EquiTrend Market Watch

Leaders also look bearish

John M. McClure — Mon, 13 Jul 2009 16:55:14 GMT

Live Easy With EquiTrend

Leaders also look bearish

Week Ending July 10, 2009
EquiTrend.com

Bearish head & shoulder patterns abound...
Leaders also look bearish
Are earnings finally showing signs of life?
Manufacturing and service sectors improve, trade gap narrows
Pollyannas caught on tape

INDEX	July10-09	July3-09	Change	Change%
INDU	8,146.52	8,280.74	-134.22	-1.62%
DJT	3,111.16	3,158.74	-47.58	-1.51%
SPX	879.13	896.42	-17.29	-1.93%
COMPX	1,756.03	1,796.52	-40.49	-2.25%
RUT	480.98	497.21	-16.23	-3.26%
EEM	30.92	31.92	-1.00	-3.13%

Last Week

INDEX	July3-09	June26-09	Change	Change%
INDU	8,280.74	8,438.39	-157.65	-1.87%
DJT	3,158.74	3,263.07	-104.33	-3.20%
SPX	896.42	918.90	-22.48	-2.45%
COMPX	1,796.52	1,838.22	-41.70	-2.27%
RUT	497.21	513.22	-16.01	-3.12%
EEM	31.92	32.32	-0.40	-1.24%

Quote of the week
"Everyone is trying to jump on that bandwagon. There are projects in emerging markets in which I can make more money than I can in the West at the moment." - Nicholas Field of Schroders Plc, London, manager of approximately $11 billion in emerging-market stocks (see article below - Emerging Market Take Record Share of World Equity).

Head & shoulders patterns abound...
The benefit of using technical analysis to make investing and trading decisions is that it removes emotion and the necessity to interpret reams of fundamental and economic data from the decision-making process. The downside of using a technical only approach is that it often provides only short-term insight. As a result, investor and traders with longer-term horizons should use both but as readers of this newsletter witness first-hand each week, the workload and time required to do this type of analysis can be greatly streamlined by relying on charts. Fundamental and technical charts quickly provide an overall snapshot of trends in both stock prices and in fundamentals like earnings and key economic indicators which is far more useful information than single data points.

Last week we were watching and waiting for a series of bearish head & shoulder patterns to either be confirmed or be invalidated on daily charts of such indexes as the Dow Jones Industrial Average, S&P500 Index, Dow Jones Transports Average, Russell 2000, New York Stock Exchange Average as well as a host of stocks. This week a number of those patterns were confirmed with a downside break of neckline support (see next chart).

Figure 1 - Dai1ly chart of the S&P500 Index showing phase one of the bearish head & shoulders top patterns which was confirmed with the breach of the purple neckline on Tuesday. As the circles in the volume subgraph show, volume at first increased on upside moves in the left shoulder and head but then bullish volume was absent when the right shoulder was formed. This shows bullish participation in the last rally waning. But to fully confirm this pattern, we should see increasing bearish volume (increasing volume on drops) especially if the neckline is retested in the coming days. This pattern has a minimum downside target of 820 based on the height of the head from the neckline. Chart courtesy of GenesisFT.com

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Next week will test this pattern. If we get a brief rally to neckline resistance and stocks again break down, the bearish head & shoulders pattern will be confirmed but volume is crucial. As the next chart shows, volume has been anemic bringing the validity of this pattern into question. Bears will want to see lower volume on rallies and higher volume on downside moves with volume moving above the 50-day average volume line (blue) on price drops.

Bulls will be looking for higher volume on rallies and a decisive upside break through neckline resistance in the coming days which will invalidate the pattern but this rally has to occur on rising volume or it could be another bullish ‘fakeout.'

Technically Speaking
Leaders looking bearish
In his Sunday July 5 newsletter, Dan Zanger's Sunday featured a number of charts showing bearish double top and head & shoulder patterns setting up. None were making new or even short-term highs and that has bearish implications for the market, especially now that a large number of these patterns have been confirmed with neckline breaks.

Q2-09 earnings reporting season began this week which will strongly influence index movement short-term but their longer-term impact will depend on how this earnings diary unfolds, especially for the larger universe of stocks.

Weekly volumes for the major indexes were better than last week thanks to a five-day week but remain below their 50-day volume moving averages. However, the fact that prices moved down on rising volume is bearish as it shows increasing selling, especially when indexes break major support, which has been happening on a number of major indexes last week and this.

Not surprisingly, the Market Volatility Index (VIX) ticked up again this week to close at 29.02 up from 27.85 last week and 25.93 the week before as more fear continued to creep into the market.

This week the CRB Index slipped again to 388.78 from 398.79 last week and 400.70 the previous week. But what is more bearish is that this index is that like stock index, the CRB also confirmed a bearish head & shoulders top pattern this week on the daily chart as the pattern's downward sloping neckline was broken after the index peaked at 430.04 June 1. A downward-sloping neckline makes the pattern even more bearish than a horizontal or upward sloping one. Since bottoming December 5, the CRB index is still up 21%.

Gold slipped again this week to $912.50/oz from $929.40 last week. Since surging to a high of $1001.10 February 20, the precious metal has made two serious attempts at the peak but has failed each time. Volume and open interest continue to look anemic and that is also bearish. Gold normally has a seasonal low in July and then rallies into year-end so there is still a chance for another rally and attempt at $1000/oz in the short-term.

Meanwhile, the U.S. Dollar Index hung on closing at 80.28 down slightly from 80.30 last week - strength thanks in a large part to the enthusiastic showing at Treasury auctions this week (see article below - Treasuries Rise as Refuge Demand Bolsters 10-Year Note Auction). A steadily weakening dollar is inflationary and generally bullish for commodities, interest rates and U.S. multinational corporations with a larger share of their revenues derived from overseas sales but bearish for stocks overall.

Crude oil futures also weakened again this week, dropping from $67.42/bbl last week to $60.71 this week due in large part to weak demand. July 11 marked the one-year anniversary of the all time high in crude futures of $147.90/bbl and crude is still down more than 50% from that high.

The Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, slipped again this week to 2985 down 18.7% from 3672 last week. Continued declines in this index is bearish for both oil and the economy. This bearishness is further highlighted by 19.2% tumble in railroad freight shipments from a year ago according to the Association of American Railroads. It is interesting to note that Canadian rail carload traffic was down 25.7% suggested in June compared to the year before indicating that economic weakness is converging on that of the U.S. (see article below - Buffett's Most-Watched Index Takes a Tumble.)

The U.S. bank prime rate and the Fed funds target rate held steady at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate slipped to 0.16% (from 0.20% last week). Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) continued to fall closing at 0.5050% (from 0.5775% last week) to another new 52-week low. This compares to LIBOR 52-week high of 4.81875% last October.

On the mortgage front, Freddie Mac mortgage rates slipped this week to 5.20% (from 5.32% last week) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) slipped to 4.82% (from 4.94% last week).

*LIBOR is the benchmark for $900 billion in subprime mortgage loans which typically adjust to it every six months. Corporations around the world have the interest rates on roughly $9 trillion in debt pegged to LIBOR and rates on more than $380 trillion in derivative interest rate swaps also are based on LIBOR. About 6 million U.S. mortgages, including the vast majority of subprime home loans as well as 41% of prime ARMs are linked to LIBOR.

But are earnings beginning to show signs of life?
This week, earnings ticked up for the second time in three weeks. Earnings for the 8,011 US stocks of the VectorVest Composite Index (VVC) moved up to an average $0.16/share from $0.13/share last week pushing the average VVC-PE down to "just" 118.42. June 5, 2009 proved the all-time high water market for average PEs of 155.58 for the VVC Index with average earnings of just $0.13/share. Over the next three weeks earnings began to firm hitting $0.14 then $0.15. But that trend reversed last week as earnings retraced to $0.13/share pushing the average PE back up to nearly 150. However, earnings growth which tells us how fast earnings are appreciating remained stuck at just 1% this week, which is the lowest growth rate in at least 15 years suggesting that this increase could just be another temporary blip.

These highs compare to a previous peak PE of 60.51 in mid-May 2003 during the last recovery. But the difference is that during that period, earnings growth remained much healthier 8% and earnings had begun improving nearly a year prior after hitting a low of 3%. The next chart shows how the 50-week moving average (purple line) acted as support (green arrows) during the last rally and has acted as resistance (red arrows) since October 2007. Looking back to the price peaks in March 2000, average PEs were 32 and earnings growth was 11%.

Figure 2 - Chart showing weekly prices, average Price/Earnings ratios for 8,011 US stocks tracked by VectorVest showing the average PE for the broad range of publicly trading companies. Chart courtesy of VectorVest.com

Meanwhile average earnings for the 2,969 stocks in the Canadian Toronto Stock Exchange (TSX) tracked by VectorVest remained underwater at -$0.01. The good news is that is up from -$0.03/share last week but only back to where it was two weeks ago. Earnings for the nearly 3,000 stocks of the VectorVest Canadian Index (VVC/CA) peaked at an average $0.73 per share in September 2005 and have steadily fallen since. By the week of March 6, 2009 they had fallen to $0.16/share and on June 12 to -$0.02/share during a period in which the TSX exchange index rose more than 40%.

Economic Reports
Manufacturing and service sectors showing life and trade gap narrows
Jobs losses may still be plaguing the economy and average hours worked at all-time lows but there was another glimmer of hope this month with the release of the June Institute of Supply Management numbers. Last week we learned that ISM manufacturing moved up to 44.8 from 42.8 for the highest reading since August 2008. And this week we discovered that the ISM non-manufacturing (service) index a high of 47 in June from 44 in May for the strongest showing since last September. Both have been moving slowly but steadily higher since the ISM service hit a low in November and ISM manufacturing bottomed in December.

Other economic reports of note included the international trade deficit which hit $26 billion in May down from $29.2 billion in April for the smallest deficit since November 1999. The drop occurred due to a fall in imports (especially oil) and a 1.6% rise in exports.

Finally, for what its worth the Reuters/University of Michigan consumer sentiment index was 64.6 in July down from 70.8 in June after hitting a low of 55.3 in November.

Synopsis
Pollyannas caught on tape
Every once in a while we come across an article that is simply too good not to pass on to our subscribers. This one appeared on the Bullion Management Group website July 6 at (http://www.bmginc.ca/) and was written by the BMG Group's president Nick Barisheff. His message is quite clear - listen to those who are "talking their books" at your peril. This is also important in light of all the "green shoots" comments from Ben Bernanke and other government and quasi government economic spin doctors who would have you believe that the worst is over yet again. We have another name for such individuals - Perennial Pollyannas - those who have open or in some cases hidden agendas in shamelessly waxing optimistic ...

Pompous Prognosticators 2004 - 2009
The experts go into denial as the credit crisis unfolds
By Nick Barisheff

In 2001, Colin Seymour published an article entitled 1927-1933 Chart of Pompous Prognosticators. In it, he documented the many Depression-era assurances given by politicians, economists, financial experts and the media to the public, protesting that everything was fine and there was nothing to worry about. Meanwhile, the stock market would decline by 92%, the US dollar would be devalued by 40%, real estate would drop 30% and unemployment would soar to 25%.

Today, we have a similar situation. Politicians, economists and the media are assuring the public that everything is fine. But governments around the world are frantically borrowing trillions of dollars to fund bailout and stimulus plans, the stock markets have lost over 40% of their value, real estate over 50%, and unemployment is approaching 10% in most major countries.

2004

1. "The ability of lending institutions to manage the risks associated with mortgages that have high loan-to-value ratios seems to have improved markedly over the past decade."
- Alan Greenspan [February 2004]

2005

2. "Home sales are coming down from the mountain peak, but they will level out at a high plateau, a plateau that is higher than previous peaks in the housing cycle."
- David Lereah, Chief Economist, National Association of Realtors [December 2005]

2006

3. "I don't know, but I think the worst of this may well be over."
- Alan Greenspan, [October 2006]
2007

4. "The fallout in subprime mortgages is "going to be painful to some lenders, but it is largely contained."
- Treasury Secretary Henry Paulson [March, 2007]

5. "The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained."
- Ben Bernanke [March 28, 2007]

6. "This is far and away the strongest global economy I've seen in my business lifetime."
- Treasury Secretary Henry Paulson [July 12th, 2007]

7. "In today's environment, it is virtually impossible to violate rules."
- Bernie Madoff [November 2007]

2008

8. "Over the next few months, existing-home sales are expected to hold fairly steady as indicated by pending sales activity, then rise later in the year and continue to improve in 2009."
- National Association of Realtors [January 2008]

9. "Although recent data suggest that the probability of a recession in 2008 has increased, CBO does not expect the slowdown in economic growth to be large enough to register as a recession."
- US Congressional Budget Office [January 2008]

10. "I don't think we're headed to a recession."
- President George W. Bush [February 2008]

11. "I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system."
- Ben Bernanke [February 28, 2008]

12. "No! No! No! Bear Stearns is not in trouble."
-Jim Cramer, CNBC commentator [March 2008]

13. "The worst is likely to be behind us."
- Henry Paulson [May 2008]

14. "Despite a recent spike in the nation's unemployment rate, the danger that the economy has fallen into a "substantial downturn" appears to have waned,"
- Ben Bernanke [June 9, 2008]

15. "Fannie Mae and Freddie Mac are fundamentally sound. They're not in danger of going under.... I think they are in good shape going forward."
- Barney Frank, chairman of the House Financial Services Committee [July 2008]

16. "We have no plans to insert money into either of those two institutions." (Fannie Mae and Freddie Mac)
- Henry Paulson, [August 10, 2008]

17. "My own belief is if we were going to have some sort of big crash or recession, we probably would have had it by now."
- Canadian Prime Minister Stephen Harper [September 2008]

18. "We're probably somewhere pretty close to a bottom."
- Fund manager Barton Biggs [September 2008]

19. "The fundamentals of our economy are strong."
- US Senator John McCain [Sept 15, 2008]

20. "We remain committed to examining all strategic alternatives to maximize shareholder value."
- Lehman Bros. CEO Dick Fuld, shortly before Lehman went bankrupt [Sept 2008]
2009

21. "It's a huge bull market rally."
- Jim Cramer, CNBC [June 2009]

Just as Seymour's Pompous Prognostications proved devastating for those investors who remained complacent due to those false assurances, today's investors would be wise to educate themselves on the real risks and vulnerabilities they face today. In order to preserve their wealth over the coming years, investors need to make wise, informed decisions, stop being complacent, and avoid following the false assurances of politicians and financial experts. With countless risks and vulnerabilities facing the world, the next 20 years will not be the same as the last 20 years.

On the lighter side...

BULL MARKET - A random market movement causing an investor to mistake himself for a financial genius.

BEAR MARKET - A 6 to 36 month period (and hopefully not more) when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.

Stories of interest this week...

Pompous Prognosticators 2004 - 2009
http://www.bmginc.ca/document/586

More Pompous Pumping? Economists Raise U.S. Outlook as Recession Fades
http://www.bloomberg.com/apps/news?pid=20601109&sid=a52y8O9Do928

Pessimist or Realist? Lost ‘Animal Spirits' Worsen Economy
http://www.bloomberg.com/apps/news?pid=20601109&sid=a7gQFFWFDpiM

A Goldman trading scandal?
http://www.reuters.com/article/etfNews/idUSN0522103020090705?sp=true

New Evidence on the Foreclosure Crisis - Zero down, not subprime loans the culprit
http://online.wsj.com/article/SB124657539489189043.html

Glut of $4.5 Trillion Will Haunt Obama's Dollar: William Pesek
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a4DbPqXwOrXU

Treasury's Distressed Debt Plan Said to Begin With $20 Billion
http://www.bloomberg.com/apps/news?pid=20601109&sid=aov4JRht6M4Y

Bonds Face Future-and Cower
http://online.wsj.com/article/SB10001424052970203872404574264052755259982.html

U.S. House May Include Surtax on Wealthy in Health-Care Package
http://www.bloomberg.com/apps/news?pid=20601070&sid=a3wUXb42NPX0

Apartment Vacancy at 22-Year High in U.S.
http://www.bloomberg.com/apps/news?pid=20601213&sid=aSospcz2XsYw

Treasuries Rise as Refuge Demand Bolsters 10-Year Note Auction
http://www.bloomberg.com/apps/news?pid=20601087&sid=auBp364ScE5k

Emerging Markets Take Record Share of World Equity
http://www.bloomberg.com/apps/news?pid=20601213&sid=agRV9LGzFdy4

U.S. Treasury Opens Distressed-Debt Program Without Pimco
http://www.bloomberg.com/apps/news?pid=20601087&sid=as5gharxTDc0

Obama's Jobless Safety Net Torn by Rebecca Alvarez
http://www.bloomberg.com/apps/news?pid=20601109&sid=a00_1SlKgIwo

Buffett's Most-Watched Index Takes a Tumble
http://www.aar.org/NewsAndEvents/PressReleases/2009/07_WTR/070209_Traffic.aspx?sc_lang=en

ISDA Hires Rosen to Fight Obama OTC Derivatives Plan
http://www.bloomberg.com/apps/news?pid=20601109&sid=aIoamD7AXYu8

FDIC Said to Withhold CIT Debt Guarantees Due to Risk
http://www.bloomberg.com/apps/news?pid=20601109&sid=asP1YqNM.d2g

GM Sleepy Hollow Nightmare Shows Peril for Factories
http://www.bloomberg.com/apps/news?pid=20601109&sid=aDVhQRnW3zHo

Working for your wealth,

John M. McClure, President & CEO
EquiTrend, Inc.

Trading in a very tight range

John M. McClure — Tue, 30 Jun 2009 16:23:29 GMT

Live Easy With EquiTrend

Trading in a very tight range

Week Ending June 26, 2009
EquiTrend.com

Stocks stuck in a trading range...
Leaders head down
PEs still showing ‘earnings-less' recovery
New home sales down, re-sales up and final GDP number in
Uptrend still alive but...
Elliott Wave SPX Perspective

INDEX	June26-09	June19-09	Change	Change%
INDU	8,438.39	8,539.73	-101.34	-1.19%
DJT	3,263.07	3,219.77	43.30	1.34%
SPX	918.90	921.23	-2.33	-0.25%
COMPX	1,838.22	1,827.47	10.75	0.59%
RUT	513.22	512.72	0.50	0.10%
EEM	32.32	31.75	0.57	1.80%

Last Week

INDEX	June19-09	June12-09	Change	Change%
INDU	8,539.73	8,799.26	-259.53	-2.95%
DJT	3,219.77	3,361.42	-141.65	-4.21%
SPX	921.23	946.21	-24.98	-2.64%
COMPX	1,827.47	1,858.80	-31.33	-1.69%
RUT	512.72	526.83	-14.11	-2.68%
EEM	31.75	33.74	-1.99	-5.90%

Quote of the week
"Stocks are the worst inflation hedge ever invented." - John Brynjolfson, CIO Armored Wolf in a Bloomberg interview this week.

Stocks stuck in a trading range...
Stocks ended basically flat on the week with some sectors higher, and some lower as the consolidation continued. On a daily basis, stocks are now oversold which is positive short-term but remain overbought on a weekly basis.

But are investors who are betting on higher prices being overly optimistic? As we said last week, the fundamentals and especially earnings are weak but both generally lag in a recovery. But at some point, both need to show steady improvement if a recovery is to grow legs.

Technically Speaking
Leaders head down
Of the six stocks in Dan Zanger's Sunday June 21 newsletter, only three, namely Celgene (CELG), Netflix (NFLX) and Blackstone Group (BX) were making any notable upside moves. The fact that these three stocks performed worse than most indexes this week is bearish. As Zanger commented in the opening paragraph, "most stocks are either breaking down or just chopping around making ownership or trading pretty much ineffective except for just a handful of stocks." He believes it will take new earnings reports due out in July to get them going again.

Figure 1 - Five-day performance of Zanger's last Sunday pix (green) compared to the S&P500 (SPX), the Dow Jones Industrial Average (DJX), Dow Transports (DTX), Nasdaq Composite (IXIC), Russell 2000 (RUT) and MSCI Emerging Market ETF (EEM). Data courtesy of The Zanger Report, performance chart courtesy of VectorVest.com.

About EquiTrend.com

EquiTrend.com is a stock market timing system developed to help investors easily achieve better investment performance than is possible through conventional buy-and-hold strategies.

CLICK HERE FOR SUBSCRIPTION INFORMATION

EquiTrend provides the tools to help you navigate this difficult bear market. If you need additional information there are three ways to contact us:

To submit questions, comments or feedback, email us at: feedback@equitrend.com. (This is the most preferred method)
Call us directly at (800) 731-5690. Remind our staff that you are an InvestorsInsight.com reader and mention code: insight1.
To have a Representative contact you, simply email us at: support@equitrend.com.

Weekly volumes for the major indexes moved up this week which is mildly bearish given that the Dow and S&P500 lost ground. A rally needs a steady supply of new bulls buying stocks to give it strength. Any increase in volume on falling prices shows bears coming to the party in growing numbers and the higher the volume, the more bearish it is. Summer has begun for traders and volumes are generally lower. This makes it easier to manipulate prices so caution is advised. This week the price of the S&P500 Index dropped below the 50 and 200 day moving averages but closed above both which is short-term bullish and means that technically, the rally is still alive.

Meanwhile, the Market Volatility Index (VIX) continued to fall closing at 25.93 down from 27.99 last week and 28.92 May 29. Fear continues to leak out of markets and while still higher than average, the fact that the VIX is falling is bullish.

This week the CRB Index slipped to 400.70 from 401.70 last week, down from 417.04 May 29. Since bottoming December 5, the CRB index is still up 25%.

After the surge in gold to a high of $1001.10/oz February 20, the precious metal firmed to $939.20/oz this week, up from $934.9 last week but well off $992 during the first week of June. Each time the metal has approached $1000 in the last 18 months, it has been rebuffed. Volume and open interest continue to look anemic and that is bearish. Gold normally has a seasonal low in July and then rallies into year-end.

Meanwhile, the US Dollar Index has continued to struggle since March, closing at 79.87 down from 80.35 last week. A steadily weakening dollar is inflationary and generally bullish for commodities, interest rates and U.S. multinational corporations with a larger share of their revenues derived from overseas sales but bearish for stocks overall (see Quote of the Week).

But although oil has continued to buck the commodity weakening trend, crude oil futures also weakened this week to close at $69.16/bbl down from $70.02 last week. Oil is still down more than 50% from its mid-summer 2008 high of $147.20 and the rapid drop has had a negative impact on supply which is bullish for prices.

The Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, reversed direction this week dropping 9% from last week to close at 3703. Continued strength in this index is bullish for oil and the economy.

The U.S. bank prime rate and the Fed funds target rate held steady at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate slipped to 0.19% (from 0.25% last week). Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) continued to fall closing at 0.5975% down from 0.61188% which is another new 52-week low. This compares to LIBOR 52-week high of 4.81875% last October.

On the mortgage front, Freddie Mac mortgage rates firmed again this week to 5.42% (up from 5.38% last week) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) slipped 4.93% (from 4.95% last week).

PEs still showing ‘earnings-less' recovery underway
On June 5, 2009 the average Price/Earnings ratio for the 8,011 US stocks of the VectorVest Composite Index (VVC) hit a new all-time high of 155.58 thanks to rising prices and falling earnings of $0.13/share. But then on June 12 a strange thing happened. Earnings moved up to $0.14. It was the first time earnings had risen since April 3 but that was to be a short-lived rise. On June 19 earnings rose again to $0.16 which is where they stayed this week. Was this the beginning of the much-hoped-for earnings recovery?

But on June 5 another thing happened. Earnings growth for the 8011 stocks in the VVV dropped from 2 to 1%, the lowest rate since VectorVest first began tracking earnings in 1995. Generally the first to move up, the earnings growth rate remains anemic. The VVC PE rose marginally to 131.68 from 131.21 last week.

At the beginning of the last recovery, April 11, 2003 marked the "golden cross" of the price of the VVC moving above its 40-week moving average (purple line) and the beginning of a 56-month bull market. VVC PEs peaked at 60.51 in mid-May 2003. As the rally was getting underway in March and April 2003, the earnings growth rate was a much healthier 8% and earnings had begun improving nearly a year prior after hitting a low of 3%.

Looking even further back to the lofty prices in March 2000, the PE although high was a much more benign 32 times and earnings growth was running at 11%.

Figure 2 - Chart showing weekly prices, average Price/Earnings ratios for 8011 US stocks tracked by VectorVest. As the chart shows, the average PE for the broad range of publicly trading companies is in uncharted territory and well above any previous rally or recovery high. Chart courtesy of VectorVest.com

Earnings for the 2,969 stocks in the Canadian Toronto Stock Exchange (TSX) tracked by VectorVest this week got better than last week (-$0.02) but remained negative at -$0.01. Earnings peaked at an average $0.73 per share in September 2005 and have steadily fallen since. By the week of March 6, 2009 they had fallen to $0.16/share and on June 12 to -$0.02/share during a period in which the TSX exchange index rose more than 40%.

Economic Reports
New home sales down, existing homes up and final Q1-09 GDP figures are in...
This week the Commerce Department provided its final revision to Q1-09 GDP at -5.5%, a slight improvement from the previous estimate of -5.7%. Year-over-year, GDP dropped 2.5%. Inflation was set at an annualized rate of 2.8%.

New home sales unexpectedly dropped 0.6% in May to an annualized rate of 342,000 which represents just 7.4% of all single family homes sold, the lowest percentage since data started being collected in 1968. Unsold inventories have dropped but remain stubbornly high at 10.25 months in May. May housing permits (at 518k) and starts (at 542k) remain well above sales; a situation that is not helping the builder's plight. Between 1990 and 2005, new home sales averaged 16% of all home sales according to Bloomberg. This means that builder's margins will continue to be pressured by the double whammy of falling existing home prices and mounting foreclosures. New home sales have fallen 33.5% year-over-year and are down 66.4% from a peak of 1.019 million in December 2006.

Meanwhile, existing homes sales rose 2.4% in May to 4.77 million (annually) while the unsold inventory slipped to a 9.6 month supply versus 10.1 months in April. The median price of an existing home also firmed to $173,000 although prices are down 17% year-over-year according to National Association of Realtor data.

After not having examined the University of Michigan consumer sentiment survey for a while, we took a look this week as the index hit 70.8, the highest reading since February 2008. But as we have said before, this is little more than a coincident indicator.

We learn on Tuesday if home prices as measured by the Case-Shiller housing price index are showing any improvement. This has been a more reliable metric of what was really happening with home prices.

Synopsis
We are currently in a technical trading territory - the fundamentals are weak and we are currently in a trading range. Stock prices have been so far driven by little more than hype and hope - hype by the government that the greatest series of bailouts in history will solve the crisis and hope by investors that earnings start improving soon to legitimize the recent rally.

Given that the S&P500 is back above both the 50 and 200-day moving averages means that the uptrend is technically still alive. However, it is probably not the time to be taking any sizable long or short trades until we get further confirmation one way or the other.

On the lighter side...

Ten ways you know the economy is getting tough.....

10. You can now buy a corporate jet on Craigs list.
9. The IRS starts offering airmiles rewards for tax payments.
8. You get a pre-declined credit card in the mail.
7. People in Beverly Hills fire their nannies and learn their children's names.
6. Hotwheels and Matchbox cars are worth more than U.S. car company stocks.
5. The most highly-paid job is jury duty.
4. Mothers in Africa tell their kids, "finish your plate; kids are starving in America."
3. The Mafia starts laying off judges.
2. You buy a toaster oven, they give you a bank.
And number one way you know the economy is getting tough....
1. When your check is returned for "insufficient funds" you need to call your bank to ask if they meant you or them.

Stories of interest this week...

Five Banks Are Seized, Raising U.S. Failures This Year to 45
http://www.bloomberg.com/apps/news?pid=20601087&sid=aCbHA.m7rikc

Dollar Falls Most in Month as China Urges New Reserve Currency
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQ.zWVPnOYYg

Bailout of U.S. Banks Gives British Rum a $2.7 Billion Benefit
http://www.bloomberg.com/apps/news?pid=20601109&sid=amp5wXx35fkc

California, Las Vegas Home Prices Decline on Foreclosure Sales
http://www.bloomberg.com/apps/news?pid=20601087&sid=ap29J9krkBY0

Fed Trims Emergency Lending Programs as Crisis Wanes
http://www.bloomberg.com/apps/news?pid=20601110&sid=acr1J5.mPdNw

Volcker Gets Less Than He Wants in Curbing Wall Street Excesses
http://www.bloomberg.com/apps/news?pid=20601109&sid=atBbIcvSgrFs

Building America With Obama Bonds Signals Munis' Fall
http://www.bloomberg.com/apps/news?pid=20601109&sid=aQqI3SKPm.t4

Japan Succumbs to Deflation as Consumer Prices Fall Record 1.1%
http://www.bloomberg.com/apps/news?pid=20601068&sid=aDflT6kiR9gs

New Zealand Economy Shrinks 1%, Extending Recession
http://www.bloomberg.com/apps/news?pid=20601068&sid=aGRMaqwDsOhA

John Brynjolfsson of Armored Wolf speaks on Treasuries and interest rates
http://www.allbusiness.com/economy-economic-indicators/public-debt-government-bonds/12362134-1.html

U.S. Savings Rate Jump, a Double-Edged Sword
http://www.bloomberg.com/apps/news?pid=20601109&sid=aome1_t5Z5y8

Working for your wealth,

John M. McClure, President & CEO
EquiTrend, Inc.

Rally on hold...

John M. McClure — Mon, 22 Jun 2009 16:56:54 GMT

Live Easy With EquiTrend

Rally on hold...

Week Ending June 19, 2009
EquiTrend.com

Rally on hold...
Leaders not heading higher
'Earnings-less' recovery continues
Builder optimism stutters, starts surge and Treasury sales fall
Wall of Worry climb takes a break or...?
Elliott Wave SPX Perspective

INDEX	June19-09	June12-09	Change	Change%
INDU	8,539.73	8,799.26	-259.53	-2.95%
DJT	3,219.77	3,361.42	-141.65	-4.21%
SPX	921.23	946.21	-24.98	-2.64%
COMPX	1,827.47	1,858.80	-31.33	-1.69%
RUT	512.72	526.83	-14.11	-2.68%
EEM	31.75	33.74	-1.99	-5.90%

Last Time

INDEX	May29-09	May22-09	Change	Change%
INDU	8,500.33	8,277.32	223.01	2.69%
DJT	3,202.45	3,005.79	196.66	6.54%
SPX	919.14	887.00	32.14	3.62%
COMPX	1,774.33	1,692.01	82.32	4.87%
RUT	501.58	477.62	23.96	5.02%
EEM	33.24	31.75	1.49	4.69%

Quote of the week
"The government played chicken with the bond market and it lost. If they were able to keep it up long enough, the housing market would heal and the rest on the economy could start its recovery. What has happened, however, is that the bond market called their bluff." - Randy Johnson, president Independence Mortgage Co., California.

Rally on hold...
Stocks took a break this week and volumes were noticeably lower as many traders began their summer vacations. But investors remain bullish and continue to ignore or at least discount bad news for the most part and that alone speaks volumes about this market.

But are investors being overly optimistic? After all the fundamentals are certainly nothing to write home about and earnings, as we will see, remain moribund.

Technically Speaking
Leaders not leading higher...
In his Sunday June 14 newsletter, Dan Zanger opined that a break below 920 for the S&P500 would suggest that the market was going to retrace some of this massive run up. That is exactly what happened this week. None of the stocks on his 11 stock watchlist were breaking to new highs, even over the short-term which is bearish.

Although weekly volumes for the major indexes were below average again this week, they were higher than last week and since this occurred on a drop in prices, is mildly bearish. A rally needs a steady supply of new bulls buying stocks to give it strength. Any increase in volume on falling prices shows bears coming to the party in growing numbers and the higher the volume, the more bearish it is. It is important to point out that summer has begun for traders and volumes are generally lower. Momentum has been falling and now the prices are down week-over-week for the first time in five weeks (SPX). But even with the drops this week, the S&P500 Index remains above both its 50 and 200 day moving averages so technically speaking, the up-trend is still in play.

Meanwhile, the Market Volatility Index (VIX) has continued to fall and this week it closed at 27.99 down slightly from 28.92 May 29. Fear continues to leak out of markets and while still higher than average, the fact that the VIX is falling is bullish.

Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index has almost steadily gained ground that is until this week when the index fell to 401.70 from 417.04 May 29. However, the ongoing stimulation in the form of cash from governments should continue to have a positive effect on commodities but when it doesn't any longer, look out below. Even with the drops this week and last, the CRB index is still up nearly 25% from its December 5 low.

After the surge in gold to a high of $1001.10/oz February 20, the precious metal slipped for the third week to close at $934.9/oz from $959.30 May 29 after which it peaked at $992 during the first week of June. A chart of gold reveals that each time the metal has approached $1000 in the last 18 months, it has been rebuffed. Volume and open interest continue to look anemic and that is bearish. Gold normally has a seasonal low in July and then rallies into year-end but there are factors at work, namely government generated inflation, that are more powerful this time around.

Meanwhile, the US Dollar Index has struggled since March, closing at 80.35 this week, which is no surprise given the fiscal irresponsibility world-wide with nearly $20 trillion being pumped into economies and more than $12 trillion in the US when all stimulus programs are added up. A steadily weakening dollar is bullish for commodities, interest rates and U.S. multinational corporations with a larger share of their revenues derived from overseas sales.

But oil has continued to buck the commodity weakening trend as crude oil futures held relatively firm at $70.02/bbl this week amid hopes for a stronger economy and a rallying Baltic Dry Index (see below). This is up from $66.31/bbl May 29. Oil is still down more than 50% from its mid-summer 2008 high of $147.20 and the rapid drop has had a negative impact on supply which is bullish for prices.

And speaking of the Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, it continued to surge since the end of May as the index jumped another 13.6% this week to close at 4070, up from 3494 May 29. This is bullish for both the economy and the price of oil and is further confirmation of growing inflationary pressure trickling into the economy.

The U.S. bank prime rate and the Fed funds target rate held steady at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate firmed to 0.25% (from 0.19% May 29).
Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) continued to fall closing at 0.61188% another new 52-week low and down from 0.65625% May 29. This compares to LIBOR 52-week high of 4.81875% last October.

About EquiTrend.com

EquiTrend.com is a stock market timing system developed to help investors easily achieve better investment performance than is possible through conventional buy-and-hold strategies.

CLICK HERE FOR SUBSCRIPTION INFORMATION

EquiTrend provides the tools to help you navigate this difficult bear market. If you need additional information there are three ways to contact us:

To submit questions, comments or feedback, email us at: feedback@equitrend.com. (This is the most preferred method)
Call us directly at (800) 731-5690. Remind our staff that you are an InvestorsInsight.com reader and mention code: insight1.
To have a Representative contact you, simply email us at: support@equitrend.com.

On the mortgage front, Freddie Mac mortgage rates firmed again this week to 5.38% (up from 4.91% May 29) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) firmed to 4.95% (up from 4.69% May 29).

‘Earnings-less' recovery continues
On May 29 the average Price/Earnings ratio for the 8,011 US stocks of the VectorVest Composite Index (VVC) hit another new all-time high of 151.45 thanks to rising prices but no increase in average earnings. That trend continued June 5 as PEs rose to another new high of 155.58 on rising prices but then prices began to drop and earnings for the broad range of companies showed their first signs of improvement rising from $0.13 to $0.15 per share. This pushed PEs down to an average 131.21. However, the rate of earnings growth (GRT in red) was cut in half from 2% to 1% this week as the ‘earnings-less' recovery continued.

At the beginning of the last recovery, April 11, 2003 marked the "golden cross" of the price of the VVC moving above its 40-week moving average and the beginning of a 56-month bull market. VVC PEs peaked at 60.51 in mid-May 2003. As the rally was getting underway in March and April 2003, earning growth (GRT in red) was a much healthier 8% and earnings growth had begun improving nearly a year before after hitting a low of 3%.

Looking even further back to the lofty prices in March 2000, we see the PE although high, was a much more benign 32 times and earnings growth was running at 11%.

Figure 1 - Chart showing prices, average PE and earnings growth (GRT) for 8011 US stocks tracked by VectorVest. As the chart shows, the average PE for the broad range of publicly trading companies is in uncharted territory and well above any previous rally or recovery high.

This week we also took a look at earnings for stocks of the Canadian Toronto Stock Exchange (TSX). VectorVest currently tracks 2,969 stocks on the TSX exchange which rose more than 40% from March 6 to June 12, 2009 thanks in large part to the commodity rally. Earnings peaked at an average $0.73 per share in September 2005 and have steadily fallen since. By the week of March 6, 2009 they had fallen to $0.16/share and on June 12 they were negative $0.02. In other words, Canadian stocks rallied 40% during a period in which earnings dropped more than 100%! When earnings get this bad, there is no point in looking at PEs - recently they went from +1000 to -1000 in the space of a week!

So are US and Canadian stocks overprices now? You can judge for yourselves but either we have entered a new paradigm in which earnings don't matter or the market is betting that earnings are about to take off like a thoroughbred on steroids. Clearly prices have gotten way ahead of themselves!

Economic Reports
Builder sentiment drops, permits and starts rise, sales of US Treasuries fall
The National Association of Home Builder's Index of builder sentiment fell 1 point in June to 15. The survey made up of three components scored as follows in June - present buying was unchanged at 14, traffic through show homes/projects was unchanged at 13 and the outlook for buying six months out fell from 27 to 26.

The financial media buzzed this week with news that housing starts jumped 17% to 518,000 in May. However, not widely reported was the fact that permits which generally lead starts were up only 4%. Year-over-year, permits are down 47% while starts are down 46%. Since peaking in January 2006 both permits and starts have fallen 77%. Has the housing market bottomed? At this point, it is far too early to know.

Monthly net Treasury international capital flows registered the third drop in four months as foreigners sold net $53.2 billion in April versus a net purchase (revised) of $25 billion in March. A further breakdown of the April number showed that net foreign private flows were negative $58.4 billion, and net foreign official flows were $5.2 billion. Monthly net TIC flows is the most comprehensive category contained in the monthly Treasury report and includes non-market flows, short-term securities and changes in banks' dollar holdings. Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $39.4 billion and foreigners sold $44.5 billion of Treasury bills in April.

Why is this important? With a looming deficit north of $2 trillion, the US Treasury will have to sell approximately $200 billion in government bonds per month just to pay the bills, a level that is far higher than currently levels of investment in US capital assets. Unless the Treasury is able to attract new levels of foreign investment, there will be growing upward pressure on interest rates and rising rates are bad for housing and nearly every aspect of economic growth.

We got some good news from the current account deficit as it dropped in Q1-09 to $101.5 billion versus $154.9 billion in Q4-08. But the improvement reflected a drop in domestic demand for imported products thanks to the recession. According to Bloomberg, the gap has narrowed to 2.9% of GDP, the lowest rate in 10 years.

Synopsis
The Wall of Worry climb has clearly taken a break but from a technical perspective, is too early to tell if it has come to an end or just taking a break. From a fundamental perspective, especially in relation to earnings, prices seem to have gotten way ahead of themselves but lofty PEs could also indicate the beginning of a longer-term rally. But without the anticipated growth in earnings, would indicate an overblown rally.

On the lighter side...
Trouble strikes in series of threes, but when working around the house the next job after a series of three is not the fourth job -- it's the start of a brand new series of three. Avery's Rule of Three

Stories of interest this week...

Obama Aid Signals Deal With ‘Devil' as Bankers Get New Rules
http://www.bloomberg.com/apps/news?pid=20601109&sid=a0yXeqHPvAIs

Obama Plan Gets Wary Reception From Banks, Lawmakers
http://www.bloomberg.com/apps/news?pid=20601070&sid=aatqQt9XStqc

Obama Mortgage Refinancing Program May Expand, Lockhart Says
http://www.bloomberg.com/apps/news?pid=20601087&sid=al5p85mlike0

Obama Seeks to Show Health-Care Revamp Is Affordable
http://www.bloomberg.com/apps/news?pid=20601070&sid=aUs84Y6nxdWw

Fed Unveils Lending Details After Lawmaker Pressure
http://www.bloomberg.com/apps/news?pid=20601087&sid=alOHWenWF5.o

‘Swine' Bankers Shun Jet Loans, Leave $36 Billion Gap
http://www.bloomberg.com/apps/news?pid=20601109&sid=a.cKKsHJnpOA

Rosy thoughts on U.S. economy clash with reality
http://www.reuters.com/article/ousiv/idUSTRE55I4AV20090619?sp=true

U.S. Home Prices May Fall for Years, Shiller Says
http://www.bloomberg.com/apps/news?pid=20601109&sid=a_YnClfaKdqs

U.S. homes recovery distressingly slow: Reuters/UMich
http://www.reuters.com/article/ousiv/idUSTRE55I3CJ20090619

Bank Rescue Costs EU States $5.3 Trillion, More Than German GDP
http://www.bloomberg.com/apps/news?pid=20601109&sid=aI.TvvSBYXBM

Dollar's Reserve Status May Deteriorate, Roubini Says
http://www.bloomberg.com/apps/news?pid=20601109&sid=aRMZbES7DNFc

Working for your wealth,

John M. McClure, President & CEO
EquiTrend, Inc.

Rally off and running again...

John M. McClure — Mon, 01 Jun 2009 20:22:03 GMT

Live Easy With EquiTrend

Rally off and running again...

Week Ending May 29, 2009
EquiTrend.com

Rally off and running again...
Leaders on hold
Earnings still in the tank
Home prices still falling but sales off the lows
Next weekly newsletter June 14...

INDEX	May29-09	May22-09	Change	Change%
INDU	8,500.33	8,277.32	223.01	2.69%
DJT	3,202.45	3,005.79	196.66	6.54%
SPX	919.14	887.00	32.14	3.62%
COMPX	1,774.33	1,692.01	82.32	4.87%
RUT	501.58	477.62	23.96	5.02%
EEM	33.24	31.75	1.49	4.69%

Last Week

INDEX	May22-09	May15-09	Change	Change%
INDU	8,277.32	8,268.64	8.68	0.10%
DJT	3,005.79	3,053.01	-47.22	-1.55%
SPX	887.00	882.88	4.12	0.47%
COMPX	1,692.01	1,680.14	11.87	0.71%
RUT	477.62	475.84	1.78	0.37%
EEM	31.75	30.08	1.67	5.55%

Quote of the week
"There's consternation in the stock market. If we see a pick-up in long-term yields, an economic recovery will be much more difficult. That concern could be enough to halt the recent stock rally."
- Russ Koesterich Barclays Global Investors, San Francisco.

Rally off and running again...
Stocks rallied strongly on Tuesday following the Memorial Day holiday based on a strong showing in the Conference Board's consumer confidence indicator which is interesting - we have found this metric to be of little trading value. However, investors chose to ignore the most recent Case-Shiller home price index that showed home prices continue falling at an accelerating rate.

But then on Wednesday, markets experienced a big reversal day as the Dow gained nearly 2.4% in the morning only to give it all back and be down 2% by the end of the day. According to Bespoke Investment Group, similar reversals since 1900 have been accompanied by drops of more than 1% over the next week and the Dow was down an average 1.7% a month later.

But then on Thursday and Friday stocks resumed their upward move with all the major indexes closing higher on the week which is bullish. It has now been eleven weeks since the rally began.

Technically Speaking
Leaders on hold...
Last week four stocks on Dan Zanger's watch list were moving higher and they gained more than 5% which was bullish. This week, none of his market leaders on Monday were making new highs and that is somewhat bearish.

Weekly volumes for the major indexes were below average again this week but that may have been due to the holiday-shortened week. The fact that volume was highest on Friday is also bullish. A rally needs a steady supply of new bulls buying stocks to give it strength so below average volume on rising prices is bearish. But it is important to point out that momentum has been falling and that increases the probability for a correction in the next few days.

Meanwhile, the Market Volatility Index (VIX) moved lower this week to 28.92 versus 32.63 last week and 33.12 the week before. Fear continues to fall and while still higher than average, remain elevated but the fact that they have been falling is bullish.

Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index has almost steadily gained ground and that continued this week as it rose to 417.04 up from 404.26 last week and 393.43 two weeks ago. As we said last week, the seemingly endless supply of cash from governments should continue to have a positive effect on commodities but when it doesn't any longer, look out below. This index is now up nearly 30% from its December 5 low.

But gold showed some strength this week. After the surge in gold to $1001.10/oz February 20 then dropping, the precious metal moved higher again this week to close at $959.30/oz up from $958.80 last week and $931.80 two weeks ago amid more US dollar weakness. Volume and open interest took a noticeable jump this week and that is bullish for the metal. Gold normally has a seasonal low in July and then rallies into year-end but there are factors at work, namely government generated inflation, that are more powerful this time around.

Meanwhile, the US Dollar Index slipped again this week to close at 79.34 down from 79.96 last week and 83.02 two weeks ago. A steadily weakening dollar is bullish for commodities, interest rates and U.S. multinational corporations with a larger share of their revenues derived from overseas sales.

And not surprisingly crude oil futures joined the inflation-fueled party this week as a barrel of crude closed at $66.31/bbl up from $61.67 last week and $57.10 two weeks ago. Oil is still down 55% from its mid-summer high of $147.20 and the rapid drop has had a negative impact on supply which is bullish for prices.

The Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, continued to surge this week jumping 25.4% from 2786 last week to 3494 to another new 2009 high as shipping demand continued to increase. This is bullish for both the economy and the price of oil. This is further confirmation of growing inflationary pressure.

The U.S. bank prime rate and the Fed funds target rate held steady at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate firmed to 0.19% (from 0.18% last week).

Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) slipped again to another new 52-week low of 0.65625% (from 0.66% last week and 0.82563% two weeks ago). This compares to LIBOR 52-week high of 4.81875% last October.

On the mortgage front, Freddie Mac mortgage rates firmed again this week to 4.91% (from 4.82% last week) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) slipped to 4.69% (from 4.82% last week).

Earnings - Earnings yet to recover
Last week the average Price/Earnings ratio for the 8,011 US stocks of the VectorVest index hit a another new all-time high of 151.45 (145.92 last week and 143.5 two weeks ago) thanks to rising prices but no increase in average earnings. So far at least, this rally has not been accompanied by earnings growth with the average stock experiencing an anemic earnings growth rate of just 2%.

At the beginning of the last recovery, April 11, 2003 marked the "golden cross" of the price of the VVC moving above its 40-week moving average and the beginning of a 56-month bull market. As the rally was getting underway in March and April 2003, earning growth (GRT in red) was a much healthier 8% and earnings growth had begun improving nearly a year before after hitting a low of 3%.

This time around as we see from the chart, another golden cross occurred two weeks ago prices failed to penetrate above the 40-week MA (purple line). That happened this week which is bullish from a momentum perspective. As we said last week, if this rally is to survive we need to see prices stay above the 40-week MA and a genuine recovery in earnings.

About EquiTrend.com

EquiTrend.com is a stock market timing system developed to help investors easily achieve better investment performance than is possible through conventional buy-and-hold strategies.

CLICK HERE FOR SUBSCRIPTION INFORMATION

EquiTrend provides the tools to help you navigate this difficult bear market. If you need additional information there are three ways to contact us:

To submit questions, comments or feedback, email us at: feedback@equitrend.com. (This is the most preferred method)
Call us directly at (800) 731-5690. Remind our staff that you are an InvestorsInsight.com reader and mention code: insight1.
To have a Representative contact you, simply email us at: support@equitrend.com.

Economic Reports
Home prices still falling but sales levels off lows
Last week we learned that while builder optimism increased, both housing permits and starts got worse showing that the stats had yet to support any improvement in housing demand. This week we got more of the same in the form of continuing deterioration in the Case-Shiller home price index for March. On a monthly basis, the 20 city composite index fell 2.17% from February and home prices nationally were down 18.7% on a year-over-year basis. With the lone exception of February, when the rate decline moderated, housing price declines have continued accelerate year-over-year. Price declines have averaged 1.84% a month since January 2008. According the C-S paired home sales in the 20-cities the index covers, home prices have fallen 32.2% from their peak.

On Wednesday, we learned from the latest National Association of Realtor data that existing home sales increased from last month to 4.68 million in April, a gain of 2.9% from last month but down 4.3% from a year ago. From their peak, home sales are down 30% while median home prices are $170,700, up slightly from last month and down 26.1% from their peak. The inventory of unsold homes was 10.2 month in April.

Meanwhile, new home sales improved slightly in April to 352,000 (from 351,000 in March) and inventories dropped to a 10.1 month supply (from 10.6 months in March) which is good news for the industry. However, with permits and starts still running at 498,000 and 458,000 respectively, there is still too much product being added to bloated inventory levels. The median price of a new home rose 3.7% in April to $209,700, but prices are down 14.9% year-over-year.

Given the upticks in both new and existing home sales together with improvements in homebuilder sentiment (in the NAHB home price index), there is a definite trend to improvement in the industry and that is positive. But large inventories and rising foreclosure rates will continue to keep prices under control for the next few months at least.

Synopsis
We continue to climb the Wall of Worry this week but momentum continued to abate. This is offset on the positive side for markets by the government and Fed taking an increasingly more active role in our economy and markets which will be bullish shorter-term for stocks and commodity prices but increase the size of the ultimate bill. As we saw this week, this will also put upward pressure on interest rates and that is bearish for markets and the economy.

There will be no newsletters for the next two weeks. Our next weekly will be published June 14.

On the lighter side...
However beautiful the strategy, you should occasionally look at the results.
Winston Churchill

Stories of interest this week...

GM Said to Plan June 1 Bankruptcy as Debt Plan Gains
http://www.bloomberg.com/apps/news?pid=20601087&refer=top_news&sid=axMQSpTxgYL0

Biggest Losers in GM May Be Taxpayers, Altman Says
http://www.bloomberg.com/apps/news?pid=20601110&sid=abijI88Xnmxw

Unemployment at 8 Percent Is the New Normal as Growth Slows
http://www.bloomberg.com/apps/news?pid=20601109&sid=a3i27FMViXmY&refer=home

Wall Street Derivatives Proposals Adopted in Treasury Overhaul
http://www.bloomberg.com/apps/news?pid=20601109&sid=aMMeY6OodQW4&refer=exclusive

Housing Hitting Bottom Means Fewest Starts Since 1945
http://www.bloomberg.com/apps/news?pid=20601068&sid=aDSgjBGniq0E&refer=economy

Home Prices in 20 U.S. Cities Fall More Than Forecast
http://www.bloomberg.com/apps/news?pid=20601068&sid=aJjnVOs7SUW8&refer=economy

S&P 500 Rally Is in Last Stages, Aurel Says: Technical Analysis
http://www.bloomberg.com/apps/news?pid=20601084&sid=a68ndLIv7BeM&refer=stocks

Short Sellers Pare Bearish Bets After S&P 500 Surges
http://www.bloomberg.com/apps/news?pid=20601084&sid=aXn9t_donoJc&refer=stocks

Latvian Hookers Signal No Recovery for Economy: Matthew Lynn
http://www.bloomberg.com/apps/news?pid=20601039&sid=aSRh7Cf2DTrU&refer=home

VIDEOS

Faber Sees U.S. Inflation Approaching Zimbabwe Levels
http://www.bloomberg.com/avp/avp.asxx?clip=mms://media2.bloomberg.com/cache/vNbfJ.kepSzo.asf&vCat=/av&RND=433773945&A=

Working for your wealth,

John M. McClure, President & CEO
EquiTrend, Inc.

Consolidation continues

John M. McClure — Tue, 26 May 2009 16:02:47 GMT

Live Easy With EquiTrend

Consolidation continues

Week Ending May 22, 2009
EquiTrend.com

Rally on hold...
Leaders move up
Earnings still weakening
Builders get more optimistic but no support from data
Elliott Wave SPX Perspective

INDEX	May22-09	May15-09	Change	Change%
INDU	8,277.32	8,268.64	8.68	0.10%
DJT	3,005.79	3,053.01	-47.22	-1.55%
SPX	887.00	882.88	4.12	0.47%
COMPX	1,692.01	1,680.14	11.87	0.71%
RUT	477.62	475.84	1.78	0.37%
EEM	31.75	30.08	1.67	5.55%

Last Week

INDEX	May15-09	May8-09	Change	Change%
INDU	8,268.64	8,574.65	-306.01	-3.57%
DJT	3,053.01	3,351.17	-298.16	-8.90%
SPX	882.88	929.23	-46.35	-4.99%
COMPX	1,680.14	1,739.00	-58.86	-3.38%
RUT	475.84	511.82	-35.98	-7.03%
EEM	30.08	31.59	-1.51	-4.78%

Quote of the week
"I used to take $300 for the week -- that was walking- around money. Now I take $100 for the week. Forget about ordering sushi for lunch." Former Bear Stearns trader Guy Irace.

Rally on hold...
Now ten-weeks old, the rally spent a second consecutive week consolidating, with the standout exception of the emerging market ETF which moved more than 5% higher. Up more than 30% from its March 6 low, the S&P500 index is still 4% above its 50-day moving average.

Technically Speaking
Leaders move up...
Last week only two of Dan Zanger's market leaders were breaking out, causing us to expect weakness this week. However, on Sunday May 17, four stocks, Potash (POT), Agrium (AGU), Chicago Mercantile (CME) and ProShares Ultra Short Real Estate (SRS), were moving higher second only to the EEM and as we see from the next chart, these stocks led the market this week which is bullish.

About EquiTrend.com

EquiTrend.com is a stock market timing system developed to help investors easily achieve better investment performance than is possible through conventional buy-and-hold strategies.

CLICK HERE FOR SUBSCRIPTION INFORMATION

EquiTrend provides the tools to help you navigate this difficult bear market. If you need additional information there are three ways to contact us:

To submit questions, comments or feedback, email us at: feedback@equitrend.com. (This is the most preferred method)
Call us directly at (800) 731-5690. Remind our staff that you are an InvestorsInsight.com reader and mention code: insight1.
To have a Representative contact you, simply email us at: support@equitrend.com.

Weekly volumes for the major indexes were below average this week that combined with higher prices is bearish. A rally needs a steady supply of new bulls buying stocks to give it strength so below average volume on rising prices is bearish. Whether this is a much needed consolidation or an indication of a slow but steady return of the bears still remains to be seen.

Meanwhile, the Market Volatility Index (VIX) ticked higher as the VIX closed the week at 32.63 down slightly from 33.12 last week but near where it was two weeks ago at 32.05. Fear levels while historically high have stabilized but this indicator bears watching.

Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index has almost steadily gained ground with the index gaining ground to close at 404.26 up from 393.43 last week and up from 402.37 two weeks ago. The seemingly endless supply of cash from governments should continue to have a positive effect on commodities but when it doesn't any longer, look out below. This index is now up more than 23% from its December 5.

But gold showed some strength this week. After the surge in gold to $1001.10/oz February 20 then dropping, the precious metal moved higher again this week to close at $958.80/oz up from $931.80 last week and $917.20 two weeks ago amid more US dollar weakness. But volume and open interest remain low which is bearish. It is important to point out that gold has a seasonal low in July and then rallies into year-end.

Meanwhile, the US Dollar Index took a big hit this week falling to 79.96 from 83.02 last week and 82.53 two weeks ago taking out the December 2008 weekly low in the process.

Crude oil futures joined commodities in slipping this week as a barrel of crude closed at $61.67 up from $57.10 last week and $59.66 two weeks ago. Oil is still down 58% from its mid-summer high of $147.20.

The Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, moved higher again this week albeit at a slower pace, gaining 7% to 2786 from 2544 (for 23% gain last week), to another new 2009 high as shipping demand continued to increase. This is bullish for both the economy and the price of oil but it is important to note that shipping has been quite volatile.

The U.S. bank prime rate and the Fed funds target rate held steady at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate firmed to 0.18% (from 0.17% last week). Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) slipped again to a new 52-week low of 0.66% (from 0.82563% last week and 1.00688% three weeks ago). This compares to LIBOR 52-week high of 4.81875% last October.

On the mortgage front, Freddie Mac mortgage rates firmed again this week to 4.82% (from 4.86% last week) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) firmed to 4.82% (from 4.71% last week).

Earnings - The earnings-deficient recovery
new all-time high of 143.5 compared to 130.45 two weeks ago. This week that ratio continued climbing to another new high of 145.92 as earnings continued to fall. So far at least, this rally has not been accompanied by earnings growth with the average stock experiencing an anemic earnings growth rate of just 2%.

At the beginning of the last recovery, April 11, 2003 marked the "golden cross" of the price of the VVC moving above its 40-week moving average and the beginning of a 56-month bull market. As the rally was getting underway in March and April 2003, earning growth (GRT in red) was a much healthier 8% and earnings growth had begun improving nearly a year before after hitting a low of 3%.

This time around as we see from the chart, another golden cross occurred two weeks ago but so far prices have failed to penetrate above the 40-week MA (purple line). As we said last week, if this rally is to survive two things need to occur. First, the 40-week MA will need to be decisively penetrated. Second, in spite of trillions in stimulus being pumped into markets around the globe, a recovery won't last until earnings begin to recover.

Economic Reports
Builder optimism not reflected in data
We got some good news on Monday on the housing front when it was announced that the May National Association of Home Builders housing price index jumped from 14 in April to 16 as builders continued to get more optimistic about their industry.

Unfortunately, building demand has so far failed to support this assumption. After brief recoveries (post revisions) last month, both housing permits and starts fell sharply again in April dropping 7 and 8.5% respectively month-over-month and are down 51.2 and 46.9% year-over-year. From their peaks in January 2006 both are down 77%. John Williams of ShadowStats.com defines a peak to trough drop greater than 25% as a Great Depression magnitude drop - certainly not the "green shoots" recovery that has been hyped by the plethora of bullish analysts out there of late.

Next week we will see if prices are responding with the release of the latest Case-Shiller existing home price data as well as both and new home sales figures.

Synopsis
We continue to climb the proverbial Wall of Worry this week, albeit more slowly. The government and Fed continue to take increasingly more active roles in our economy and markets and this ‘no end to the depth of their pockets' approach continues to buoy stocks and commodity prices. The biggest risk currently to this rally is some event that indicates that these pockets have a bottom as we saw with the market response to a threatened downgrade of the UK's credit rating this week.

On the lighter side...

Everyone has his day and some days last longer than others.
Winston Churchill.

Stories of interest this week...

Obama's Tax Proposal Won't Create U.S. Jobs, GE, Microsoft Say
http://www.bloomberg.com/apps/news?pid=20601110&sid=aDppCCywYF3s

Welch Criticizes Obama on Handling Chrysler Bankruptcy
http://www.bloomberg.com/apps/news?pid=20601109&sid=aETI5aIj4WhM&refer=exclusive

Greenspan Says Banks Still Have a ‘Large' Capital Requirement
http://www.bloomberg.com/apps/news?pid=20601110&sid=aiOYLnM2WxuA

Bear Stearns to Algebra I Means Lost Dollars in Wall Street Trickle-Down
http://www.bloomberg.com/apps/news?pid=20601109&sid=aQJzd0DkdWuQ&refer=home

TARP Warrants Show Banks May Reap ‘Ruthless Bargain'
http://www.bloomberg.com/apps/news?pid=20601109&sid=ae2fQFMrDer4&refer=home

Brown Goes Full Circle as Debt Raises Rating Doubt
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aFVACM4c4WXo

Canada Dollar Touches 7-Month High as Commodity Currencies Gain
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNDgSEEBWEtc

Working for your wealth,

John M. McClure, President & CEO
EquiTrend, Inc.

Leaders languish...

John M. McClure — Mon, 18 May 2009 15:55:00 GMT

Live Easy With EquiTrend

Leaders languish...

Week Ending May 15, 2009
EquiTrend.com

Rally backs off...
Leaders languish
Earnings continue to weaken
Trade deficit rises, Treasury sales inch higher
Market Yin and Yang
Elliott Wave SPX Perspective

INDEX	May15-09	May8-09	Change	Change%
INDU	8,268.64	8,574.65	-306.01	-3.57%
DJT	3,053.01	3,351.17	-298.16	-8.90%
SPX	882.88	929.23	-46.35	-4.99%
COMPX	1,680.14	1,739.00	-58.86	-3.38%
RUT	475.84	511.82	-35.98	-7.03%
EEM	30.08	31.59	-1.51	-4.78%

Last Week

INDEX	May8-09	May1-09	Change	Change%
INDU	8,574.65	8,212.41	362.24	4.41%
DJT	3,351.17	3,152.39	198.78	6.31%
SPX	929.23	877.52	51.71	5.89%
COMPX	1,739.00	1,719.20	19.80	1.15%
RUT	511.82	486.98	24.84	5.10%
EEM	31.59	29.09	2.50	8.59%

Quote of the week
"Even though economics is a very old subject, it has not truly come to grips with the main difficulty, which is the inordinate practical importance of a few extreme events." Benoit Mandelbrot (1983)

Rally backs off...
After nine weeks of gains, the rally finally came to an end this week with all-red across the board for the major indexes. Up 36% from its March 6 low last week, the S&P500 gave back 5% this week but the index is still nearly 6% above its 50-day moving average. And as we see below, earnings continue to decline...

So is this the end of the rally or just a little profit taking?

Technically Speaking
Leaders languish...
Last week Dan's Monday watchlist included 16 stocks of which 13 were breaking out as the group gained 5.4% to end the week. This week only two stocks, namely Ambac Financial (ABK), Hartford Financial (HIG) out of his watchlist of 19 stocks were breaking out and making new short to medium-term highs, a sign perhaps of things to come for the rest of the week.

After steadily dropping from March 20 to April 10 then spiking two weeks ago, weekly volumes for the major indexes were above average for a second week except this time prices fell which is bearish. A rally needs a steady supply of new bulls buying stocks to give it strength but above average volume on falling prices shows net selling. Whether this was some short-term profit taking or marks the return of the bears remains to be seen.

Meanwhile, the Market Volatility Index (VIX) ticked higher as the VIX closed the week at 33.12 from 32.05 last week. Not a lot of fear has yet begun creeping back into the market but this indicator bears watching.

Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index has gained ground but the index took a break this week along with equities to close at 393.43 down from 402.37 last week. The seemingly endless supply of cash from governments should continue to have a positive effect on commodities but when it doesn't any longer, look out below. This index us now up more than 23% from its December 5 low after this week's correction.

But gold showed some strength this week. After the surge in gold to $1001.10/oz February 20 then dropping, the precious metal moved higher again this week to close at $931.80/oz up from $917.20 last week and $886.50 two weeks ago. But volume and open interest remain low which is bearish. It is important to point out that gold has a seasonal low in July and then rallies into year-end which may explain why we are seeing some strength in the metal now.

Meanwhile, the US Dollar Index made an attempt to rise this week as it closed at 83.02 up from 82.53 last week but is still below 84.54 two weeks ago. Since its March 6 peak, the U.S. Dollar Index is still down more than 7%.

Crude oil futures joined commodities in slipping this week as a barrel of crude closed at $57.10 from $59.66 last week but up from $54.06 two weeks ago. Oil is still down nearly 60% from its mid-summer high of $147.20 but that gap will be short-lived as long as economic recovery continues.

The Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, surged 15% this week (23% last week) to 2544 from 2214 last week, to a new 2009 high as shipping demand continued to rebound. This is bullish for both the economy and the price of oil but it is important to note that shipping has been quite volatile.

The U.S. bank prime rate and the Fed funds target rate held steady at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate slipped again to 0.17% (from 0.19% last week and 0.23% two weeks ago). Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) slipped again to a new 52-week low of 0.82563% (from 0.9375% last week and 1.00688% two weeks ago). This compares to LIBOR 52-week high of 4.81875% last October.

On the mortgage front, Freddie Mac mortgage rates firmed again this week to 4.86% (from 4.84% last week and 4.78% two weeks ago) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) eased to 4.71% (from 4.78% last week and 4.77% two weeks ago).

Earnings - The earnings-deficient recovery continues
Last week we learned that the average Price/Earnings ratio for the 8,011 US stocks of the VectorVest index hit a new all-time high of 130.45. As we see from the next chart, that ratio continued to climb again this week to a new high of 143.5.

Why? Even though stock prices fell, earnings are falling faster on a percentage basis - the VVC fell 4.6% this week while VVC earnings fell from $0.15 to $0.13 per share, a drop of more than 13%.

Figure 1 - The VectorVest Composite (VVC) is an index consisting currently of more than 8000 stocks so provides a more realistic picture of what is going on with the "average" stock as opposed to cherry-picked indexes like the Dow Jones Industrial Average or S&P500. Chart courtesy of VectorVest.com

About EquiTrend.com

EquiTrend.com is a stock market timing system developed to help investors easily achieve better investment performance than is possible through conventional buy-and-hold strategies.

CLICK HERE FOR SUBSCRIPTION INFORMATION

EquiTrend provides the tools to help you navigate this difficult bear market. If you need additional information there are three ways to contact us:

To submit questions, comments or feedback, email us at: feedback@equitrend.com. (This is the most preferred method)
Call us directly at (800) 731-5690. Remind our staff that you are an InvestorsInsight.com reader and mention code: insight1.
To have a Representative contact you, simply email us at: support@equitrend.com.

At the beginning of the last recovery, April 11, 2003 marked the "golden cross" of the price of the VVC moving above its 40-week moving average and the beginning of a 56-month bull market. As the rally was getting underway in March and April 2003, earning growth (GRT in red) was a much healthier 8% and earnings growth had begun improving nearly a year before after hitting a low of 3%.

This time around as we see from the chart, another golden cross occurred last week but prices failed to penetrate the 40-week MA and dropped lower. If this rally is to survive, two things need to occur. First, the 40-week MA will need to be decisively penetrated. Second, in spite of trillions in stimulus being pumped into markets around the globe, a recovery won't last until earnings begin to recover.

Economic Reports
Trade deficit rises, Treasury sales inch higher
It was a relatively uneventful week for economic reports starting Tuesday with the March U.S. trade deficit that widened to $27.6 billion from $26.1 billion the month before. The rise was due to a 2.4% drop in exports while imports slipped 1%. April export prices fell 0.6% but are down 6.8% year-over-year while import prices rose 1.6% in April but have fallen 16.3% year-over-year.

But the most important report was U.S. Treasury International Capital flows that showed a slight increase of $23.2 billion in foreign investment in March following a revised drop of $91.1 billion in February. As we see from the next chart, international capital flows have declined and are far short of the $200 billion monthly Treasury must sell to pay the current budget deficit (orange dashed line). Until this hole is filled, it will exert upward pressure on interest rates.

Synopsis
Market Yin and Yang
As discussed last week, this is a double-sided market. On one side there are corrective forces at work to bring valuations of numerous asset classes back down to earth after years of ‘bubblenomics' driven by cheap money and highly stimulative monetary policy. On the other side, the tremendous amount of liquidity being that continues to be pumped into economies around the world in attempts to lessen the pain and reflate the bubbles.

One lesson the Presidential Cycle teaches us is the almost unbounded efforts in which governments employ to get re-elected and the subsequent impact those stimulative efforts have had on markets. Bears cannot afford to ignore this undeniable fact - at no time in history has the amount of cash currently being pumped into the economy been greater and the cost of money lower. This is bound to have a stimulative impact on stocks. And based on the latest news out of Washington, the generous programs being offered seem to continue without end (see the latest program outlined in the "Treasury Offers Incentives" article below.) But in spite of this generosity, foreclosures hit another new high last month and the number of U.S. homes with mortgages worth more increased to 20.4 million or 22% of the total residential properties (houses, condos and co-ops) of 93 million homes.

Until earnings begin to recover in earnest and consumers begin to spend with confidence, any rally from here will be difficult at best. The question is, is the government prepared to continue to spend taxpayer dollars until then and if so, how big will the bill get?

Be sure to read the latest ProfitScore IQ that discusses how successful similar methods were during the Great Depression.

On the lighter side...
Good judgment comes from bad experience ... and most of that comes from bad judgment.

Stories of interest this week...

Treasury Offers Incentives for Mortgage Modifications
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aW1qiy.dU4fc

U.S. Regulators Clash Over Holding Banks Accountable
http://www.bloomberg.com/apps/news?pid=20601068&sid=aLSpHyUxIN6c&refer=economy

U.S. Economy: Industrial Production Contracts Less
http://www.bloomberg.com/apps/news?pid=20601068&sid=aXYKq7sv6Ba0&refer=economy

Global Demand for Long-Term U.S. Assets Rose in March
http://www.bloomberg.com/apps/news?pid=20601068&sid=aZLK7ockWeG4&refer=economy

New York, London Exchanges See Rebound in Listings
http://www.bloomberg.com/apps/news?pid=20601109&sid=aVt7t868fySY&refer=exclusive

Rents Crashing in London to 1991 Prices Le Gavroche Shows Gone
http://www.bloomberg.com/apps/news?pid=20601109&sid=a6DMLSwbH.aQ&refer=exclusive

Europe's Economy Contracts 2.5%, the Most Since 1995
http://www.bloomberg.com/apps/news?pid=20601068&sid=aZLoZ9.uxduY&refer=economy

Socialist Sanders Taps Anger to Influence Bailouts
http://www.bloomberg.com/apps/news?pid=20601068&sid=aIf8AEctTmco&refer=economy

Working for your wealth,

John M. McClure, President & CEO
EquiTrend, Inc.

Standing In Front Of A Train

John M. McClure — Mon, 11 May 2009 15:52:53 GMT

Live Easy With EquiTrend

Standing In Front Of A Train

Week Ending May 8, 2009
EquiTrend.com

Rally blasts up...
Leaders fall behind...
An earnings-deficient recovery?
Construction spending, ISM and jobs improve
Last hurrah, then seven lean years?
Elliott Wave SPX Perspective

INDEX	May8-09	May1-09	Change	Change%
INDU	8,574.65	8,212.41	362.24	4.41%
DJT	3,351.17	3,152.39	198.78	6.31%
SPX	929.23	877.52	51.71	5.89%
COMPX	1,739.00	1,719.20	19.80	1.15%
RUT	511.82	486.98	24.84	5.10%
EEM	31.59	29.09	2.50	8.59%

Last Week

INDEX	May1-09	Apr24-09	Change	Change%
INDU	8,212.41	8,076.29	136.12	1.69%
DJT	3,152.39	3,137.76	14.63	0.47%
SPX	877.52	866.23	11.29	1.30%
COMPX	1,719.20	1,694.29	24.91	1.47%
RUT	486.98	478.74	8.24	1.72%
EEM	29.09	28.02	1.07	3.82%

Quote of the week
"In the U.S., the total market value of housing, commercial real estate, and stocks was about $50 trillion at the peak and fell below $30 trillion at the low. The original $50 trillion of perceived wealth supported $25 trillion of debt. This loss of $20-$23 trillion of perceived wealth in the U.S. alone is still enough to deliver a life-changing shock for hundreds of millions of people."
- Jeremy Grantham in the GMO Quarterly Newsletter May 2009

Rally blasts up...
This rally re-ignited to finish its ninth week of gains pushing the S&P500 up 36% from its March 6 low. More interesting perhaps is the fact that the SPX is showing its first gains for 2009. And stocks are even more overbought than there were last week.

So why have stocks continued to gain ground despite all the economical problems we face? We discuss one very interesting theory from Jeremy Grantham in our Synopsis this week.

Technically Speaking
Leaders move up...
This week Dan's Monday watchlist included 16 stocks of which 13 were breaking out. They were Apple (AAPL), Blackstone Group (BK), Changyou.com (CYOU), First Solar (FSLR), Goldman Sachs (GS), Google (GOOG), James River Coal (JRCC), Massey Energy (MEE), Peabody Energy (BTU), Potash (POT), S&P Financial (XLF), SL Green Realty (SLG) and Sohu.com (SOHU). That they performed third in the group is bullish for the overall market next week.

About EquiTrend.com

EquiTrend.com is a stock market timing system developed to help investors easily achieve better investment performance than is possible through conventional buy-and-hold strategies.

CLICK HERE FOR SUBSCRIPTION INFORMATION

EquiTrend provides the tools to help you navigate this difficult bear market. If you need additional information there are three ways to contact us:

To submit questions, comments or feedback, email us at: feedback@equitrend.com. (This is the most preferred method)
Call us directly at (800) 731-5690. Remind our staff that you are an InvestorsInsight.com reader and mention code: insight1.
To have a Representative contact you, simply email us at: support@equitrend.com.

After steadily dropping from March 20 to April 10 then spiking two weeks ago, weekly volumes for the major indexes were above average again this week which combined with the strong move higher must be considered bullish. A rally needs a steady supply of new bulls buying stocks to give it strength and that clearly happened this week and based on the amount of late-day trading, institutions were getting in on the action.

The Market Volatility Index (VIX) dropped again this week as the VIX closed the week at 32.05, down from 35.30 last week and 36.82 two weeks ago to the lowest level since September 19, 2008.

Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index gained ground again this week to close at 402.37 up from 381.27 last week and 372.50 two weeks ago. The strong move helped pare the loss from the high of 611.51 in July to 34%. As we discuss in our synopsis this week, commodities are clear beneficiaries of the mountains of cash in government stimulus that have been pumped into markets. This index us up more than 25% from its December 5 low.

But gold has been somewhat of a laggard. After the surge in gold to $1001.10/oz February 20 then dropping, the precious metal moved higher this week to close at $917.20/oz up from $886.50 last week and $913.80 two weeks ago. But volume and open interest remain low which is bearish. It is important to point out that gold has a seasonal low in July and then rallies into year-end.

Meanwhile, the US Dollar Index took a big hit slipping again to 82.53 from 84.54 last week as inflationary forces of the plethora of stimulus packages have taken root. Since its March 6 peak, the U.S. Dollar Index has fallen 8% with more to come now that US Treasuries are no longer considered a safe haven at any price.

Crude oil futures joined the commodity party this week as a barrel of crude closed at $59.66 up from $54.06 last week and $51.49 two weeks ago. Oil is still down nearly 60% from its mid-summer high of $147.20 but that gap will be short-lived as long as economic recovery continues.

The Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, surged 23% again this week to 2214 from 1806, back to where it was March 11 as shipping demand appears to have also rebounded. This is bullish for both the economy and the price of oil but clearly shows how volatile shipping demand has been during this rebound.

The U.S. bank prime rate and the Fed funds target rate held steady at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate slipped to 0.19% (from 0.23% last week). Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) slipped again to a new 52-week low of 0.9375% (from 1.00688% last week). This compares to LIBOR 52-week high of 4.81875% last October.

On the mortgage front, Freddie Mac mortgage rates firmed this week to 4.84% (from 4.78% last week) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) inched up to 4.78% (from 4.77% last week).

Earnings - The earnings-deficient recovery?
Here is an interesting perspective on earnings. As anyone who has been reading our newsletters for a while now knows, we believe that earnings of the broader market is a more useful metric than for a particular index, since indexes are cherry picked to highlight the best in class - good for investing in but they do not provide an accurate indication on the true state of corporate health.

The VectorVest Composite is an index consisting currently of more than 8000 stocks. Here we compare the last recovery with this one from an earnings perspective. April 11, 2003 marked the "golden cross" of the price of the VVC moving above its 40-week moving average and the beginning of a 56-month bull market. As the rally was getting underway in March and April 2003, earning growth (GRT in red) was a much healthier 8% and earnings growth had begun improving nearly a year before after hitting a low of 3%.

As we see from the chart, another golden cross occurred again this week. But what is perhaps most interesting is the difference in the Price/Earnings ratio in this rally versus the last one. Last time around PEs peaked at 60.51 on May 16, 2003. Compare this to an incredibly lofty 130.45 this week. The comparisons don't stop there. You will also note that earnings growth is still deteriorating having recently hit just 2%.

Translation? From a valuation perspective, prices are more than double what they were relative to earnings when the last sustainable recovery began. It is also interesting to note that sustainable recoveries following serious economic meltdowns have rarely occurred from such lofty valuation levels.

Economic Reports
We learned this week that March construction spending improved month-over-month for the first time since July 2008 for a gain of 0.3% up from -0.9% in February. On a year-over-year basis, construction spending is down 11.1%. Growth was led by private nonresidential outlays while the private residential component fell 4.2% after falling 5.9% in February.

Last week we learned that the Institute of Supply Management manufacturing index moved up to 40.1 in April versus 36.3 in March as the manufacturing sector has shown slow but steady increases over the last four months. On Tuesday we got news that the ISM service index also moved up, to 43.7 which confirms the positive move in manufacturing, proof that the rates of economic contraction appear to be slowing. New orders were especially strong jumping more than 8 points to 47 and employment also improved nearly 5 points to 37.

Then on Friday, the report the market had been waiting for arrived. Expectation was for a loss of 630,000 jobs. The actual April number came in at -539,000 and so was good news. What was not given much discussion was that the numbers for the last two months were revised downward - March from -663,000 to -699,000 and February from -651,000 to -681,000 for the loss of another 66,000 jobs. This follows another revision in the January number from -655,000 to a newly revised -741,000.

On first blush, the data are encouraging but there is one big caveat. The numbers included more than 60,000 new temporary government jobs that were created to handle the next census that once done, those jobs go away. Remove those from the mix and the actual number would have been a loss of more than 600,000 which isn't much better than -663,000 originally reported in March.

We also learned that the official unemployment figure has now risen to 8.9% from 8.5% in March which is the highest level since November 1983. Official unemployment has now doubled since hitting a low of 4.4% in March 2007.

Synopsis
Last hurrah, then seven lean years?
In his latest newsletter, market giant Jeremy Grantham of money management firm GMO LLC proclaimed that he was parting company with his "bearish allies." Why? He identified the Presidential Cycle and "the power of stimulus and moral hazard to move the stock market many multiples of their modest effects on the real economy" as the reason why he had recently turned bullish.

But before we explain, it is important to provide some background. A few years ago, we conducted extensive research into the Presidential Cycle and developed a trading system based on it. In twenty-eight elections, the four-year cycle low for the Dow Jones Industrial Average was found to occur in September of the mid-term year and the high in November in the year of the election - a period of 26 months. Our simple system bought the Dow in at the end of September two years before each election, held for 26 months then sold the end of November each election year between 1902 and 2006.

Our results are summarized in the next chart. As you can see, by buying the Dow 2 years before each election and selling at the end of November each election year, the hypothetical investor would have captured 93% of the gains versus just 7% by buying the 2 years following each election and selling the mid-term low. So by owning the Dow for just 26 months or 54% of each 48 month election cycle, earned the hypothetical investor 93% of the gains.

As this chart shows, a strategy that bought stocks two years (26 months) before each election and sold in November of election year would have captured 93% of Dow gains between 1902 and 2006 versus just 7% for one that bought immediately following each election and selling the 2 years (22 months) later.

Pre-election returns were even more pronounced for the Toronto Stock Exchange. Heavily populated with commodity and resource companies which have strongly benefited from the inflationary effects of pre-election stimulus programs, the TSX enjoyed more than 97% of its gains in the two years leading up to each U.S. election versus a paltry 3% in the two years following an election between 1950 and 2006.

Why? In an effort to get re-elected every four years, the evidence clearly points to a whole bunch of stimulating by governments heading into each election. Both parties were equally guilty. However, once in office governments must get the nasty work out of the way early, making necessary spending cuts in an effort to get the nation's fiscal house in order.

But then like clockwork, as the second year neared an end, the stimulus machine was kicked into high gear as thoughts by the ruling party turned to getting re-elected. Stocks have historically been more sensitive to this stimulus than the economy and resource/commodity stocks more so than industrial stocks.

One problem with this theory is that stimulus heading into the last election did not have the usual positive affect. Instead of enjoying their best gains the four-years, stocks lost a third of their value during the 26-month pre-election period between September 2006 and November 2008. Something had changed.

But since then, stimulative efforts have clearly been accelerated. At no time in history have governments offered more in the way of fiscal stimulus than during the last 12 months - the total exceeds a whopping $10 trillion if packages from governments around the world are included. And Grantham believes this is having a powerful effect on stocks and should continue to do so for a while. But he also believes this impact will be relatively short-lived. Let's face it, it's been a tough slog.

"In the U.S., the total market value of housing, commercial real estate, and stocks was about $50 trillion at the peak and fell below $30 trillion at the low. The original $50 trillion of perceived wealth supported $25 trillion of debt. This loss of $20-$23 trillion of perceived wealth in the U.S. alone is still enough to deliver a life-changing shock for hundreds of millions of people. No longer as rich as we thought - under-saved, under-pensioned, and realizing it - we will enter a less indulgent world, if a more realistic one, in which life is to be lived more frugally. Collectively, we will save more, spend less, and waste less. It may not even be a less pleasant world when we get used to it, but for several years it will cause a lot of readjustment problems. Not the least of these will be downward pressure on profit margins that for 20 years had benefited from rising asset prices sneaking through into margins."

Grantham also believes that inflation and time, at least seven years, will be required to get us out of the current mess.

"Now, with the reduced and more realistic perception of wealth at $30 trillion combined with more prudent banking, this [$25 trillion] debt should be cut in half. This unwinding of $10-$12 trillion of debt is not, in my opinion, as important as the loss of the direct wealth effect on consumer behavior, but it is certainly more important to the financial community. Critically, we will almost certainly need several years of economic growth, which will be used to pay down debt. In addition, we will need several years of moderately increased inflation to erode the value of debt, plus $4-$6 trillion of eventual debt write-offs in order to limp back to even a normal 50% ratio of debt to collateral. Seven years just might do it."

It seems clear that stocks are now responding with a vengeance to the mountains of cash governments have thrown at the problem and now that the trend has started, it should continue. But Grantham believes this effect will be short lived after which the subsequent recovery will resemble that of Japan.

"The flaky, speculative nature of the current rally bears none of the characteristics that I would expect from a longer-term market recovery."

"What I'm proposing could be known as a VL (very long) recovery in which stimulus causes a fairly quick but superficial recovery, followed by a second decline, followed in turn by a long, drawn-out period of sub-normal growth as the basic underlying economic financial problems are corrected."

Although no one knows how long the current speculative rally will last, we might as well enjoy it while we can because when it's over, the real work will begin in getting our markets and economy back on to more solid footing once again.

Stories of interest this week...

An interesting bit of research - Are stocks a losing bet [over the long-term]?
http://money.cnn.com/2009/05/09/magazines/moneymag/stock-strategies.moneymag/index.htm

The Last Hurrah and Seven Lean Years (Registration required - it's free)
http://tinyurl.com/p7ndp3 or try
https://www.gmo.com/America/MyHome/MySubscriptions.htm

Business Groups Oppose Obama's Budget After Supporting Stimulus
http://www.bloomberg.com/apps/news?pid=20601087&sid=avSyFJYSGE5Y&refer=home

Fed Stress Test Results May Show 10 U.S. Banks Need Capital
http://www.bloomberg.com/apps/news?pid=20601087&sid=aiw0TbO.lTsM&refer=home

Wall Street Firms Will Revert to Pre-Crisis Model, Cohen Says
http://www.bloomberg.com/apps/news?pid=20601109&sid=aye5Fzy0L_ss&refer=home

Libor Falls Below 1% for First Time as Credit Thaws
http://www.bloomberg.com/apps/news?pid=20601110&sid=aCAFWW_JGPBQ

Short Selling of Banks Accelerates as New Financial Stress Test
http://www.bloomberg.com/apps/news?pid=20601109&sid=aAbmnwDjaZ1s&refer=exclusive

‘Great Recession' Will Redefine Full Employment as Jobs Vanish
http://www.bloomberg.com/apps/news?pid=20601109&sid=aOhkusQ9LifQ&refer=exclusive

Taxpayers Lose $328 Million in Build America Profits
http://www.bloomberg.com/apps/news?pid=20601109&sid=a6BUiSZsDKqo&refer=exclusive

Obama Plan on Tax Havens Faces Hurdle in Congress
http://www.bloomberg.com/apps/news?pid=20601070&sid=aFzDnxkw.984&refer=home

China Stocks ‘Bubble' Is Almost Over, Galaxy Securities Says
http://www.bloomberg.com/apps/news?pid=20601110&sid=aW6fAQRmiAGY

Bonds Show Lehman Fades in History as Spreads Narrow
http://www.bloomberg.com/apps/news?pid=20601109&sid=a83zvnvvOCXQ&refer=exclusive

Rothschild Difference with Madoff Becomes Geneva's Obsession
http://www.bloomberg.com/apps/news?pid=20601109&sid=aQFSA42CpZIA&refer=exclusive

Working for your wealth,

John M. McClure, President & CEO
EquiTrend, Inc.

Rally takes a breather?

John M. McClure — Mon, 27 Apr 2009 14:19:32 GMT

Live Easy With EquiTrend

Rally takes a breather?

Week Ending April 24, 2009
EquiTrend.com

Rally takes a breather?
Leaders bounce back again...
Earnings forecasts show signs of hope
Existing and new home sales fall
Waiting for Case-Shiller
Treasury demand surges as spending soars

INDEX	Apr24-09	Apr17-09	Change	Change%
INDU	8,076.29	8,131.33	-55.04	-0.68%
DJT	3,137.76	3,094.87	42.89	1.39%
SPX	866.23	869.60	-3.37	-0.39%
COMPX	1,694.29	1,673.07	21.22	1.27%
RUT	478.74	479.73	-0.99	-0.21%
EEM	28.02	28.11	-0.09	-0.32%

Last Week

INDEX	Apr17-09	Apr10-09	Change	Change%
INDU	8,131.33	8,083.38	47.95	0.59%
DJT	3,094.87	2,988.99	105.88	3.54%
SPX	869.60	856.56	13.04	1.52%
COMPX	1,673.07	1,652.54	20.53	1.24%
RUT	479.73	468.20	11.53	2.46%
EEM	28.11	27.95	0.16	0.57%

Quote of the week
"Tax receipts are just collapsing. [The need to sell more debt] is a big issue in the Treasury market and it is ongoing. The surging budget deficit is the primary cause." Head Stamford UBS Securities interest-rate strategist Chris Ahrens.

Rally takes a break?
It has now been seven weeks since this rally began and this week stocks took a break. Since hitting its low in the first week of March, the S&P500 is up nearly 28%. Last week we mentioned that the S&P500 index was 9.6% above its 50-DMA and that is about where it stayed this week (9.5%) so stocks remain overbought. But indexes are also still banging up against key resistance areas that taken together with how overbought stocks are across the board, increases the chances for a correction. And now this rally is losing momentum. If prices hold up it will show that investor demand and interest in stocks is increasing despite the technicals pointing to a drop. But that must be considered a long shot.

Technically Speaking
Leaders bounce back...
Last week's Dan Zanger's leaders shot higher which was a good indicator for the overall market. This week Dan's Sunday April 19 portfolio of stocks either breaking out or poised to do so, consisted of 11 stocks including Apple, (AAPL), Bank of America (BAC), Changyou.com (CYOU), Ctrip.com ADR (CTRP), Google (GOOG), Holders Oil Services (OIH), KBR Inc (KBR), MBIA (MBI), MasterCard (MA), Research in Motion (RIMM) and S&P Energy (XLE). As you can see below, the chart dropped to start the week then took off with Dow Transports leading the way followed closely by the Nasdaq Composite and Dan's market leaders. This is again bullish for next week except that we are still overbought with stocks due for a rest here.

About EquiTrend.com

EquiTrend.com is a stock market timing system developed to help investors easily achieve better investment performance than is possible through conventional buy-and-hold strategies.

CLICK HERE FOR SUBSCRIPTION INFORMATION

EquiTrend provides the tools to help you navigate this difficult bear market. If you need additional information there are three ways to contact us:

To submit questions, comments or feedback, email us at: feedback@equitrend.com. (This is the most preferred method)
Call us directly at (800) 731-5690. Remind our staff that you are an InvestorsInsight.com reader and mention code: insight1.
To have a Representative contact you, simply email us at: support@equitrend.com.

After steadily dropping from March 20 to April 10, weekly volumes again were above average for the major indexes and in the case of the Dow Jones Industrials and S&P500 Indexes, this is bearish since both lost ground. But it does show investors are increasingly moving back into the market and that is bullish.

But the Market Volatility Index (VIX) reversed course this week and started to rise again and that is somewhat bearish with the VIX moving up to close the week at 36.82 from 33.94 last week. This puts it back to levels it was at two weeks ago.

Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index lost a little ground this week to close at 372.50 off from 376.25 last week. Since hitting a high of 611.51 in July the index is still down 38% from its peak.

After the surge in gold to $1001.10/oz the week of February 20, the precious metal has fallen but surged again strongly this week to close at $913.80/oz from $869.50 last week. Volume and open interest remain low which is bearish following the second of two tops February 20. Gold still has a long way to drop to confirm the double top so this pattern offers little short-term trading value. From a technical and seasonal perspective, gold looks to be headed lower with the metal often putting in a seasonal low in July.

Meanwhile, after putting in a bottom of sorts six weeks ago, the US Dollar Index slipped to 84.72 this week down from 85.98 last week and 85.79 two weeks ago. Since bottoming in July, the U.S. Dollar Index is up nearly 20%.

Crude oil futures slipped again as a barrel of crude slid to $51.49/bbl from $52.31 last week and $54.69 two weeks ago. Oil is still down nearly 62% from its mid-summer high of $147.20 and the rally remains alive.

The Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, rose again this week to 1873 (up 7.8% from 1682 last week). This is somewhat bullish for both the economy and the price of oil going forward as it shows increasing demand to ship goods to customers around the globe.

The U.S. bank prime rate and the Fed funds target rate held steady following the lasted FOMC meeting at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate firmed to 0.18% (from 0.14% last week). Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) slipped again to 1.0725% (from 1.10188% last week and 1.13125% two weeks ago). This compares to LIBOR 52-week high of 4.81875% last October.

On the mortgage front, Freddie Mac mortgage rates slipped this week to 4.8% (from 4.82% last week and 4.87% two weeks ago) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) slipped to 4.82% (from 4.91% last week).

Earnings
This week, the ratio of earnings upside versus downside revisions improved to -28.4% as analysts raised estimates for 340 companies up while cutting them for 766 companies for a net negative of 426 companies in the S&P1500. Last week, the ratio was a net negative of 482 companies (-32.1%) according to Bespoke.

Unfortunately, Bespoke only presented data going back 18 months so no significant conclusions can be drawn but improving earnings forecasts are a good thing as long as this trend continues.

Economic Reports
Not a real busy week for economic reports. On Thursday we learned that existing home sales fell 3% in March to an annual rate of 4.57 million. Median prices, an unreliable gauge of home prices due to the impact a changing market can have, rose 4.2% for what its worth to $175,200. A much more reliable comparative price metric is the Case-Shiller home price index with the latest figures due out Tuesday, April 28.

Then on Friday, we learned that new home sales also fell 0.6% in March to an annualized sales rate of 356,000 while the unsold inventory slipped to a 10.7 month supply versus 11.2 months in February and 12.5 in January. Overall, there are few signs of the new and existing home markets showing any measurable improvement.

Finally, durable goods orders fell 0.8% in March but the more important takeaway is that they are now down 25.2% year-over-year. On the possible good news front, manufacturing contraction may be slowing but it is important to point out that this metric is quite volatile.

Synopsis
Treasury demand surges, supply constrained on two fronts
Last week we discussed the declining sales of US Treasuries with a net drop (redemption) of $97 billion in Treasuries by foreigners in February. This followed a record net redemption of $148.9 billion in January.

The government will have to sell $2.4 trillion in new bills, notes and bonds in fiscal 2009, according to an estimate by UBS. How does this compare with past Treasury sales? From October through December, the Treasury sold a record $569 billion, up a whopping 693% from the $82 billion it sold during the same period a year earlier, and auctioned another $493 billion in the last quarter up from $156 billion the year before according to Bloomberg, as the government increasingly finds itself squeezed between rocketing expenditures and collapsing tax revenues (see article "Soaring US Budget Deficit...").

What does this mean for traders and investors? First, this is inflationary because if history is any guide, the government will print more money and employ more helicopters from which to throw it into the economy, a methodology euphemistically labeled "quantitative easing." The next all-too predictable development will be strong upward pressure on interest rates as U.S. Treasury investors demand higher returns to offset their losses due to increasing inflation.

Do you see where I'm going here? In this increasing hostile investment environment, any investment strategy will need to take rising interest rates and increasing inflation into account.

Stories of interest this week...

Mortgage Investors Form Battle Lines Over Housing Aid
http://www.bloomberg.com/apps/news?pid=20601109&sid=aJ6_vwmx_vlA&refer=exclusive

Soaring U.S. Budget Deficit Will Mean Billions in Bond Sales
http://www.bloomberg.com/apps/news?pid=20601109&sid=anA.WOxto6qQ&refer=exclusive

Treasury 10-Year Yields 3% for First Time Since Before Buybacks
http://www.bloomberg.com/apps/news?pid=20601110&sid=aaSYyxBbqcbY

U.S. Stress-Test Accounting May Raise Capital Levels
http://www.bloomberg.com/apps/news?pid=20601110&sid=a2LM0swWIxjA

Swaps Man Who Knew Too Much Fights to Salvage World He Lost
http://www.bloomberg.com/apps/news?pid=20601109&sid=aAqPKpl2zjkg&refer=exclusive

IEA Sees Oil-Supply Crunch by 2013 on Slow Investment
http://www.bloomberg.com/apps/news?pid=20601110&sid=abnkGOUOzC3w

U.K Financial Bailout Reaches 1.4 Trillion Pounds
http://www.bloomberg.com/apps/news?pid=20601109&sid=a0_DlDun684Q&refer=exclusive

Icelanders Get Chance to Vent Anger in Early Election
http://www.bloomberg.com/apps/news?pid=20601110&sid=aD0vkBDgIh4Q

Working for your wealth,

John M. McClure, President & CEO
EquiTrend, Inc.

Rally now six weeks young...

John M. McClure — Mon, 20 Apr 2009 13:41:20 GMT

Live Easy With EquiTrend

Rally now six weeks young...

Week Ending April 17, 2009
EquiTrend.com

Rally six weeks old...
Leaders down... no there back up again...
Earnings, still not real signs of improvement
Treasury sales still falling, so are housing permits & starts

INDEX	Apr17-09	Apr10-09	Change	Change%
INDU	8131.33	8083.38	47.95	0.59%
DJT	3,094.87	2,988.99	105.88	3.54%
SPX	869.60	856.56	13.04	1.52%
COMPX	1,673.07	1,652.54	20.53	1.24%
RUT	479.73	468.20	11.53	2.46%
EEM	28.11	27.95	0.16	0.57%

Last Week

INDEX	Apr10-09	Apr3-09	Change	Change%
INDU	8083.38	8017.59	65.79	0.82%
DJT	2,988.99	2,978.32	10.67	0.36%
SPX	856.56	842.50	14.06	1.67%
COMPX	1,652.54	1,621.87	30.67	1.89%
RUT	468.20	456.13	12.07	2.65%
EEM	27.95	27.35	0.60	2.19%

Quote of the week
"Anyone who is doing anything sensible right now is either losing money or is out of the market entirely," Quant trader "who is seeing something scary in the capital markets" in article by Tyler Durham.

Rally now six weeks young...
This rally marked its sixth-week birthday this week. Since hitting its low in the first week of March, the S&P500 is up 28% with Financials leading the pack. But that being said, this and most other major indexes are getting really stretched (overbought) and 89% of the stocks in the SPX index are above their 50-day moving averages (DMA), which is the highest level since mid-2006 according to Bespoke. Last week we mentioned that the index was 8% above its 50-DMA and that extended to 9.6% this week. Another challenge that faces stocks this week is that major indexes are getting close to bumping up against key resistance areas that taken together with how overbought stocks are across the board, increases the chances for a correction.

Sectors from Financials to Healthcare have performed very well since the bottom with financials now up nearly 78% with Consumer Discretionary a distant second up 40% over the same period.

Our quote this week comes from a very interesting article entitled The Incredible Shrinking Market Liquidity, Or the Upcoming Black Swan of Black Swans by ZeroHedge's own Tyler Durden. We include a link to the full article on his site in the stories of interest links below.

Technically Speaking
Leaders down, no there back up again...
Last week's Dan Zanger's leaders shot higher which was a good indicator for the overall market. This week Dan's Sunday April 12 portfolio consisted of 14 stocks, 10 of which were leading higher. They are Apple, (AAPL), Bank of America (BAC), Boston Properties (BXP, Goldman Sachs (GS), Intuitive Surgical (ISRG), MasterCard (MA), PNC Financial (PNC), Vornado Realty (VNO) and Wells Fargo (WFC). As you can see from the chart, the led the market lower till Tuesday then took off to the upside passing the Dow Industrials, Emerging Market ETF and Nasdaq Composite. This is mildly bullish for next week except that we are certainly due for a correction from these overbought levels.

About EquiTrend.com

EquiTrend.com is a stock market timing system developed to help investors easily achieve better investment performance than is possible through conventional buy-and-hold strategies.

CLICK HERE FOR SUBSCRIPTION INFORMATION

EquiTrend provides the tools to help you navigate this difficult bear market. If you need additional information there are three ways to contact us:

To submit questions, comments or feedback, email us at: feedback@equitrend.com. (This is the most preferred method)
Call us directly at (800) 731-5690. Remind our staff that you are an InvestorsInsight.com reader and mention code: insight1.
To have a Representative contact you, simply email us at: support@equitrend.com.

After steadily dropping for four wee, weekly volumes jumped this week dropped below average for the major indexes as trading volumes on the Dow Jones Industrials and S&P500 Indexes moved back above average. This is somewhat bullish if we see the trend to higher volumes sustained. Rallies require steadily rising volume to keep them going and without it they soon run out of gas.

This week, the Market Volatility Index (VIX) continued to drop. At 33.94 where the VIX ended the week, we are at levels not seen since September 2008. This compares to 36.53 last week and 39.70 two weeks ago. This shows that investors are getting more complacent about stock values and being in the market.

Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index continued to hold its own as the index closed at 376.25, off marginally from 376.44 last week. Since hitting a high of 611.51 in July the index is still down 38% from its peak.

After the surge in gold to $1001.10/oz the week of February 20, the precious metal continued to weaken again this week, falling to $869.50/oz, down from $880.50 last week and $894.60 two weeks ago. Volume and open interest continued to fall this week which is also bearish following the second of two tops February 20. Gold still has a long way to drop to confirm the double top so this pattern offers little short-term trading value. From a technical perspective, gold is headed lower.

Meanwhile, after putting in a bottom of sorts five weeks ago, the US Dollar Index continued to firm again closing at 85.98 up from 85.79 last week and 84.16 two weeks ago. Since bottoming in July, the U.S. Dollar Index is up nearly 20%.

Crude oil futures slipped for the first time in seven weeks as a barrel of crude slid to $52.31 from $54.69/bbl last week and $54.68 two weeks ago. Oil is still down nearly 62% from its mid-summer high of $147.20 and the rally remains alive.

However, after falling for the last few weeks, the Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, rose this week to 1682, up 14% from 1478 last week and back above 1678 three weeks ago. This is somewhat bullish both the economy and the price of oil going forward.

The U.S. bank prime rate and the Fed funds target rate held steady following the lasted FOMC meeting at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate slipped to 0.14% from 0.16% last week. Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) slipped again to 1.10188% (from 1.13125% last week and 1.16094% two weeks ago). This compares to LIBOR 52-week high of 4.81875% last October.

On the mortgage front, Freddie Mac mortgage rates slipped this week to 4.82% (from 4.87% last week) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) firmed again to 4.91% (from 4.83% last week).

Earnings
Over the last four weeks, analysts have raised earnings estimates for 290 S&P1500 companies while cutting estimates for 772 which works out to a net negative 442 or -32.1%. As we see from the next chart, although this may seem bearish, this trend has been improving (red line) in a positive trend since November according to Bespoke.

Does it mean the worst is over? Unfortunately, Bespoke only presented data going back 18 months so no significant conclusions can be made.

For Q4-08, earnings for roughly 4000 companies were down 280% from Q4-07 so not a lot of hope there. Will earnings tell us when we should start buying again? Problem is, earnings numbers have not provided much in the way of an advance signal that things are getting better or worse in equities markets. This next chart provides a clearer picture.

Chart courtesy of VectorVest.com
As we see from a chart of the 8050 companies that make up the VectorVest Composite Index, improvements in fundamentals did show up before the last rally began in March 2003. Growth to PE (GPE in teal) and Relative Value (RV in blue) both pointed up in advance of the last big rally. However, Earnings per Share (EPS in purple) took a while to recover after the rally had begun. Another metric, Earnings Growth (GRT) not shown on this chart also began to improve in advance of the 2003 rally. Unfortunately as we see from this weekly chart, GPE, RV and EPS have yet to show any positive signs at the far right hand side of the chart. The same holds true for earnings growth. You will notice that for a while after the VVC put in its first bottom in October 2002, the fundamentals continued to worsen. GPE was the first to turn up, followed by RV. Earnings growth (GRT) began to improve in March 2002, well in advance of the March 2003 bottom in stocks.

Although the fundamentals do provide some idea as to whether a rally is sustainable or not, don't expect them to give you advance warning that the worst is over. The same holds true for getting you out before the market tanks.

We will continue to track Relative Value, Growth to PE and earnings growth (GRT) because when the turn up and prices are still heading higher, we will become more bullish. For a more detailed explanation of these and other fundamental metrics, please see http://www.vectorvest.com/definitions/

Economic Reports
Treasury sales drop again and so do housing permits and starts...
After January's record net Treasury international capital outflow of $148.9 billion in short-term securities, the net outflow of $97 billion seemed less serious but still heavy. Foreign demand for short-term securities is watched less closely than demand for long-term securities which was net positive $36.8 billion. However, a continuous drop in the short-term number will indicate that the US is having trouble funding its account deficit with negative implications for the US dollar.

Two important numbers were also released this week - housing permits and housing starts. After a rebound of 6.2% and 17.2% for permits and starts respectively in February, permits fell 9% and starts dropped 10.8% in March. On an annualized basis, that equates to 510,000 started units, down 48.4% from March 2008. Permits have fallen 45% over the same period. Although starts were higher than they were two months ago, indicating the beginning of a possible bottom, permits were lower in March than they were in January. This is bearish for the industry and the housing market in generally given that permits lead starts and new home sales tend to lead existing home sales.

Other metrics we don't follow closely such as the Consumer Price Index declined 0.38% officially even though the unofficial level shows an increase of 7.3% (Shadowstats.com). The official number has a high "fudge factor" and is pretty much useless for investing or trading purposes. It is interesting to note however, that this is the first time the official number has shown deflation in 54 years according to John Williams of ShadowStats.com Meanwhile, core retails sales showed a drop of 1.4% in March.

On the lighter side...
Over the next four weeks, we will be featuring actual answers from a Grade 6 history test. Please watch the spelling... I wonder how many of these students made it into grade 7?

1. Ancient Egypt was inhabited by mummies and they all wrote in hydraulics. They lived in the Sarah Dessert. The climate of the Sarah is such that all the inhabitants have to live elsewhere.

2. Moses led the Hebrew slaves to the Red Sea where they made unleavened bread, which is bread made without any ingredients. Moses went up on Mount Cyanide to get the ten commandments. He died before he ever reached Canada.

3. Solomon had three hundred wives and seven hundred porcupines.

4. The Greeks were a highly sculptured people, and without them we wouldn't have history. The Greeks also had myths. A myth is a female moth.

Stay tuned for the next installment!

Stories of interest this week...

The Incredible Shrinking Market Liquidity, Or the Upcoming Black Swan of Black Swans
http://zerohedge.blogspot.com/2009/04/incredibly-shrinking-market-liquidity.html

S&P 500 Financials Eye First Top Finish Since '93
http://www.bloomberg.com/apps/news?pid=20601109&sid=aziI7w_Xmwjg&refer=exclusive

Goldman Sachs Falls Behind JPMorgan in Debt Race: David Reilly
http://www.bloomberg.com/apps/news?pid=20601039&sid=aW8yPmjsZNzo&refer=home

Percentages S&P500 stocks are above their 50-day moving averages
http://bespokeinvest.typepad.com/bespoke/2009/04/percentage-of-stocks-above-50day-moving-averages-2.html

Working for your wealth,

John M. McClure, President & CEO
EquiTrend, Inc.

Fifth up week in a row

John M. McClure — Mon, 13 Apr 2009 14:11:29 GMT

Live Easy With EquiTrend

Fifth up week in a row

Week Ending April 10, 2009
EquiTrend.com

Rally five weeks old...
Leaders jump out
Falling consumer spending in the spotlight
Still in sell mode but...

INDEX	Apr10-09	Apr3-09	Change	Change%
INDU	8083.38	8017.59	65.79	0.82%
DJT	2,988.99	2,978.32	10.67	0.36%
SPX	856.56	842.50	14.06	1.67%
COMPX	1,652.54	1,621.87	30.67	1.89%
RUT	468.20	456.13	12.07	2.65%
EEM	27.95	27.35	0.60	2.19%

Last Week

INDEX	Apr3-09	Mar27-09	Change	Change%
INDU	8017.59	7,776.18	241.41	3.10%
DJT	2,978.32	2,777.95	200.37	7.21%
SPX	842.50	815.94	26.56	3.26%
COMPX	1,621.87	1,545.20	76.67	4.96%
RUT	456.13	429.00	27.13	6.32%
EEM	27.35	25.6	1.75	6.84%

Quote of the week
"When we look at the systematic financial system we're in, and it affects every country in the world including Canada, I think staying bearish is the route to go," Economist Nouriel Roubini.

Rally finishes fifth week...
Stocks finished their fifth consecutive week of gains. Given the weak performances Monday and Tuesday with the S&P500 dropping more than 3%, Thursday's strong close with a gain of nearly 4% was a pleasant surprise for the bulls for a number of reasons. It came on the last trading day of a holiday shortened week and a strong close on the last trading day is a bullish sign. It means that investors are confident enough to hold over the weekend and a long one at that. However, weekly volume was below average and that should be a concern.

Other concerns include the fact that the SPX finished the week 8% above its 50-day moving average which makes it quite overbought. Prior occurrences over the last ten years where the index has traded more than 7.5% above its 50 DMA have led mostly to short-term pullbacks according to Bespoke Investment Group. A number of stock sectors are trading in overbought territory as well and Consumer Discretionary and Financials are currently at their most overbought levels in a year.

Technically Speaking
Leaders leap out in front
This week Dan's Sunday April 5 portfolio consisted of 12 stocks to watch including Apple, (AAPL), Bank of America (BAC), Chesapeake Energy (CHK), Chicago Mercantile Exch (CME), Goldman Sachs (GS), MasterCard (MA), Research in Motion (RIMM), Salesforce.com (CRM), Sears Holdings (SHLD), L) and Visa (V). That they are leading the major indexes is somewhat bullish and if they remain strong if the major indexes weaken, will mean this rally is still on track.

About EquiTrend.com

EquiTrend.com is a stock market timing system developed to help investors easily achieve better investment performance than is possible through conventional buy-and-hold strategies.

CLICK HERE FOR SUBSCRIPTION INFORMATION

EquiTrend provides the tools to help you navigate this difficult bear market. If you need additional information there are three ways to contact us:

To submit questions, comments or feedback, email us at: feedback@equitrend.com. (This is the most preferred method)
Call us directly at (800) 731-5690. Remind our staff that you are an InvestorsInsight.com reader and mention code: insight1.
To have a Representative contact you, simply email us at: support@equitrend.com.

Weekly volumes dropped below average for the major indexes and this was the fourth consecutive weekly volume drop for the Dow Jones Industrials and S&P500 Indexes. As we said last week, that is generally bearish in a rally. Rallies require steadily rising volume to keep them going and without it they soon run out of gas. Given the volumes we are seeing, this rally is due for a rest at the very least.

This week, the Market Volatility Index (VIX) dropped to levels not seen since September 2008 as it fell to end the week at 36.53, down from 39.70 last week and 41.04 two weeks ago. It shows that investors are getting more complacent about stock values.

Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index continued to hold its own as the index closed at 376.44 off slightly from its close of 378.53 last week but still holding the uptrend and well up from 366.13 two weeks ago. Since hitting a high of 611.51 in July the index is still down 38% from its peak.

After another big surge in gold to $1001.10/oz the week of February 20, the precious metal continued to weaken dropping to $880.50/oz down from $894.60 last week. Volume and open interest remain depressed following the second of two tops February 20. Gold still has a long way to drop to confirm the double top so this pattern offers little short-term trading value. Technically this spells further drops for gold.

Meanwhile, after putting in a bottom of sorts four weeks ago, the US Dollar Index firmed again to 85.79 compared to 84.16 last week and 85.11 two weeks ago. Since bottoming in July, the U.S. Dollar Index is up more than 19%.

Crude oil futures held its ground this week to close at $54.69/bbl virtually unchanged from $54.68 last week. Oil is still down nearly 62% from its mid-summer high of $147.20 and the rally remains alive.

The Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, slipped again this week to 1478 down 2% from 1506 last week and down from 1678 two weeks ago. This is bearish for both the economy and the price of oil going forward.

The U.S. bank prime rate and the Fed funds target rate held steady following the lasted FOMC meeting at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate held steady at 0.16% (from 0.19% two weeks ago). Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) slipped to 1.13125% (from 1.16094% last week and 1.22% two weeks ago). This compares to LIBOR 52-week high of 4.81875% last October.

Meanwhile Freddie Mac mortgage rates firmed this week to 4.87% (from 4.78% last week and 4.85% two weeks ago) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) firmed to 4.83% (from 4.75% last week and 4.85% two weeks ago).

Earnings
Q1-09 earnings reports discontinued by the WSJ
We were thrown a curve ball this week when we tried to update corporate earnings for the roughly 4000 companies tracked by the Wall Street Journal. It wasn't where it should have been. When we contacted the company, we were told that the "Earnings Digest is no longer published by either WSJ.com or the Wall Street Journal Print Edition." Needless to say we were shocked especially considering that this metric provided the most advanced warnings of earnings problems as the current crunch began. We will continue to search for this information elsewhere and apologize for the inconvenience of not being able to bring it to you.

Here is our report from last week. With a total of 326 companies reporting in the first week of Q1-09 reporting season, earnings fell 48% from Q1-08 which is a darn sight better than the final tally for Q4-08 of -280.4% versus Q4-07 (3485 companies). This compared to - 62% for Q3-08 from Q3-07.

Economic Reports
Dropping consumer spending in the spotlight...
Not only was it a short week, it was short on economic reports as well. First, we learned Tuesday that consumer credit again took a big dive in February with a drop of $7.5 billion compared to a revised jump of $8.1 billion in January. January wholesale trade also dropped 1.5. Good news perhaps from a debt perspective is that the trade balance fell again February to a deficit of $26 billion down from -$36.2 billion in January.

On the lighter side...
If at first you don't succeed, skydiving is not for you.

Stories of interest this week...

Boeing Cuts Jet Production as Economy Hurts Airlines
http://www.bloomberg.com/apps/news?pid=20601110&sid=aKAX7PFPH0ng

Emerging-Market Stocks Extend Biggest Rally in Year; Bonds Gain
http://www.bloomberg.com/apps/news?pid=20601110&sid=aYEg94C2_8Ok

Hamptons, N.Y. Home Sales Plunge 67% in First Quarter
http://www.bloomberg.com/apps/news?pid=20601110&sid=a_IieuwSGDJo

Insurance Sales Fall Most in Half Century Amid Slump
http://www.bloomberg.com/apps/news?pid=20601110&sid=aqfGe94BspvM

U.S. Economy: Trade Gap Narrows to Nine-Year Low
http://www.bloomberg.com/apps/news?pid=20601110&sid=ao3vrz3IKvc8

Barclays Maroons Secret of Stable Banking in Suburb
http://www.bloomberg.com/apps/news?pid=20601109&sid=aZz8H26hbc68&refer=home

China's New Loans, Money Supply Jump to Records on Stimulus
http://www.bloomberg.com/apps/news?pid=20601087&sid=axfODKABo0w0&refer=home

Rupee Pain Means Exporters Gain as Indians Beat China
http://www.bloomberg.com/apps/news?pid=20601109&sid=aWk19bguGg88&refer=home

Aso's Stimulus Plan May Spur Economy at ‘Massive' Future Cost
http://www.bloomberg.com/apps/news?pid=20601087&sid=avPPeCPpuXr4&refer=home

Working for your wealth,

John M. McClure, President & CEO
EquiTrend, Inc.

Longest running streak of weekly gains in eighteen months

John M. McClure — Mon, 06 Apr 2009 16:17:00 GMT

Live Easy With EquiTrend

Longest running streak of weekly gains in eighteen months

Week Ending April 3, 2009
EquiTrend.com

Rally still going...
Leaders lagging
The new earnings season kicks off
Case-Shiller index implies worst home price declines may be over
Economic metrics also leveling
We're still in sell mode

INDEX	Apr3-09	Mar27-09	Change	Change%
INDU	8017.59	7,776.18	241.41	3.10%
DJT	2,978.32	2,777.95	200.37	7.21%
SPX	842.50	815.94	26.56	3.26%
COMPX	1,621.87	1,545.20	76.67	4.96%
RUT	456.13	429.00	27.13	6.32%
EEM	27.35	25.6	1.75	6.84%

Last Week

INDEX	Mar27-09	Mar20-09	Change	Change%
INDU	7,776.18	7,278.38	497.80	6.84%
DJT	2,777.95	2,516.96	260.99	10.37%
SPX	815.94	768.54	47.40	6.17%
COMPX	1,545.20	1,457.27	87.93	6.03%
RUT	429.00	400.11	28.89	7.22%
EEM	25.6	23.9	1.70	7.11%

Quote of the week
"Investors are still heavily in cash and the challenge they are facing is how to scale back into growth-oriented investments. For that reason, technology leadership is not surprising given many are flush with cash and little debt," - David Kreinces, a portfolio manager with ETF Portfolio Management.

Rally still going...
It was another good week for the bulls. As Dan explained this week from his Miami home, there is a lot of cash on the sidelines looking to get into the market. Despite the fact that we are still bear market, cash doesn't do much good if it isn't working which is why this rally has been so explosive But the fact that pundits like Jim Cramer are so confident that a new bull market has begun is a bearish omen. At true market bottoms, the majority including the Jim Cramers of the world, have given up, and this is most certainly not the case now.

This week marked the longest running streak of weekly gains in eighteen months. On the flipside however, we hit the highest unemployment rate since 1983 in March and although unemployment (and most other economic metrics for that matter) are lagging indicators, it shows that this recession is still very much alive and well.

Technically Speaking
Leaders lagging again
This week Dan's Sunday March 29 portfolio of 15 stocks to watch included Apple, (AAPL), Baidu.com (BIDU), Bank of America (BAC), Chicago Mercantile Exch (CME), First Solar (FSLR), Freeport CU&G (FCX), Goldman Sachs (GS), Google (GOOG), MasterCard (MA), JP Morgan (JPM), MEM C Elec (WFR), MasterCard (MA), Mosaic (MOS), Proshare UltraShort Fin (SKF), Sears Holdings (SHLD), and US Steel (X). That they are lagging the major indexes again is somewhat bearish for next week.

About EquiTrend.com

EquiTrend.com is a stock market timing system developed to help investors easily achieve better investment performance than is possible through conventional buy-and-hold strategies.

CLICK HERE FOR SUBSCRIPTION INFORMATION

EquiTrend provides the tools to help you navigate this difficult bear market. If you need additional information there are three ways to contact us:

To submit questions, comments or feedback, email us at: feedback@equitrend.com. (This is the most preferred method)
Call us directly at (800) 731-5690. Remind our staff that you are an InvestorsInsight.com reader and mention code: insight1.
To have a Representative contact you, simply email us at: support@equitrend.com.

Weekly volumes were again above average for the major indexes but this was the third consecutive weekly drop for the Dow Jones Industrials and S&P500 Indexes. That is bearish in a rally. Rallies require steadily rising volume to keep them going and without it they soon run out of gas.

The Market Volatility Index (VIX) spent most of the week falling to close at 39.70 down from 41.04 last week and 45.89 two weeks ago. It was the lowest VIX reading since January 28.

Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index has been moving higher and that trend continued this week as the index closed at 378.53 up from 366.13 last week. Since hitting a high of 611.51 in July the index is still down 38% from its peak.

After another big surge in gold to $1001.10/oz the week of February 20, the precious metal below $900/oz this week to close at $894.60/oz down from $922.90 last week and $955.70 two weeks ago. But volume remains anemic while open interest has begun to rise following the second of two tops February 20. Gold has a long way to drop to confirm the double top so this pattern offers little short-term trading value. Technically this spells further drops for gold.

After rising for the better part of two months then rolling over three weeks ago, the US Dollar Index slipped to 84.16 from 85.11 last week, but up from 83.73 two weeks ago. Since bottoming in July, the U.S. Dollar Index has paired its gain to 19%.

Crude oil futures firmed again this week to close at $54.68/bbl up from $52.38 last week and $52.07 two weeks ago. Oil is still down nearly 64% from its mid-summer high of $147.20 and the rally remains alive.

The Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, slipped again this week to 1506 down 10.25% from 1678 last week. This is bearish for both the economy and the price of oil going forward.

The U.S. bank prime rate and the Fed funds target rate held steady following the lasted FOMC meeting at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate slipped further to 0.16% (from 0.19% last week and 0.23% two weeks ago). Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) slipped to 1.16094% (1.22% last week and 1.22281% two weeks ago). This compares to LIBOR 52-week high of 4.81875% last October.

Meanwhile Freddie Mac mortgage rates slipped this week to 4.78% (from 4.85% last week and 4.98% two weeks ago) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) also fell to 4.75% (from 4.85% last week and 4.91% two weeks ago).

Earnings
Q1-09 earnings season starts
With a total of 326 companies reporting in the first week of Q1-09 reporting season, earnings fell 48% from Q1-08 which is a darn sight better than the final tally for Q4-08 of -280.4% versus Q4-07 (3485 companies). This compares to - 62% for Q3-08 from Q3-07. This week's results are an improvement but the season has just begun!

We will be looking for earnings declines to shrink which would be a bullish indicator that the worst corporate profit declines may be over. It is also important to remember that earnings have shown a tendency to get worse as reporting seasons have matured since earnings first turned negative for the broader market in Q3-07, which is another concern.

Economic Reports
Economic metrics point to leveling...
This week's reports really started Tuesday with news that the Case-Shiller home price index had stopped getting worse on a year-over-year basis in January. Home prices were down 19% versus down 19.2% in December. I know it's not much but certainly better than another drop. Another important facet of the economy, the ISM manufacturing index showed a slight improvement in March to 36.3 from 35.8 in February but the more important ISM non-manufacturing showed a drop to 40.8 from 41.6 the month before. Construction spending also fell another 0.9% in February which isn't surprising.

Then finally, the report many had been waiting for on Friday, non-farm payrolls, showed the loss of another 663,000 jobs in March versus -651,000 in February. Unemployment is now 8.5%, the highest level since 1983.

Stories of interest this week...

Nassim Taleb Says Geithner's Bank Plan Will Fail
http://www.bloomberg.com/apps/news?pid=20601110&sid=a7DbIc6WLhmU

Convertible Sales Show Bernanke Opens Cheap Credit
http://www.bloomberg.com/apps/news?pid=20601110&sid=a191rbP7kypA

U.S. Markets Wrap: Stocks Rise in Longest Streak Since 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=aWONxsqh5T14&refer=home

U.S. Economy: Unemployment Rate Reaches 25-Year High, Service Sector Shrinks
http://www.bloomberg.com/apps/news?pid=20601087&sid=afyS1pI4ftXY&refer=home

Buffett Back in the Money on Goldman Sachs Warrants After Rally
http://www.bloomberg.com/apps/news?pid=20601087&sid=aq7O1MStteaw&refer=home

Prime Loan Default Rates Doubled in 2008, U.S. Says
http://www.bloomberg.com/apps/news?pid=20601087&sid=aXcxMzGkWT_U&refer=home

Working for your wealth,

John M. McClure, President & CEO
EquiTrend, Inc.

Rally Continues Its March

John M. McClure — Mon, 30 Mar 2009 16:49:36 GMT

Live Easy With EquiTrend

Rally continues its march

Week Ending March 27, 2009
EquiTrend.com

Rally just keeps on going...
Leaders fall behind
Earnings - Getting worse but not as fast...
Home sales pick up at the expense of prices
We're still in sell mode

INDEX	Mar27-09	Mar20-09	Change	Change%
INDU	7,776.18	7,278.38	497.80	6.84%
DJT	2,777.95	2,516.96	260.99	10.37%
SPX	815.94	768.54	47.40	6.17%
COMPX	1,545.20	1,457.27	87.93	6.03%
RUT	429.00	400.11	28.89	7.22%
EEM	25.6	23.9	1.70	7.11%

Last Week

INDEX	Mar20-09	Mar13-09	Change	Change%
INDU	7,278.38	7,223.98	54.40	0.75%
DJT	2,516.96	2,419.89	97.07	4.01%
SPX	768.54	756.55	11.99	1.58%
COMPX	1,457.27	1,431.50	25.77	1.80%
RUT	400.11	393.09	7.02	1.79%
EEM	23.9	23.36	0.54	2.31%

Quote of the week
"The main issue right now is that there's just a lot of [Treasury] supply out there. The Treasury is selling a lot more than the Fed is buying." - Futures trader Arthur Bass. Demand from domestic and foreign institutions for the $34 billion five-year Treasury note auction was 30% this week, compared to 48.9% from the previous auction in February and an average of 30.1% for the last 10 auctions.

Rally marches on...
It was another good week for stocks driven higher by expectations that toxic bank assets would be finally removed from bank balance sheets by the taxpayer. Before Friday's 148-point drop, the Dow Industrials had gained an impressive 21% in just thirteen trading days.

Stocks were further helped by some short-term good news in existing and new home markets which is really not good news at all. The difference is that investors are now interpreting bad news by buying more stocks and that is a good sign as it shows sentiment is becoming more bullish.

Technically Speaking
Leaders fall behind
This week Dan's Sunday March 22 portfolio of 10 stocks to watch included Apple, (AAPL), Baidu.com (BIDU), Broadcom (BRCM), Chicago MercantileBuckle (CME), Cree (CREE), FedEx (FDX), Goldman Sachs (GS), Mastercard (MA), Proshare UltraShort RE (SRS) and sTrackers Gold (GLD). This group underperformed the indexes and that is mildly bearish.

About EquiTrend.com

EquiTrend.com is a stock market timing system developed to help investors easily achieve better investment performance than is possible through conventional buy-and-hold strategies.

CLICK HERE FOR SUBSCRIPTION INFORMATION

EquiTrend provides the tools to help you navigate this difficult bear market. If you need additional information there are three ways to contact us:

To submit questions, comments or feedback, email us at: feedback@equitrend.com. (This is the most preferred method)
Call us directly at (800) 731-5690. Remind our staff that you are an InvestorsInsight.com reader and mention code: insight1.
To have a Representative contact you, simply email us at: support@equitrend.com.

Weekly volumes were again above average and indexes moved higher but volumes were lower for most of the major indexes. The exception was the emerging markets ETF EEM, which gapped higher on higher volume and this is bullish. However, this doesn't mean we can't have lower prices in the short-term.

The Market Volatility Index (VIX) spent most of the week falling to close at 41.04 down from 45.89 last week and that is bullish. A rising VIX shows fear creeping back into the market in spite of rising prices. But the VIX is a very short-term indicator at best.

Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index has been moving higher but it lost ground this week to close at 366.13 down from 372.87 last week. Since hitting a high of 611.51 in July the index is still down 39% from its peak.

After another big surge in gold to $1001.10/oz four weeks ago, the precious metal fell to $922.90/oz down from $955.70 last week and up from $928.50 two weeks ago. But as we have mentioned in past weeks, volume and open interest continue to decline which is bearish, especially given the second of two tops four weeks ago. Gold has a long way to drop to confirm the double top so this pattern offers little short-term trading value. Technically this spells further drops in gold but this will be offset by increasing government efforts to devalue the dollar as we clearly witnessed this week.

After rising for the better part of two months then rolling over two weeks ago, the US Dollar Index rallied to 85.11, up from 83.73 last week. Since bottoming in July, the U.S. Dollar Index has paired its gain to 19%.

Crude oil futures firmed again this week to close at $52.38/bbl up from $52.07 last week. Oil is still down nearly 64% from its mid-summer high of $147.20 and looks to be keeping the rally alive.

The Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, slipped again this week to 1678, down 9.3% from last week. This is bearish for both the economy and the price of oil going forward.

The U.S. bank prime rate and the Fed funds target rate held steady following the lasted FOMC meeting at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate moved back down to 0.19% (from 0.23% last week). Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) slipped to 1.22% (from 1.22281% last week). This compares to LIBOR 52-week high of 4.81875% last October.

Meanwhile Freddie Mac mortgage rates slipped this week to 4.85% (from 4.98% last week) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) also fell to 4.85% (from 4.91% last week).

Earnings
Q4 earnings - still getting worse
With a total of 3485 companies having reported so far in the eleventh week of Q4-08 earnings reporting season (up from 3409 last week), the net loss on continuing operations widened to ($220.8) billion (from ($205.6) billion last week) versus +$122.4 billion in Q4-07 which is a -280.38% change from Q4-07. This compares to -279.7% last week, -266% two weeks ago, -262% three weeks ago and -46% in the opening week of reporting season. The final result for Q3-08 was -62% from Q3-07. However, notice that the rate at which earnings are falling is declining which is a good sign.

Earnings continue to experience their biggest drops since first turning negative and we expect this trend to continue at least into next reporting season.

Economic Reports
Home sales tick up while home prices, GDP fall...
Another big rally on Monday, this one due to the latest government bailout plan, but a 5% jump month-over-month in existing home sales was also partly responsible. It was another case of celebrating without fully understanding the numbers. Yes existing home sales rose but only because home prices suffered a big drop as the median price of an existing home fell from $175,700 in December to $165,400 in February (the January price was revised downward from $170,300 to $164,800). On a year-over-year basis prices have fallen 15.6% and are down 28.2% from their peak in July 2006. I don't see anything to celebrate about at least not in the housing department.

New home sales also improved jumping 4.7% in February versus January but prices are now down 18% year-over-year - a situation that will be further exacerbated by the jump in housing starts in February.

The final estimate of Q4-08 GDP came in a -6.3% down from the previous estimate of -6.2% but this could be revised for up to 18 months so we don't put a lot of stock in it at this point (or any point for that matter due to the tremendous amount of statistical hanky-panky to manufacture this figure).

On the lighter side...
Slogan we saw on a baseball cap recently.
"YOU DRIVE ME TO DRINK!
(I'll buy gas...)

Stories of interest this week...

Hedge Funds, Buyout Firms Say Regulation Unstoppable
http://www.bloomberg.com/apps/news?pid=20601087&sid=ajq8MuPTxQy8&refer=home

Baltic Bust Sows Entrepreneur ‘Panic' in EU's Worst Economies
http://www.bloomberg.com/apps/news?pid=20601109&sid=aa8ZRBQ6sSg0&refer=home

U.K. Recession Worse Than Estimated on Spending Slump
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZtgamsmkWJ0&refer=home

N.Y. Said to Boost Income Tax on Earnings Exceeding $300,000
http://www.bloomberg.com/apps/news?pid=20601110&sid=aEN5a_efY94o

Tax Dodgers Multiply as ‘Underground Economy' Cushions Job Cuts
http://www.bloomberg.com/apps/news?pid=20601109&sid=aCuiJAVv6ZOc&refer=home

Working for your wealth,

John M. McClure, President & CEO
EquiTrend, Inc.

After two weeks up what will happen this week?

John M. McClure — Mon, 23 Mar 2009 14:29:33 GMT

Live Easy With EquiTrend

After two weeks up what will happen this week?

Week Ending March 20, 2009
EquiTrend.com

Rally just keeps on going...
Leaders fall behind
Earnings - Yup, still getting worse
Net Treasury capital outflow hits a record
Builder's sentiment bearish despite blip in starts
We're still in sell mode
Elliott Wave says rally will keep going

INDEX	Mar13-09	Mar13-09	Change	Change%
INDU	7,278.38	7,223.98	54.40	0.75%
DJT	2,516.96	2,419.89	97.07	4.01%
SPX	768.54	756.55	11.99	1.58%
COMPX	1,457.27	1,431.50	25.77	1.80%
RUT	400.11	393.09	7.02	1.79%
EEM	23.9	23.36	0.54	2.31%

Last Week

INDEX	Mar13-09	Mar6-09	Change	Change%
INDU	7,223.98	6,626.94	597.04	9.01%
DJT	2,419.89	2,194.99	224.90	10.25%
SPX	756.55	683.38	73.17	10.71%
COMPX	1,431.50	1,293.85	137.65	10.64%
RUT	393.09	351.05	42.04	11.98%
EEM	23.36	21.1	2.26	10.71%

Quote of the week
"Everyone is saying that we're going to go back and test the lows, but you know, the market doesn't usually reward the consensus view." - Craig Hodges, portfolio manager for Hodges Capital Management.

Rally just keeps on going...
It was certainly a week of news driven markets. First there was dancing on Wall Street when news was released Tuesday that housing starts jumped 22% causing the market to rally nearly 180 points. Clearly investors had no intention of looking this gift horse in the mouth. Maybe it had something to do with the luck of the Irish and all that green beer being poured in pubs in New York...

It was clear that everyone was getting sick of bad news and had chosen to simply ignore it. Even the rather depressing language from Bernanke and crew in the FOMC interest rate decision statement failed to do much damage. But then as the week drew to a close, the Dow fell on Thursday and Friday which probably had more to do with the fact that it was triple witching week as a number of options and futures contracts expired. But the Fed also played a rather part.

We learned this week that on top of trillions in bailouts for Wall Street and more recently Main Street mortgage holders, a new plan was afoot. However this week's announcement to expand purchases of mortgage backed securities and GSE fixed income securities (from Fannie Mae and Freddie Mac), and start buying $300 billion in US Treasuries and monetize government debt brought about the expected reaction. One would have thought that this bailout bonanza would have had a depressing effect on the US dollar but up until recently the reverse has been true. However, the 4.9% drop in the greenback on Wednesday and Thursday after the Fed announcement demonstrated that the move caught many off-guard.

There is an undeniable reality is that even if the stock market rally continues the never-ending stream of ‘stealing from Peter to pay Paul' policies to stem further economic and market declines in the final analysis will have the opposite real effect. We got a hint of that this week as the price of oil and most other commodities moved strongly higher making the current economic pain even worse for those most adversely impacted by the meltdown.

As many prescient forecasters have warned, policies that further compound already extreme levels of debt and the ultimate taxpayer burden only increase the probability of a U.S. malaise similar to that which has plagued Japan since 1990.

Technically Speaking
Leaders soar with the pack
This week Dan's Sunday March 15 portfolio of 10 stocks to watch was rich with financials and included Apple, (AAPL), Buckle (BKE), Cree (CREE), Goldman Sachs (GS), Life Tech (LIFE), Mastercard (MA), Morgan Stanley (MS), PNC Financial (PNC), Sohu.com (SOHU), and Wells Fargo (WFC). But this time, this group lost ground while the major indexes moved marginally higher. This is mildly bearish.

About EquiTrend.com

EquiTrend.com is a stock market timing system developed to help investors easily achieve better investment performance than is possible through conventional buy-and-hold strategies.

CLICK HERE FOR SUBSCRIPTION INFORMATION

EquiTrend provides the tools to help you navigate this difficult bear market. If you need additional information there are three ways to contact us:

To submit questions, comments or feedback, email us at: feedback@equitrend.com. (This is the most preferred method)
Call us directly at (800) 731-5690. Remind our staff that you are an InvestorsInsight.com reader and mention code: insight1.
To have a Representative contact you, simply email us at: support@equitrend.com.

Although weekly volumes were again above average although indexes moved higher, the biggest volume occurred on down days. As we said last week, rallies require steadily increasing volume to remain strong and falling volume when prices rise indicates declining interest from buyers. Increasing volume on down days is also bearish.

The Market Volatility Index (VIX) spent the first two days falling then rose through the rest of the week to close at 45.89 up from 42.36 last week. A rising VIX on rising prices is bearish as it shows fear creeping back into the market in spite of rising prices.

Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index has been moving higher and it gained more ground again this week to close at 372.87 up from 354.30 last week and 351.55 two weeks ago. Since hitting a high of 611.51 in July the index is still down 39% from its peak.

After another big surge in gold to $1001.10/oz four weeks ago, the precious metal surged to $955.70/oz this week up from $928.50 last week. But as we have mentioned in past weeks, volume and open interest continue to decline which is bearish, especially given the recent potential double top three weeks ago. Gold has a long way to drop to confirm the double top so this pattern offers little short-term trading value. Technically this spells further drops in gold but this will be offset by increasing government efforts to devalue the dollar as we clearly witnessed this week.

After rising for the better part of two months then rolling over two weeks ago, the US Dollar Index lost 4.6% this week dropping to 83.73 down from 87.36 last week and 88.59 two weeks ago. Since bottoming in July, the U.S. Dollar Index has paired its gain to 17%.

Crude oil futures firmed again this week to close at $52.07/bbl up from $45.73 last week. Oil is still down nearly 64% from its mid-summer high of $147.20 and looks to be keeping the rally alive.

The Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, slipped again this week to 1782, down from 2122 last week and 2225 two weeks ago. A continued increase in the BDI is bullish for the economy and oil prices but it appears to have lost momentum at least for the time being.

The U.S. bank prime rate and the Fed funds target rate held steady following the lasted FOMC meeting at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate firmed to 0.23% (from 0.19% last week). Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) slipped to 1.22281% (down from 1.31563% last week). This compares to LIBOR 52-week high of 4.81875% last October.

Meanwhile Freddie Mac mortgage rates slipped this week to 4.98% (from 5.03% last week) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) firmed to 4.91% (from 4.8% last week).

Earnings
Q4 earnings - still getting worse
With a total of 3409 companies having reported so far in the eleventh week of Q4-08 earnings reporting season (up from 3243 last week), the net loss on continuing operations widened to ($219.2) billion (from ($205.6) billion last week) versus +$121.9 billion in Q4-07 which works out to a change of -279.7% from Q4-07. This compares to -266% last week, -262% two weeks ago and -46% in the opening week of reporting season. The final result for Q3-08 was -62% from Q3-07.

Earnings continue to experience their biggest drops since first turning negative and we expect this trend to continue at least into next reporting season.

Economic Reports
Treasuries point to trouble on the horizon
We learned on Monday that monthly net Treasury International Capital (TIC) flows, the amount of foreign money flowing into or out of Treasuries, hit a record outflow in January of $148.9 billion in January versus an inflow of $86.2 billion in December. Monthly net TIC flows is the most comprehensive category contained in the reporting data set and includes non-market flows, short-term securities and changes in banks' dollar holdings. As we see from the chart, Treasury will need to net more than $160 billion in Treasury sales every month.

The amount of money flowing into Treasuries has been steadily falling over the last three years. According to the Wall Street Journal, China remained the largest holder of U.S. Treasury securities, having surpassed Japan late last year with holdings totaling $739.6 billion, followed by Japan's $634.8 billion and $186.3 billion among oil exporters. But the total held by these three groups pays just nine months of the US government's current annual budgetary needs of the estimated $2 trillion annual deficit in 2009!

Builder's sentiment bearish despite blip in starts
We also learned Monday that National Association of Home Builder's sentiment was little changed in March at 9, exactly where it was in January. But then on Tuesday, an unexpected 22% jump in February housing starts helped push the Dow up 179 points as investors hoped again, that it represented the start of a bottom. Unfortunately, a closer look revealed the folly in this assessment - a proposition supported by the poor showing from the most recent NAHB survey. If there is any improvement in the housing industry, the builders don't seem to know anything about it.

As we have said before, starts lag permits and February permits were up a meager 3% indicating that builders were probably just getting homes started before the permit period expired. It is also the beginning of the important spring building season, a time in which permits and starts should spike higher. So while it was good to have at least a temporary respite from the bad housing news, using this as an excuse to call a housing market bottom would be foolhardy. There have been a number of similar "fake ups" before in both permits and starts which were shortly followed by a strong reversion to the down trend.

One last point - it's not the shortage of new homes on the market that is the problem. It's the shortage of new home buyers. Adding more new home inventories without an increase in buyers will only make the inventory situation worse.

On the lighter side...
Before you criticize someone, you should walk a mile in his or her shoes. That way, when you criticize them, you're a mile away and you have their shoes.

Stories of interest this week...

CBO Projects 2009 Deficit Will Reach $1.85 Trillion
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3FY84ILxIUc&refer=home

Fed to Buy $300 Billion of Longer-Term Treasuries (Update4)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aeP8.XnGrN64&refer=home

Naked Short Sales Hint Fraud in Bringing Down Lehman
http://www.bloomberg.com/apps/news?pid=20601109&sid=aB1jlqmFOTCA&refer=home

U.S. Industrial Production Fell 1.4% in February
http://www.bloomberg.com/apps/news?pid=20601068&sid=aKo5Ol3aQgO8&refer=home

U.S. Economy: Housing Starts Unexpectedly Increased in February
http://www.bloomberg.com/apps/news?pid=20601068&sid=abdvnB6vu80E&refer=home

Bernanke Says Fed Aims to Ease Credit-Market Strains
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAWzQMDmmdhk&refer=home

U.S. Officials Urge TARP Recipients to Comply With New Visa Law
http://www.bloomberg.com/apps/news?pid=20601087&sid=aoC8hgygmC8c&refer=home

Geneva Banks Face ‘Creative Destruction' in Losing Secrecy
http://www.bloomberg.com/apps/news?pid=20601109&sid=a7QiEJj.PYTs&refer=exclusive

Rich Head for the Caymans When Tax Rates Go Up: Caroline Baum
http://www.bloomberg.com/apps/news?pid=20601039&sid=aMN8U14Ha8Mk&refer=home

Working for your wealth,

John M. McClure, President & CEO
EquiTrend, Inc.

Does this bounce have legs?

John M. McClure — Mon, 16 Mar 2009 16:45:00 GMT

Live Easy With EquiTrend

Does this bounce have legs?

Week Ending March 15, 2009
EquiTrend.com

Reversal gains traction
Leaders soar with the pack
Earnings - Still getting worse
Scant economic news, a good thing...
But is this rally running on empty?

INDEX	Mar13-09	Mar6-09	Change	Change%
INDU	7,223.98	6,626.94	597.04	9.01%
DJT	2,419.89	2,194.99	224.90	10.25%
SPX	756.55	683.38	73.17	10.71%
COMPX	1,431.50	1,293.85	137.65	10.64%
RUT	393.09	351.05	42.04	11.98%
EEM	23.36	21.1	2.26	10.71%

Last Week

INDEX	Mar6-09	Feb 27-09	Change	Change%
INDU	6,626.94	7,062.93	-435.99	-6.17%
DJT	2,194.99	2,499.07	-304.08	-12.17%
SPX	683.38	735.09	-51.71	-7.03%
COMPX	1,293.85	1,377.84	-83.99	-6.10%
RUT	351.05	389.02	-37.97	-9.76%
EEM	21.1	21.23	-0.13	-0.61%

Quote of the week
"Few doubt the importance of consumer spending on the U.S. economy and its multiplier effect on the global economy, but what is underappreciated is the role of credit-card availability in that spending," - Meredith Whitney in the Wall Street Journal article this week entitled Credit cards are the next credit crunch.

Reversal gains traction...
After four weeks in a row of losses across the board, stocks made gains and impressive ones at that with the major indexes (except the Dow) making double-digit gains. But there are signs that this brief albeit powerful bear market rally may already be on its last legs.

Technically Speaking
Leaders soar with the pack
This week Dan's Sunday March 8 portfolio of 8 stocks to watch included Amazon (AMZN), Apple, (AAPL), Baidu.com (BIDU), Freeport (FCX), Google (GOOG), Goldman Sachs (GS), Holders Oil Serv. (OIH) and US Oil Fund ETF (USO). This portfolio's performance was again in the middle of the pack this week except that this time it was a high-performance group.

About EquiTrend.com

EquiTrend.com is a stock market timing system developed to help investors easily achieve better investment performance than is possible through conventional buy-and-hold strategies.

CLICK HERE FOR SUBSCRIPTION INFORMATION

EquiTrend provides the tools to help you navigate this difficult bear market. If you need additional information there are three ways to contact us:

To submit questions, comments or feedback, email us at: feedback@equitrend.com. (This is the most preferred method)
Call us directly at (800) 731-5690. Remind our staff that you are an InvestorsInsight.com reader and mention code: insight1.
To have a Representative contact you, simply email us at: support@equitrend.com.

Although weekly volumes at or above average, they declined as stocks rose for the major indexes and that is decidedly bearish. Rallies require steadily increasing volume to remain strong and falling volume demonstrates declining interest from buyers and is usually a precursor to lower prices.

Not surprisingly given the rally, the Market Volatility Index (VIX) fell this week to 42.36 from 49.33 last week. Although a falling VIX is generally bullish, that this occurred on falling volume makes it bearish.

Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index has been moving higher and it gained more ground this week to close at 354.30 up from 351.55 last week but up from 345.94 three weeks ago. Since hitting a high of 611.51 in July the index is still down 42% from its peak.

After anther the big surge in gold to $1001.10/oz three weeks ago, the precious metal closed at $928.50/oz down from $942.70 last week. As we have mentioned in past weeks, volume and open interest had been declining which is bearish, especially given the recent potential double top two weeks ago. To confirm the double top, gold will have to break down through the pattern neckline at $700/oz so this pattern has little short-term trading value. We see gold falling further in the coming weeks in spite of what the fundamental gold pundits are telling you.

After rising for the better part of two months, the US Dollar Index stumbled after hitting a potential double top last week to close at 87.36 off from 88.59 last week. Since bottoming in July, the U.S. Dollar Index is still up more than 20%.

Crude oil futures slipped this week to close at $45.73/bbl, off from $47.56 last week. Oil is down nearly 70% from its mid-summer high of $147.20 and could rally on any supply problems or brighter economic news.

The Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, slipped this week to 2122 from 2225 but is still up 220% its December 5 low. Not only is the bullish for oil (which has demonstrated a habit of following behind the BDI) but for the economy as well as it shows that demand for cargo transport is climbing as long as it continues to rise.

The U.S. bank prime rate and the Fed funds target rate held steady again this week at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate slipped to 0.19% from 0.24% last week. Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) jumped again to 1.31563% from 1.2925% last week. This compares to LIBOR 52-week high of 4.81875% last October.

Meanwhile Freddie Mac mortgage rates slipped this week to 5.03% from 5.15% last week for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) slipped to 4.8% from 4.86%.

Earnings
Q4 earnings - still getting worse
With a total of 3243 companies having reported so far in the tenth week of Q4-08 earnings reporting season (up from 3028 last week), the net loss on continuing operations widened to ($205.6) billion (from ($200) billion last week) versus +$124.6 billion in Q4-07) which works out to a change of -266% from Q4-07. This compares to -262% last week, -197% two weeks ago and -46% in the opening week of reporting season. The final result for Q3-08 was -62% from Q3-07.

Earnings continue to experience their biggest drops since first turning negative and we expect this trend to continue at least into next reporting season.

Economic Reports
Slow week with no surprises a good thing?
There wasn't much in the way of economic news this week other than confirming what we already know. We learned Tuesday that wholesale trade dropped 0.7% in January. On Wednesday, it was reported that the federal budget deficit swelled to $192.78 billion in February, up from $83.8 billion in January (!). On Thursday and Friday we learned that retail sales remained weak in February and our trade balance continues to shrink, dropping to -$36.03 billion in January from -$39.93 billion in December.

Synopsis
Rally running out of gas?
Our timing signal turned red (short) this week which is not a surprise given the falling volume. Bear market rallies can be exciting affairs but they aren't much fun if you're on the wrong side when stocks inevitably turn south again which is what our indicators are saying is going to happen.

Stay tuned for the upcoming ProfitScore IQ due out later this week.

Stories of interest this week...

Depression Dynamic Ensues as Markets Revisit 1930s
http://www.bloomberg.com/apps/news?pid=20601109&sid=aNlx.TpHF5W4&refer=home

Warren Buffett Says Economy Has ‘Fallen Off a Cliff'
http://www.bloomberg.com/apps/news?pid=20601087&sid=aqQ0WxqDAw3c&refer=home

U.S. Stocks Fall on Buffett, World Bank Warning About Economy
http://online.wsj.com/article/SB123659458995869643.html#mod=testMod

Stocks Post Best Rally of 2009 on Improving Citigroup Outlook
http://www.bloomberg.com/apps/news?pid=20601087&sid=a0Ii37swxioo&refer=home

Cards Raise ‘Canary in Coal Mine' Alert in Canada
http://www.bloomberg.com/apps/news?pid=20601109&sid=a7p7mebDmYyY&refer=home

Japan GDP Shrank 12.1% Last Quarter on Export Slide
http://www.bloomberg.com/apps/news?pid=20601087&sid=aqFrDhSR8l1E&refer=home

Whitney says credit cards are the next credit crunch
http://www.reuters.com/article/newsOne/idUSTRE52921M20090310

South Sea Bubble Survivor Says Dismantle RBS Along With Lloyds
http://www.bloomberg.com/apps/news?pid=20601109&sid=aANXHOD12Q2A&refer=home

Switzerland eases banking secrecy
http://news.bbc.co.uk/2/hi/business/7941717.stm

On the lighter side...

If you think nobody cares whether you're alive or dead, try missing a couple of mortgage payments.

Working for your wealth,

John M. McClure, President & CEO
EquiTrend, Inc.

Catching a Falling Safe

John M. McClure — Mon, 09 Mar 2009 15:35:00 GMT

Live Easy With EquiTrend

Catching a falling safe

Week Ending March 6, 2009
EquiTrend.com

Stocks fall, a reversal afoot?
Leaders fall with the pack
Earnings - Any one have a tourniquet?
Bad economic news but good market action?
Looking forward

INDEX	Mar6-09	Feb 27-09	Change	Change%
INDU	6,626.94	7,062.93	-435.99	-6.17%
DJT	2,194.99	2,499.07	-304.08	-12.17%
SPX	683.38	735.09	-51.71	-7.03%
COMPX	1,293.85	1,377.84	-83.99	-6.10%
RUT	351.05	389.02	-37.97	-9.76%
EEM	21.1	21.23	-0.13	-0.61%

Last Week

INDEX	Feb 27-09	Feb 20-09	Change	Change%
INDU	7,062.93	7,365.67	-302.74	-4.11%
DJT	2,499.07	2,698.87	-199.80	-7.40%
SPX	735.09	770.05	-34.96	-4.54%
COMPX	1,377.84	1,441.23	-63.39	-4.40%
RUT	389.02	410.96	-21.94	-5.34%
EEM	21.23	21.52	-0.29	-1.35%

Quote of the week
"All the major [US] banks are basically insolvent at this point. Until that changes and until credit gets flowing again, it's hard to see how we have any real recovery." - David P. Prokupek, chief executive of the Denver portfolio manager Geronimo Partners in Bloomberg article Thursday.

Stocks sink again but is there a reversal afoot?
Stocks sank for the fourth consecutive week of across the board losses for the major indexes but an interesting thing happened in the last hour of trading. At 3:26PM Friday New York time, the Dow Industrial declines stopped almost on a dime and the index reversed course. By close the Dow had rallied 159 points pushing it into positive territory for the day. Although it was too little too late to make much of a difference on the week, the manner and strength with which the move occurred was heartening. The Dow had been quite oversold on the weekly chart so the question is whether this is simply an oversold bounce or the beginning of a longer-term move. Given how beaten up stocks are (Citigroup stock now selling around $1/share), any positive news has the potential to ignite a big vacuum-powered, short covering rally. That stocks rallied into the weekend is also bullish - it means that investors are willing to risk holding stocks over the weekend and that shorts have decided it prudent to exit their positions.

It is also interesting to note that investor sentiment tracked by the American Association of Individual Investors (AAII) hit its most bearish level in the index's history with more than 70% of respondents surveyed expecting further drops in the market this week, according to Bespoke. It is at times like these when selling pressure abates after a capitulation that powerful rallies are born.

Technically Speaking
Leaders fall with the pack
This week Dan's Sunday March 1 portfolio of 11 stocks to watch included Apple, (AAPL), Baidu.com (BIDU), ProShares UltraShort Oil (DUG), Google (GOOG), Goldman Sachs (GS), Itron (ITRI), Myriad Genetics (MYGN), Holders Oil Serv. (OIH), Potash (POT), Research in Motion (RIMM), and Visa (V). This portfolio's performance was the middle of the pack this week with a drop of 7% versus a gain of more than 2% last week and a drop of 2.4% two weeks ago.

About EquiTrend.com

EquiTrend.com is a stock market timing system developed to help investors easily achieve better investment performance than is possible through conventional buy-and-hold strategies.

CLICK HERE FOR SUBSCRIPTION INFORMATION

EquiTrend provides the tools to help you navigate this difficult bear market. If you need additional information there are three ways to contact us:

To submit questions, comments or feedback, email us at: feedback@equitrend.com. (This is the most preferred method)
Call us directly at (800) 731-5690. Remind our staff that you are an InvestorsInsight.com reader and mention code: insight1.
To have a Representative contact you, simply email us at: support@equitrend.com.

Weekly volumes were high for the second consecutive week for the major indexes but as we mentioned the late day rally Friday was bullish. But the Dow and S&P are now back to where they were in 1996 which is bad news for anyone holding stocks and especially bad news for those like one famous Saudi investor whose motto is "I never sell!" Factor inflation into the mix and these long-term holders are down substantially. It is at times like these that the sheer folly of a simplistic buy & hold strategy becomes painfully clear. That the Dow Transports dropped nearly double that of the Dow Industrials is a concern. But it is one which is offset by the fact that the Emerging Market ETF (EEM) suffered a modest 0.61% drop.

Not surprisingly given the big drop in stocks, the Market Volatility Index (VIX) rose this week to 49.33 from 46.35 last week (and 49.30 two weeks ago). What is surprising, however, is that the VIX didn't rise more. Investors are becoming accustomed to drops in stocks and the fear factor, while still high from an historic perspective, appears to be abating. It is important to point out that the VIX is a short-term indicator, however.

Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index has been moving higher and it held its ground this week to close at 351.55 down from 352.45 last week but up from 345.94 two weeks ago. Since hitting a high of 611.51 in July the index is still down 42% from its peak.

After anther the big surge in gold to $1001.10/oz two weeks ago, the precious metal dropped to a low of $900.40/oz but then rallied to close at $942.70 this week, which was very close to its $942.60 close last week. As we have mentioned in past weeks, volume and open interest had been declining which is bearish, especially given the recent potential double top two weeks ago. To confirm the double top, gold will have to break down through the pattern neckline at $700/oz so this pattern has little short-term trading value. However, if this happens, it will imply a downside double top target on gold of just below $400/oz but we are getting ahead of ourselves. We still believe gold has the potential to drop further in the coming weeks in spite of what the fundamental gold pundits and dollar bears would have you believe.

Speaking of double tops, the US Dollar Index looks to be at a potential double top peak of its own as it closed at 88.59 this week, just above its peak of 88.46 during the week of November 21, 2008, and up marginally from 88.15 last week. Since bottoming in July, the U.S. Dollar Index is up more than 23%.

Crude oil futures firmed for the second consecutive week to close at $47.56/bbl up from $44.12 last week and $39.80 two weeks ago. Volume was well above average this week, which makes the move even more bullish, providing further evidence to support our contention of a capitulation bottom from which prices have a good potential to rally. This take is further backed by the rally in the Baltic Dry Index given its habit of leading oil in the last few months. Oil is down nearly 70% from its mid-summer high of $147.20 and could rally on any supply problems or brighter economic news.

The Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, rose again this week to 2225 from 1986 last week and has now risen 236% from is December 5 low. Not only is the bullish for oil (which has demonstrated a habit of following behind the BDI) but for the economy as well as it shows that demand for cargo transport is climbing.

The U.S. bank prime rate and the Fed funds target rate held steady again this week at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate firmed to 0.24% (from 0.23% last week). Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) jumped again to 1.2925% (1.26438% last week). This compares to LIBOR 52-week high of 4.81875% last October.

Meanwhile Freddie Mac mortgage rates firmed again this week to 5.15% (from 5.07% last week) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) ticked up to 4.86% (from 4.81% last week).

Earnings
Q4 earnings - balance sheets hemorrhage red ink
With a total of 3028 companies accounted for in the ninth week of Q4-08 earnings reporting season (up from 2641 last week), the net loss on continuing operations widened to ($200) billion (from ($123.91) billion last week) versus +$124.1 billion in Q4-07) which works out to a change of -262% from Q4-07. This compares to -197% last week, -171.7% two weeks, -156.4% three weeks ago, -150.7% four weeks ago, and -46% in the opening week. The final result for Q3-08 was -62% from Q3-07.
Earnings continue to experience their biggest drops since first turning negative and we expect this trend to continue at least into next reporting season.

According to economist Robert Shiller, the SPX price is are 12.8 times trailing ten-year earnings (PE) as of last week, the lowest this long-term indicator has been since 1986.

Economic Reports
More bad news, but good action?
It is evident this week that investors have become accustomed to bad economic news and unless the news is more abysmal that expected, accept it as the norm. Look what happened on Friday. Expectation was for a loss of 652,000 jobs in February and the actual loss was 651,000. Stocks initially dropped but then rallied into the close. And the unemployment rate jump from 7.6% in January to 8.1% in February didn't rattle them much either. (As our readers know, this is a lagging indicator like most economic statistics and pretty much all fundamentals). Friday's strong close in stocks was a clear indication of bad news, good action showing a positive shift in investors' attitudes about stocks.

Other numbers of note to report were construction spending, that fell 3.3% in January (versus -1.4% in December), a modest rise of $1.76 billion in January consumer credit (versus -$7.5 billion in December) and flat February ISM manufacturing (35.8) and service (41.6) index readings.

Synopsis
Ready...Set...
We are in cash right now according to the latest Equitrend signal which went to cash on Wednesday (March 4) we are currently on the sidelines. But based on a number of technical indicators, this latest rally could well be the long signal we have been waiting for. Stay tuned for a possible signal change this week.

Stories of interest this week...

Recipe for Disaster: The Formula That Killed Wall Street
http://www.wired.com/print/techbiz/it/magazine/17-03/wp_quant

U.S. Bubble Collapse to Be Worse Than Japan's, CLSA's Wood Says
http://www.bloomberg.com/apps/news?pid=20601101&sid=aU6QD7.BBkO8&refer=japan

John Kerry Is Last Guy You Want Helping Banks: Caroline Baum
http://www.bloomberg.com/apps/news?pid=20601039&sid=a.mZaJRMjQb4&refer=home

U.S. Bankruptcy Filings Surged 37% in February Over Prior Year
http://www.bloomberg.com/apps/news?pid=20601110&sid=aJ5pO8_lc.Uo

Mortgage ‘Cram-Down' Bankruptcy Bill Passes U.S. House 234-191
http://www.bloomberg.com/apps/news?pid=20601087&sid=a1Sk4ikpjYTE&refer=home

Darth Wall Street Thwarting Debtors With Credit Swaps
http://www.bloomberg.com/apps/news?pid=20601109&sid=aZjMcuIoat7U&refer=home

Stimulus Cash to Spur Inflation, Commodity Rally: Chart of Day
http://www.bloomberg.com/apps/news?pid=20601109&sid=aIwFmyvJJiv4&refer=home

Absolute-Return Funds Promise the Holy Grail: Jane Bryant Quinn
http://www.bloomberg.com/apps/news?pid=20601212&sid=aHISy61O4hCc&refer=home

U.S., European Stocks Drop as China Signals No Added Stimulus
http://www.bloomberg.com/apps/news?pid=20601087&sid=aJzhelPXoKYQ&refer=home

Geithner Says U.S. Financial Rescue ‘Might Cost More' (Update3)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQldZDlQpohE&refer=home

Obama Says Now May Be Good Time to Invest in Stocks
http://www.bloomberg.com/apps/news?pid=20601110&sid=a.GyK8EEnseY

On the lighter side...

"I don't know about you, but I don't want government bureaucrats making business decisions -- even if Washington politicians are experts when it comes to wasteful spending." - Caroline Baum

Working for your wealth,

John M. McClure, President & CEO
EquiTrend, Inc.