
0.1% |
-0.7% |
|
DIA (DOW) |
-2.6% |
-1.7% |
-0.3% |
0.3% |
-0.9% |
|
QQQQ (NASDAQ 100) |
-2.8% |
-0.9% |
-1.0% |
-0.7% |
-0.3% |
|
IWM (Russell 2000) |
-5.0% |
-0.9% |
-0.6% |
-0.7% |
-2.8% |
|
GLD, GOLD |
1.8% |
0.0% |
-2.0% |
2.0% |
1.8% |
|
RKH, Banking |
-2.9% |
-2.4% |
0.6% |
0.2% |
-1.3% |
|
IYT, Transportation |
-3.2% |
-1.1% |
-0.9% |
0.5% |
-1.8% |
|
SMH, Semiconductors |
-2.9% |
0.1% |
-0.3% |
-1.5% |
-1.2% |
|
BBH, Biotechnology |
-1.2% |
-0.3% |
-0.3% |
-0.3% |
-0.3% |
|
IYR, Real Estate |
-5.9% |
0.4% |
-0.8% |
-0.9% |
-4.7% |
|
OIH, Oil |
-0.2% |
-0.1% |
-3.5% |
1.2% |
2.3% |
|
XLE, Energy |
0.8% |
-0.4% |
-4.0% |
3.7% |
1.7% |
|
XLU, Utilities |
-0.4% |
1.6% |
-0.3% |
-0.5% |
-1.1% |
|
XLB, Materials |
-4.8% |
-3.0% |
-2.7% |
1.0% |
-0.2% |
|
XLI, Industrial |
-2.9% |
-1.4% |
-0.7% |
0.8% |
-1.6% |
|
XLK, Technology |
-2.1% |
-0.8% |
-0.1% |
-1.7% |
0.5% |
|
XLV, Healthcare |
-2.2% |
-1.2% |
-1.1% |
0.6% |
-0.6% |
|
XLF, Financials |
-2.6% |
-2.1% |
0.1% |
0.2% |
-1.0% |
|
XLP, Consumer Staples |
-2.3% |
-1.0% |
0.4% |
-0.3% |
-1.4% |
|
XLY, Consumer Discretionary |
-3.4% |
-1.2% |
-1.7% |
1.0% |
-1.5% |