Week in Review #32, 2009

[4:23pm] Shell game is the word that comes to mind when reviewing the US equity market action this week. Friday’s trading action gave me a strong sense that something unanticipated is about to happen, so this weekend I started looking at the data, and there it was. On a massive scale, money was flowing out of and not into the Dow 30 stocks. Let me show you what I see.

Let’s start with the premise that the three companies in the DJIA index that control the Fed and who print the money in the US – Humungous Bank & Broker (HB&B) components JP Morgan, Bank of America and General Electric -- are the real promoters of this humungous market rally, the likes of which have not ever before seen.

Focusing on these three companies, I see that this week’s gains in BAC, JPM and GE were +11.02%, +9.60% and +9.7% respectively. In comparison, the DJIA index gained only +2.16%. So, let’s take a look at the other 27 stocks.

Would it surprise you to know that the smallest 12 components of the Dow 30 by market capitalization lifted +6.50% and the 15 heaviest weighted stocks (ex-JPM, GE and BAC) were down -1.16% on the week. And you thought the market had a great winning week, didn’t you?

On deeper examination, those 15 top weighted DJIA components have an average capitalization of $147.3 billion versus the smallish $39.5 billion of this week’s market winners.

Moreover, five of the top seven companies lost market capitalization this week: XOM (-1.31%), WMT (-1.18%), JNJ (-1.63%), PG (-6.27%) and T (-2.33%). These five Dow 30 companies, with an average market cap of 198.8 billion lost an average of -2.54% this week, while the smallest five by capitalization, AA, TRV, DD, CAT and BA, averaging just 26.6 billion, gained this week on average +8.86%.

So what is it America, did the US stock market actually rally this week or was it a case of capital being pulled out? I think the latter.

The bigger question one has to ask is if the market is free and independent, moving higher based on real growth in corporate revenues, cash flow, earnings, dividends and book value, or is it a shell game?

http://en.wikipedia.org/wiki/Shell_game

I think the data shows Friday’s result, which happened to make the week a success btw, was a sleight of hand. Let’s call it David Copperfield visits Wall Street.

...I feel something big is about to happen in the market, and I don’t think it will be friendly to the bond or equity Bulls. There is a problem in the forex markets. There is a crisis with US federal and state government spending and debt. It is out of control, and before the situation is resolved or even managed at all, there is a US President, Administration and Congress threatening to push the deficit to a point the US Dollar becomes so low in value that foreigners no longer want to buy that debt.

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