Stocks Up – Economy Down – Natural Gas – Like Buying Gold in 2000?

Stock Markets across the globe for the most part finished positive for the  week ending June 15, 2012.  The S&P 500 closed at 1,342 – a gain of 1.4% for the week.

Primary catalyst for the gains this week was the following:

  1. Markets are coming off of their most technically oversold condition since last October Lows in 2011.
  2. The announcement of the possibility of coordinated monetary easing actions by the G-7 Central Bankers  – if necessary  – in response to the Greek Election results.

Below is our 7 month chart of the S&P 500 that begins with the markets most recent bottom in October, 2011.  It appears that the recent low of 1,266 will be an intermediate low for the time being.  However, the S&P 500 is now close to an area of resistance that we have identified as  between 1,345 – 1,370 – it is our assessment that the S&P 500 will have a difficult time to make it through this area in the near term and we therefore caution investors about putting fresh money to work at this time.

 

(Click on Image of Chart for a Bigger Picture)

 

 

 

Taking a look underneath the hood of the S&P 500 we present a performance chart for each of the nine sectors of the S&P 500.  Our start date for this chart is April 2nd – the most recent Top in the market.  Notice how all of the sectors turned positive around June 5th with Energy having the sharpest move higher.

(Click on Image of Chart for a Bigger Picture)

 

 

 

The Energy sector has been the worst performing sector over the past 12 months as investors have moved away from the sector from fears of a global economic slowdown in Europe and especially in China who’s commodity demand is the country that moves commodity prices the most – especially at the margins.

Also affecting the performance of the energy sector is the price of Natural Gas which at $2.46 cents a BTU is trading at levels not seen since 1994!  For a point of reference for readers – Natural Gas traded as high as $14 a BTU over the past decade and was consistently trading between $4. – $8 for most of the period between 2002 – 2011.  We are Very Bullish on Natural Gas plays for investors with a 3 plus year horizon.  We think buying Natural Gas at today’s prices is like buying Gold in 2,000 at $250.  Note – We would not recommend any purchases in the near term as Natural Gas was up 10% this past week.

 

On The Economic Front – the recent trend continued where most economic releases were disappointing for the week:

  1. Initial Unemployment Claims were Higher than expected.
  2. Industrial Production was Lower than Expected.
  3. Retail Sales were Lower than expected
  4. Consumer Confidence was Lower than expected.

Our studies have also noted the following for Large US companies – the higher the percentage of their annual sales are to Europe – the worse performing their stock over the past two months when compared to their peer companies with less sales exposure to Europe and more sales exposure to the USA.  Obviously investors do not want to own companies who have significant amount of their annual revenues tied to a economic zone where many of the countries are either near or in a recession (except for Germany which is very strong economically now).

Forecast for the next week

We note that our technical indicators are showing an improvement in the tone of market.  However we are balancing this improvement of market technical indicators against the recent economic fundamental reports which continue to show weakening results (though we would like to note that none of these economic results show that the USA is in a recession –  unemployment however remains in a recession).  Against this backdrop we would urge investors to be cautionary with allocating too much new capital at this time and at these levels – especially as we noted above in the chart with the S&P 70 points off it’s recent bottom and now near it’s resistance zone.  We think a better time for putting fresh money to work will emerge over the next few weeks.

 

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