U.S. Economy

Henry Paulson - U.S. Treasury Secretary

President Bush has named a new Secretary of the Treasury. Mr. Paulson (a senior Goldman executive) will do more than put his finger on the pulse of world financial markets. Collectively, Goldman bankers ARE the pulse of world financial markets. He is a fantastic catch.

John Snow, the outgoing Treasury Secretary, is a solid citizen from industry, and Fed Chairman Bernanke comes to us with excellent credentials from the academic world. However, what we really needed was a star player from the fast lane (Wall Street), because the real game on the planet is played in the fast lane.

Everything now hinges on re-establishing the credibility of the only trading currency that the world can trust - the U.S. dollar. It's a daunting task, and Paulson's credentials are desperately needed to tackle the job.

In recent days we have witnessed short term reversals in dollar-priced markers (like commodities and currencies). If Mr. Paulson gets off on the right foot, I expect these reversals to accelerate as the U.S. dollar itself begins to recover.

Will Paulson succeed? There's no question that he has the right credentials to do the job, but it makes me think of an old saying: "You cannot push the river".

World energy consumption is soaring to keep pace with exponential population growth. That is a reality recognized by all. No one has yet agreed to acknowledge the second earth shaking reality, that the nuclear age is over.

The U.S. certainly needs to gain control of its financial affairs on the planet. Paulson will help with this, but the world trading currency also needs a foundation of secure available conventional energy. All countries that fail the energy supply assurance test are doomed to mediocrity or worse as we stumble toward the end of the age.

U.S. Light Crude Oil Futures ($71.76 U.S.)

Light Crude Oil Futures exceeded my $70 upside target, and it now looks to me like we're busy building an intermediate term top below $75. I'm revising my intermediate term downside range from $55 - 60 to $60 - 65.

The move above $70 resistance put an end to any speculation that we might be building a longer term top here. As a result of the $70 breakout, I must assume that we are now correcting in a continuing strong long term uptrend.

Canadian Dollar Futures ($0.8958 U.S.)

The rapid push up through ninety cents U.S. took Canadian Dollar Futures into overbought territory for a moment. This (along with the knee-jerk setback in metal prices) goes a long way to explaining the short term setback now underway. In spite of the setback, it would appear to me that the powerful underlying long term uptrend remains undisturbed.

The rising 200-Day Moving Average is in the 86 cent area as I write today. It would make sense to retest this support before moving on to higher levels.

Stock Comment Merrill Lynch ($69.74 U.S.)

On April 19th I wrote a blog to say that I was watching MER to see if it could push its way up through the $80 historic high. At the time I said that a breakout would likely have positive market implications and a failure would suggest the opposite. MER failed at resistance and quickly tumbled to its 200-Day Moving Average at $69.

So now I'm watching to see if Merrill will plunge through its important 200-Day MA support level, with more in the way of negative market implications.

My unique price momentum models show no sign of any developing effort to hold at the important 200-Day Moving Average.

U.S. Dollar Index (84.88)

Back in March I thought I could see continued U.S. Dollar recovery, and the ink wasn't dry before the index fell through its 200-Day Moving Average. The entire picture thereby took on a decidedly less attractive tone.

Now I will be satisfied if I see a short term breakdown pullback to approximately 89, followed by a retest of the 80.42 year end low.

Sorry to have to go back to a negative view of the U.S. Dollar beyond the near term. I'm not having much luck with my U.S. Dollar call.

Nikkei Index (16155)

The Nikkei Index is now at short term uptrend support with no sign of holding there in price momentum terms. I'm still concerned that we may be building an important top on the long term chart - so I'm still standing aside.

TSX Index (S&P/TSX) (11545)

In my April 18th Comment, I said the timing was right for a correction to the 12,000 area or below. Long term trend support stands at about 11,000 as I write today. An abrupt correction in a screaming long term uptrend.

U.S. T- Bill Yield 91-Day (4.83 percent)

The T-Bill chart is showing a hint of hesitation below important round-number resistance at 5 percent, but so far my unique price momentum models remain strong.

Short term support is in the area of 4.5 percent, but I suspect that we might push through resistance at 5 percent without testing this short term support level.

If long rates continue to pace the steep short rate uptrend, we will soon be saying goodbye to the huge U.S. housing market bubble.

S & P 500 Index (1267)

It's been painful waiting for this top formation to break down. I started out last fall when the S & P Index was pushing 1300 and set a short downside target above the 1200 area. I'll take a wait-and-see attitude for now until I see a short term base building. I'm glad we're finally seeing my correction as forecast.

Nasdaq Composite Index (2194)

I've been saying "no" to Nasdaq in my Comments since the fall of 2005 (Index in the 2300 area). In a February Comment I set a short term downside target between 2100 and 2200, and now we are there.

Sorry, but I still don't like Nasdaq. As I write today, we are sitting on short term support. Maybe we'll bounce but I'm just not interested.

Hang Seng Index (16313)

Correcting in a long term uptrend. Short term support around 16,000. Long term support approximately 15,500.

CRB Index (379)

Late last year the CRB Index soared through its 1980 alltime high in the 340 area, and didn't really stop long enough to complete a full fledged breakout pullback before moving on to its recent high of 400. Will it pause long enough here to pullback to 340?

I would like to see it spend some time below 400, but my work still suggests that the underlying intermediate and long term trends are strong. Summer doldrums?

Philly Bank Index (108.78)

In my November 23/05 Comment, I said this index had taken off like a penny stock. Since then it has shown us two more abrupt upthrusts, and now we are in a penny-stock-style downside slide. It is an uncomfortable situation for the otherwise conservative bank index. Penny stocks move quickly, so they are dangerous in corrections.

Hang onto your hats, because bank shares often lead the entire market.

I had hoped to build a readership on this blog, but the counter suggests that this has not happened. As a result I am commenting less and less frequently, so I cannot even suggest that I will write about this index if and when I see it attempting to make an effort at a bounce.

No hits, no comments, and soon no blog. It's been fun.

Market Comment

Milestones

As I write today, the Dow Jones Industrial Index and the S & P 500 Index are busy climbing a painfully slow wall of worry, inching toward their important millenium record highs set early in the year 2000. At the same time, gold is about to slam into $700/oz. U.S. on the upside, and U.S. short term interest rates (2 year) are reaching for round-numbered resistance at five percent.

So far, my unique price momentum models are not raising alarms, but things can happen quickly when market indicators from a variety of disciplines run into resistance in unison. I'm paying attention.