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Remember that skunk we were smelling\?

HAVING TROUBLE PRINTING?
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I'm not sure if today's news from PG&E (NYSE:PCG) and recent announcement that its Pacific Gas and Electric Co. filing for bankruptcy is the actual skunk we were smelling the past couple of weeks, but the banking indexes were actually in positive territory just minutes before the PCG announcement. Since the announcement the banking indexes got hit to the downside.

S&P Banking Index Chart - 60-minute interval

The banking indexes and the BIX.X were actually trying to attempt an upward move just before the PG&E news hit the wires. Then "whack" the banks got hit hard. I'm expecting that California banks with some credit exposure to PG&E like BankAmerica (BAC) with a larger amount of exposure are getting hit hard.

Utility Index Chart (UTY.X) - 60-minute interval.

The UTY.X took PG&E's news with some downside action. Much like the banks, the UTY.X had edged into positive territory today only to get hit hard to the downside. Notice how the free fall stopped right near our 346 level on the retracement bracket we've had in place for a couple of months. Perhaps further proof that a lot of professional traders use tool to identify and trade off of these levels. Since this index blew through the 356 level without stopping, I'd look for that level to begin acting as resistance. Much like today's earlier economic number, the MARKET must now digest this bit of news and begin implementing action plans and trading scenarios. The effects could be far reaching as it relates to other California utilities and banks in that part of the country. I'm not a Utility analyst, but we can surely monitor the technicals going forward to get a better feel for what the MARKET is thinking here. So far the bond market and the above indexes were the most directly affected on the PG&E news. The broader market hasn't been hit so far.

Jeff Bailey
Senior Market Technician

Silver and Gold

With a hint of inflation in hourly wages, a rise of 0.4%, investors have turned into Yukon Cornelius (The character from Rudolph the Red Nosed Reindeer who is always looking for gold). Since gold is generally viewed as good hedge against inflation, the Gold and Silver Index (XAU.X) is attracting some buying.

Gold and Silver Index Daily Chart

At the end of March the downtrend and up trend finally met, and it appeared the downtrend was going to win. Over the past three days prices have gapped back above the downtrend line, and are up 1.19% today. If the market continues to decline on "inflation fears," XAU could be getting ready to test previous highs.

Placer Dome, Newmont Mining, Anglogold

Above are some gold stocks that mimic the performance of the Gold Index. These charts look so similar to the index, as well as each other, I though I put the same symbol in three times. These stocks all have potential to reach their previous highs, but if inflation fears subside they could plunge quickly.

Commodity Research Bureau Index Weekly Chart

Whenever somebody brings up inflation, I like to glance at a chart of the Commodity Research Bureau Index (CRB). This is basically a composite of various metal, energy, meat and agricultural commodity prices. I interpret this index as a snapshot of what companies are paying for raw materials. A rising CRB is potentially inflationary, and thus bad for stocks. Obviously there are other factors that affect inflation, but this is a reasonable gauge. Looking at the weekly chart, we can see that commodity prices are well off of their 2000 highs, and getting ready to fall further. Flat to higher energy and meat prices haven't been enough to offset falling agricultural and metal prices, which are dragging the index lower. Looking at this chart, I'm not overly concerned about inflation in the short-term.

Jeff Canavan
Assistant Analyst
www.premiermarkets.com

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