Markets Re-cap

On Friday, even General Electric’s (GE) solid 4Q earnings report and IBM's upbeat guidance could not save equity prices from falling into the red.

The DJIA (-59.91 -0.49 pct to 12099), S&P 500 (-8.06 -0.60 pct to 1325), and Nasdaq Composite (-6.88 -0.29 pct to 2340) all closed lower as Telecom ($XTC -3.55 pct) and Biotech ($BTK -2.90 pct) were pounded. The Banks were also weak.

Winners on the day were Semi-conductors ($SOX +2.43 pct) and Transports ($TRANQ +1.65 pct).

GE 4Q net income lifted +4 pct to $6.7 billion vs $6.44 billion a year earlier.

After the close, IBM reported 4Q net income of $3.95 billion vs $3.46 billion a year earlier, and Washington Mutual (WM) reported a $1.87 billion 4Q net loss.

On the economic front, the preliminary reading of the January Univ. of Michigan confidence index moved to 80.5 from December’s 75.5. The Conference Board's composite index of leading indicators slipped -0.2 pct to 136.5 for December.

Crude Oil ($WTIC) gained +0.39 pct to 89.92 on speculation that OPEC will keep production unchanged. $GOLD lifted marginally +0.14 pct to 881.70.

Meanwhile, the $USD (+0.20 pct to 76.37) climbed against the Yen and Euro.

In Asia-Pacific equity markets, except for Australia (-1.0 pct) and India (-3.5 pct), most indexes were up: Nikkei (+0.6 pct), Shanghai (+0.6 pct), Hong Kong (+0.4 pct) and Singapore (+1.1 pct).

In the European bourses, at the close, the FTSE was flat at 5901, the DAX dropped (-1.34 pct) and CAC also fell (-1.25 pct). Early in the day, these markets were all positive with the promise of GE and IBM in their sights.

But, when all was said and done, the Bulls could not manage to recover from the continued sell-off by traders who are concerned about the US economy and financial system. Even an announcement from Pres. Bush with a promise of a $150 billion stimulation package that will likely be quickly approved in Congress, and market indications of a Fed Rate cut of -50 basis points or more ten days from now, could not reverse the bearishness.

Comments & Outlook

Weakness persists in all three of the world's major equity markets, the US, Japan and the UK. While there are some signs of a mid-cycle Bear market rally, there are just as many indications that the crucial Dow=12000 support will not hold. If and when that level fails, the next sell-off could be a rather large one.

As I see it, the process of rallies at this juncture is one of reversal of fortunes day to day. For instance I opined earlier that I expected the relatively stronger defensive sectors would be Friday's losers and the prior losers would be winners on the day. That happened as Tech, Healthcare, Utilities and Staples were the biggest losers and Materials and Energy were the winners.

That action clearly does not speak to prospects for a rally. There is no theme in the market today except Stagflation (ie, economic slowing along with rising inflation), and, as I have often written, stagflation is a market killer.

Should Crude Oil drop (as I do expect) to 75, which will alleviate inflation pressures and facilitate an orderly reduction in Fed Rates to a much lower level, and should the banking system come clean on their asset valuations, finally writing off all the junk they hold, the conditions will be right for the next primary Bull market to start. At that point you want to have as much cash on hand as possible to buy new positions in the stocks of the best quality companies.

Using the DJIA as a measuring stick, I have opined that the long-term cycle bottom would be about 9800-10000, which, if I'm correct, means at 12000, the Bear is 50 pct through the process, having peaked at 14200.

The cycle plays out like a roller-coaster going over the top, with the Financials in the lead car and Oil and Gold in the caboose. When Gold hits bottom, the broad market is also likely to be close by. The difference in the next equity market cycle to the usual ones, however, is that I believe the inflation pressures are going to persist. That will mean the $USD and Bonds and Financials will have a difficult time lifting past the long-term normal (if anything in markets can be called normal) -- I mean their long-term 400-day Moving Averages -- and the major beneficiary will be Gold.

Yes, after a pull-back, I still believe that Gold will hit price levels well above $1000/oz. And the longer that US troops remain in the Middle East, and the worse off we find the condition of HB&B, the higher that gold price will go.

Guessing at price levels is a mug's game, as I often say. But, traders still must be and stay on the right side of market trends and cycles if they are to properly manage risk, which is Job #1.

Btw, the Cara 100 tables for Friday’s close were not received, so that part of the report will go missing today. Although I have no control over such things (I received the reports all day except for the post-closing one), I do apologize.

In addition, I will be moving residences tomorrow and may not be able to publish a Week In Review (WIR). I’ll try, of course, but it just might not be possible.

Links & Charts

International Economics Review

US Economic Calendar.

Knobias Cara100 Tables

Portfolio GAINERS

SYMB	LAST	CHG	%C	VOL
WBK	115.470	+6.950	+6.4	44.4K
CHA	83.000	+4.890	+6.3	587K
JCP	40.930	+1.910	+4.9	9.8M
KB	67.390	+3.080	+4.8	1.2M
ABV	67.490	+3.040	+4.7	1.1M
MBT	88.780	+3.830	+4.5	3.2M
CHL	77.390	+2.670	+3.6	5M
GE	34.310	+1.100	+3.3	92.1M
SLW	15.980	+0.490	+3.2	3.6M
STO	26.560	+0.790	+3.1	2M
AMAT	18.020	+0.490	+2.8	35.8M
CHRW	48.560	+1.190	+2.5	2.5M
WHR	71.530	+1.730	+2.5	2M
VIP	33.960	+0.700	+2.1	5.7M
BDK	65.750	+1.350	+2.1	1.4M
PTR	155.160	+3.100	+2	1.5M
VCP	25.830	+0.510	+2	962.2K
PBR	94.370	+1.810	+2	9.6M
KSS	40.000	+0.760	+1.9	8.8M
RIO	28.830	+0.540	+1.9	37.2M
NUE	51.220	+0.920	+1.8	6.7M
RIMM	88.580	+1.550	+1.8	30.9M
CEO	150.010	+2.620	+1.8	689.6K
IMO	49.160	+0.810	+1.7	471.6K
GG	34.480	+0.550	+1.6	12.2M

Portfolio LOSERS

SYMB	LAST	CHG	%C	VOL
CTSH	26.000	-1.080	-4	8.5M
TGP	29.050	-0.900	-3	36.7K
PDA	42.560	-1.290	-2.9	116.4K
TCK	29.570	-0.840	-2.8	1.8M
LEH	53.250	-1.410	-2.6	25M
ERTS	49.420	-1.180	-2.3	7.8M
JNJ	66.290	-1.540	-2.3	22.7M
GOL	18.770	-0.430	-2.2	1.4M
EXC	75.860	-1.710	-2.2	8.1M
UBS	40.000	-0.890	-2.2	9M
KO	60.740	-1.300	-2.1	16.9M
YHOO	20.780	-0.440	-2.1	41.1M
SBUX	18.660	-0.390	-2	19.6M
GS	187.210	-3.770	-2	15M
QCOM	38.350	-0.710	-1.8	28.7M
GRMN	62.990	-1.160	-1.8	5.7M
INTC	19.000	-0.330	-1.7	143.4M
INFY	38.020	-0.640	-1.7	4.4M
BMY	24.480	-0.380	-1.5	27.2M
BA	78.400	-1.120	-1.4	7.7M
DNA	68.770	-0.980	-1.4	4.7M
NOK	32.600	-0.460	-1.4	19.9M
PG	67.150	-0.920	-1.4	17.9M
AET	56.090	-0.740	-1.3	3.7M
LLTC	27.370	-0.320	-1.2	9.9M

Portfolio 52-Wk HIGHS

SYMB	DAY HIGH	LAST	CHG	%CHG	VOL
NONE FOUND.

Portfolio 52-Wk LOWS

SYMB	DAY LOW	LAST	CHG	%CHG	VOL
TCK	28.650	29.570	-0.840	-2.76	1.75M
GOL	18.530	18.770	-0.430	-2.24	1.40M
UBS	38.560	40.000	-0.890	-2.18	9.04M
YHOO	20.070	20.780	-0.440	-2.07	41.12M
BMY	24.360	24.480	-0.380	-1.53	27.16M
LLTC	27.370	27.370	-0.320	-1.16	9.90M
DIS	28.250	28.510	-0.260	-0.90	16.32M
ADBE	34.800	35.330	-0.220	-0.62	13.64M
DB	113.130	114.750	-0.680	-0.59	1.61M
CCJ	33.260	34.290	-0.170	-0.49	3.36M
TS	36.050	36.520	-0.040	-0.11	5.04M
CCL	37.640	38.260	+0.130	+0.34	6.57M
DOW	34.340	34.940	+0.300	+0.87	9.34M
HBC	73.610	74.530	+0.730	+0.99	3.17M
TM	98.010	99.700	+1.100	+1.12	950.33K

Portfolio VOLUME

SYMB	LAST	%C	VOL	%ADSV
UBS	40.000	-2.2	9M	+173
TS	36.520	-0.1	5M	+159
DB	114.750	-0.6	1.6M	+153
MBT	88.780	+4.5	3.2M	+147
MFC	35.430	-0.4	2.7M	+137
ERTS	49.420	-2.3	7.8M	+129
GE	34.310	+3.3	92.1M	+123
ECA	62.220	+1	4.3M	+105
IBKR	31.330	-0.4	1.5M	+103
LEH	53.250	-2.6	25M	+101
EXC	75.860	-2.2	8.1M	+98
XOM	85.080	+1.4	43.8M	+96
CHL	77.390	+3.6	5M	+94
RY	46.280	-0.7	1.4M	+91
JNJ	66.290	-2.3	22.7M	+91
RIO	28.830	+1.9	37.2M	+87
TM	99.700	+1.1	950.3K	+87
LLTC	27.370	-1.2	9.9M	+85
MICC	94.570	+0.8	1.7M	+85
ADBE	35.330	-0.6	13.6M	+84
KB	67.390	+4.8	1.2M	+82
UTX	68.050	-0.1	9M	+79
CVX	83.460	+0.9	18.9M	+79
WBK	115.470	+6.4	44.4K	+78
CTSH	26.000	-4	8.5M	+77

Analysts UPGRADES

SYMB	ANALYST	OLD		NEW	BEFORE		AFTER
RIMM	Oppenheimer	---		115.00	Sector Perform		Outperform
BBBY	UBS Securities	30.00		32.00	Neutral		Buy
• PREVIOUS SESSION
BA	Bernstein	---		---	Mkt Perform		Outperform

Analysts DOWNGRADES

SYMB	ANALYST	OLD		NEW	BEFORE		AFTER
NONE FOUND.
• PREVIOUS SESSION
ADBE	UBS Securities	---		---	Buy		Neutral
SLW	CIBC	---		---	Sector Perform		Sector Underperform

Cara 100 Daily RSI-7 Charts

At least one RSI value <30: