Thursday, May 29, 2008

Today's Action

I thought today's action in the market was very interesting. We continue to follow the script almost perfectly for the highs we set last October (almost to the day). In fact it is almost to perfect which makes me nervous. You continue to see the normal same window dressing going into the end of the month which is probably adding to buyer interest. Also I am sure it it is at the forefront of every traders mind what happened April 1st and May 1st. Will the first trading day in June offer another gift? In the last two day volume has been non existent. I mean it is even low based on the last three months. Volume is all but gone. You also saw a sell off once you approached that 1410 level today. The financials have not participated in any bounce until today. They led me the market higher today. If your a bull those financials have to regain leadership and put several positive trading days together. The ABX indexs seem to be breaking out of their trading ranges they have been in the last two months to the downside which is not good. You also have more downgrades by S&P and Moody's which is going to cause problems for banks. If your a bull the one thing you can grasp onto is the Yen. It has fallen apart the past week meaning that the carry trade is probably coming back in favor.

Anyway the next couple of days will be interesting. I continue to think we have hit the interim high point and in the next couple of weeks will be testing 1350 instead of 1450 but if the market bust through 1410 it may mean the bulls are around for some more fun.


Travis said...

I'm sure you saw the GDP # revised upward, although you neglected to mention that! Here is the real bright spot today in my opinion:

Personal Income increased at a 5.1%annual pace during 4Q versus a prior estimate of a 4.2% gain. For 1Q Personal Income growth was revised up to 4.7% from a prior estimate of 4.4%.

No way we will go into recession with personal income growing that much--consumption is most closely tied to income, not home values and wealth effects or anything else. It seems the economy continues to perform much better than the overly pessimistic expectations, all good news for stocks later in the year.

Market Seer said...

Oh Travis, that is why I like you. You viewpoit is so counter to mine. Your right the GDP numbers were revised up. I didn't mention it because I thought it was a non event. They can get those GDP number to say whatever they want (within reason)and whether we get negative or positive GDP numbers I don't really care. I think I can comofortablly say the market was not up because of the GDP numbers. If oil would have been up $4 instead of down the market probably would have been down.

Your other point is interesting. Honestly that more than anything else scares the living the daylights out of me. It is the last missing piece to massive inflation. Inflation has been picking up everywhere (except governemetn stats) except in one area. Wage inflation. If that gets out of control the game is up.

My family company in March gave a 5% raise across the board to every employee (over 600). Three things. 1) We passed this on in raising prices 2) I promise you if you walk the factory floor the employees don't feel any wealthier with surging living expenses 3) Starting in a couple of weeks a couple of the divisions are going to 10 hour a day 4 days a week work shift. Why? To cut transportation expense by 1/5 for the employees.

Yeah sure maybe that wage increase pops up GDP a little bit for a few months but the truth probably is that the world needs a slowdown. It needs for things to enter into a 12 to 18 month serious slowdown to get commodities to build supply and create some excess capaticity. That is why they teach you in ECON 101 that recessions are normal and even good. Sure people get hurt in them but from a utilitarian perspective over the long term recessions need to happen. If we can flood enough dollars to stop what would naturally happen and wage inflation picks up the end result probably becomes massive inflation. Maybe stocks won't go down much on an absolute basis. On an inflation adjusted basis they will get killed. Stocks were down like 90% on an inflaiton adjusted basis during the last serious wave of inflation. I will take a 1990 recession of a 1970 inflation problem any day any time. I just wish Washington would have the same attitude.