U.S. Stock Market - Feb 8th Week In Review

It was a mixed week for U.S. stocks last week, but generally there was a positive tone. Most intra-day sell-offs proved to be short-lived, and a strategy of buying dips was probably profitable for short-term traders. There were no major catalysts (that I could see) to upset the current trend which is most definitely to the upside. All-time record highs were posted by the Russell 2000 Index and the Dow Jones Transportation Average, among others. The NASDAQ Composite Index traded at a 12-year high last week, and the DJIA and S&P 500 traded at 5-year recovery highs (at least intra-day). The positive tone could be traced to slightly better than expected corporate earnings, ongoing accommodative central bank monetary policies on a global basis, and mostly friendly (bullish) comments from Wall Street pundits and the major financial press.

Here are Friday’s closing marks, with changes from Thursday’s close, and also with changes on the week, respectively:

                                                                           Friday's Changes                Weekly Changes

Dow Jones Industrial Average    13,992.97     +48.92          +0.35%         - 16.82         - 0.12%

S&P 500 Index                              1,517.93     +  8.54          +0.57%         +  4.83         +0.32%

NASDAQ Composite Index           3,193.87     + 28.74         +0.91%         +14.77         +0.46%

Russell 2000 Index                          913.67      +  5.57          +0.61%         + 2.47           +0.27%

After the close on Friday, Google announced that its Chairman Eric Schmidt will be selling 42% of his 7.6 million share stake in the Company over the next 12 months. Google’s IPO came in August 2004 at $80/share and the stock closed last week at a record high $785/share. Schmidt joined Google in 2001. His current stake in Google shares is worth about $5.82 billion, which works out to approximately $485 million per year of service. I think you would be hard-pressed to find any other person on the entire planet, who is NOT among a company’s founders, to have earned more compensation from a single job at any firm. Schmidt joins a growing list of Corporate Insiders who are selling shares in their own companies, which probably doesn’t bode well for the overall market immediately ahead.

For your review, I have attached the monthly bar chart for the S&P 500 Index. This particular chart also has all the buy and sell signals from my computer-based trading system. You will quickly note that there is no sell signal as yet on the current uptrend which began in March 2009. As it turns out, there are no sell signals as yet on the daily or weekly charts for this same index or any major index except the Dow Jones Utility Average, where a monthly chart sell signal was triggered in August 2012. My bearish view of the U.S. stock market right now assumes that these sell signals will be triggered very soon.

Also for your review, I have attached the daily bar chart for Federal Express (FDX), the gigantic global freight services company. Fedex also happens to be a component of the Dow Jones Transportation Average. You will quickly note that despite the generally bullish price action across most stocks on Friday, a daily chart sell signal was triggered within my computer-based system for Federal Express. I think this sell signal is important and represents a potential leading indicator to the next major direction of the overall market. Fedex recently announced a cost-cutting program that will (hopefully) boost profits by $1.7 billion over the next three years. Included in this program were buyout offers to senior management. The Company announced last week that 10% of its senior management has accepted its buyout proposal. While it’s difficult to measure the macro impact to the Company of this loss in manpower, I think it’s safe to say that more than a few very talented employees elected to accept the buyout. Quite frankly, I think shareholders might wish to reconsider their commitment to owning shares in this company given potential ramifications of this “cost cutting” strategy.  And given the fact that a sell signal has been triggered within my computer system, I think Fedex shareholders should RUN and not walk to the exits right now.

Bottom Line: I remain negative on the U.S. Stock Market. While my bearish call this past week has clearly been “early”, no significant opportunity cost has yet been sustained by any recommended sideline stance. Short-sellers who may have initiated positions on my bearish call are probably underwater, but not by much if measured by the weekly change in the S&P 500 Index (0.32%). The big question now, of course, is when will this expected stock market correction begin? I thought it would begin last week, but that call was obviously premature. I now have an interesting “turn date” in my technical work for this coming Monday, February 11^th. At the risk of going out on a (very fragile) limb, I think the market will turn down on Monday and the long awaited correction will finally get underway. And if the U.S. stock market opens higher on Monday and then reverses to the downside by the closing bell, a sell signal could be triggered within my computer-based trading system.


Federal Express (FDX) Daily Bar Chart with Computer-based Buy & Sell Signals

S&P 500 Monthly Bar Chart with Computer-based Buy & Sell Signals