Home › Monthly Archives › December 2008
16Dec

Fed fractionalizes funds rate to market cheer

Alex Bonds, Commodities, Economy, Forex, Stocks 0 comment

The stock market cheered the US central bank’s historic interest rate cut today, surging nearly 5% on the S&P 500 back above 900 to 911.82. The rate cut, combined with continued quantitative easing in Treasury bonds was evident in today’s trading, with a flood out of US dollars in to commodities and other currencies as well as bond yields dropping sharply.

The implications are clear. Inflation will begin in some measure of time, whether it is days, weeks or months. We can see traders already preparing by taking long positions in anything that stands to benefit from the dollar’s fall. Near term we could see the US dollar index fall as low as 72, retesting its prior lows and further confirming the head and shoulders pattern. Commodities and currencies remain attractive buys.

12Dec

Auto bail out talks break down

Alex Economy, Futures, Stocks 0 comment

Talks in the US Senate to create a compromise in the auto bail out bill have failed. The US futures, Asian and European equity markets are taking a large hit. The S&P 500 is below 850 pre-market, meaning if we open that way the support level has been breached. Car makers, industrials and energy companies are taking a big hit. These are unprecedented times with big news every day. Keep your eye on the markets!

11Dec

US dollar index showing head and shoulders

Alex Commodities, Economy, Forex, Stocks, Technical Analysis 0 comment

The US dollar index is forming an all too familiar pattern.  This is certainly a result of wreckless monetary policy turning deflation in to a potential stagflationary situation. At this point we recommend purchasing commodities (DYY is a good ETF because it is 2x leveraged and well diversified) and other currencies while there are reasonably priced opportunities.  We like the Euro and Yen for this trade.

US dollar index

US dollar index shows head and shoulders pattern

The courageous may consider purchasing commodities stocks as they will likely participate, but the future of the equities market is not necessarily certain as the recession is deepening.  Today’s unemployment claims were higher than the expected 525k at 573k.  That is a very bad sign that the worst is far from over in terms of how many layoffs we can expect.

11Dec

Commodities surge

Alex Commodities, Stocks 0 comment

Commodities have had tremendous strength for the past few days along with commodities stocks seeing money pour in. This is a potential trend worth watching and it is continuing pre-market today.   I will have more detail in a later post.

10Dec

Nasdaq one day chart: head and shoulders

Alex Futures, Stocks, Technical Analysis 0 comment

We are seeing confirmation of a head and shoulders pattern on the NASDAQ composite. This pattern is potentially very destructive to the rally that has taken place thus far. If you are still long this market, a stop slightly below 880 on the S&P or 1550 on the NASDAQ composite is wise, as that seems to be the only level holding back a collapse of the uptrend.

Watch this trend closely because the weekly chart on the NASDAQ composite shows the same pattern forming, meaning we could be retesting our lows in short order if it traces out the right shoulder and breaks below the neckline.

10Dec

Federal Reserve mulls issuing its own debt

Alex Bonds, Economy, Finance, Forex 0 comment

The US Federal Reserve, a private bank, is mulling issuing its own debt.  There are several problems with this, one of which is that if the debt is backed by nothing, no one will buy it. If it is backed by the full faith and credit of the US Government it needs Congressional approval.  Either way, the fundamental story is clear.  The Federal Reserve has overextended itself and finds its balance sheet loaded with worthless assets that it can not sell.  Karl Denninger has a nice rant about this on his blog that I recommend for your morning reading.

10Dec

Don’t own a GM or Chrystler car? Too bad!

Alex Economy, Futures, Stocks 0 comment

You’re being billed for one anyway!  That’s right, the $15B auto bailout seems likely to pass and be signed in to law, using funds for the DOE’s energy efficient vehicle program to instead bail out the very non-energy efficient American auto makers.  I am personally opposed to assisting any enterprise that cannot sustain itself in a free market.  This decision is not going to save the auto industry, but instead it’s as though the US government has bought some time for the auto makers to show us they can fail again.

The markets reacted positively overnight, with Asian equity indexes rallying and US futures shooting up about 1%.  The key number of 900 on the S&P 500 has again been flirted with and will be important to watch throughout the day.  The traders I’ve spoken to seem to think that the bail out was already priced in so we’ll see if the optimism lasts today.

09Dec

Sector focus (COMMODITIES): DRYS

Alex Commodities, Economy, Stocks 0 comment

This is not a call on either side, but a recommendation instead to watch the action in DRYS as we are seeing incredible buying interest in this stock over the last few days and especially today. Again, I don’t recommend buying or shorting here. The interesting factor is how this optimism is related to the future expected performance of and demand for commodities.

Commodities have seen a sharp and unprecedented sell off after their inflationary highs earlier in the year. Many, including myself, feel this sell off is overdone. The action in DRYS may confirm that theory. Watch this one closely in the days and weeks ahead!

09Dec

Sector focus (AUTOMOTIVE): GPC

Alex Economy, Stocks 0 comment

In addition to my short call on APOL, I’m making a short side call on GPC. This stock is intertwined in the automotive parts industry in Northern America and is poised to experience significant deterioration regardless of whether any bail out packages are passed by the US Congress. Recent talk of the bail out has been supporting the stock’s rally, but my analysis says that this stock’s run is out of steam.

Diminishing volume during a rally is a sign that it is going to fade. I am calling this short because I feel that American automotive business related activities, such as demand for parts and vehicles will diminish in this recessionary environment. My target on the downside is $36. A stop around $41 is prudent.

09Dec

Sector focus (EDUCATION): APOL

Alex Economy, Stocks 0 comment

I’m making a call on the short side for APOL. I feel that private education companies will be impacted by the lack of credit availability, slowing growth and higher unemployment constricting the pocketbooks of Americans. My target on the downside is $65. We see higher than average put buying activity at that price.

Apollo Group runs University of Phoenix. They’ve seen increased enrollment over the past several quarters, but with the US economy significantly deteriorating, I feel that this trend is poised to sharply reverse.

The charts show us that $78 is an area of long term resistance, so a stop around $81-82 is a prudent measure to protect against a potential breakout in this stock without giving in to higher than normal volatility.