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Friday, November 16, 2012
US EQUITIES SNAP LOSING STREAK, BUT END WEEK LOWER; EUROPE SLIDES FURTHER
US stocks edged higher in late trading trimming weekly losses today as markets turned optimistic about budget negotiations after House Speaker John Boehner said he had constructive discussions with President Obama adding he would accept government spending cuts and tax hikes.
Reversing a four-day losing streak, the Dow Jones Industrial Average (DJIA) climbed 46 points to 12,588, capping weekly losses at 1.77 percent. Breadth within the 30-stock blue-chip index turned positive with gainers outpacing decliners 22 to 8 at the closing bell. The index is down for the fourth straight week, the longest losing stretch since August 2011.
The S&P 500 Index (SPX) added 7 points to finish at 1,360, paring weekly losses to 1.5 percent. Utilities and healthcare paced the gains while Transportation was the sole laggard among its 10 business groups.
Treasuries advanced for the fourth straight week, the longest stretch of rises since July as investors remained worried over budget negotiations before automatic spending cuts and tax hikes come into effect on Jan 1.
An early Federal Reserve report that showed US industrial production fell by 0.4 percent in October added to the jitters as investors grew apprehensive the economy is slowing down.
Treasuries rose after conflicts escalated in the Middle East, spurring demand for safer assets. Hundreds of Palestinian rockets hit areas around Tel Aviv and Jerusalem while Israel retaliated by increasing its bombing of the Gaza strip.
Yield on the benchmark 10-year Treasury notes fell two basis points to 1.57 percent while yield on 30-year Treasury bonds changed little.
Nervous investors continued to unload global equities as worries over the so-called fiscal cliff triggered haven-related flows, boosting the US dollar Friday to its highest level since early September.
Meanwhile, European stocks extended losses on Friday, capping a volatile trading week 2.7 percent lower. The Stoxx Europe 600 index fell 1 percent to end the week at 262.86, the lowest level since early August.
Shares of risk sensitive sectors such as miners and banks declined the most as the so-called US fiscal cliff continue to spook investors on either side of the Atlantic.
The DAX 30 index finished 1.3 percent lower in Frankfurt after shares of Commerzbank AG crashed 4.3 percent while those of Deutsche Bank AG sank 3.1 percent. The index has shed 3 percent on the week.
In Paris, the CAC 40 index fell 1.2 percent, dragged down by a 1.2 percent drop in oil firm Total SA. Shares of Societe Generale tanked 2.8 percent while carmaker Renault SA rose 1.2 percent as sales slowed down at a slower-than-anticipated pace in Europe. The index finished the week 2.4 percent lower.
Energy firms were mostly trading lower in London. The FTSE 100 index tumbled 1.3 percent as oil major BP Plc slipped 2.1 percent. Royal Dutch Shell Plc also sank 2.1 percent whilst BG Group Plc gave up 1.7 percent.
In the ETF space, the State Street SPDR S&P Biotech ETF (XBI) was one of the biggest gainers, rising 3.16 percent on the day. Healthcare stocks have been under focus since President Obama’s re-election and biotechnology stocks rallied today after encouraging statements from Washington gave rise to hopes that a deal to prevent a fiscal cliff will be reached.
The United States Natural Gas Fund (UNG) surged 2.58 percent after NG futures jumped 2.4 percent on Friday to hit a fresh one-year high, spurred by signs of rising demand as winter arrives.
As you can see from the above, globally, all major indexes have been hitting the skids. Despite the ‘bone’ that fiscal-cliff negotiators threw to the markets today (by calling their meetings ‘constructive’), causing a last hour rebound, downside momentum has increased and absent any major positive developments, we are likely to head lower.
Our Trend Tracking Indexes (TTIs) have confirmed this tendency, as has the fact that the S&P 500, the Dow and the Transports have all broken below their respective 200-day M/As. Nevertheless, today’s ‘bone’ pushed the Domestic TTI back above its trend line by a scant amount. Here’s how we closed the week:
Domestic TTI: +0.15% (last week +0.72%)
International TTI: +0.77% (last week +1.45%)
Again, as I posted before, this is the time to liquidate those holdings that have either triggered their trailing sell stops or have broken below their own long term trend lines. While we may see a bounce to the upside, I believe that downside risk is far greater than upside potential at this time.
Have a great week.
Disclosure: No holdings in ETFs discussed above
READER Q & A FOR THE WEEK
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A note from reader Paul:
Q: Ulli: The overall stock market is down nearly 7% to 8% from its highs last month. Surely that should have triggered sells?
Wondering where you are with your call on this?
A: Paul: We came close as I mentioned in Wednesday’s blog post as our TTI was positioned at +0.01% above its long term trend line, and it slipped barely below it by -0.10% as I wrote on Thursday.
While the overall markets have come down hard, it did not affect our most conservative equity holding in DVY. However, we have close to its trailing sell stop and its own respective trend line has been broken. So, unless there is a big rally emerging on Friday, we’ll be out of DVY.
Be sure to tune into my blog when you have time, since I write about it daily.
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