We saw some up and then down action after the Fed cut. I kept hearing many “talking heads” deciphering the language as if Bernanke said he was going to “Pause”, but that is all interpreted opinion since he never actually came out and said it. He DID say the Fed will continue to monitor and take necessary action when appropriate – does that me they are pausing until they don’t? Who knows – the reality is that there IS a built in pause since the next meeting is not until June 24th. The perception of the “Pause”, even after the cut – has given a slight boost to the dollar – which we are also seeing a slight retreat in Oil prices.
The market did TOUCH those resistance levels, but then retreated on accelerating volume and they all went negative on the day. The resistance is no doubt strong and we could not bust through it on investor confidence. The cheerleading by Bernanke was lack luster and he still mentioned stress on the economy – which didn’t give too much to cheer about.
The resistances were tested and they held – do we retest – maybe – but there is not the kind of news out there (like the Fed) that could bring a huge boost to market. Yeah – the job numbers will be released – and unless it is a SHOCKER and 100s of thousands are getting jobs all of a sudden, I think it will be hard press to rip through those resistance levels.
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Exxon Mobil profits climb – go figure
Exxon Mobil is down in the pre-market after the net income rose $10.9 billion or only a paltry $2.03 a share (up from $1.62 a share earlier). Analyst of course were expecting the MOON, and Exxon could only deliver stellar profits. The OIL euphoria is a little crazy and while OIL is hitting all time highs – it is funny that investors (and analyst) are not satisfied with a 17% profit increase. Growth in worldwide consumption is up 2.2% in the first quarter, up from 1.2% the preceding quarter. We (Americans) have to stop being self centered. I continue to hear Analyst say oil prices are coming down because U.S. consumption is flat or weakening. Granted, the U.S. currently consumes aprox. 25% of current oil production – but the consumption rate in the U.S. has been relatively flat the last 3 years. However, worldwide consumption is up over 1-2% annually. So who IS using more oil to push world-wide consumption up, if not the largest oil consumer? How about China – whose oil consumption is up 5-7% per year and is expected to continue to grow for the next 5-10 years. Additionally the emerging markets consumption is up world-wide 2-3%.
No doubt oil has a premium in it – but to call it a Bubble (like the housing market) is foolish in my mind for the following reason.
- First, it is a wasted asset – we consume it almost as fast as it comes out of the ground (oil production is running 2-5% over consumption and extraction rate on current reserves is at 90-95%) – once we use it we don’t get it back.
- Second, world-wide consumption is growing – not shrinking (while it may shrink in the US – we need to think globally),
- Third – oil is not just used for gas – but all forms of transportation (Ships, Planes, Trucking) – it is also used for many production materials we use in everyday life.
That being said – there IS a premium in it for sure, there is Middle East Risk, Dollar Risk, Supply/Demand Risk – that will always be priced into oil – my argument is that there will ALWAYS be a premium – how much that is – will always be speculated upon. Additionally – with a weak dollar – OPEC will defend prices in oil.
My guess – oil can and will retreat – but below $50 barrels is a thing of the past. The war for OIL is in full swing as China and other nations are in NEED of it to make the wheels of their economy turn.
Probably the biggest premium in oil is the weak dollar. If the dollar rallies and STRONGLY we WILL see oil prices fall off. But that means Bernanke has to stop the rate cuts and the Discount window deals. The weak dollar has probably fueled oil prices more than any other single factor.
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Jobless Claims and MORE spending?
After seeing MORE jobs from the ADP report the Government reported more jobless claims. The real issue is the unemployment benefit rolls exceeded 3 million people – the first time in 4 years. This clearly shows a weaker labor market.
Initial jobless claims increased by 35,000, worst than expected, to a four-week high of 380,000 (Avg. estimates were for 365,000). Companies have been announcing layoffs all through the first quarter of 2008 – and expectations are for increases beyond just the financial markets (which have seen the largest job cuts since the Dot.Com bubble burst). However it is not as bad (so far) as the Dot.com era – when avg jobless claims in 2001 were above 400k. Some analyst expect jobless claims to remain around the 350-400 range in the near-term. Many job cuts are coming from the Financial sector – but we are seeing more and more job cuts in other sectors.Spending was up .4% - clearly showing inflation is having an impact on the consumer and the weak dollar has sucked any buying power they do have. Economist had predicted a .2% rise – but gas and food prices have pushed the amount of spending higher than initially thought.
Consumer spending rose at a paltry 1% (based on an annual pace) – the smallest gain since the 2001 Dot.Com bubble burst. Of course this will bring out the economist AGAIN arguing a recession or not. Big ticket items sales were down – and the majority of the spending increase went to food and energy. However, the FED continues to monitor the “CORE” rate (stripping food and energy) for the “KEY” measurement of inflation. Several Congressional members have asked the FED to focus on “Headline Inflation” that INCLUDES food and energy.
There is hope that the $300 - $600 bonus checks mailed out this month will boost spending – but it looks like that money is going right into the gas tank, Twinkies, McDonalds, and lots and lots of alcohol.
Side Note: Wal-mart will CASH those rebate checks for FREE and will be ROLLING BACK THE PRICES! – Damn, Wal-mart is smart!
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Futures – Premarket
We did see a slight pop in the futures overnight with oil coming off – but the Job numbers and consumer spending has showed a cause of concern and pulled backed on them going into the opening. The ARB traders are slide-lined – not wanting to be caught out on those numbers which injected some pre-market volatility.
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Support / Resistance
We DID touch those resistance numbers yesterday – but the 3 point shot that Bernanke was going for in the finale second to win the game – bounced off the rim and the cheers subsided.
INDU 12500 / 13000 (No doubt the 13000 level got tested and it has held (for now) it is going to take a lot to get this pushed through the 13k level now – the cheerleading has subsided and the economic reality in the numbers today is putting some pressure on. We will probably be retreating from these levels.)
NDX 1900 (We have been all over the board above the 1900 level – the over-weight euphoric stocks have been driving this volatile index into a fat resistance range with no real top or bottom. However – 1900 needs to hold to show that the tech heavy index is still solid.)
SPX 1350 / 1400 (We had a few minutes above 1400 – but the wind quickly came out of the sails.)
RUT 680 / 720 (Again 720 was not game and we pulled off)
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Conclusion
The Fed has paused – because they have too until the next meeting. The dollar got a little boost from that and oil has come off on the strength of the dollar. However – it was the economic picture that repainted the slowing consumer and credit stress. Increase in job losses and increase inflation is putting pressure back into the market.
The investor confidence waned when we could NOT break through those resistance levels. We did have a great rally from the bottom in the last month up to the Fed meeting – investors should have been happy with that and flatten their positions. One analyst said this was an opportunity to get OUT OF those positions after the rally from 12000 in the Dow. We got a 1000 point rally in a month and that was a prefect opportunity to take some of the risk OFF the table. But investors were not satisfied and they wanted it to go higher.
Remember – we can’t forget the consumers – which are the grease of this economy (the majority of the GDP) – they are losing jobs, tapped out in credit, and they are losing buying power on a weak dollar. That needs to change to really get this market to rally on FUNDAMENTALS. Until then it is optimistic perception.
Side Note: Home Depot just announced a bunch of store closures!
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