MP 5/12/08

Traders,

Friday saw the market give up some more ground from those resistance levels – but the RUT stayed magnetized to 720 and was slightly up on the day. This is a clear sign that we are NOT seeing as much selling in the boarder market and volatility as a whole is has not ramped as we would of thought by just looking and the INDU. The credit crisis story is “old news” and we have become numb to the continual write downs and hearing “the worst is behind us” – whether that is true or not – the fact remains we are still in it – whether we have passed the ½ way marker or not is (in my mind) immaterial – because this problem is a linking one. The credit crisis stems from the housing bubble bursting and for the most part everyone being over-leveraged. However – at the END of the day it is the consumers that do the consuming – it is them that need to continue to invest, buy, and consume – that keeps greasing the cogs of industry.

While – it may be true that we are at the end or have seen the bottom of the credit crisis – from the institutional side – the problem does NOT stop there – the question – what is left of the consumers? Same store sales looked better than expected – but one interesting issue was the massive increase in credit spending. Consumers are tapping their plastic like never before to keep up with the spending cycle – since their previous ATM (their home) is either tapped out or foreclosed. It will take the bottoming of the consumers to find the bottom of the economy – not the end of the credit problem or the bottom of the housing market. For it is the consumer that needs to be healthy! It would seem that consumers still have a long way to go – regardless if the banks have seen the light at the end of the tunnel.

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HSBC – shoring up capital

Europe’s biggest bank has set aside $3.2 billion for bad loans in the U.S. and said first quarter profit increased. While they reported a “lull” in the U.S. delinquencies – the outlook for the rest of the year “remains unusually difficult to foresee in the current environment.”
What they DO expect is that the U.S. economy WILL slip into recession as the deterioration in the housing market and consumer spending will extend into 2009. However – they are seeing global growth elsewhere. Higher pretax profits in Asia, Middle East, and Latin America were borrowing continue to increase. “People need to remember how strong Asia can be.” – Question – when and will those areas faced credit problems?
The stock is seeing a boost in the European trading session and while news of a recession predicted (with future losses) in the U.S. – it is the international story with larger profits that is helping off-set the billions of losses in the U.S. The story is mix signals – bad for U.S. consumers – great for international investors.

Expect the banking sector MAY get a slight boost from the international play and positive forecast for Asia.

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China – inflation happening

With the rapid growth in China – citizens moving from rural areas to cities, increase in auto-sales, building at record pace, and their currency STILL loose pegged to the Dollar – inflation is becoming a real issue in their country. The Government has stepped in to aside more deposits as reserves, the 4th time this year. Banks now have to set aside a record 16.5% of deposits with the central bank. Consumer prices rose to 8.5% (maybe they should adopt our CPI – that would get the inflation reporting back down – wink wink).
At least the China central bank is trying to get in front of the inflation pressure and Asia as a whole have either raised rates or left them unchanged to deal with the rise in inflation. However, while they DID end the FIX exchange rate with the dollar – it is still semi-fixed. One trader told me that if they fully decoupled we would probably see the Dollar drop to 4:1 against the Yuan – that would most definitely hurt imports to this country – but help exports. Furthermore it would create a ripple effect in oil prices.

China is currently the center stage in the financial world – hopes pin on their growth – while the U.S. has a sluggish economy. Multi-nationals are looking to shift focus to Asia (China) to pick up much needed profits to off-set losses domestically. As the dollar continues to weaken against their currency – it is helped those countries – but at the same time weakened the consumers of this nation.

All eyes are on China, Oil Prices, and the Dollar – those three items will set the global economic stage going forward.

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Futures Pre-Open


The futures have been flat to slightly up – we are not seeing that much action in the pre-market yet. Oil has come off the record 126 in the pre-market – giving a slight boost. Expect the cash basket to have a slight boost at the opening.


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Support / Resistance

Most of the indices fell off towards the end of the week and ended on a low note. The RUT however did remain rather flat – a good sign ????


INDU 12600 / 13000 (We broke the short-term 12800 on Friday – we are in a short-term support area with 12600 the next leg down. The market looks a little mix in the AM – so expectations vary.)

NDX 1950 / 2000 (We saw weakness – but are still above a weak support of 1950 – however with the over-weights – and RIMM’S new Blackberry – which the stock is spiking in the premarket – we could see some upside volatility.)

SPX 1380 / 1400 (We are in that weak support area right now – any break down from here will mean 1350 is in the cards. We were above 1400 for a couple of days – but was that hope?)

RUT 700 / 740 (We are at that mid-point – or weak support area. The RUT did look strong compared to the rest of the market – the question – will it be enough?)

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Conclusion

The global economic story looks hopeful for the multi-national companies (and banks) to off-set losses in the U.S. – China’s inflation is a concern – which WILL slow down growth (good news they will continue to grow – even if slower). However – the consumption of oil on the global stage is increasing and in the US we are entering the “driving season” – will that keep oil up. The weak dollar is also a factor – both to consumer buying power and oil prices.

The uncertainty going forward (and hidden volatility) is still there – regardless of what the VIX says. We are still in a volatile market and economy.

Bright side – RIMM came out with their new CrackBerry – which has the euphoric masses buying them – every “Day trading” message board and blog are lighting up with BUY BUY BUY RIMM!!! Maybe that will help the NDX and tech sector today. [Sarcasm On] Who knows – maybe a new phone is what this market needs to rally! [Sarcasm Off]