Traders,Yesterday was a weak day with some profit taking and some pressure visiting the banking and financial sector. More banks are stepping up to sell shares to raise money, thus diluting the market and putting future pressure on earnings (more shares mean lower return per share). Bank of America, the lowest on the Stress Test, is expecting to raise $7 billion in selling its stake in a Chinese construction company, but that still falls short of the needed $34 billion according to the Stress Test. But was the Stress Test good enough? Many skeptics think it was far short of a “STRESS” test and now Bernanke said that banks need to test MORE to indentify other risks. Other risks, is there something we don’t know about?
The tech stocks on the other hand held up well and the NDX remained flat as other indices fell. Retail which has gained is beginning to show signs of stress as consumer credit is still tight and the jobless rate is just shy of 9%. What’s the next hot market – I have a sneaking suspicion it will be biomedical engineering – as some suspect with the ban on stem cell research lifted, but who knows.
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General economic views becoming skeptical
Yesterday an article by Bloomberg indicated that analyst, while might not be turning bearish, are less bullish and concerned that the recent run was too much and too fast. This morning another article and survey indicates that economists (after reviewing the GDP, budget deficit expansion, jobless claims, and stress test) are now downgrading the recovery outlook of the U.S. economy. While true many believe we may hit bottom soon – as indicators show a slowdown in the decline, it is really the recovery at the end of the day that has many concerned. Their expectations show (on average) a 9.6% unemployment rate for 2010 and while declining into 2011, a still very high 8.5% - significantly higher than previous forecasts, and more alarming – higher than the administration’s economic forecasts – which are relying on a rebound and quick recovery to help reduce the mounting debt of the nation which after the revised budget deficit will be well above $3 trillion. And on the economic outlook showed only a 2.8% expansion in 2011 and a 1.9% in 2010 – both well below the mid 3s that the administration hopes. Why the concern between the administration forecast vs. economist, because it is this forecast that will predict a recovery, inflation, and asset prices.
Bernanke has already hinted at a balancing act about coming inflation at his speech at Jekyll Island and there is going to be the expected coming need of the Fed to buy more treasuries and keeping rates low. The long-term paper is more alarming, since we are seeing a shift of the foreign purchases moving to short-term paper. The Fed financing longer-term debt to keep inflation in check is concerning – because it is a continual rolling product and the next time around WHO is going to buy it? The rate has crept above 3% and he is having a hard time keeping it in check.
If the economist forecasts are more accurate than the administration – we could see price inflation by the beginning of 2010, rather than out in 2011 or 2012 – additionally – low growth GDP numbers reflect lower consumer spending which means lower revenue for companies. It is a giant inter-connected web. It will be the dollar that we need to watch in the coming weeks, it has recently showed signs of weakness over the last couple of weeks which has spurred dollar back commodity prices higher including oil – also Gold is back up to 900. Inflation concerns are certainly on someone’s mind.
I think it is reflective of hidden volatility that is mounting. However, optimism perception remains strong.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQ1yvaSV6MKM&refer=home
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Future Pre-market
We are slightly higher in the futures, with a little bit of a bounce in the financial sector from yesterday’s sell off. Asia was down and Europe lower to mix. Futures spreads are narrow, but may create a slight pop in the market at the opening.
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Support / Resistance
INDU 8000 / 8500 (We fell below 8500 – will we test it again, if so it may see more resistance again.)
NDX 1350 / (1400) / 1450 (We fell down and through 1400 – which could be a pivot point. Tech stocks have had a good rally and there is some volatility in the overweight’s – futures point to a slightly higher opening.)
SPX 900 (It seemed that 900-910 range is a very short-term support area, but could turn into a pivot point. Futures pointing to a slightly higher opening, watch 900!)
RUT 500! (We closed right above 500 and tested it yesterday – we have had a week of flirting above this level, but it needs to hold. Watch the close. A break means that 475 could be in the cards this expiration week.)
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Gold 900+ (Gold futures remain above 900 and inflation talk is making the rounds, even Bernanke has hinted about the future balancing act of the FED and the longer term concern – it is not IF it is coming, it is WHEN and HOW much.)
Silver 14+ (Silver futures have rallied strong from 12 and now moving higher.)
OIL 60? (We are seeing strength again – regardless of supply and demand. Maybe dollar weakness is playing a hand to help oil higher).
Watch the dollar going forward over the next couple of weeks.
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Conclusion
There seems to be more confusion and skepticism now, not about the slowdown in the recession. I think everyone agrees that a bottom is nearing. But it is not just finding a bottom, it is a recovery that we really need to put our finger on. As economist and analyst review the economic conditions the concern is the recovery. With unemployment while slowed in its acceleration, it is still climbing. New jobs are few and far between. If the GDP is over 70% consumer based – well it looks like a recovery is going to take longer than finding a bottom in a month and seeing everything coming up roses.
That saying “Green Shoots” is getting so annoying and I have a sneaking suspicion it just might be Weeds. For those gardeners out there, weeds always grow faster than grass or trees. Hence the gardener’s never ending struggle to keep them at bay. The problem with Green Shoots, is that we don’t know what kind of plant it is going to be – if it is a weed – we will now sooner rather than later.
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