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Monday, January 17, 2011 9:19:45 PM
Monday Morning Outlook: DJIA 12,000 is Within View
Earnings look strong, but consumers are still wary
by Todd Salamone 1/15/2011 10:24 AM
http://www.schaeffersresearch.com/commentary/observations.aspx?ID=104552&trackback=mmoezine
The Dow Jones Industrial Average knocked down another 100-level marker last week, barreling past the 11,700 level, and settling within a field goal's distance of 11,800. Is 12,000 within reach? The Dow hasn't traveled in that company since June 2008. Looking ahead, Todd Salamone, Senior Vice President of Research, digs into the high-profile American Association of Individual Investors (AAII) survey. Many analysts are viewing the recent bullish readings on this survey as a contrarian signal. Todd isn't buying it, and he explains why. Next, Senior Quantitative Analyst Rocky White takes a look at the relative performance of the Dow and gold over the years. Finally, we wrap up with a look at some key economic and earnings reports slated for release this week.
Recap of the Previous Week: Onward and Upward
Schaeffer's Editorial Staff
Bulls continued to battle traditionally bearish January headwinds, and extended their weekly winning streak to seven. The first week of earnings season offered some bright spots -- Alcoa (AA), Intel (INTC) and JPMorgan (JPM) impressed with better-than expected reports -- but traders also faced renewed concerns about the weak employment picture in the U.S. and heavy sovereign debt loads in Europe.
Portuguese debt issues dominated the headlines early in the week, with some European leaders suggesting the country would need to accept an Irish-style bailout. Investors were also antsy ahead of the kickoff to earnings season. The Dow lost 0.32% on Monday.
Dow component Alcoa (AA) launched the earnings parade Monday night with better-than-expected numbers, and homebuilder Lennar Corp. (LEN) followed suit Tuesday morning. Sears Holdings Corp. (SHLD) leaped more than 6% after it forecast strong earnings for the fourth quarter. And in the most anticlimactic revelation of the year to date, Verizon Communications Inc. (VZ) and Apple Inc. (AAPL) announced that Verizon would begin selling its version of the iPhone. Apple's share price was last spotted aboard the space shuttle, hurtling toward the stratosphere. The Dow climbed 0.30%, bringing the week almost back to breakeven.
Traders were encouraged early Wednesday by a successful Portuguese bond auction, and were further cheered when Wells Fargo upgraded the U.S. banking sector to "overweight," with particular kind words for Goldman Sachs (GS), JPMorgan, and Bank of America (BAC). In the afternoon, the Fed's latest Beige Book confirmed that the U.S. labor market is finally healing. "Labor markets in most districts appear to be firming somewhat," the Fed reported. The Dow surged 0.72%, galloping past the 11,700 marker, and closing at its highest level since June of 2008.
Jobless claims took an expected jump on Thursday, setting the tone for a downbeat day, although some analysts dismissed the number as a holiday reporting glitch. The rest of the day was a mixed bag: Wholesale inflation rose by 1.1% in December, although most of that increase was driven by volatile food and energy costs, and the trade deficit unexpectedly narrowed in November. Spain and Italy successfully auctioned off debt. The Dow slipped 0.20%.
JPMorgan boosted the financial sector on Friday by posting a 47% jump in fourth-quarter profit, beating analysts' expectations. Other news pointed to a continued recovery, but perhaps not as quickly as some hoped. U.S. retail sales rose 0.6% in December, the sixth straight monthly increase, but a little less than some had expected. The University of Michigan consumer sentiment index for January dipped to 72.7 from 74.5 in December; analysts were expecting another increase. Finally, the consumer price index rose 0.5% in December, in line with expectations. The Dow gained a healthy 0.47% on the day, tagging an intraday peak of 11,794.15 in the process. That brought the Dow's weekly advance to 1%. The S&P 500 Index rose 1.7% for the week, while the Nasdaq Composite climbed 1.9%.
What the Trading Desk Is Expecting: Sorting Out Conflicting Indicators
By Todd Salamone, Senior Vice President of Research
"Our models estimate that Equity Long/Short funds reduced their net exposure to 25% net long. This is likely due to reduced exposures going into year-end. Market Neutral funds maintained equity exposure ~5% net short; meanwhile, Macro HF's noticeably sold commodities, 10-year Treasuries and U.S. equity futures."
--Bank of America Merrill Lynch Hedge Fund Monitor, Jan. 4, 2011
"In bridge and investing, you are constantly being bombarded with an enormous amount of information... The key is seeing all the possibilities... Similarly, in investing, knowing which market indicators to monitor, and when, is more critical than watching every piece of information."
--Brad Moss, hedge fund manager, Fortune magazine, Jan. 7, 2011
The above excerpt from an article that appeared in Fortune magazine last week resonated with us. At Schaeffer's Investment Research, we monitor many sentiment and technical indicators in our efforts to gauge the risk and reward in the market. Sometimes, the various indicators we monitor are at odds with each other and, therefore, to Brad's point above, knowing which market indicators to follow becomes of paramount importance.
One such market indicator is the weekly American Association of Individual Investors (AAII) survey, which for weeks has indicated optimism among retail investors. I have noticed that many market participants are reacting to this survey's bullishness with caution. In fact, we would argue that the intense focus on this survey has kept many would-be investors on the sidelines, as they use this survey as a contrarian signal, missing the market's advance in the process.
The bullish sentiment found in this survey is in major conflict with actual fund flows in the domestic equity fund world, a more robust measure of retail market sentiment. For example, one might anticipate that on the heels of double-digit 2010 gains and a fresh start to a new year, fund flows into domestic equity funds would have been positive. However, in the first week of 2011, fund flows were more negative than they were during any of the first weeks of the prior five years. As a reminder, this period includes 2008-2009, the height of the real estate bust and financial crisis. So, while some avoid the market due to "excessive optimism," there is evidence that fear among this contingent of investors is higher now than during the dreary fundamental and technical backdrop of 2008-2009.
As we have seen during the past few weeks, pure market momentum has trumped all other indicators. But who is keeping the momentum alive? From our analysis of option activity on major exchange-traded funds, it appears to be hedge fund managers moving from an underweight position in U.S. equities. As we have said on previous occasions, the market's best days during the past couple of years have occurred when hedge funds are in accumulation mode. We see the evidence of this accumulation in the rising buy-to-open put/call volume ratio on major exchange-traded funds (ETFs), which are typically used as hedging vehicles.
With respect to hedge fund positioning, we said last week:
"...There is a hint of good news for bulls in our analysis of the 20-day buy-to-open put/call volume ratio on the QQQQ, IWM, and SPY, which has stabilized recently at former lows, and is now at its highest level in a month. Admittedly, this ratio has been volatile in recent weeks. But, if it continues to move higher from the current low level amid strength in the market, it would signal hedge fund managers moving back into the U.S. equity market from an underweight position, which would have bullish implications. This is an indicator that we continue to follow closely."
Last week, the indicator looked like this:
The graph below displays the buy-to-open put/call volume ratio at present.
The turn higher in this ratio from low levels, and amid strong price action, improves the market's risk/reward equation, as hedged buyers appear to be in the early stage of accumulation, a group that is less apt to panic sell on negative news, given that they own portfolio insurance. In looking at all possibilities, one might conclude that we are in the early stages of moving out of an oversold condition, and this might be the only indicator that matters now. If so, it will continue to distort traditional overbought/oversold levels, as we have been "overbought" using traditional technical tools since the holidays.
Turning quickly to the charts, the Russell 2000 Index's (RUT – 807.57) move above the 800-century mark is a plus for the bulls. The next big hurdle for the RUT would be the 850 area, site of its all-time high. Support is currently at 780, which acted as resistance in the second half of December, and in turn acted as support in this month's first week of trading.
The Standard & Poor's 500 Index (SPX – 1,293.24) has moved soundly above 1,250, and the round 1,300 level on the SPX lingers just above, with 1,333 – double the March 2009 low – sitting 2.5% above this century mark. Support for the SPX is in the 1,260-1,280 zone.
Finally, the Nasdaq Composite (COMP – 2,755.30) sits about 100 points below its October 2007 peak at 2,861, entering the holiday-shortened expiration week. We view support in the 2,650-2,700 area.
Risk factors have not changed:
1. January has not been seasonally strong during the past 10 years, marking various corrections and/or beginnings of corrections.
2. The CBOE Market Volatility Index (VIX) is trading at a significant premium to SPX historical volatility... and trading just above 15.00 again, which has marked a floor.
3. Equity option players are displaying an extreme in call buying relative to put buying.
If you enjoy Monday Morning Outlook...
...why not check out Opening View, our daily preview of market activity? Each morning, we analyze the prior day, review the overnight markets, and monitor the morning wires to give you our special Schaeffer's take on the action, before the opening bell. Sign up here to have Opening View delivered straight to your inbox every morning.
Prepare for the investing week ahead. Every week, Bernie Schaeffer and his staff provide you with their insight about what has happened and, more importantly, what will happen in the market. We dig deep and show you what's happening behind the scenes, and tell you which indicators are predicting major market moves. If you enjoyed this week's edition of Monday Morning Outlook, sign up here for free weekly delivery straight to your inbox.
Indicator of the Week: Pricing the Dow in Alternative Assets
By Rocky White, Senior Quantitative Analyst
Foreword: Unless you've been living under a rock, you know that money has been pouring into gold over the last several years. In fact, since 2001, gold has been up in every single year AND has outperformed the Dow in each of those years. Perhaps it was due, gold having lost about half its value over a 20-year period from 1980 to 2000. Below is a longer-term chart of the Dow and gold. You can see that the market began climbing higher in the 1980s, leaving gold behind. Then, since 2000, the Dow has gone almost nowhere while gold has quadrupled.
Another way to look at this relationship is to chart the Dow priced in ounces of gold, rather than dollars. In other words, if gold is trading for about $1,350 an ounce, it would take about 8.5 ounces of gold to buy a Dow valued at $11,800. When gold is trading for half that amount, it would take twice as many ounces. Put yet another way, it's the Dow value divided by the price of gold. Inflation hawks like this chart because they think excessive money printing is devaluing the dollar and driving the market higher. They think pricing the Dow in ounces of gold gives a truer measure of the market's value.
Looking at the chart this way shows that the recent surge in gold versus the market has brought the market down from about 40 ounces of gold, at its peak, to about 8.5 ounces right now. This current level seems right in line with historical levels, as the Dow's average since 1910 is about 10.5 ounces, with a median around 6.5.
Valuing the Dow with Copper: If you're not going to use dollars to value the market, then gold is typically the next choice. This is because it is often referred to as the world's universal currency. But there's no reason you couldn't value the Dow in other assets. Below is a chart of the Dow valued in pounds of copper. Again, the current level is right around the historical norms. The Dow is priced at about 2,700 pounds of copper, which is right around the median value since 1940, and slightly below the average. At the height of the tech boom, it cost about 20,000 pounds of copper to buy the Dow.
Barrels of Oil: Below is the chart of the Dow valued in barrels of oil. Just as with the other commodities, the Dow has been falling since 2000. The Dow reached 800 barrels of oil in 1998, but now stands at about 130 barrels. Unlike the other charts, the Dow is below its long-term median level when priced in barrels of oil.
Implications: Stocks have been flat over the past 10 years, while commodities have done exceptionally well. The charts above show the market is in a severe downtrend when priced in those commodities. Even in the last couple of years, when the Dow was up big (in dollars), it's down when priced in the commodities above. Despite the last 10 years, the Dow is now right in line with historical norms compared to these hard assets. So it's hard to say the market is particularly overbought. As fast as the money entered commodities over the last several years, it's just as easy for it to turn around and find its way back into stocks.
This Week's Key Events: Apple, IBM, Google, GE Among Big Names on Tap
Schaeffer's Editorial Staff
Earnings season picks up the pace, with some big names in the tech and financial sectors weighing in. Here is a brief list of some of the key events this week. All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.
Monday
* The market is closed Monday for Martin Luther King Jr. Day.
Tuesday
* The Federal Reserve will publish its January survey of manufacturers in New York State, and the National Association of Home Builders will offer up its housing market index for the same month. Scheduled to report earnings are Citigroup Inc. (C), Fastenal Company (FAST), Origin Agritech Ltd. (SEED), TD Ameritrade Holding Corp. (AMTD), Apple Inc. (AAPL), Cree Inc. (CREE), IBM Corp. (IBM), Western Digital Corp. (WDC), Linear Technology Corp. (LLTC) and McMoRan Exploration Co. (MMR).
Wednesday
* The Commerce Department will report December housing starts and building permits. ASML Holding N.V. (ASML), The Bank of New York Mellon Corp. (BK), Comerica Incorporated (CMA), Goldman Sachs Group Inc. (GS), State Street Corp. (STT), U.S. Bancorp (USB), Wells Fargo & Company (WFC), eBay Inc. (EBAY), F5 Networks Inc. (FFIV), Raymond James Financial Inc. (RJF), Seagate Technology PLC (STX), SLM Corporation (SLM), Xilinx Inc. (XLNX), and Northern Trust Corp. (NTRS) plan to report earnings.
Thursday
* The Labor Department will give us its weekly look at jobless claims, the National Association of Realtors will report on existing home sales in December, and the Conference Board will publish its Leading Indicators Index for December. Meanwhile, the Philadelphia Fed will provide its read on manufacturing activity in its region in January. We'll also get the usual weekly report on crude inventories, a day later than usual because of the holiday. Fairchild Semiconductor International (FCS) Fifth Third Bancorp (FITB), Freeport McMoRan Copper & Gold Inc. (FCX), Huntington Bancshares Incorporated (HBAN), ITT Educational Services Inc. (ESI), Morgan Stanley (MS), PNC Financial Services (PNC) PPG Industries Inc. (PPG), The Progressive Corporation (PGR), Southwest Airlines Co. (LUV), UnitedHealth Group Inc. (UNH), Advanced Micro Devices Inc. (AMD), Capital One Financial Corp. (COF), Google Inc. (GOOG), Intuitive Surgical Inc. (ISRG), and Parker-Hannifin Corp. (PH) will report earnings.
Friday
* There are no major economic reports scheduled for Friday. Bank of America Corp. (BAC), BB&T Corp. (BBT), General Electric Co. (GE), Schlumberger Limited (SLB), and SunTrust Banks Inc. (STI) will report earnings.
Earnings look strong, but consumers are still wary
by Todd Salamone 1/15/2011 10:24 AM
http://www.schaeffersresearch.com/commentary/observations.aspx?ID=104552&trackback=mmoezine
The Dow Jones Industrial Average knocked down another 100-level marker last week, barreling past the 11,700 level, and settling within a field goal's distance of 11,800. Is 12,000 within reach? The Dow hasn't traveled in that company since June 2008. Looking ahead, Todd Salamone, Senior Vice President of Research, digs into the high-profile American Association of Individual Investors (AAII) survey. Many analysts are viewing the recent bullish readings on this survey as a contrarian signal. Todd isn't buying it, and he explains why. Next, Senior Quantitative Analyst Rocky White takes a look at the relative performance of the Dow and gold over the years. Finally, we wrap up with a look at some key economic and earnings reports slated for release this week.
Recap of the Previous Week: Onward and Upward
Schaeffer's Editorial Staff
Bulls continued to battle traditionally bearish January headwinds, and extended their weekly winning streak to seven. The first week of earnings season offered some bright spots -- Alcoa (AA), Intel (INTC) and JPMorgan (JPM) impressed with better-than expected reports -- but traders also faced renewed concerns about the weak employment picture in the U.S. and heavy sovereign debt loads in Europe.
Portuguese debt issues dominated the headlines early in the week, with some European leaders suggesting the country would need to accept an Irish-style bailout. Investors were also antsy ahead of the kickoff to earnings season. The Dow lost 0.32% on Monday.
Dow component Alcoa (AA) launched the earnings parade Monday night with better-than-expected numbers, and homebuilder Lennar Corp. (LEN) followed suit Tuesday morning. Sears Holdings Corp. (SHLD) leaped more than 6% after it forecast strong earnings for the fourth quarter. And in the most anticlimactic revelation of the year to date, Verizon Communications Inc. (VZ) and Apple Inc. (AAPL) announced that Verizon would begin selling its version of the iPhone. Apple's share price was last spotted aboard the space shuttle, hurtling toward the stratosphere. The Dow climbed 0.30%, bringing the week almost back to breakeven.
Traders were encouraged early Wednesday by a successful Portuguese bond auction, and were further cheered when Wells Fargo upgraded the U.S. banking sector to "overweight," with particular kind words for Goldman Sachs (GS), JPMorgan, and Bank of America (BAC). In the afternoon, the Fed's latest Beige Book confirmed that the U.S. labor market is finally healing. "Labor markets in most districts appear to be firming somewhat," the Fed reported. The Dow surged 0.72%, galloping past the 11,700 marker, and closing at its highest level since June of 2008.
Jobless claims took an expected jump on Thursday, setting the tone for a downbeat day, although some analysts dismissed the number as a holiday reporting glitch. The rest of the day was a mixed bag: Wholesale inflation rose by 1.1% in December, although most of that increase was driven by volatile food and energy costs, and the trade deficit unexpectedly narrowed in November. Spain and Italy successfully auctioned off debt. The Dow slipped 0.20%.
JPMorgan boosted the financial sector on Friday by posting a 47% jump in fourth-quarter profit, beating analysts' expectations. Other news pointed to a continued recovery, but perhaps not as quickly as some hoped. U.S. retail sales rose 0.6% in December, the sixth straight monthly increase, but a little less than some had expected. The University of Michigan consumer sentiment index for January dipped to 72.7 from 74.5 in December; analysts were expecting another increase. Finally, the consumer price index rose 0.5% in December, in line with expectations. The Dow gained a healthy 0.47% on the day, tagging an intraday peak of 11,794.15 in the process. That brought the Dow's weekly advance to 1%. The S&P 500 Index rose 1.7% for the week, while the Nasdaq Composite climbed 1.9%.
What the Trading Desk Is Expecting: Sorting Out Conflicting Indicators
By Todd Salamone, Senior Vice President of Research
"Our models estimate that Equity Long/Short funds reduced their net exposure to 25% net long. This is likely due to reduced exposures going into year-end. Market Neutral funds maintained equity exposure ~5% net short; meanwhile, Macro HF's noticeably sold commodities, 10-year Treasuries and U.S. equity futures."
--Bank of America Merrill Lynch Hedge Fund Monitor, Jan. 4, 2011
"In bridge and investing, you are constantly being bombarded with an enormous amount of information... The key is seeing all the possibilities... Similarly, in investing, knowing which market indicators to monitor, and when, is more critical than watching every piece of information."
--Brad Moss, hedge fund manager, Fortune magazine, Jan. 7, 2011
The above excerpt from an article that appeared in Fortune magazine last week resonated with us. At Schaeffer's Investment Research, we monitor many sentiment and technical indicators in our efforts to gauge the risk and reward in the market. Sometimes, the various indicators we monitor are at odds with each other and, therefore, to Brad's point above, knowing which market indicators to follow becomes of paramount importance.
One such market indicator is the weekly American Association of Individual Investors (AAII) survey, which for weeks has indicated optimism among retail investors. I have noticed that many market participants are reacting to this survey's bullishness with caution. In fact, we would argue that the intense focus on this survey has kept many would-be investors on the sidelines, as they use this survey as a contrarian signal, missing the market's advance in the process.
The bullish sentiment found in this survey is in major conflict with actual fund flows in the domestic equity fund world, a more robust measure of retail market sentiment. For example, one might anticipate that on the heels of double-digit 2010 gains and a fresh start to a new year, fund flows into domestic equity funds would have been positive. However, in the first week of 2011, fund flows were more negative than they were during any of the first weeks of the prior five years. As a reminder, this period includes 2008-2009, the height of the real estate bust and financial crisis. So, while some avoid the market due to "excessive optimism," there is evidence that fear among this contingent of investors is higher now than during the dreary fundamental and technical backdrop of 2008-2009.
As we have seen during the past few weeks, pure market momentum has trumped all other indicators. But who is keeping the momentum alive? From our analysis of option activity on major exchange-traded funds, it appears to be hedge fund managers moving from an underweight position in U.S. equities. As we have said on previous occasions, the market's best days during the past couple of years have occurred when hedge funds are in accumulation mode. We see the evidence of this accumulation in the rising buy-to-open put/call volume ratio on major exchange-traded funds (ETFs), which are typically used as hedging vehicles.
With respect to hedge fund positioning, we said last week:
"...There is a hint of good news for bulls in our analysis of the 20-day buy-to-open put/call volume ratio on the QQQQ, IWM, and SPY, which has stabilized recently at former lows, and is now at its highest level in a month. Admittedly, this ratio has been volatile in recent weeks. But, if it continues to move higher from the current low level amid strength in the market, it would signal hedge fund managers moving back into the U.S. equity market from an underweight position, which would have bullish implications. This is an indicator that we continue to follow closely."
Last week, the indicator looked like this:
The graph below displays the buy-to-open put/call volume ratio at present.
The turn higher in this ratio from low levels, and amid strong price action, improves the market's risk/reward equation, as hedged buyers appear to be in the early stage of accumulation, a group that is less apt to panic sell on negative news, given that they own portfolio insurance. In looking at all possibilities, one might conclude that we are in the early stages of moving out of an oversold condition, and this might be the only indicator that matters now. If so, it will continue to distort traditional overbought/oversold levels, as we have been "overbought" using traditional technical tools since the holidays.
Turning quickly to the charts, the Russell 2000 Index's (RUT – 807.57) move above the 800-century mark is a plus for the bulls. The next big hurdle for the RUT would be the 850 area, site of its all-time high. Support is currently at 780, which acted as resistance in the second half of December, and in turn acted as support in this month's first week of trading.
The Standard & Poor's 500 Index (SPX – 1,293.24) has moved soundly above 1,250, and the round 1,300 level on the SPX lingers just above, with 1,333 – double the March 2009 low – sitting 2.5% above this century mark. Support for the SPX is in the 1,260-1,280 zone.
Finally, the Nasdaq Composite (COMP – 2,755.30) sits about 100 points below its October 2007 peak at 2,861, entering the holiday-shortened expiration week. We view support in the 2,650-2,700 area.
Risk factors have not changed:
1. January has not been seasonally strong during the past 10 years, marking various corrections and/or beginnings of corrections.
2. The CBOE Market Volatility Index (VIX) is trading at a significant premium to SPX historical volatility... and trading just above 15.00 again, which has marked a floor.
3. Equity option players are displaying an extreme in call buying relative to put buying.
If you enjoy Monday Morning Outlook...
...why not check out Opening View, our daily preview of market activity? Each morning, we analyze the prior day, review the overnight markets, and monitor the morning wires to give you our special Schaeffer's take on the action, before the opening bell. Sign up here to have Opening View delivered straight to your inbox every morning.
Prepare for the investing week ahead. Every week, Bernie Schaeffer and his staff provide you with their insight about what has happened and, more importantly, what will happen in the market. We dig deep and show you what's happening behind the scenes, and tell you which indicators are predicting major market moves. If you enjoyed this week's edition of Monday Morning Outlook, sign up here for free weekly delivery straight to your inbox.
Indicator of the Week: Pricing the Dow in Alternative Assets
By Rocky White, Senior Quantitative Analyst
Foreword: Unless you've been living under a rock, you know that money has been pouring into gold over the last several years. In fact, since 2001, gold has been up in every single year AND has outperformed the Dow in each of those years. Perhaps it was due, gold having lost about half its value over a 20-year period from 1980 to 2000. Below is a longer-term chart of the Dow and gold. You can see that the market began climbing higher in the 1980s, leaving gold behind. Then, since 2000, the Dow has gone almost nowhere while gold has quadrupled.
Another way to look at this relationship is to chart the Dow priced in ounces of gold, rather than dollars. In other words, if gold is trading for about $1,350 an ounce, it would take about 8.5 ounces of gold to buy a Dow valued at $11,800. When gold is trading for half that amount, it would take twice as many ounces. Put yet another way, it's the Dow value divided by the price of gold. Inflation hawks like this chart because they think excessive money printing is devaluing the dollar and driving the market higher. They think pricing the Dow in ounces of gold gives a truer measure of the market's value.
Looking at the chart this way shows that the recent surge in gold versus the market has brought the market down from about 40 ounces of gold, at its peak, to about 8.5 ounces right now. This current level seems right in line with historical levels, as the Dow's average since 1910 is about 10.5 ounces, with a median around 6.5.
Valuing the Dow with Copper: If you're not going to use dollars to value the market, then gold is typically the next choice. This is because it is often referred to as the world's universal currency. But there's no reason you couldn't value the Dow in other assets. Below is a chart of the Dow valued in pounds of copper. Again, the current level is right around the historical norms. The Dow is priced at about 2,700 pounds of copper, which is right around the median value since 1940, and slightly below the average. At the height of the tech boom, it cost about 20,000 pounds of copper to buy the Dow.
Barrels of Oil: Below is the chart of the Dow valued in barrels of oil. Just as with the other commodities, the Dow has been falling since 2000. The Dow reached 800 barrels of oil in 1998, but now stands at about 130 barrels. Unlike the other charts, the Dow is below its long-term median level when priced in barrels of oil.
Implications: Stocks have been flat over the past 10 years, while commodities have done exceptionally well. The charts above show the market is in a severe downtrend when priced in those commodities. Even in the last couple of years, when the Dow was up big (in dollars), it's down when priced in the commodities above. Despite the last 10 years, the Dow is now right in line with historical norms compared to these hard assets. So it's hard to say the market is particularly overbought. As fast as the money entered commodities over the last several years, it's just as easy for it to turn around and find its way back into stocks.
This Week's Key Events: Apple, IBM, Google, GE Among Big Names on Tap
Schaeffer's Editorial Staff
Earnings season picks up the pace, with some big names in the tech and financial sectors weighing in. Here is a brief list of some of the key events this week. All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.
Monday
* The market is closed Monday for Martin Luther King Jr. Day.
Tuesday
* The Federal Reserve will publish its January survey of manufacturers in New York State, and the National Association of Home Builders will offer up its housing market index for the same month. Scheduled to report earnings are Citigroup Inc. (C), Fastenal Company (FAST), Origin Agritech Ltd. (SEED), TD Ameritrade Holding Corp. (AMTD), Apple Inc. (AAPL), Cree Inc. (CREE), IBM Corp. (IBM), Western Digital Corp. (WDC), Linear Technology Corp. (LLTC) and McMoRan Exploration Co. (MMR).
Wednesday
* The Commerce Department will report December housing starts and building permits. ASML Holding N.V. (ASML), The Bank of New York Mellon Corp. (BK), Comerica Incorporated (CMA), Goldman Sachs Group Inc. (GS), State Street Corp. (STT), U.S. Bancorp (USB), Wells Fargo & Company (WFC), eBay Inc. (EBAY), F5 Networks Inc. (FFIV), Raymond James Financial Inc. (RJF), Seagate Technology PLC (STX), SLM Corporation (SLM), Xilinx Inc. (XLNX), and Northern Trust Corp. (NTRS) plan to report earnings.
Thursday
* The Labor Department will give us its weekly look at jobless claims, the National Association of Realtors will report on existing home sales in December, and the Conference Board will publish its Leading Indicators Index for December. Meanwhile, the Philadelphia Fed will provide its read on manufacturing activity in its region in January. We'll also get the usual weekly report on crude inventories, a day later than usual because of the holiday. Fairchild Semiconductor International (FCS) Fifth Third Bancorp (FITB), Freeport McMoRan Copper & Gold Inc. (FCX), Huntington Bancshares Incorporated (HBAN), ITT Educational Services Inc. (ESI), Morgan Stanley (MS), PNC Financial Services (PNC) PPG Industries Inc. (PPG), The Progressive Corporation (PGR), Southwest Airlines Co. (LUV), UnitedHealth Group Inc. (UNH), Advanced Micro Devices Inc. (AMD), Capital One Financial Corp. (COF), Google Inc. (GOOG), Intuitive Surgical Inc. (ISRG), and Parker-Hannifin Corp. (PH) will report earnings.
Friday
* There are no major economic reports scheduled for Friday. Bank of America Corp. (BAC), BB&T Corp. (BBT), General Electric Co. (GE), Schlumberger Limited (SLB), and SunTrust Banks Inc. (STI) will report earnings.
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