Morning Call [7:57am ET] Uncertainty by Mr Market. Choppy trading in commodities. Massive pressures building in forex markets. Bond traders holding substantial gains since April. Mixed signals in the equity markets with near-term strength and short- and (possibly) intermediate-term weakness anticipated for the S&P 500.
This weekend, all of the cross-currents added up to a confused and probably confusing Week In Review. Sorry. But it is what it is.
In Friday morning’s blog, I commented: “The S&P 500 future is at the high end of the recent 1060-1090 trading range, presently at 1092 and looking like it might break out to a higher range. The operative words there are ‘looking like’, which could be another head fake, like the brief dip to 1050 on July 20.”
What happened later in the day Friday was simply that from about 1:00pm to about 2pm ET, the S&P lifted from 1090 to 1103, effectively moving technical support to 1080 and the next upside targets (resistance levels) at 1115, 1130 and (outside chance) 1150.
Equity traders, then, ought to be able to make further gains if they go with the flow. The secondary issue, however, is time frame. Is this move going to be a two or three day one, perhaps a week or two, or possibly a month?
Might it even be something more than a summer rally? No; I think equities, except for Germany maybe, are in a primary Bear, and this is a counter-trend rally.
Yes, I still think that deleveraging by central banks is a problem for equities, gold and possibly, later on, bonds. My window there of course is the US Dollar. A stronger Dollar will indicate weakness for equities and gold and the Euro. Possibly, should the Yuan and Yen pick up strength there would be enough downward pressure on the Dollar as to keep in check the rise in the Dollar price cycle.
But even a side-tracking Dollar here ought to be a negative for equities and gold heading into the latter half of this 3Q2010.
In this WIR, I listed a few stocks that would be long-term purchase candidates, particularly on weakness in the S&P later this quarter. What I was attempting to do was to start people thinking about building core positions that ought to thrive in the next Bull market. That’s all. Yes, in the near-term, nimble traders ought to be able to profit there too, but the risks (as measured by RSI) are elevated.
It’s Monday, a trader’s favorite day as we get to start all over. Have a good one.
CTA Trading Desk Post-Close Report
After a listless, choppy opening equities got a boost from a better than expected housing number, with under-invested money managers forced to reach for offers setting the tone for the remainder of the day. All in all, a fairly predictable session, prices closing near their best levels of the day in an all too familiar low octane (volume) upward drift (S&P+1.12%).
The path of least resistance still seems to be higher even though some shorter-term oscillators are getting a little extended. S&P 1130 to 1150 seems to be a reasonable near-term target, a level to expect some supply to hit the market. As long as the price action continues to be constructive it doesn’t pay to try to fight the trend; taking profits on longs may make sense but aggressively establishing large short positions requires a price rejection (longer time frame sellers coming into the market and overwhelming demand).
For now it appears investors are waiting in the wings to buy dips, so the upside gets the benefit of the doubt until price action suggests an imminent change in trend.
Have a great evening.
Comments
Cara 100 Ratings Changes
Good morning.
SLB - Upgraded to Hold @ Argus based on valuation.
SLB - Schlumberger downgraded to Outperform from Strong Buy at Raymond James.
SLB - Schlumberger downgraded to Neutral from Add at Capital One Southcoast based on the timing of international growth.
I appreciate it!
Thanks for the great insight today. Very helpful!
Bernanke's faulty strategy...
John Hussman's commentary today has many important points to make.
The exchange between Bernnke and New Jersey Congressman Scott Garrett of the House Financial Services Committee shows that at least one member of Congress understands the reality of our situation.
Also interesting is this comment by John Hussman. (Sounds familiar? See Kaimu's past warnings.)
"We now have corporations sitting on a mountain of what seems to be "cash." But in fact, they are not holding cash. They are holding a pile of government debt that was issued during this crisis, which somebody has to hold until the debt is retired. Corporations just happen to be "it" in this game of hot potato. Bernanke and Geithner have done nothing but incur public losses in order to defend private interests. This is not skilled leadership - it is misappropriation."
http://tiny.cc/zjipl
new home sales - 330k hooray!!
New home sales was mildly better (330k) than estimated (310k) but still only slightly better than last month's reported number of 300k (revised this month down even LOWER to 270k). Apparently the market wasn't expecting this - well that, or enough trading servers had "buy on exceed" programmed into them today. Good for six points for SPX.
3 yr trend lines confining prices.
http://bit.ly/cVr7ic
3 yr view: http://bit.ly/9Rw0NS
Re: new home sales - 330k hooray!!
But last months numbers were revised down. so this month's record % gain is phony baloney.
if something cost $100 last month. and this month I say last months price was revised down to $50. and this months price is still $100, thats a 100% increase. Still the same price, but shows great growth. Govt math for you.
And only 6M shares traded on AAPL.
where is the enthusiasm?
Re: Bernanke's faulty strategy...
I too recommend reading this. it helped me fully understand the illegal nature of the Fed's actions to save stock and bondholders of GSE's and banks, which is per se been engaging in fiscal policy. Bernanke fumbles for words when this is pointed out to him by congressman because he's caught red handed. This too will be drowned out and fade without action being taken to right the situation.
It is apparent that anything can happen with stocks here. This is a sentiment based rally, with money managers hopping on until the next gut wrenching precipitous fall as all scramble for the exits at once.
Re: 3 yr trend lines confining prices.
The thing I have found about drawing trend lines is that they are drawn to support ones thesis. I could personally have drawn 10 different lines on this chart to support my bullish or bearish view.
Re: Bernanke's faulty strategy...
ALOHA!!
Moreover the prior paragraph is saying the same thing I said some two years ago when I wrote my analysis of FINSOB, with the following words in the title ... PRICE FIXING.
The US Treasury and the US Congress with the aid of their accomplice the US FED are engaged in nothing more than PRICE FIXING. They risk trillions of debt in the hopes that prices will eventually stabilize in the future. This is what I point out in the weekly $120-$200BIL in new marketable US Debt issues. Then if you add in the ever greater outlays(spending)which as I pointed out over the weekend is running at $786BIL in 16 working days for just the month of July so far. That's over a TARP every 16 days. What many fail to point out is the US Treasury is PRICE FIXING their political power with entitlement handouts to those who are essentially destitute without government welfare. In America some 40.5 million Americans can only afford to eat because of food stamps. That number is growing not shrinking. So the same way a bailout of AIG helped GS and JPM so does food stamps help SafeWay and many other US food retailers. Which now brings me to my point I have been making since forever and that is "without government contracts and welfare the Fortune 500 would be the Fortune 5". In another prior post I pointed out that it would cost America 153 BRK.Bs or 60 BRK.As to pay off the US Net Debt as it stands right now. In essence we would have to sell off all of America's private sector to break even.
Here is Hussman explaining PRICE FIXING ...
The crisis occurred because credit froze up, and credit froze up largely because of the incessant self-serving warnings from the heads of major financial institutions that a second Great Depression would result if they were allowed to "fail" - which in fact means nothing but that the operating entity changes hands (as occurred with Washington Mutual), and the stock and bondholders of the company appropriately take a loss. The government has issued trillions of dollars in new debt in the attempt to sustain the previous misallocation of capital - trying to prevent bad loans from failing; to keep elevated home prices from adjusting to normal levels relative to income; to maintain unsustainable consumption habits; and to subsidize purchases of autos, homes and other big-ticket items that have weak intrinsic demand because people already have too much debt. Huge chunks of national savings that should have been available for productive economic activity have been diverted in an effort to maintain an inefficient status quo.
In the end it comes right back to the C WORD and that always ends in a monetary crisis. If you believe different then you ignore 5000 years of human and monetary history. You cannot have a currency backed by the human condition, political egos ... faith and credit never endure.
Should Elizabeth Warren be appointed
Should Elizabeth Warren be appointed to head the new consumer protection bureau?
http://tiny.cc/1w62m
"In an interview Sunday on ABC’s “This Week,” Mr. Geithner cited what he called Ms. Warren’s “enormous credibility” and said that, despite her criticism of the Treasury Department, he had no concerns about her possible appointment."
Why should he have concerns? All of her reports concerning Henry Paulson not accounting for a huge chunk of the TARP money and several other negative comments in interviews and articles were able to be totally ignored.
It's the old "Devil you know" concept.
The whole idea of such a "protection" is stupid. Unless they hold a gun to your head you are simply free not to buy. (At least I think that is still true.) I seriously doubt it would have been able to prevent our "buying" of GM or all those crappy mortgages.
Timmy and others would actually benefit since it would keep her busy in a dead-end job and out of the media on real issues.
I've quit listening to TV and radio, now I may need to avoid the internet's blathering news and issues or else get an upgrade on my blood pressure meds.
Re: Bernanke's faulty strategy...
judging from this ECRI weekly leading indicator posted on the site, the US is already in another recession. Look at the level of the index.
makes sense that Bill should be talking 12-18 months for the next run up in the market.
graph thanks to hussman funds:
www.hussmanfunds.com
Russell 2K strongly outpacing S&P
Russell 2000 has been wiping the floor with S&P in the last couple weeks.
Stockcharts chart of IWM:SPY ratio:
http://tinyurl.com/2epe59d
Market Weakness
I don't know if this has been pointed out already, but for all the major indices (INDU, SPX, COMPQ, TSX, WLSH), the SMA 50 has crossed below the SMA 200 in the past couple of weeks. Last time this happened was late 2007/early 2008.
tomorrow's fun reports
As we move into the close, keep in mind tomorrow's exciting events coming up brought to you by econoday:
0745 Goldman same store sales (survivor bias added at no extra charge
0855 Redbook (whose thunder is usually stolen by Goldman's 0745 report)
0900 Case Shiller Home Price Index
1000 Consumer Confidence
1300 2-year auction
Re: new home sales - 330k hooray!!
My personal take on better new home starts is that the current home market is so full of sad overpriced properties that new homes are starting to look quite good by comparison...i.e., today's prices and today's technology. In 2007, these custom west coast modern homes were introduced at 3 to 4 times the current offering price; now scaled back (size not quality) to meet the market. http://www.liveathorizon.com I'm sure there are other examples of builders/developers and banks getting real about what the market will bear!
Pitch and Toss winner
If we were playing Jingles today, my coin won -- double money too!
Re: "(for the S&P) the next upside targets (resistance levels) at 1115" the index opened at 1102.89 and closed (drum roll please) at 1115.00.
http://finance.yahoo.com/q?s=^GSPC
BOE changes collateral rules
Let's say you're a bank, and you have some - unfortunate mortgages - and you would like to borrow some money from the Bank of England. If you can wait until 2011, you're in luck:
http://www.structuredfinancenews.com/news/-208622-...
"The Bank of England (BoE) has introduced additional eligibility and disclosure requirements for ABS and covered bonds to be accepted in its operations. It has also extended the range of collateral eligible for its discount window facility (DWF) to include portfolios of loans to individuals and non-banks. The extension will take place in 2011."
Re: Pitch and Toss winner
Bill,
You should have played CNBC's call the Close! You could have won a vacation in the Bahamas!!
Re: Pitch and Toss winner
u da man
Art of War
waiting to see Sept. options... Thinking Obama admin. will kick start new war plans... many trending in lower oscillators..... starting a couple.
Re: BOE changes collateral rules
Just when you thought it was safe to go back in the MBS water? This industry news dissects the disconnect of mortage markets. http://tinyurl.com/24hqelu
for you, tobyt...
don't know if lightning strikes twice, or not...... http://www.nasdaq.com/aspxcontent/ExtendedTradingT...
Back In The USSR
http://www.youtube.com/watch?v=GhRu9yzlTRI
Flew in from Miami Beach BOAC
Didn't get to bed last night
On the way the paper bag was on my knee
Man, I had a dreadful flight
I'm back in the USSR
You don't know how lucky you are, boy
Back in the USSR
It sure feels like we're back in the Summer of 2009, quite possibly the longest-running bear rout in history (well, apart from 1982-2000). Even if not the case, anyone booking an overnight flight in the ultrashorts will need that paper bag on his/her knee.
Personally, I've been back on the sidelines, and I know how lucky I am.
Re: for you, tobyt...
this one is to ' open ' for me, though... exposed.. $ 23.20 would look a lot better... will see..
Futures 12:46am - Asia mixed, Shanghai red
S&P -1.50 / -0.14%
Level 1,108.00
Fair Value 1,111.53
Difference -3.53
Nasdaq +0.50 / +0.03%
Level 1,888.00
Fair Value 1,888.71
Difference -0.71
Dow -13.00 / -0.12%
Level 10,444.00
Re: Back In The USSR
The old USSR or even Russia today is more honest than my government. There has been talk about the FED engaging in illigal activities. Just an iceberg tip. The bigger daemon is our own U.S. Government who changes laws to suite their needs without recourse to courts or constitutional ammendments.
My first 'brush' with the law was in 1969 when my roommate, a law graduate from KU applied for a job in the Justice Department. Our shared appartment was rifled through without my permission from some scofflaws that did those things. No matter. I had nothing to hide but it got me thinking that that was an expedient invasion of my household. He got the job and I was no worse off so what the hell.
The next confrontation with my Gummint was in 1989. The S&L crisis was in full bloom. Crooks were being exposed and Bill Seidman set up the RTC. In an effort to catch bad guys, the RTC began using an obscure 1942 Court decision called D'Oench Dhume. My attorney rightly called it Dench Doomed. It was aptly named because it was one of the biggest screw jobs by a desparate government to essentially kill deals that cost Uncle Whiskers real money.
The governments 'drift net' under Dench Doomed made no sense at all. I had a deal with an S&L that was maybe 100 pages long that gave me the right to borrow at 7% and transfer that rate to a buyer for 5 years. Low interest rates were the seal for the deal. Not to happen. A missed paragraph and a note from the CEO had no influence. "IF IT'S NOT IN THE CLOSING DOCS, IT DOESN'T EXIST."
Please don't misunderstand. I only lost about $40,000 on this project. But it was money well lost because I will NEVER EVER trust my government again.
When corrupt people are in control of your laws, you must either become corrupt or suffer the ignominy of a slave.
Re: Back In The USSR
"The old USSR or even Russia today is more honest than my government."
Now Ross that's just hyperbole - unless you lived in the old USSR and you are speaking from your experience under both regimes. Vad did, and he's occasionally given us a glimpse of what life was like for him there. If you don't have direct experience, we can go back to some of his old postings to help clarify thinking on this matter.
I know you're upset, and I agree that the US government is dishonest and will change rules when it suits them, but this kind of thing reminds me of the comparisons of Obama to Hitler. I'm not suggesting Obama is Hope and Change incarnate, but only someone who hasn't really seriously studied the relevant history could make such a comparison with any degree of intellectual honesty.
Technicals vs. Fundamentals and the games the market plays
http://www.incrediblecharts.com/tradingdiary/2010-...
was curious to note the technical breakout in the transport charts provided by Twiggs above, suggesting "that the primary down-trend may be weakening".
Then I read the following article in Business Insider:
We have discussed the influences of sentiment and expectations all month, and today provided two excellent examples of expectations imbalances within the markets. The first is FedEx. On June 15th, FedEx shares closed at $83.01. On the morning of June 16th, the company announced earnings and provided initial guidance for 2011 of $4.70 per share below street expectations of $5.07. The stock dropped nearly 6% that day despite a very upbeat conference call by management. A sloppy broad market fueled an additional sell of FedEx shares over the next couple of weeks. As the market bounced so did FedEx and last week the rally continued on good earnings news from competitor UPS. Today, a mere 6 weeks after that initial guidance, FedEx raised 2011 expectations to $4.90 per share based upon Q1 looking 15% better than expectations.
FedEx Shares closed today at $83.39, higher than the June 15th close. It is remarkable that the company has managed to bring expectations down by $0.17 and subsequently wind up with a higher share price. For the time being since the revision has been upward, as have those of the competition, the market will likely expect future announcements to go in the same direction. One might be tempted to call this chicanery, but we have seen them do the same exercise in reverse in the past. Regardless, the actions and results merit being mindful of them.
http://www.businessinsider.com/wanna-see-how-fast-...
let's squeeze those shorts through the lazy months of summer...
Futures 5:15am Europe gaps up and holds
S&P +3.50 / +0.32%
Level 1,113.00
Fair Value 1,111.53
Difference 1.47
Nasdaq +7.75 / +0.41%
Level 1,895.25
Fair Value 1,888.71
Difference 6.54
Dow +39.00 / +0.37
http://online.wsj.com/mdc/public/page/mdc_internat...
re:back to the USSR
agree that our country is not like the USSR in many of its excesses but wanted to relate a similiar situation to Ross. I always used to leave several thou carried forward each year w/the IRS for next years taxes in case there was an error. My acct forgot to put in my SS the first full year I got it and I got a bill from IRS for 4+ thou due plus INTEREST plus penalties. I informed them that there had been more than enough $$ carried forward each year to cover that amount and I should not be charges interest. They, with a straight face, told me the IRS TAX COURT had determined that once that years taxes were filed the extra $$ on deposit w/them was put against the next years return and no longer available. I paid the interest and no longer leave any $$ extra year to year. Only experience in life where anyone had my $$ and CHARGED ME interest......this was under the previous admin.(govt is govt.period).......Baz22 thanks for the tip........boy did I leave alot arna $$ on the table