Rationales & Targets
The easy inference is that record margin debt helped greatly to bring down Chinese stocks and the easier inference is the same will happen to U.S. stocks. There is also far too much fundamental news suggesting a less than robust environment and under the circumstances, this is the perfect setting for the start of a new bear market. One look at the constituents of the Dow Industrials and one wonders how the index has held up. The charts of stalwarts, such as Caterpillar (CAT), DuPont (DD), IBM and Walmart (WMT) are awful and strongly imply strong odds that the economy is rapidly heading south. Thursday’s GDP of 2.3% was disappointing. Clearly, weather was not an issue as it was in the first quarter and frankly, the shadowstats.com numbers, which show the economy in recession for the entirety of the last decade, are more believable.
The Dow easily took out our “Critical” support number of 17,579 and is now attempting to consolidate and hopefully test the stratosphere at 18,000 once again. We expect all rally phases to fail. The last few months have seen index gains catalyzed by fewer strong issues and there is zero reason to expect a broad advance. The Monday, July 27th low of Dow 17,399 (SPX 2063) has taken on special importance. When taken out, we expect a quick journey to “Major” support at the 2014 low of Dow 17,037 (SPX 1989). Will it hold? Given grossly negative net liquidity and an already extraordinarily long lived bull market, our vote is a resounding “no.”
The Super Seven
While we were doing our own research on the narrowing advance in U.S. stocks, we came across an almost identical view from Dan Strumpf, appearing in the Wall Street Journal (see http://on.wsj.com/1OuR7FT), showing only six stocks accounting for half the gain in the S&P 500 this year. Our own “Super Seven” stocks accounted for 49% of the gain in the market’s entire capitalization for 2015 while averaging a rather hefty 78 times earnings. Clearly, this year has seen an extremely narrow based advance, the kind typically seen in the end stage of a bull market.
Early Xmas Shopping?
- A free three issue trial to Crosscurrents is available upon request -
Although we cannot guarantee these gifts will reward buyers anytime soon, we thought it appropriate to put together a list of what might very well turn out to be the biggest bargains currently trading being slaughtered. Readers are already familiar with our views on Newmont Mining (NEM) and Goldcorp (GG), as they have been our top two gold positions since our super bull market call in 2001. Readers are also familiar with Iamgold (IAG), which we pegged months ago as the most attractive mining speculation that we have yet uncovered. Clearly, both IAG’s book value and cash per share imply the ability to wait out the current bear phase. Why did we choose to add Asanko Golf (AKG) and Hecla Mining (HL) to this list? We’ve followed both for several years and believe they are attractive speculations, based on price and book value. It’s not often you find so many gold stocks trading below book value. We’re encouraged by this factor and your Editor intends to add modestly to personal positions in NEM, GG and IAG this week.
For more information, please contact us:
Alan M. Newman, Editor, Crosscurrents
www.cross-currents.net
