Weekly Market Summary for
Week Ending Feb. 11, 2005
BY AL MARTIN

Last week saw the SPX trade in a 16.75-point (1191.75-1208.50) range, settling out the week at 1205.31, up 2.29 points, week over week, in improved market internals, bouncing off of the 1192/3 floor support level, while being turned back from the 1207/8 floor resistance level, in a week of mixed economic calendar releases, wherein equity market valuations continue to be stretched relative to underlying market fundamentals.

In end-of-week sheet comments, TRADEX noted the growing unease which the floor and professional trade is experiencing in attempting to trade from the long side, given that the institutions have already committed to the markets all of the estimated $8 bil in domestic common-stock mutual fund inflows they have taken in since Feb 1, which, combined with an estimated $3 bil in small-lot buying from the ‘Joe Sixpack 300-share retail sucker buyer’ crowd brought into domestic equities by increased bullish hype by financial media, has, however, been nearly fully absorbed by continuing record dollar-volume insider selling, now estimated at $1.2 bil per week, a 9-year high in foreign selling of U.S. equities, now estimated at $1 bil per week in concert with continued good-volume selling from the ‘deep offshore smart Republican money trading pools’, which we have detailed in the past, and an ever increasing IPO/secondary offering calendar which, in the coming week’s trade, will exceed $2 bil, a level not seen since July ’02.

To those who find comfort in the pronouncements of the CNBC ‘always bullish gang of market shills’ who endlessly tout the ‘huge pool of cash on the sidelines waiting to come into the markets’, referring to the estimated $2 tril in money market accounts and $5 tril in CD’s, be warned that on a 30-year historical basis only 3.36% per annum of Money Market account balances come into domestic equities and a scant .73 of 1% per annum of CD monies are similarly invested.

To counter yet another tout of the always bullish shills who tell us that the effects of ongoing Bushonian tax cuts in 2005 will provide sufficient economic stimulus to allow the SPX to rally to 1500, be warned, for night[?] in 2005 the fiscal stimulation derived from the aforementioned will, on a dollar-volume basis, be only one-tenth that of the fiscal stimulus said tax cuts provided in 2004.

Next week we will expose more of the lies, deceptions and half truths of CNBC’s ‘never-endingly bullish Bushonian market shills’.For the coming week’s trade, SPX technicals are as follows: First upside floor resistance remains at 1207/8, with second resistance at 1211, onto third resistance at 1214/15, and major, 89-month, technical resistance at 1218, 1220 and 1222/24. First downside floor support is at 1198/9, with second floor support remaining at 1192/3, down to third support at 1187, 1183 and 1177 with major technical support in the 1172.50/75 zone.

Last week’s Treasury trade provided excellent shorting opportunities in the USH contract, in late-week trade. In Monday’s trade the USH contract touched 116.16, prompting us to change our technical posting from ‘near-term very overbought-1’ to ‘near-term extremely overbought-3’, causing us to issue a shorting recommendation, which was executed in our weekly cash generation model trade portfolio at 116.14. In Wednesday’s trade, the USH contract traded to 117.12, causing us to once again change our technical posting from ‘near-term extremely overbought-3’ to ‘near-term extremely overbought-2’, prompting us to enter an order to short another USH contract at 117.14, which, with the intra-day high print of 117.13, was not executed and, hence, not posted. We therefore suggested covering in Thursday’s dip, inspired by yet another poor 10-year T-bond option with foreign buying again below 28% and the bid-to-cover ration below 2.00.

Our end-of-week technical posting on the USH contract, basis its 115.26 close, now stands at ‘near-term mildly overbought-3’, with a further decline to 115.16 necessary to return the posting to neutral.

Further shorting opportunities were provided in last week’s dollar market action, when the DXH contract was turned back from the important 85.30 floor and technical resistance level, prompting us to issue a shorting recommendation, which was executed at 85.27, proceeding to recommend taking profits at 84.47 in Thursday’s trade, in light of the DXH contract’s finding support at the 84.40 top of the 84.20/40 support zone. End-of-week technical posting on the DXH contract was ‘near-term moderately overbought-2’, basis Friday’s 84.58 regular session close, with a decline back to 83.50 necessary to return the posting to neutral.

In last week’s gold market action, the GCJ contract became a virtual ‘screaming buy’ when it was able to hold the 414 support level despite intense dollar trade pressure, prompting us to issue a buy recommendation, which was executed at 414.20 wherein we recommended taking profits in the subsequent rally when the contract was initially turned back from the 418.70 resistance level. However, the contract was able to move higher, closing out Friday’s regular session trade at 422, just below the 422.40-424.60 next upside resistance zone. We posted our end-of-week GCG contract, basis its 422 Friday close, as ‘near-term very mildly overbought’ instead of neutral, given the poor quality of Thursday-Friday’s rally, which was largely a short-covering affair with only light-volume fresh retail buying being reported from the floor. Further hurting Friday’s upside action in the GCJ contract were comments by Jim Steele of REFCO seeing near-term upside gains being capped in the gold at 430, dampening retail enthusiasm.

Last week’s oil market action saw continuing base-building in the CLH contract at the 44.90/45.10 support zone, a level wherein selling consistently dried out. The CLH contract was initially unable to rally on a release of weekly inventory data on Wednesday, which was construed as bullish. However, the CLH contract was able to rally in Thursday’s trade with the help of changing dollar/gold sentiment which bled into the oil pits and on the back of yet another strongly bullish LNG stox report..

In end-of-week sheet comments, TRADEX noted that traders should be cautious trading oil from the long side, noting that the Thursday-Friday rally was a light-volume affair with little commercial interest seen in the pits, and that the price inversion being seen in the March-April contracts, such that oil bulls tout, was occurring due to some unusual commercial hedging, a factor that may not necessarily be bullish for prices. Also, a note of caution regarding Thursday’s rally in the PLJ, PAH, SIH and the HGH contracts caused by the Russian government’s announcement to close foreign investment in its mining industry. You may remember the Putin regime issuing such edicts regarding its oil, timber and agricultural businesses, only to see those edicts reversed under the weight of reality, namely that Russia does not possess the economic resources necessary to fully develop its own resources.