While the current administration in Washington is getting its head bashed in by scandals that drop heavier one day after the next, and
The Nikkei gets its head bashed in with sledgehammer selling that appeared out of the blue and is continuing, relentless, day after day, and
Facebook stock gets its head bashed in for a) not doing ‘mobile’ well enough, or b) teaming up with big government to spy on its users, or c) losing its hold on the teeny-bop social networking crowd, and
The Midwest gets its head bashed in (Lord have mercy on them) by some of the most severe, persistent and damaging storms in the history of the land, and
Silver, the runt of the precious metals litter, gets its head bashed in for an unbelievable 26 straight months…
While all of this headbashing is going on, what do you suppose is happening to the world’s favourite and most widely quoted stock market index, the Dow Jones Industrial Average?
Well, well, well, sister Angelique… whassup?!
That’s right, nothing.
The DJIA has been in a solid uptrend since mid-November of last year. It’s climbed 24% over that time, and we have absolutely no reason to believe it’s about to stop now.
Take a look at a year’s worth of the Dow –
And so it has to be.
We’ve fallen back to the low end of the trend channel that marks the latest intermediate trend rise for the index (red lines), and though we’ve seen three full weeks of sideways action since the last top, the old mother of ‘em all is still holding her own.
Nor do we believe anything untoward will happen to the Dow or the S&P 500 or NASDAQ going forward until all the juice has been drained from the jug.
And that’s still a ways away.
Examining the Indicators
One of the reasons we believe the uptrend is getting ready to resume is the recent action of the high yield (junk bond) sector.
There, we like what we see.
Here’s a chart of the iShares iBoxx High Yield Corporate Bond ETF (NYSE:HYG), a reasonable proxy for the class as a whole and one of our favorite investments of the last five years, to boot.
After pulling back 4.8% from its bull market high on very strong volume (in blue), HYG is now resting comfortably on its long term (411 day) moving average (circled, in red). This is the first time in seven months it’s tested support at that level, and because the drop also brought us into contact with RSI 20 (black square at bottom) – a deeply oversold reading – we’re confident the move is now complete.
There’s little doubt in our mind that this bodes well for the Dow.
A Stealth Bull
As for all the headbashing we documented above, we’ll keep our commentary brief – it’s the perfect backdrop for a continued rise in equities.
Don’t listen to the uber-bears who opine that all the media noise is actually something worth listening to, and that it portends the imminent demise of equities.…
Markets were trading lower on Friday morning as wholesale prices rose in May. The Labor Department announced that there was an increase of 0.5% for the index, which was up from the 0.7% drop in April. This was largely attributed to a 1.5% rise in gas prices followed by a 0.6% increase in food costs. There was a slight rise in core prices of 0.1%, which takes food and energy out of the equation. In the past year there has been an increase of 1.7% for the index and falls below the Federal Reserve’s targeted 2%. The food increase was mainly attributed to the 41.6% jump in the price of eggs, a record leap. Some economists are saying that the lower numbers could sway the Federal Reserve to maintain their stimulus. Stuart Hoffman, chief economist at PNC Financial Group Inc. (PNC), said “There’s just a lack of any inflationary pressures across the economy. From the Fed’s point of view, I think that the fact that it’s a bit higher than expected doesn’t in any way change the view that inflation is still quite low, quite tame.”
Consumer sentiment levels sank in June after hitting a six-year high in May. The Thomson Reuters/University of Michigan’s preliminary reading of the index showed that there was a drop to 82.7 from May’s reading of 84.5. Economists had expected the reading to maintain last months reading. Despite the decline this is still the second-highest reading for the index in the past eight months. There was a slight drop in confidence among lower-income households who reported they were “more likely to report worsening overall financial prospects,” than higher-income households. Richard Curtain, the survey director, said that “All consumers were less optimistic about job prospects in early June, expected smaller gains in the value of their homes and judged the probability of stock price increases somewhat below last month’s level.”
Smithfield Foods (SFD) announced that they posted 63% plunge in net profits. This was largely attributed to a drop in exports to China and Russia over issues related to a drug they use to produce lean meat. Net income was down to $29.7 million, or 21 cents per share. Which was a large fall from last years $79.5 million, or 49 cents per share. SFD Chief Executive, Larry Pope, said “For the industry, pork exports were down to nearly every major market in the fourth quarter with volumes to China and Russia falling over ractopamine certification requirements.” The company recently received a bid from China’s Shuanghui International for $4.7 billion.
That’s all for the day.
All the best,
Markets were maintaining fairly flat levels on Wednesday as fears continue that the Federal Reserve will begin cut backs in their monetary policy. The quarterly meeting that will be held next week has investors wondering if there will be a solidified decision as to when the Fed will begin to start winding down their bond buying program. After the meeting on June 19, Ben Bernanke will give his post meeting press conference while people stand by awaiting any sign of an answer. John Mauldin, the head of Mauldin Economics, said “I don’t think it’s going to make that much difference for the rest of this year. From my point of view, it can’t happen too soon. The longer you try to maintain an imbalanced situation, the bigger the train wreck that you have when it ends.”
Pfizer Inc. (PFE) announced that there was a settlement reached in their patent lawsuit against Teva Pharmaceutical Industries Ltd and Sun Pharmaceutical Industries Ltd. Pfizer will receive $2.15 billion to settle the patent infringement lawsuit that is tied to its acid-reflux drug Protonix. Teva agreed to pay $1.6 billion this year and the remainder by October of 2014. Sun Pharma will pay $550 million this year. Sun had set aside nearly $100 million last year when the lawsuit began to put towards potential damages. Daljeet Kohli, head of research at IndiaNivesh, said “This is not a very positive out-of court settlement. The agreed amount is way too high for a such a settlement. It will also restrict Sun’s ability to look for acquisitions.”
Cooper Tire & Rubber Co (CTB) announced that they will be bought by India’s Apollo Tyres Ltd for $2.5 billion. This move will now make Apollo the world’s seventh-largest tire maker. The company will pay $35 per share which is a 35% premium over yesterdays closing price. CTB currently ranks number 11 on the world’s biggest tire company scale and has annual sales of $4.2 billion. This will also help Apollo gain access to the U.S. market. Nishant Vass, auto analyst at ICICIdirect, said “The U.S. is an untapped market for Apollo. And the U.S. market is obviously big, and among the developed markets, it is the only one that is growing significantly.”
Shares of Hewlett-Packard Company (HP) were trading up over 4% on news that the company’s CEO announced possible growth in 2014. Meg Whitman, Co Chief Executive Officer, said that she believes that revenue growth was “still possible” for next year. Analysts have estimated that HP will show revenue of $108.9 billion for fiscal year 2014. This would, however, fall below the 2013 expectations of $111.4 billion. Meg Whitman stepped into her position over a year ago and has been working on a turnaround for the company. She said, “You don’t have to wait five years to get results. I’d say we’re just a bit ahead of where we thought we’d be. We’ve got a long way to go. There’s a lot of heavy lifting ahead.” Whitman also said that the what will happen to the overall PC world is a wild card.…