Market Report – January 30, 2012

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In the Rear View Mirror: U.S. equities hemmed and hawed on the week with an avalanche of earnings reports helping the S&P 500 and Nasdaq scratch out small gains on the week while the Dow Jones Industrial Average endured its first weekly loss of 2012. The case of the Dow’s loss isn’t all that alarming because the blue chip index’s loss for the week can be tied to a glum day on Friday and Friday’s negative performance can be blamed on disappointing earnings reports from Chevron (NYSE: CVX) and Procter & Gamble (NYSE: PG).

While the broader equity market failed to impress (it didn’t depress either), precious metals soared. Gold and silver were already on the move higher when the Federal Reserve said in the middle of the week that it plans to keep interest rates near zero until at least 2014. That prompted immediate and no-questions-asked selling in the U.S. dollar and sparked a rally in the metals pits. For the week, the SPDR Gold Shares (NYSE: GLD) was up about 4% while the iShares Silver Trust (NYSE: SLV) jumped 5.5%. Year-to-date, those ETFs are up over 10% and 20%, respectively.

Mostly good economic data

As we saw with equities, economic data points were mixed on the week. Not too bad, not too exciting. Just kind of lukewarm. The Thomson Reuters/University of Michigan’s final reading of January consumer sentiment climbed to 75 from 69.9 in the prior month. That’s the best reading since February 2011 and better than the 74.1 economists expected. That report came out on Friday, the same day the Commerce Department said fourth-quarter GDP increased 2.8%. That’s the fastest growth rate since 2010, but it was also shy of the 3% increase economists were expecting.

On Thursday, the Commerce Department said December durable goods orders rose 3% after a revised 4.3% increase in November. Economists expected a December increase of 2%. All in all….mostly good.

The Markets @ 1/27/2012
Index Close Weekly % Change YTD Change YTD%
DJIA 12660.46 -60.02 -0.47% 442.9 3.62%
NASDAQ 2816.55 29.85 1.07% 211.4 8.11%
S&P 500 1316.33 0.95 0.07% 58.73 4.67%
NYSE Comp 7876.61 47.28 0.60% 399.58 5.34%
NYSE Amex 2356.42 56.97 2.48% 78.08 3.43%
RUS 2000 798.85 14.23 1.81% 57.93 7.82%
VANG INTL 14.1 0.26 1.88% 1.04 7.96%
USX CHINA 5121.32 139.8 2.81% 591.52 13.06%
EMERG MKTS 6725.72 184.98 2.83% 720.41 12.00%


Market Report

With just two trading days remaining in January, there are a couple of things worth noting. First, January will almost certainly be a positive month for stocks and that climb has been led by riskier, high-beta sectors. Two of last year’s best performing sector ETFs, the Consumer Staples Select Sector SPDR (NYSE: XLP) and the Utilities Select Sector SPDR (NYSE: XLU) are negative this year, indicating small-caps and other risky assets have led this rally.

Second, if you’re a believer in the theory that there is six-month period of the year when stocks do well and another six-month period where they do poorly, it should be noted February is included in the first group. It should also be noted that February is the worst month in the bullish six-month stretch. We’re not saying February is going to be awful, but it may not be as good as January.

The Dow has to spoil everyone’s fun

ALL the indices we follow are a lovely shade of green for the week, except old Mr. Dow Jones, who slipped back 60.02 or 0.47%, but still shows a 3.63% gain for the year. As we noted last week, Nasdaq continues to lead the way for the majors, showing an impressive 8.11%% gain YTD.

China and the emerging markets are clearly the index leaders…with the USX China Index up 13.06% YTD and the Dow Jones Emerging Markets Total Return Index right behind at an even 11.0% gain since 12/31.

The Bottom Line for Stocks

As we’ve previously said, we’re not fans of believing one trading day, one week or even a full month can determine the trend for the entire year. However, the odds that the S&P 500 will close higher on the year following January gains are quite high and the years in which this was not the case usually saw some sort of unforeseen event of catastrophic proportions. A somewhat recent example would be 2001.

While February may not be the easy trade January has been, it could be an ideal time to do some dip buying with small-caps and precious metals, or better yet, small-caps that have precious metals or critical metals exposure. SilverCrest Mines Inc. (TSX-V: SVL; OTCQX: STVZF) may continue to move away from us as we’ve seen in the past month…keep it on your radar and if it backs up to the $2.10 to $2.15 range you might consider that a good entry point.

Buy on dips…OK, here’s one to consider following a 10.2% pull back!

A critical metals company that we recently introduced is American Manganese, Inc. (TSX-V: AMY; PINKS: AMYZF; FRANK: 2AM) which is capitalizing on a unique opportunity to develop metals crucial to the steel industry. The Company is focused on producing manganese, particularly at its Arizona Artillery Peak Property, which contains the largest known manganese deposits in the Southwest US.

As previously reported, AMY could become the only US based producer and potentially the lowest cost producer of electrolytic manganese metal (EMM) in the world at $0.44/lb; compared to China, which is currently the world’s largest exporter at $0.98/lb. That is a huge price advantage the Company intends to fully exploit.

Implied return potential of 559%

Laurentian Bank Securities, in a May 2011 report, rated AMY a “Speculative Buy” with a one year price target of $2.90. Based on a January 27, 2012 closing price of $0.44 (a 10.2% dip in the last two weeks) this would imply a total return of 559%. If AMY gets anywhere close to this price target…it’s a “Home Run!”

Research and Editorial Staff
MicroCap MarkePlace