Traders,
Yesterday saw interesting action, down, up , down, up, - certainly some intraday volatility. Bloomberg released news that insiders said that GM’s bankruptcy WILL be filed on Monday which created some volatility intra-day. It would seem that the bull vs. bear fight continues and we are at another crucial resistance point in the market. Interesting enough I have friends on both sides.
Yesterday saw interesting action, down, up , down, up, - certainly some intraday volatility. Bloomberg released news that insiders said that GM’s bankruptcy WILL be filed on Monday which created some volatility intra-day. It would seem that the bull vs. bear fight continues and we are at another crucial resistance point in the market. Interesting enough I have friends on both sides.
The bull argument is that the worst is behind us, Obama’s plan is starting to see green shoots, and the government data is showing slowing signs of a recession. Many stocks have been oversold or are under value. The core ingredients is optimism and faith in the government and the Fed controlling rates. They don’t believe that inflation is a threat and if it were to rise the Fed would be able to contain it.The bear argument is that it is true that government data is showing signs that it is slowing down, but it certainly has not found a bottom or signs of a recovery. They argue that the PE ratio of the S&P has skyrocketed and while true that stocks may have BEEN (past tensed) undervalued that the recent rocketing rally has put them into an overvalued state. They also point to the yield curve on the 10 year expanding, inflation threat is looming, and accounting changes in the banking sector reflects paper profits ONLY.
There is truth in both views and I think that is why there is the push pull that we are seeing. However, the bull argument is going to need a little more meat pretty soon. We can be optimistic about the recession slowing down, but eventually we are going to need some good news (not just less bad news). A bottom and signs of a recovery. The bull’s argument certainly has some legs – but with the yield curve steeping and the dollar getting weak – coupled with GM’s bankruptcy – well that could diminish the optimism a little.
And the saber rattling in North Korea is a little unnerving as they tested another missile and have ended their “truce” with South Korea. Let’s hope it is only saber rattling.
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Economy Contracts more than expected….
Commerce Department showed that the U.S. economy contracted 5.7% in the first quarter and revised the last quarter of 2008 to a contraction of 6.3%.
The big problem seems to be consumer spending which rose significantly less than expected at 1.5% vs. 2%. The second quarter doesn’t seem to look any better. The housing starts have fallen, unemployment while slowing still increased, and credit lines are diminishing – and it looks like contraction will continue. Another way of coming up with a forecast is that the majority of earnings reports show reduced revenue expectations for the next couple of quarters. Certainly consumer spending has contracted and it doesn’t look like it will expand any time soon. Some companies have done well in managing the decrease in revenue and costs to keep margins in the black, however on the economic scale it is certainly not a sign of a recovery in 2009 (unless something changes).
The concerning news is the bond yields and the weakening dollar and the news of contraction has investors looking elsewhere for safety or returns. Dollar based commodities are also making a run and I believe that the dollar has a bigger impact to the rise than demand. Inflation hedges are also on the rise, Gold breaking 975 and Silver above 15.
There has been some controversy as to WHAT is the mandate of the FED as we initially thought they would defend the interest rate, but they have not. That is sending concern to those investors in risk-free assets and the trust that the Fed will defend it is waning. The Fed’s plan to keep rates low and help the mortgage market is actually slipping fast. 30 year fix rates made a big pop from the 4.7% to 5.3% as it would seem that rates are continuing to climb. Questions of the Fed and their “Quantitative Easing” Policy abound. Certainly the demand for long-term paper has significantly diminished.
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Dell earnings…
Dell saw a significant slump in revenue and profits, but did beat analyst estimates. The question really came down to the future expectations, rather than beating their already low guidance. The forecast is looking very slow for the next two quarters and they are guiding their revenue numbers down. They have focused (like other companies) on cost cutting to keep margins wide, but as revenue contracts and computers turn more into a commodity (as prices collapse) headway is going to be hard in the U.S. – good news – Dell has redoubled their efforts into the Asian markets and expects to be the PC leader.
The stock saw some after market volatility trading as low as 10.80 and as high as 11.80 – however it has settled in at the 11.50 range and looks to open slight higher.
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Futures Pre-market
We saw the futures on a good gain in the pre-market, but the GDP contraction news (worst than expected) as consumer spending continues to contract saw them pull back hard. It looks like a flat to slightly higher opening.
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Support / Resistance
INDU 8250 / 8500 (We had a volatile week from 8250 to 8500 – we are looking a little higher – but the GDP news is showing some pressure.)
NDX 1350 / 1425-1450 (The overweighs seem to be the driver in here recently – primarily AAPL which has made a good run.)
SPX 881 / 930 (The 900 level seems to be a good pivot point we look a little above at the opening.)
RUT 475 / 500-515 (The RUT didn’t make a big move to the upside like the rest of the indices yesterday. In fact it looked to close lower on the day until the end of the session.)
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Gold 975+ (We broke that 950 range and as talk of inflation and weaker dollar starts hitting the airway we are seeing a run for gold)
Silver 15+ (Didn’t buy enough at 10 to 12, but at 15 it still seems cheap in relation to gold.)
OIL 65+ (Oil broke over 60 and then 65 - up 80% from its lows. I think the dollar is playing a bigger role in this.)
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Conclusion
The push-me-pull-you of the bull and bears in the market, both with valid views are now having to face the math eventually and the GDP numbers this morning didn’t reflect a recovery anytime soon. I think we could see some volatility on Monday when GM files for bankruptcy – there is that 11th hour government massive bailout, extend the deadline, loan, etc. that could happen (for the good of the country and UAW). It’s a long shot, but certainly not out of the cards and if that were to happen it could inject another general market euphoric rally.
The concerning news is the bond yields and the weakening dollar and the news of contraction has investors looking elsewhere for safety or returns. Dollar based commodities are also making a run and I believe that the dollar has a bigger impact to the rise than demand. Inflation hedges are also on the rise, Gold breaking 975 and Silver above 15.
There has been some controversy as to WHAT is the mandate of the FED as we initially thought they would defend the interest rate, but they have not. That is sending concern to those investors in risk-free assets and the trust that the Fed will defend it is waning. The Fed’s plan to keep rates low and help the mortgage market is actually slipping fast. 30 year fix rates made a big pop from the 4.7% to 5.3% as it would seem that rates are continuing to climb. Questions of the Fed and their “Quantitative Easing” Policy abound. Certainly the demand for long-term paper has significantly diminished.
_____________________________________________________
Dell earnings…
Dell saw a significant slump in revenue and profits, but did beat analyst estimates. The question really came down to the future expectations, rather than beating their already low guidance. The forecast is looking very slow for the next two quarters and they are guiding their revenue numbers down. They have focused (like other companies) on cost cutting to keep margins wide, but as revenue contracts and computers turn more into a commodity (as prices collapse) headway is going to be hard in the U.S. – good news – Dell has redoubled their efforts into the Asian markets and expects to be the PC leader.The stock saw some after market volatility trading as low as 10.80 and as high as 11.80 – however it has settled in at the 11.50 range and looks to open slight higher.
________________________________________________________
Futures Pre-market
We saw the futures on a good gain in the pre-market, but the GDP contraction news (worst than expected) as consumer spending continues to contract saw them pull back hard. It looks like a flat to slightly higher opening.
________________________________________________________
Support / Resistance
INDU 8250 / 8500 (We had a volatile week from 8250 to 8500 – we are looking a little higher – but the GDP news is showing some pressure.)
NDX 1350 / 1425-1450 (The overweighs seem to be the driver in here recently – primarily AAPL which has made a good run.)
SPX 881 / 930 (The 900 level seems to be a good pivot point we look a little above at the opening.)
RUT 475 / 500-515 (The RUT didn’t make a big move to the upside like the rest of the indices yesterday. In fact it looked to close lower on the day until the end of the session.)
=====================================
Gold 975+ (We broke that 950 range and as talk of inflation and weaker dollar starts hitting the airway we are seeing a run for gold)
Silver 15+ (Didn’t buy enough at 10 to 12, but at 15 it still seems cheap in relation to gold.)
OIL 65+ (Oil broke over 60 and then 65 - up 80% from its lows. I think the dollar is playing a bigger role in this.)
_________________________________________________________
Conclusion
The push-me-pull-you of the bull and bears in the market, both with valid views are now having to face the math eventually and the GDP numbers this morning didn’t reflect a recovery anytime soon. I think we could see some volatility on Monday when GM files for bankruptcy – there is that 11th hour government massive bailout, extend the deadline, loan, etc. that could happen (for the good of the country and UAW). It’s a long shot, but certainly not out of the cards and if that were to happen it could inject another general market euphoric rally.
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