A very interesting day in the markets. Sort of a head scratcher. First, let me give my caveat that I really don't know. Not a terribly strong opinion on where the market is headed unlike last week where I was selling stocks that I had been waiting to sell. In general I thought today was pretty bearish. The market seemed to be offered every excuse to go up and all we got was a big post Fed reversal. Even with this reversal, the NASDAQ finished up 1.5% and the S&P 500 managed an up move of .65%. The Dow was down but that was mostly because of Boeing.
As I flagged earlier, I didn't believe the breakout this morning. There was no volume and it was obvious that it was just computer buy programs. Also the dollar started inching up after being down early this morning. Volume picked up after the Fed announcement but even with this pick up the markets still finished slower than yesterday and on Monday. This is net bearish as the weak bounce, after the big sell off on Monday, cannot attract more buying interest. Yet, I was really disappointed with the sell off after the Fed announcement. It drifted down but I thought there was a good chance for a true sell off to materialize and pick up speed at the end of the day. It never really happened.
If your bearish, the Fed statement took out tail risk of a massive move up. The Fed played it safe and took no major risks in doubling down their efforts to keep yields down. The fact that the 10 year yield went up after the announcement was very interesting. As bearish as I am, I am still very nervous about all the liquidity in the system. I am a fundamental guy and fundamentally I want to bet big against the market but many bearish funds have gotten their head handed to them the last three months because they don't understand how the government can flood the economy with liquidity and create valuations that do not make any sense. Unfortunately, because of the way you have to manage your risk, being bearish is much more technical in nature than being bullish. Being bullish, a drop of 50% means you can buy more. Bearing bearish, a doubling of the stock means you can't short more. In fact you may be forced to cover even if you know your right.
To sum up, I thought today was bearish but not as much as I was hoping for. One thing is for sure. The market cares more about the trend line (this was around 910 to 911) coming down from the 950 highs then it cares about other technical levels like 903. As a result, if we hit 910 tomorrow my guess is we will be going higher because that means we will have broken that trend line. A push tomorrow, say up less than 5 in the S&P, I would also read as bearish.
Wednesday, June 24, 2009
Across the Pond
Europe and Great Britain continue to shock me at their overall resilience. The Pound shows continued strength against the dollar and the European markets also continue to show strength. A couple of interesting article. This one from The Guardian talking about the OECD uping their world economic forecast for 2010 (we will see if that optimism comes to past).
But the OECD had less good news for the UK, revising down its growth estimate this year to -4.3%, the biggest one-year fall in output since 1945 and lower than Alistair Darling's budget forecast of a 3.5% decline. Previously, the OECD had pencilled in a 3.7% contraction for Britain this year.
The OECD's Economic Outlook said the UK was in a "severe recession" and could expect only a mild recovery during the course of 2010, when it believes output will be unchanged.
and
Britain's budget deficit, the OECD warned, would hit 14% of GDP next year - the biggest of any of the OECD's 30 member countries. "To improve stability, the government should continue to develop a concrete and comprehensive plan to ensure that debt is on a declining path once recovery takes hold", the outlook said.
Then this article from Bloomberg. Finally, a government bureaucrat who actually has an honest assessment.
“There has to be a risk that it will be a long, hard slog” because of the problems in the banking system, King told lawmakers in London today. “I feel more uncertain now than ever. This is not the pattern of a recession coming into recovery that we’ve seen since the 1930s. Having an open mind and not pretending to foresee the future when it’s so uncertain is important.”
But the OECD had less good news for the UK, revising down its growth estimate this year to -4.3%, the biggest one-year fall in output since 1945 and lower than Alistair Darling's budget forecast of a 3.5% decline. Previously, the OECD had pencilled in a 3.7% contraction for Britain this year.
The OECD's Economic Outlook said the UK was in a "severe recession" and could expect only a mild recovery during the course of 2010, when it believes output will be unchanged.
and
Britain's budget deficit, the OECD warned, would hit 14% of GDP next year - the biggest of any of the OECD's 30 member countries. "To improve stability, the government should continue to develop a concrete and comprehensive plan to ensure that debt is on a declining path once recovery takes hold", the outlook said.
Then this article from Bloomberg. Finally, a government bureaucrat who actually has an honest assessment.
“There has to be a risk that it will be a long, hard slog” because of the problems in the banking system, King told lawmakers in London today. “I feel more uncertain now than ever. This is not the pattern of a recession coming into recovery that we’ve seen since the 1930s. Having an open mind and not pretending to foresee the future when it’s so uncertain is important.”
Fed Statement
At first blush this should be a bearish Fed statement for equities. At least it should take the tail risk away from a major rally. Would not be shocked to see the market drift down the rest of the day.
Breakout?
Careful on this up move....there is absolutely no volume. I don't know where the market is going but this move up is highly suspect on no volume before the Fed annoucement.
Tuesday, June 23, 2009
Fed Day
Tomorrow is Fed day. In my opinion, it has been awhile since a Fed meeting has held such importance. Not only is what the Fed does and says going to be important, even if you knew what it was, trying to figure out how the market will react will be a whole another issue. If I was trading it (which I won't be), you have the dollar up and long term interest rates up on your screen seeing how those react. That will be the guide to tell you how to trade the equity market. The most bullish scenario for equities is that the dollar goes down, interest rates go down, and equities are almost sure to fly. Next best scenario is that dollar goes down, interest rates digest the news staying flat and move up a little bit, and the stock market should move higher. A bearish scenario is the dollar moves up strongly.
I think the last scenario, dollar strength is the most likely scenario. The dollar has gotten pummelled over the last couple of months. It sold off hard today after chatter out of Europe that they may actually raise interest rates. I think the dollar is setting up as sell the rumor buy the news and would not be surprised to see dollar strength. I also think for once that the Fed may actually be looking at the dollar conscious of where it is trading. Finally, I am not sure how the Fed can risk seeing the 30 year mortgage rate spike. If the Fed is really looking at that, they have one of two options. Back down a little bit and maintain the status quo. The market my guess would worry less about inflation and yields will fall. The other scenario is they double down, announce more efforts at intervening to get interest rates down. This may work in the short term. This is the dollar goes down, interest rates drop and equities will surge scenario. That is a very high risk move by the Fed because the market could say forget it and have more revulsion to government debt sending rates higher. If the Fed choose such a scenario, it will be a short term fix (maybe a few weeks to a few months) but sets up for more major failure.
Either way you should have some fireworks. Usually the market gets a whiff of what the Fed is going to say or do so if the market is up right before the Fed announcement, it will go higher afterwards and vice versa. This was not the case January of 2008 when the Fed was completely not communicating with the market very well. Your bogy is the 875 to 880 area on the downside and 905 on the upside. I would be very surprised to see the market be above 900 to 905 before the announcement. If your bearish and as the announcement gets closer the market starts moving up into this range be very careful.
In general it has been a good bet that the Fed will do everything possible to receive some short term pleasure at the cost of destruction of our country in the longer term.
Watch the dollar, it will tell you all you need to know.
I think the last scenario, dollar strength is the most likely scenario. The dollar has gotten pummelled over the last couple of months. It sold off hard today after chatter out of Europe that they may actually raise interest rates. I think the dollar is setting up as sell the rumor buy the news and would not be surprised to see dollar strength. I also think for once that the Fed may actually be looking at the dollar conscious of where it is trading. Finally, I am not sure how the Fed can risk seeing the 30 year mortgage rate spike. If the Fed is really looking at that, they have one of two options. Back down a little bit and maintain the status quo. The market my guess would worry less about inflation and yields will fall. The other scenario is they double down, announce more efforts at intervening to get interest rates down. This may work in the short term. This is the dollar goes down, interest rates drop and equities will surge scenario. That is a very high risk move by the Fed because the market could say forget it and have more revulsion to government debt sending rates higher. If the Fed choose such a scenario, it will be a short term fix (maybe a few weeks to a few months) but sets up for more major failure.
Either way you should have some fireworks. Usually the market gets a whiff of what the Fed is going to say or do so if the market is up right before the Fed announcement, it will go higher afterwards and vice versa. This was not the case January of 2008 when the Fed was completely not communicating with the market very well. Your bogy is the 875 to 880 area on the downside and 905 on the upside. I would be very surprised to see the market be above 900 to 905 before the announcement. If your bearish and as the announcement gets closer the market starts moving up into this range be very careful.
In general it has been a good bet that the Fed will do everything possible to receive some short term pleasure at the cost of destruction of our country in the longer term.
Watch the dollar, it will tell you all you need to know.
Government Intervention in the Stock Market
A very detailed gathering of quotes and articles at maketskeptics making the case that the government steps in to manipulate the stock market when it wants to. I find that type of stuff interesting but useless. I think it is inconceivable to assume the market is not manipulated by the government considering the fact they are openly trying to manipulate a much bigger market, interest rates. So I assume it occurs and work within those assumptions. For those who are interested, it is a good read.
"He begins most workdays at 5 a.m. by checking the status of overseas markets… and ends them 11 p.m. the same way. In between, Mr. Fisher SWAPS [Crudele's emphasis] intelligence and rumors with traders and dealers from his office in the Fed's 10th-floor executive suite that overlooks the trading floor he runs," the piece continues.
As I pointed out in a previous column, the market has done some strange things in the wee hours of the morning, especially between 5 a.m. and 7 a.m., which ultimately affect how equities do in the New York market.
"He begins most workdays at 5 a.m. by checking the status of overseas markets… and ends them 11 p.m. the same way. In between, Mr. Fisher SWAPS [Crudele's emphasis] intelligence and rumors with traders and dealers from his office in the Fed's 10th-floor executive suite that overlooks the trading floor he runs," the piece continues.
As I pointed out in a previous column, the market has done some strange things in the wee hours of the morning, especially between 5 a.m. and 7 a.m., which ultimately affect how equities do in the New York market.
June Retail Sales - Looking for an Excuse
Found this Reuters news article humorous. June isn't over yet but apparently the media is already trying to find excuses that don't involve blaming the economy on why June retail sales are bound to be horrendous. Let's see, you have gasoline shooting sky high, employment getting worse, interest and mortgage rates spiking higher, etc. etc. but if the sales numbers come in bad, we can blame it on the weather. For some reason I don't think the weather matters that much right now. Just for the record - Texas has been melting. We are experiencing August weather.
Rain and cooler-than-usual weather so far in June may have dampened demand for summer items such as sandals, swimwear and beer for retailers already hard put to counter sales declines during the recession.
Wait - shouldn't this be a boost to retailers? You know, more discretionary spending dollars available.
Given the cool weather, not many consumer found a need to turn on air conditioners.
According to Bastardi, there was lower demand for power to run air conditioners in much of the U.S. Northeast.
Rain and cooler-than-usual weather so far in June may have dampened demand for summer items such as sandals, swimwear and beer for retailers already hard put to counter sales declines during the recession.
Wait - shouldn't this be a boost to retailers? You know, more discretionary spending dollars available.
Given the cool weather, not many consumer found a need to turn on air conditioners.
According to Bastardi, there was lower demand for power to run air conditioners in much of the U.S. Northeast.
Monday, June 22, 2009
The Market - Volume Watch
No surprise on the sell off today. All last week looked horribly bearish which is why I was selling as I had previously mentioned. We may have a little bounce but I can't see how the next 10 points aren't lower. I would be shocked if we do hit the 880 to 885 level that we bounced off of at least five times back in May. After that it becomes very interesting. I am as bearish as they get in the longer term but I would still not be shocked to see housing prices stabilize in the next couple of monthly updates and the Fed liquidity injections from many months ago to still work there way through the system. All this means the markets may have another bounce to head higher. I am not all in short with the risk of another serious bounce.
For a stronger sell off to occur, volume has to pick up. Last week I had alot of bearish friends who were concerned about the sell off because it was on no volume. That didn't bother me. Bear market rallies die in no volume and to see markets moving down on no volume initially is not unusual. Also when the market sold off, though volume was light, it was heavier than the up days from the previous week. So I didn't see it as that big of a deal. Now to break through 880, volume will have to pick up. Today's close was very interesting. Another day of zero volume until the last 30 minutes when the cash market volume exploded. We finished with 1.4 billion shares traded. That is the most volume in several weeks. You will have that and greater volume to get through 880. If you break that, you are looking at the 840 area. Wednesday, you have the Fed meeting which considering mortgages rates becomes very important. That could be a catalyst for a market bounce since the market seems to be selling the rumor. Once the meeting is done it may be buy the news.
I think volume may be the tell tale sign of whether this sell off picks up steam. Low volume going down on the initial sell off in a bear market rally is not uncommon. It should start picking up if the sell off is to accelerate and continue.
For a stronger sell off to occur, volume has to pick up. Last week I had alot of bearish friends who were concerned about the sell off because it was on no volume. That didn't bother me. Bear market rallies die in no volume and to see markets moving down on no volume initially is not unusual. Also when the market sold off, though volume was light, it was heavier than the up days from the previous week. So I didn't see it as that big of a deal. Now to break through 880, volume will have to pick up. Today's close was very interesting. Another day of zero volume until the last 30 minutes when the cash market volume exploded. We finished with 1.4 billion shares traded. That is the most volume in several weeks. You will have that and greater volume to get through 880. If you break that, you are looking at the 840 area. Wednesday, you have the Fed meeting which considering mortgages rates becomes very important. That could be a catalyst for a market bounce since the market seems to be selling the rumor. Once the meeting is done it may be buy the news.
I think volume may be the tell tale sign of whether this sell off picks up steam. Low volume going down on the initial sell off in a bear market rally is not uncommon. It should start picking up if the sell off is to accelerate and continue.
New Orleans
As mentioned in the previous post, I am back from a trip that took me to College Station, then a little detour Thursday night to Houston, then Friday trip to Lafayette, then Saturday to New Orleans, and then Sunday all the way back through Houston home.
Never been to New Orleans. Amazing how different the culture is just 5.5 hours down the road. Sitting at dinner with a buddy and he started talking about family fixers. I was like what in the world is that? He was like you know, someone who you never talk to except if you need something fixed. If you have been arrested or any kind of problem. You call him and he takes care of it. Well I had never heard of a fixer in my life.
I was traveling with people who like to travel in style. Every meal was an unbelievable restaurant where I think the cheapest entree I saw was $27. They decided Saturday night to get a private car with a private driver. This driver was awesome. He took care of us. When we went in and decided we wanted champagne and red bull when we got back, he took care of it. Another friend who used to live in New Orleans knew the owner of a top club in New Orleans. We rolled up and went in VIP having our own couches with free bottle service and drinks.
Needless to say I am not used to living in that type of style but it was quite a trip.
Never been to New Orleans. Amazing how different the culture is just 5.5 hours down the road. Sitting at dinner with a buddy and he started talking about family fixers. I was like what in the world is that? He was like you know, someone who you never talk to except if you need something fixed. If you have been arrested or any kind of problem. You call him and he takes care of it. Well I had never heard of a fixer in my life.
I was traveling with people who like to travel in style. Every meal was an unbelievable restaurant where I think the cheapest entree I saw was $27. They decided Saturday night to get a private car with a private driver. This driver was awesome. He took care of us. When we went in and decided we wanted champagne and red bull when we got back, he took care of it. Another friend who used to live in New Orleans knew the owner of a top club in New Orleans. We rolled up and went in VIP having our own couches with free bottle service and drinks.
Needless to say I am not used to living in that type of style but it was quite a trip.
Short Term Top in Gold?
I am back in the office after being a vagabond for many days. I will have more on that later. First, let's chat about gold. I actually trimmed my position quite a bit in gold a couple of weeks ago. Do I love it just as much long term as I have for the last year? Absolutely!! Little doubt in my mind that within 3 yrs or so we will be above $2000 an ounce but in the short term I think gold may be done. It is to popular. Nothing brings that out better than this story from Dealbreaker. There is now vending machines in Europe where you can buy gold. "Gold to Go" is the marketing slogan. Anyway, I did not sell out of gold, I am a huge gold bull but made a trade to trim the position planning on buying it back a little later.
How many times have you sidled up to a vending machine, selected your candy of choice, popped it in your mouth and thought, "This is really good but you know what would make it better? Another layer of nougat and some gold"? A whole bunch, I'm assuming. You're on your own lobbying the Mars company for that extra inch but Thomas Geissler's got you covered on the g.
Geiss, via his company TG-Gold-Super-Markt, will be rolling out "a substantial number" of gold dispensing machines in Germany, Austria and Switzerland within three months and, if the demand is there, around the world.
How many times have you sidled up to a vending machine, selected your candy of choice, popped it in your mouth and thought, "This is really good but you know what would make it better? Another layer of nougat and some gold"? A whole bunch, I'm assuming. You're on your own lobbying the Mars company for that extra inch but Thomas Geissler's got you covered on the g.
Geiss, via his company TG-Gold-Super-Markt, will be rolling out "a substantial number" of gold dispensing machines in Germany, Austria and Switzerland within three months and, if the demand is there, around the world.
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