I'm Still Bullish
Current Market Analysis
Last Month's Results
Trends To Watch
What I'm Thinking
News and Notes
Current Market Analysis
As I write this, the Dow Jones Industrial Average
is trading at 16,537, up 472 points, or 2.9%, from when I
wrote to you last month.
This leaves the venerable index only 39 points shy of the all time high
registered on December 31 of last year. At the same time, the Dow Jones
Transportation index is currently trading at a new high, and the
S&P 500 is just 9 points away. So as you can see, things are
pretty good. Yet if you listen to the news or watch the TV, the mood
does not match the reality. It appears to me that the majority of
market observers are negative on the market. I think that's good news
as the market continues to "climb a wall of worry".
Last month I wrote that the "uncertainty [in
is roiling world markets, and
various currencies, and could provide the next good buying
opportunity." That turned out to be exactly the case; I hope you took
advantage of the drop to pick up some shares of your favorite
Looking at the chart of the DJIA, we see the January drop followed by
the rally in
February. March was a bit volatile, but ended nicely. Now we just have
to wait and see if the current rally can propel the index to a new
closing high, above the teal line. I view this chart as very bullish
and I expect the new high to happen shortly, maybe even this
The chart of the Dow Jones Transportation
Average also remains bullish, closing yesterday just a few points below
the all time
high. But as I said earlier, it is trading today at new record levels.
And a growing transportation sector is generally thought to be a good
harbinger of economic growth. So again, this is very bullish.
The action on the Dow Jones
this year has been tremendous, as you can see below. The index has
moved almost straight up since my December call (see below) not to
abandon the sector. I pulled up a longer-dated chart to see if this
recent high is an all time high. What I found was very interesting. The
current price has almost exactly matched the all time record, set in
December 2007! The utility index proceeded to lose about 50% of its
value over the next fifteen months, bottoming with the rest of the
market in March of 2009. It has taken almost exactly five years for the
price to regain its old glory. Yield hungry investors should drive the
index even higher before this year is over.
After peaking at around 3% on December 31st, the
yield on the 10-year Treasury plunged to around 2.5% by the end of
January. Since then, the yield has remained in a tight range between
2.5% and 2.8%. There's no reason to believe
anything will change dramatically in the immediate future.
The market provided very mixed results in March.
The value indices provided solid, if unspectacular, results in the
month while the tech sector, and growth in general, performed
miserably. The sell off began in the biotech sector then rolled over to
the high multiple growth "story" stocks. Investors fled those risky
investments and turned to boring old value stocks, which is right up my
Name of Index
Dow Jones Industrial Average
Large-cap tech stocks
Russell 1000 Growth
Large-cap growth stocks
Russell 1000 Value
Large-cap value stocks
Russell 2000 Growth
Small-cap growth stocks
Russell 2000 Value
Small-cap value stocks
Europe, Australia, Far East
US government bonds
Barclays High Yield
High-yield corporate bonds
* Return numbers
include the reinvestment of dividends
According to the Department of Labor, the
figure for seasonally-adjusted initial jobless claims for the week
ended April 5 was 300,000, a decrease of 32,000 from the prior
week's revised figure. The four-week average of 316,250 is about 14,250
lower than the tally from a month ago. According to the
seasonal average, about 2.77 million people continue to collect
unemployment insurance, which is a decrease of about 74 thousand
people from last month. Progress continues to be made.
non-farm payroll employment report in March showed reasonable
strength as the establishment survey reported that an even better
192,000 jobs were added in the month, and revisions added
another 37,000 to prior months, while the household survey reported
that the unemployment rate remained at 6.7%. The more comprehensive U-6
"underemployment" rate returned to 12.7%. 10.5 million workers were
still counted as unemployed, as more people continue to be look
for work, while the labor force participation rate increased to 63.2%.
3.7 million people were counted as being unemployed longer
than 27 weeks. The seasonally adjusted number of people who could only
find part-time work held at 7.4 million and the number of
marginally attached workers fell to 2.2 million. The
number of people holding multiple jobs was steady at 7.1
million. The average hourly wages for blue collar workers
fell $0.02 to $20.48 while the average work week rose to 33.7
hours. Overall, this is the second monthly improvement as it
appears that more people are entering the work force, finding jobs and
working longer hours.
Congressional Budget Office (CBO) estimated
that on a net present value basis, the Treasury reported a federal
budget deficit of only $36 billion in March, which means that for the
first six months of fiscal 2014 the cumulative deficit is $413
billion, $187 billion less than the same period in the prior year,
a 10% increase in tax receipts and government expenditures
that were 3% lower.
Census Bureau reported that the U.S. trade
deficit of goods and services rose for the third straight month to
$42.3 billion in February. I imagine the ongoing struggles in the
emerging economies continue to negatively impact the trade gap.
The National Association of Homebuilders/Wells
Fargo Confidence Index ticked up 1 point to 47 in April from a
downwardly revised 46 in March. “Builder confidence has been in a
holding pattern the past three months,” said NAHB Chairman Kevin Kelly,
a home builder and developer from Wilmington, Del. “Looking ahead, as
the spring home buying season gets into full swing and demand
increases, builders are expecting sales prospects to improve in the
The Census Bureau reported that privately owned housing
starts rose 2.8% in March from an upwardly revised figure in
February, to a seasonally adjusted
annual rate of 946,000 units, a level 5.9% below a year ago. New
fell 2.4% from the prior
month but remained 11.2% higher than the year before. I remain
convinced that these numbers will begin to improve starting in
The Census Bureau reported that on a seasonally
adjusted annualized basis, 440,000 new homes
were sold in February, down 3.3% from January,
and 1.1% from a year ago. The estimate
of the number of homes for sale is 189,000, which represents a
more reasonable 5.2 months of inventory at the current rate of sales.
sales price inched up to $261,800, which is below the 12-month
moving average price of $265,100. The harsh weather is certainly
depressing sales, a trend that will likely continue in March.
The National Association of Realtors reported that on a seasonally
adjusted annualized basis, only 4.6 million existing homes
were sold in February, the lowest figure in a year and a half,
down slightly from January but 7.1% lower than a year ago. Sales have
fallen by over 760,000 since last July and the average selling price
has dropped by about $25,000 since June. The current average price is
is about $9,500 below the 12-month average of $198,417. The estimate of
homes for sale
increased to 2.0 million, which represents 5.2 months of inventory at
the current rate of sales. As I mentioned above, I don't expect any
real progress until the weather improves in April.
According to the Institute for Supply Management (ISM), economic
activity in the manufacturing sector rose in March
from 53.2 to 53.7, marking overall growth for ten
straight months. At the same time the ISM index of
non-manufacturing activity rose to 53.1, which marked
in the service sector for 50 consecutive months. Overall, these results
are pretty solid.
Conference Board reported that it's index of Leading Economic
Indicators (LEI) increased 0.8% in March, following an increase of
0.5% in February. "The LEI rose sharply again, the
third consecutive monthly increase,” said Ataman Ozyildirim, Economist
at The Conference
Board. “After a winter pause, the leading indicators are gaining
momentum and economic growth is gaining traction. While the
improvements were broad-based, labor market indicators and the interest
rate spread largely drove the March increase..."
According to the Bureau of Economic Analysis, the "third" estimate of
GDP growth for Q4 2013 was a modest 2.6%, down from the "advance"
estimate of 3.2%, but better than the "second" estimate of
The problem is that all of these numbers are well below the
surprisingly robust 4.1% logged in Q3. By comparison, GDP
growth was 2.6% in Q2, a meager 1.1% in Q1
and an anemic 0.4% in Q4 2012. The bad news is that economic
growth is somewhat anemic; the good news is that it will force the
Federal Reserve to keep its monetary policy very
The Federal Reserve reported that in February
the amount of total outstanding consumer credit grew at
an annualized rate of 6.5%, up to $3.13 trillion.
revolving credit actually fell by 3.5%. I'm not sure what to make of
The Conference Board's Consumer Confidence Index, which had faltered a
bit in February, surged in March from 78.3 to 82.3. Says Lynn Franco,
Director of The Conference Board Consumer Research Center, "Consumer
confidence improved in March, as expectations for the short-term
outlook bounced back from February’s decline. While consumers were
moderately more upbeat about future job prospects and the overall
economy, they were less optimistic about income growth."
For almost eight months the dollar index has moved
very tight trading range between 79 and 81.50. Three times over the
past year the index has fallen to that key support level at 79 (red
line) and each
time it has bounced higher, most recently last month. I admit I'm
surprised the dollar isn't stronger, relative to other currencies, and
thanks to the Fed's decision to taper their bond buying program. We'll
see what happens as the year progresses.
After a huge run to open the year, the rally in
gold seems to have petered out. While the price managed to break
through two resistance levels (purple and green dotted lines) before
peaking in March, the recent decline has the price again testing
interim support around $1,275 (purple dotted line). Should that support
fail, we could see the price fall all the way back to test major
support at $1,200.
price of West
Texas crude has surged about 15% since bouncing off major support
around $92 in early January. As RSI is approaching overbought levels, I
wouldn't be surprised to see the index back off a bit and test
the interim resistance/support just above 100 (the green
line). Notwithstanding the large price swings of the past six months,
the larger trading range remains intact.
As you can see below, the rising trend for the
financial sector, as represented by the price of the SPDR ETF, remains
intact. There was an excellent buying opportunity that I pointed out
back in January, as you can see in the red circle. Last month I wrote
that "If there is another general market downturn, watch for the
next buying opportunity below 22." Well, I hope you bought, because
that chance just presented itself.
briefly breaking through resistance in late February to
achieve a new record high, the index for the housing sector
spent the majority of the subsequent two months dropping like a stone.
In fact, the price recently fell through interim support at
195. The question is will it bounce higher from here or head lower. My
gut says that we may head a bit lower in the short term, but that a
rally is coming, maybe by May.
index for the developed international
markets remains in a general uptrend, as you can see below. You will
notice three times where the price fell to, or below, support in the
past year. Each time opportunistic investors were rewarded with solid
gains during the ensuing rally. I expect this pattern to
As a spectator, the Chinese stock market,
as represented by the Shanghai Index, is growing more exciting and more
interesting by the month. A clear wedge pattern is being formed by the
blue and red lines. As the red line falls closer each month to the blue
line, pressure builds. Most technical traders would view this as a
bullish pattern because history suggests a greater likelihood of an
upside breakout. I'm not suggesting anyone buy this pattern just yet;
but it is fascinating to watch, and holds tremendous implications for
the global market.
After the NYSE Bullish sentiment index
January I wrote in February that this was a good sign for upcoming
gains, and I was proven correct. We have almost the same setup now. And
again, I believe we have a rally in our immediate
Right now 60% of stocks traded on the New York Stock Exchange are
currently trading above their 50-day moving average, which is slightly
fewer than this time last month. That figure places the index right in
the middle of the positive area (blue on top and dotted green on the
bottom). This is neither bullish nor bearish. RSI is likewise very
sanguine and MACD has recently turned positive. This complacency allows
for the future gains I expect.
The brief but violent spike of volatility in
January has already faded from memory as the
VIX has settled back into familiar complacency. Nothing here concerns
me at all.
Thinking and Doing
In my January newsletter I predicted,
correctly it turned out, that the market would survive the correction
and head higher. Indeed, the ensuing rally took many of the broad
market averages to record high levels. Then last month, after the
latest market dip I wrote that, notwithstanding the unrest in Russia
and Crimea, I still believe the market will move generally higher
as too many factors are in favor of the Bulls." That too proved
prescient as the market again rallied to test record levels.
It's no surprise that I've been bullish on the
stock market for years now, and remain so today. As a result, my
and I remain fully invested while looking for opportunities to pick up
selected stocks should they temporarily slip out of favor, as some tech
stocks have done recently. Indeed, I've picked up a few shares of some
tech bellwethers, but nothing that alters my fundamental conservatism.
After reducing cash by over $1,000,000 in January
and February, I sat back and let some cash build up in March, hoping to
be able to put it to good use in the coming months. I failed to pull
the trigger on one stock I wanted to buy; now it's up about 6%. While I
obviously wish I'd followed my disciple and bought it when it hit my
buy number, rather than getting greedy and hoping for an even better
price, I'll have to wait for another chance to pick it up sometime in
the next few months.
After 17 years in business, I finally got the call
from the SEC announcing that I'm being audited. After three phone
interviews and a grueling few days of responding to multiple written
requests for information I'm now waiting to hear what they have to say.
I'm confident that I'll pass the audit with minimal dings. Cross your
fingers for me please.
My big meet in Boston a few weeks ago was largely a
success. Other than one race, which was a disaster, the other seven
races were at, or better, than my expectations. I earned two 3rd
places, four 5th places and one 7th. While I don't think I swam fast
enough to earn any Top 10 rankings, that was a long shot given that I'm
at the top end of my age bracket. I'm back in heavy training now for
the summer season. I'm hoping to race at the summer National
Championships in August, during which I will be the young guy in the
50-54 age group, so national rankings could be possible.
Nola will have completed her Freshman year of
college before I write to you again next month. How quickly her school
year flew by! Lily is now driving and is looking forward to picking up
her car later this week. Ezra is working on his tennis and competing in
some local USTA matches. Hopefully he'll make the JV team next year as
a high school freshman.
Hopefully I can say that Winter, and all that snow,
is finally behind us. The flowers are blooming, the trees are budding
and the grass has turned back from brown to green. Happy belated
Passover and Easter to all of you. Memorial Day, and summer, is just
around the corner. I'll drink to that.
it for this month. As always, I thank you for reading. If you'd like to
speak with me about your investment needs, or if you know of someone
that might benefit from my guidance, I'd be pleased to be of service.
me a call or drop me an email.
and Views", Copyright, Werlinich Asset Management, LLC and
www.waminvest.com. All Rights Reserved.