Traders,
The market had a slight rally yesterday – but was rather mixed as a whole. Seems that with a few surprise earnings the market didn’t want to carry a short position over-night. Additionally – volume was on the lighter side. The news also seems to be a washed with FOOD shortage issues – and the news can also create panics when there is probably not a need to panic. Wal-mart and other stores are limiting rice purchases – which is not helping and adding more concern. From my limited research the problem SEEMS to be emerging markets and third-world nations and NOT a shortage in this country. Those types of headline stories and Costco (and the like) limiting food purchases can create a horde mentality. Now doubt that commodities are going higher, especially in rice and corn – however lets be a little more realistic – and not cause a panic. Sometimes the evening news seems more about sensationalism or making a mountain out of a mole-hill. So far there is no cause for concern – but no doubt we need to keep an eye on it, but don’t go out and buy 3 20lbs bags of rice – that is only contributing to the problem.
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Jobless Claims unexpectedly dropped?
The initial jobless claims decreased by 33,000 to 342,000 in the last week of reporting. While still fairly high it has contracted – something that economist had not expected, the forecast was for an increase of 3,000 not a decrease of 33,000. Additionally – people staying on benefits declined to 2.934 million from the 4 year high of 2.999 a week earlier.
The market had a slight rally yesterday – but was rather mixed as a whole. Seems that with a few surprise earnings the market didn’t want to carry a short position over-night. Additionally – volume was on the lighter side. The news also seems to be a washed with FOOD shortage issues – and the news can also create panics when there is probably not a need to panic. Wal-mart and other stores are limiting rice purchases – which is not helping and adding more concern. From my limited research the problem SEEMS to be emerging markets and third-world nations and NOT a shortage in this country. Those types of headline stories and Costco (and the like) limiting food purchases can create a horde mentality. Now doubt that commodities are going higher, especially in rice and corn – however lets be a little more realistic – and not cause a panic. Sometimes the evening news seems more about sensationalism or making a mountain out of a mole-hill. So far there is no cause for concern – but no doubt we need to keep an eye on it, but don’t go out and buy 3 20lbs bags of rice – that is only contributing to the problem.
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Jobless Claims unexpectedly dropped?
The initial jobless claims decreased by 33,000 to 342,000 in the last week of reporting. While still fairly high it has contracted – something that economist had not expected, the forecast was for an increase of 3,000 not a decrease of 33,000. Additionally – people staying on benefits declined to 2.934 million from the 4 year high of 2.999 a week earlier.
Jobless claims have been averaging 352,600 so far this year, compared to 321,000 per week in 2007. Additionally – the financial sector have announced in the last month huge job cuts moving forward by as much as 25,000 and have already cut close to 50,000 in the last year.
However, if you have read my essay “The Government’s Modest Proposal” – you would realize these job numbers are very convoluted and the methodology has changed from administration to administration – that any year-over-year measurement or for that matter administration to administration methodology has made such a Hodge podge of calculations that it is fairly hard to get an accurate picture of the actual employment / unemployment measurement.
Regardless how accurate these numbers are or if they will be revised – they are giving a huge boost to the futures in the pre-market which are now flat from being down about .5% Let’s see if that rally is sustainable.
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Ford has unexpected profit
While Ford for the most part has fallen off everyone’s radar as it flirts around the $7 range and continues to lose ground against other automakers and tango’s with the unions – they managed via cost cutting and YES – overseas sales make a profit. The weak dollar – yet again – comes to the rescue of an ailing company that has benefited with the Euro rallying against the dollar. Expect to see a little pop in Ford this morning – but that doesn’t mean to go nuts and start getting long it. They are still on a very bumpy road. I think of the automotive industry in the same lines as the airline sector – a need industry with little to no margins, lots of risk, tied to oil prices, and union threats. Why would you ever invest in these companies? If they never moved and paid 5% dividends yeah maybe – but to bet on this stocks making huge rallies with their business risk factor – I think not!__________________________________________________________
APPLE has amazing results – the MAC is BACK
Their earnings fully beat and they are selling IPhones and MACs faster than a polecat in a hen house. I have always loved the company and was an earlier adopter using the Apple ][ back in the 80s. However, they have struggled for decades, until they welcomed back Steve Jobs – who is NO DOUBT a visionary. They continue to set the bar for technology and their designs are almost ART. Their business model is genius by limiting upgrades, battery replacement, and partners – while that is not necessarily good for consumers – it really looks GREAT on the balance sheet. Also by adopting INTEL processors and allowing their computers to run Windows has now allowed them to FINALLY compete with the PC. They are overpriced – but hey it’s APPLE and it is F’n Cool!
They also know how to market their stock expectations – they pull back on forecasts so they can ALWAYS explode with a surprise. There is most definitely two sets of forecasts – one for public consumption and one for how they are really doing! They continue to manage their expectations as well as they design products.
However, that leads to HUGE volatility and should Apple really be trading at these levels? Probably not – the stock rallied 40-50 points since March into earnings – but come on that is perception and hype. The stock took a smack down after the close – but has retraced into the opening – because it’s F’n Apple man and you HAVE to own it. If you ever read those day-trading message boards and stock investing clubs online it is filled with a couple of stocks that everyone seems to trade – and the leaders are Apple and Google.
It is going to help boost the NDX this morning if it can hold – but it looked like it took a smack down in the pre-market after the close. It could and probably should pull off a little since the hype is over. Buy the rumor, sell the news.
Apple and Google and NOT for investors but for traders. Apple can easily trade $100 or $200 and still be priced correctly and we could argue that fair value is $250 or $100 – it’s perception not fundamentals that drive these companies and don’t let ANYONE (including myself) tell you what the fair value is for a hot commodity like Apple – it is what it is! Enjoy your IPhone or Air Book – however don’t buy into the hype you read on message boards about the stock.
BTW: The Airbook is F’n Cool – my partner has one and if I had not bought a laptop before it came out I would probably have one too – granted they are priced at a 50% premium - but who cares it’s a F’ Air Book!
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Futures Pre-Market
The futures were getting hit with the concern about food shortages (being hyped in the media) coupled with some more credit problems announced by Credit Suisse – the crisis is still in full swing. However – the jobless claims shocked everyone and hey it’s not as bad as we thought – the government told me so. The futures got a nice kick in the pants to the upside and are getting close to unchanged. The spread if flat – so don’t expect ARB traders to play this at the opening – I would say the pressure on the basket if fairly neutral.
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Support / Resistance
A little pop back up in most indices – with a solid pop in the heavy tech NDX has got us to some resistance areas as well.
INDU 12500 / 13000 (12750 is a pivot point in the resistance range of 12750 – 12900 – it wants to go up – and some of these earnings could push it up – but a good pull back in oil would also make a good push on the equity side higher. If we start dropping below the 12750 range and close below it we could revisit the 12500 area. I would treat 12750 as the straddle strike in the resistance range. If we breakdown below 12750 start leaning short – if we get back up towards the 12900 area get ready for a break out.)
NDX 1900 (This is a key area – if we snap above and close above 1925 we may of broken out of this – otherwise it’s below 1900 – straddle strike for sure)
SPX 1350 / 1400 (1375 is the straddle strike)
RUT 680 / 720 (700 is the straddle strike)
We have been in the resistance range and not going up or down. The longer we stay here the more HIDDEN volatility loads into this range – meaning when we DO move it could be violent. We are now going to move on perception – the market is starting to build confidence – people are calling for a market rally and the worst is behind us. If the market has enough money on the sidelines, oil drops, and confidence builds – the SELLERS and SHORTS WILL step away and this market can and will RIP to the upside fast and hard. If we can get that confidence build and sellers and shorts step back in – well back down to supports. This is a KEY area in the upper band of resistance – the futures were down and now back up – it’s too hard to call – but the market WANTS to rally – I am 50/50 – so these are fore SURE a straddle strike period.
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Conclusion
The economic landscape continues to look fairly bad – oil is pulling off some – but still well above $100 – gas prices are up and home foreclosures are ramping. Add in the rice shortage headlines and commodity prices and it would seem that things are looking very bad. However, several of the big companies are making huge gains and their earnings are reflecting this – and that is because they have bailed the US for green shores overseas where the economy is strong and so is the currency. It is a tale of two cities – the local economy SUCKS and the global economy and foreign currencies are very strong. The companies placed in those areas are doing very well.
What does this mean for the market? This market WANTS to rally – and if it does – it is perception and confidence returning. Can the global market carry the US, I don’t think so. The dollar needs to strengthen and the consumer needs to have money and buying power.
We can and could rally – but I would make damn well sure I am hedged. These are very volatile times.
My gut says we will go down in the near-term maybe not today.
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