January 7, 2007 Commodity bull market ends
In review of the charts this weekend I was alerted by Achal A. in our OEW group, that the CRB index had just confirmed a bear market in commodities. After checking the CRB index I confirmed his findings. Sunday night I took a closer look at the Crude oil charts, and found the same event had occurred there as well. As you know I have a had a difficult time keeping up with the Crude market all year. Many waves overlapped through the first half of 2006. From time to time I posted that the data, from the service provider, was questionable. When Crude broke through support at $68, I waited to see if it would hold major support at $58, which it did. Nevertheless, at that extremely oversold condition, I expected an uptrending rally to see how it reacted. It did rally for two months, but I was disappointed that it could not make more progress during the uptrend.
Over the holidays, I labeled the uptrend as a diagonal triangle. In this weekend's update I noted that Crude was now downtrending with support at $49. Based upon OEW analysis, the recent selling in Crude has broken the five year bull market uptrend. The implications for the economy and the stock market are good. Especially for the Transports and some airline stocks in particular. Inflationary pressures should continue to ease. And, there is an increased likelihood of short term rates cuts in the near future by the FED. With commodity and energy prices declining, the economy should get an added boost in 2007.
I am disappointed that I didn't recognize the top in Crude while it was occurring. But I did recognize the downtrend in Crude in early August 2006, when it was at $73, just $7 below it all time highs of $80, side stepping most of that $22 decline. I turned bullish in November at $58, only to watch it rally just $6 in two months. With Crude trading today over $57, we did manage to avoid most of the decline. Bear markets of this degree can last anywhere from six months to a couple of years to complete. From this point on, we can only monitor it on the way down, until a major buying opportunity arises.
With Crude and Commodities in a bear market I have to be concerned about Gold. If Gold has now become an alternate currency and is now responding to the Euro, then there should not be a problem. If Gold is still looked upon as an inflation hedge, as the inflation premium continues to decline, so will Gold. Until there is evidence that it is a currency, and while Gold is still trading above $600, I'm shifting my long term position to neutral. Awaiting one last final impulse wave in a commodity, while others have already broken down, appears to be a risky endeavor at this juncture.
GOLD: long term neutral
CRUDE: long term bearish
CRB: long term bearish. | January 10, 2007 Cramerica and OEW
I was recently informed that Jim Cramer of CNBC's "MAD MONEY" had selected Allegheny Technologies (ATI) last year as his stock of 2006. The stock tripled in price from about $33 to $100, and obviously outperformed all other stocks in the S&P500. Congrats Jim! Hope he doesn't mind me calling him Jim, since we both live in the NYC area. This year, the in-your-face-comedian financial wiz "diversified", and selected: three value plays, three growth plays and three speculative plays. His selections in order of preference: VALUE ... MO/GS/HAL, GROWTH ... NYX/AAPL/CSCO and SPECS ... SVNT/RAD/LVLT. Interestingly enough four of his nine selections, nearly half, we already cover in our handful of 17 selected stocks in our the CHART LINK. Altria (MO) and Cisco (CSCO) were evaluated recently as well, but not posted. After reviewing the three stocks left SVNT/RAD/HAL, only SVNT fits our OEW criteria for an impulse bull market. The other two, RAD/HAL plus CSCO appear to be in bear market rallies. I will be adding MO and SVNT to our selected stock listing. Altria (MO) will be handled by Achal A., and I will be handling Savient Pharmaceuticals (SVNT). At the end of 2007, we will take a look back and see how Ski Daddy did. It's a fun show! |