Tuesday, October 30, 2007

The Fed's comments say a number of different things. A good question to ask wheather or not the bond markets are in agreement with the fed. Recently it would appear, that the Feds have diverged from the current consensus, and from a historical standpoint, from over summer, the Feds would hold as the markets priced in cuts, which is a clear reflection of action stemming from divergence of sentiments. Though that is not to say that sentiment has lost is footing, there is much uncertainty to the actions of a hold, much which I feel Bernake may not wish to risk his reputation on. The Feds have been testing the markets by adding in reserves and watching how financial have improved, only to the possible dismay of mixed signals. It is in my opinion that the US economy is quite resilient, but as i said sentiment has not totally lost its hold as a 25 BP or 50 BP is not surprising, what goes against a 50 BP cut is the fact that inflation is prevalent. Though obviously the fed has not been so bold to give this much transparency. The current inflation data coming in will keep the Feds decision limited to a 25 BP cut to hold, unless CPI and PPI numbers are truly tame. Which in turn would lead to another 50 BP in a preemptive measure.

In terms of currencies, this would be a great buying opportunity as a bottom forms against the Euro. The currency markets is already pricing in a less cut to hold, will the bond markets follow suit today? most likely which will reflect in the shorter term interest rates...

Monday, October 29, 2007

Entry for October 29, 2007

As the markets are expecting a rate cut markets are rising which worries me in a sentimental analytical view point. Such attitudes sets up a fragile foundation for such bullish moves as nothing confirmed yet.

The dollar vs the euro will continue to weaken ahead of the Fed decision. Depending on a 25 or 50 basis cut the dollar will continue its decline more moderately with a 25 basis point cut vs a 50 which would cause more significant downward pressure.

Interestingly the dollar is strengthening vs the yen. Consensus seems to be from Japanese investors willing to take on more risky investments. Further weakening of the yen will definitely be seen with the cutting of interest rates, though one can argue much of this is already priced in the markets as reflected as the current sentiment in us equity markets.

Friday, October 26, 2007

Entry for October 26, 2007 9:07 am

A bullish day?

I wonder if consensus has just formed as of today, or if was built out through the week, but I had already been expecting 25bp and a not surprising 50pt preemptive fed funds cut. Perhaps all this media just finally converged leading to this bullish tone today. Naturally this greater expectation, has lead to the further weakening of the dollar, with gold on its continued trend upward.

I guess one could say, people are fleeing to the traditional inflation hedge despite the weakening correlation over the years between inflation and gold. Though such ideas are not totally dead as strength in the liquid gold swissie is still prominent.

Supporting this inflationary environment energy has soared above 90, and slowly creeps its way to 100. I wonder if at this point if oil is more of a psychological move on the aggressive bulls playing out the supply numbers. Naturally if it is the case, oil won't reach past 100, though with the bullishness in the markets and with current oil supplies i wouldn't be surprised to see a break in 100 at this rate. Though deep down inside, i won't to believe that even middle to upper middle class consumers would not pay for such high oil prices. Though even if oil does reach past a 100 a slow growth in consumers would only reflect in later quarters with lagged reporting affects.

In terms of the S&P 500, i do not think we will be able to see 3 black crows today considering the sentiment currently in the markets, though if some bad news does come in that would be significant for shorters or bears to gain the upper hand. By looking at yesterdays price range the bearish were barely able to push prices downward any more significantly than the bulls were able to push the prices upward. This evening out may be reflected in a more neutral to bullish day today. Interestingly enough volume spiked higher than the previous day, which would lead me to think of further downward pressures. Once the MACD 0 line is pierce i would start looking for signs of strength along with support levels (look to yesterdays entry), as momentum seems to be slowing down as support levels are being reached. I believe there to be enough weakness to continue on through next week.

Thursday, October 25, 2007

Entry for October 25, 2007 9:55 am

Though the markets may seem hesitant today, it is obvious the Feds feel more bearish as they again added more money into temporary reserves, probably based weaker durable goods reports as reflected in decline in military spending (refer to a couple days ago, i talk about government spending and political repercussions and affects on GDP).

As i had previously talked about volatility in the job markets it interesting was revised up, opposed to down as i thought would happen due to weakness to inflation, but again volatility in part can come from the auto industry and all the UAW problems too.

For other sectors in the economy, credit and sup prime is not affecting them as much as again i would to point out technology as you see this being reflected in M&A activity.

As for industries related to Black and Decker, as earnings were positive, perhaps weakness in housing or construction aspects of real estate are not as weak, though as it is quite possible that much of this growth is more indicative of commercial real estate and growth abroad as Black and Decker is a company that operates globally, and has perspective statements focusing on this.

Apparent weakness in the United States economy can lead to inventory problems for China, as it may be hard to diversify and open new trading opportunities in time as if they do the United States would already be on its way to recovery. Chinas fixed exchange rate will only be hurting themselves in the long run.

By the end of today, I would not be surprised to see another doji formation, bullish or bearish, as conditions are not leading significantly in either direction, perhaps this is a slow move to a more bullish tone that will be set for the coming weeks as long as financials can maintain discipline.

Entry for October 25, 2007

Today is going to be a interestingly mixed day again as technicals are more bearish but I am not feeling the bearish overtone today, again it is probably the hesitancy in the markets. more after class...

Wednesday, October 24, 2007

Entry for October 24, 2007 Gravestone day

We got some interesting technical readings today. As i had predicted the weakness of the markets came through today. But what do we have at the end of the day!? A lovely gravestone encompassed in a Harami. What can this gravestone be possibly saying? I believe we can refer to my comments made in the morning. This is a mixed day between good and bad earnings and not surprising economic reports and fundamentals. The long low tail is an indicator of the bears trying to force their way down, but could not win due to the fact that fundamentals are not bad as apparently perceived as more bulls came to return prices to opening levels. Though on a whole, volume is still indicating down, as volume is not at average levels, and the price being above 20 SMA which traditionally shows a formation of a cup pattern. These negative indicators give more weight to the harami in place which would lead me to say there is more room for falling with support around 1460 or 1470.

All this can be reflected within fundamentals, as credit problems and sup prime are still perceivably a systemic threat, sentiment is mixed, and people are on a wait and watch policy. As economic indicators are reported down, or as revisions come in, there will be 1 or 2 surprises to drive down prices before stronger reports cause a bounce of support levels.

Entry for October 24, 2007 (morning)

Perhaps todays early morning decline in futures, will set the bearish tone necessary for today, which would confirm the weakness seen in the S&P 500. Some big missed earnings of Amazon and and Merill, though on a whole i don't see a significant drop, unless we have significant drop in home sales again, but on a whole fundamentals in housing as i hope, will be priced in the markets already. Interestingly, with oil, perhaps early takers of gains set off a chain reaction as higher highs were explored, leading into this drop. Previously i had expected oil to rise slightly more before this drop, though with current news and sentiment on supplies, things seem to have settled. Interestingly, despite this undecided weather, (at least on the east coast), oil is still in downtrend mode.
Though on over all cpi and ppi i would expect some relieved pressure in terms of inflation if oil can continue, probably the slight increase in the core and over all % was due to food tied to commodities and energy.
Another possible significant factor that may contribute to a drop in the S&P 500, is a focus on "weaker" consumer (as reflected on poor earnings reports on big box, soft goods, side of retail). My argument against that is with sliding oil prices, and nice tight labor markets you will still have the middle middle, to upper middle class consumer driving consumption and spending. Look at technology, just because gas prices WERE high and food prices increasing, it didn't stop them from buying nice expensive gadgets like the iphone, or hard good electronics, as reflected in the strength of the technology sector which has been buoying the industrial side.
Though interestingly i see some conflict with Northrop Grumman and United Technologies, which problem only has to relate with one of the 6 segments dragging in down United Technologies, opposed to it reflecting its sector on whole, as a conglomerate status.

With todays mixed news, it seems bears have taken a slight footing, though to the significance is hard to say since overall fundamentals have not changed, though i would argue apparent perception is what will be driving todays markets.

Tuesday, October 23, 2007

Slight updates, Though surprisingly, domestic equities ended up on an upbeat note, a properly hedged written cover call should have absorbed most of the losses to allow enough time to close out any short positions, or allow it to be maintained while avoiding margin calls. The lowest short term support i can find is at 1400, though it is more likely to bounce off just above 1450, as volume lessens and earing reports will come in stronger than expected. On the whole piercing of common SMA and continued volume trends tied with downward momentum will keep the S&P 500, though those who are more bullish can always do another hedge similar to as before. But doing some small back testing shows that after a significant drop, a few weeks or few days of lower lows usually ensues before a bottom is formed. Adding to that there is more room for this downward momentum.

Interesting today, I would like to mention SGP. I personally feel the Fundamentals of SGP are still the same, though this drop primairly feared on slowed growth on its main sales drug. I would like to note SGP is more diversified in more than one drug, as shown in its 10k. In part i feel is that its the missed earnings tied in with a showing of slowed growth and exponential growth in MRK.

BUT! this prsents a great hedging opportunity for all you investors who have a long position in MRK. I see a good pairs trading opportunity in MRK and SGP.

(congrats on all those who followed the slow growth sales in SGP and made the call on earnings)...

Monday, October 22, 2007

Entry for October 21, 2007

Investors eye chance of another Black Monday-click here
I agree with Paris in the fact that is indeed “a question of market psychology,” I knew from the start that a .50 cut in the Fed’s Fund does not solve any issues but provides temporary relief and adds to more of a superficial bullish sentiment among institutional and non institutional investors. Previous chatter in Wall Street said that a strong drop in domestic equities would have to occur before people started following fundamentals again. Though to the extent in this media driven age this sell off is indeed superficial. But to the extent of who ever buys into it. In other words, in a traditional sense Monday would be a great buying opportunity, but as we proceed media will wait along with investors to further assess weather or not indicators will be more bullish or bearish to be reported and over played. In deed great parts of this sell off is the focus in news, adding to negative sentiment values, priced in the market. I must note though however, due to these factors and many more, that the chance of recession has increased from 50% to 35-40% back to 50% to around 50-55% over the past 3 weeks or so (by my gauge). This extreme volatility can be attribute to the fact that it is indeed media driven. The past week and half or so, I would say fundamentals only significantly changed. This change spurred on primarily by the falsely bolstered lagged affect of a .50% preemptive fed funds rate cut. From the summer of 2007 similar conditions persisted with slight variation as seen in steady rises in domestic equity markets, as to clarify a steady conditions of mixed financial and economic factors, as one must always separate the two since they never are directly correlated. Similar conditions such as a constant drag in housing, which up until recently could have been negligent due to fact that housing drag will persist for a few years 1 – 3 or more, but non negligent now due the significant drop in housing fundamentals such as drop in home sales and housing starts (housing reports go here), in terms of the beginning boom in 90’s to slight prick, of financial conditions going from a over reaction in extreme bearish conditions on the surface of sub prime mortgage problems, to neutral to moderately improved view on sub prime, to uncertainty in that the crisis was not over tied in with the credit problems, and lastly to falsely improving bullish sentiment with the Feds cut,

Another contribution to this slide are emanated from earnings reports, though from my perspective, not totally surprising on a whole, but on the scale of significance more than I had expected. Key bench market such as conglomerates United Technologies cooperation and leading financials, Citi group, JP Morgan chase, Bank of America, all exposed to credit risk and exposure in sub prime. With current oil prices another aspect of industrial sector in the economy weakened due to oil prices, leaves technology left as support as presented in the article. Though I can’t the significance lies in primarily affecting the financial sector and probably hinges more on lower end higher credit risk consumers. United Technologies speaks more of world wide industrial aspect, but only slow growth in a few of its 6 segments.

From an investor standpoint there is no doubt that technology poised to rebound sooner or later, obviously the million-dollar question is when… Following trends within technology there is much compelling evidence for this. For a long time that I can recall from around 2004, the ^soxx which has been a trading range of 200-250, and many other technology stocks have been trading flat, stale or in a range, comparatively the Nasdaq has been a constant laggard of the other indexes. As any technician will tell you, the longer the sideways trend the greater the break out. I would say it is the resilience of technology, but the truth is that technology can only go down if society decided to stop using everything that makes an industrialized nation exist. Especially with future strong growth abroad in emerging markets, technology will be huge. The fact that technology also does not go do is in the fact that there will always be a constant demand for some form of technology, hence the resilience, or the natural underlying fundamentals of it.

Oil and consumer inflation

I would like to point out that the consumer is not as weak as it may appear, though on a whole retail is down, a large part of the consumer in the past months were driven by teenage consumption, one can say trends this year as we transition to winter will cause slower affects, and as though I cannot speak with 100% confidence, stores have not been mass campaigning for this winter though as soon as weather decides to settle on what it wants to do we will see a pick up in soft good retail side. Now point to hard goods and big box, this side of consumption is indeed something that is strong within the economy, look to Costco earnings, best buy earnings, and all electronic stores, also which ties in to technology who has buoying the markets in a sense form all the lack luster performances in industrials.

Though I must stress the significance of inflation risks. Brought on with the weak dollar, now extremely high oil prices, and volatile commodity prices. The bullish aspect to the dollar being that domestic production occurs, growth spurring on inflation, bearish is that exports are more expensive and thus again brings on inflation. Though this affect has not yet been seen and is to be reported soon as, as all economic reports are lagged, as I have proved this consistently with the prediction of revised cpi and ppi, though on large only brought about by the food and energy side, which is more massively significantly now considering the prices of two. On a whole some may argue the only slight revisions with in core cpi and ppi, but again I say this will change as with current economic conditions which will be reflected in later reports, On the oil aspect with now prices hovering around 90 a barrel, this will certainly have an added drag affect on the economy as consumption will again once rely on the mid to upper and middle class to drive consumption, eventually though, there will be a slow growth in the upper consumer too considering I can’t believe that myself or many consumers will be driving with gas prices increase that much. I would like to say that the bulls in energy are going to pushing for the 100 barrel mark more of a psychological factor, as soon as 100$ is approached gains will be taken and oil will eventually re retreat to the lower 90s to mid to high 80s’. (confirm with technicals). Slowing consumption further, though as again, the consumer is not really that in bad shape over all as seen in growth in technology and peoples willingness to buy racey expensive gadgets iphone, tv systems, etc.. (again reflected in big box hard good sales). The slow growth consumption is a temporary affect which is related to the volatile prices in energy and food. This is not to negate the fact that inflation still exists and may be perceived already by the Feds as they are the ones who receive first hand results from their advisory councils across the 12 regional banks.

Interest rate:

This inflation will definitely have a significant shorting opportunities in the bond market, as recent yield moves, it is only natural to see this significant downward pressure on the yields. As everyone in the bond markets are pricing a rate, cut and matches the tradition relationship between inverse moves of the domestic equities and bond market ( A sell off to an increase in bond prices). This is where my scenario of inflation comes in, with prevailing inflation to come in the upcoming months, short positions would be most advantageous, though properly hedge if the core is within expectations, and I would expect expectations to be slightly higher in the core, though and slight deviation of this expectation in the upward moves in % inflation, will spur on a great selling opportunity. Though again this is to say the necessary fundamentals are in place, so if economic conditions do persist, or further worsen in economic conditions, the bond market will experience a significant rally, as the feds continue rate cuts.

People will still love to talk about the inverted yield curve and its traditional meaning of recession, I just say one can toss it out the window. For two straight summers the yield has been inverted with bears chiming recession recession recession time over time again. Now this shows me two results or explanations, one being the resilience of our economy has fended off a recession and will continue to do so while contrasting as a bear would say, it is only a matter of time before we start pricing in recession or it becoming an actuality, since resiliency can hold for only so long. A more bullish viewpoint is that the vigilance of the Feds will fed off the recession, though I would argue that, buy doing cuts it will not solve any fundamental or structural integral problems. Though with enough cuts, it will take a longer time to work out but eventually would prevail under those assumptions.

Policy and trends on cuts: Closely tied to the last statement can be reflected in chairman policy. As Greenspan would show, Greenspan policy has led through the longest expansion in economics history and brought us through, as the trend of 2001 the consist preemptive cuts spurred from 9/11 and .25 cuts for 3 years shows us policy trend in terms of crisis. The question is how is Bernake going to act, on the magnitude of 9/11 is hard to compare the two completely different crisis though related to the fact that they are crisis’s. Bernake has already showed a preemptive stance as he surprised the bond markets September 18th with a .5 cut opposed the commonly priced in .25 cut. Though the scales of the two crisis are different, it would not be surprising to see another .5 cute when people again are leaning towards a .5 cut, if one were to graphically represent this trend, currently I would say we are on a downtrend, and significant downward momentum persist.

Again confirmation exist within the bond market, on the last Fed decision, the bond market and Feds finally were in accord. Through out the summer and number holds, there was significant divergence, of the sound fundamentals and the bonds wanting to cut rates, now that there is convergence, a confirmation in the bond market is legitimized, and considering the significance in this recently rate with only a few days of using the benchmark 10 year note, you have around 5.05 in mid July 19th, with a move to 4.40 now, the fluctuations are more significantly scene from 4.68 of September 21, to 4.40 now. All these are indication of another price cut with more harmony existing between the feds and bond markets.

Political Paulson: On a political perspective, recently Paulson has been portrayed as weaker and lacking in leadership, due to the recent credit and sup prime problems, and weaker dollar with softer economy, because of this is said to be affecting his power to negotiate on equal terms economic policy. As this is been lead on by media, which has forced Paulson to save face. Which lead to his comment on a problem that has been persistent and blatantly obvious, which he commented on how housing will continue to be a drag. This is not to negate the fact that housing indeed has been weakening, but was an already obvious fact that had been reported in lower home sales and starts, which was reflected in domestic equity markets, which goes to prove this is much of a psychological factor also.
This only relates to the fact that 1. Housing is obviously more of a negative aspect as stated by secretary Paulson, and that this puts significant pressure on Bernake since the health in the economy is tied to his reputation also, with political pressure and the job of the feds to prevent appeared or apparent systemic break down if you will, which leads more towards a cut stance.

Proof in the fact that Paulson is losing negotiation power can been seen in the weakness of the dollar. Slowly one of Japanese oil companies has an agreement with Saudi Arabia OPEC to trade yen on the spot market opposed to the usually vehicle currency the dollar. This move for diversification in assets has been seen through the 2000’s with the rise to the European Union, which obviously will bode more negatively for them.

All this can also be reflected in the trade balance, in terms of the United States the trade deficient has benefited from the weaker dollar, as seen a decrease in deficit spending while may in the future decrease the usual European Union surplus

In terms of currency and interest rates, growth:

1. Benefit of this weaker dollar, this boost consumer demand from abroad, while maintaining strong domestic consumption, which can sales of us cooperation in the midterm or upcoming months, by means of more jobs and more spending. Also tied into increase production and manufacturing.
2. Foreign Investment can benefit in many ways. Foreigner investors have been significant buyers in the real estate market for the past few years. As shown by the NAR, nation Association of Realtors, about 1 and 5 Americans sold a second home to by the end of April 2007 to a foreign buyer. 1/3 from Europe, ¼ from Asia, and 16% from Latin America. As prices of housing and the US dollar converge. And how can this relate, one can argue soundly, that this is the support the housing market will be looking for to bounce off a bottom. Another support can be that foreign investors, primarily equities, are constantly seeking undervalued companies out. Both of these factors, I must highly stress, are dependent on the stabilization of the weak dollar (show technicals here). Though as not yet to occur yet with its continued downtrend. Another factor that is bullish for a weak dollar is that, a weaker us dollar makes more companies more attractive as buyout targets, many countries will excessive wealth (Dubai) looking for a solid investment. (Great buy opportunities with the current weakness).

Bloomberg article-click here
3. This weak dollar also bodes well for employment and adding to the tightness in the labor market. This is possibly by means or tourism as a it is an industry that supports 5.4 million workers, and generates over $550 billion in annual revenue. Canadians by far are the largest group of tourist in the United States, Now the the Canadian dollar is trading at parity with the Dollar, we can expect a greater increase in travelers. There has been a 15% savings increase between cost of hotel cost between Canada and the United States, and Europe will experience a 5%-10% savings in travel cost. Tourism always a plus for economy.

On the other side-

1. The obviously and immediate affect of a weaker dollar is the higher cost of imports. Canada being one of the largest countries the US imports in can be seen as inflationary (this in with politics) and healthcare higher taxes on middle class hurt consumer). Because of this strength in the dollar Canadian drugs may not be as much as a bargain as they used to be. This is also true of high-end European items. Luxury goods, handbags etc…
2. Weaker currency will lead to tighter monetary policy. As oil prices are sky rocketing around 90 a barrel, Feds will only naturally have to aggressively cut the funds rates. Again you can relate these to other crisis such as the Asian and Russian currency crisis of 1997 and 1998. The fact that these weak fundamentals in the economy warrant a cut, inflation may keep the Feds at bay if it rears its ugly head. This inflation may prevent the necessary cuts to buoy the economy.
3. From a consumer level, though the possibility it cutting into business not as much, makes foreign travel more expensive. For example, in foreign countries like Europe and Australia. Since the beginning of the year, the Australian dollar has appreciated over 10% against the us dollar, primarily due to currency fluctuations this increase has occurred. The same case is true with Europe on a smaller percentage basis.

In relation to these last 3 points, there is still some leeway and room for continued Fed cuts, as inflation will be reported as lagged.

Carry trade:
Adding the carry trade aspect to this you get an even more interesting picture. Many Yen traders came to buoy the US dollar around October 8, you can see the 10 year note around 4.63, the dollar was searching for a bottom, but brown below support continuing its downward momentum with the slew of weaker economic data. This will only cause other countries such as Australia, New Zealand, and Japan (though BOJ has key rates on hold of .05) has continued support of higher interest rates. Favorites of Carry trade are probably more focused in Australia and New Zealand as the disparity interest rates are greatest, and probably Europe next as economic growth is looking more safe as we experience this flight to quality.

Labor markets:

I would have to argue that the Labor market is a bullish aspect still in the economy and is in part a large driver in consumption. And is a large reason why GDP has not dipped below the 2% level. Unemployment as perceived to lower in the month of July revised up as bullish. Though on a whole, due to weakness in the financial sector and tightness in the energy sector, it is possible to see weaker than expected employment reports. In general the labor markets have been stable due to the prevention of the spread of systemic break down. With the Vigilance of the Feds, I see it to continue as so, with slight revisions more to the downside, though obviously more positive repots will good trading opportunities if one can see a future disparity.

GDP trend: Recent GDP trends are been relatively static with slightly lower revisions down ward for two straight quarters. It is in my opinion that a continued downtrend is possible though barely significant as housing conditions are slightly worsened, and tighter credit still remains a large problem. Over 1 to 2 years I before for significant strength due to fundamentals am seen.

Government spending and war political consequence: Tied in with GDP growth, though I don’t have exact percentage, but Government spending due to the War efforts is very significant (defense stocks). With the continued war efforts may have been another contributing to buoying of the GDP just above 2%. It is very possible now with a more liberal bias existing in politics that Government spending will significantly decrease in that area, and will reflect in a weaker GDP. Though that’s not to say it will be direct correlation considering depending on whatever candidate wins for Presidency can use the money in a way to benefit the economy, which obviously is dependent now on the democratic primaries in my opinion and their platforms.

Liquidity relief: no the Wednesday of reserve requirements: Recently, the Feds has been adding in over night reserves (Open market operations, buying of us treasuries). This is significant in my position as it is the Feds are testing market conditions. As the domestic equities show, despite this all indices still reflected negatively. This can be seen as a measure and test as to much the next Fed Cut will need to be. Despite more liquidity perceived problems or actual problems still exist and need to be addressed.

For buyers in Domestic equities: Tomorrow does not appear to be a buy day, as technicals indicate increased downward momentum over the next 3-4 week weeks as back tested. Though considering the difference in scenarios 2 weeks is more possible. Tomorrow will be on a watch and wait policy for everyone and will be proceeding with caution. Obviously in this market your non-cyclical stocks are always what is commonly expected to be strong. A continued short position is suggested with a hedge on with written calls on S&P 500 futures.

In terms with interest rate derivatives; as 110.5 to 111 is approached, I suggest thinking about setting up short positions as I don’t think the economy will significantly tank further. Again another written call would work as a hedge. Or go long in the short term interest rate derivatives, if holding for short positions in accord with your short positions in longer interest rate derivatives.

Oil: though oil is seems like it is retreating I believe there is still some upside momentum, as volume slows down long positions should be taken earlier as higher marks are made to play it safe.

Currencies the dollar: Traders should be looking for improved fundamentals in US domestic equities, and looking to follow where foreign capital is moving too, carefully watching interest rates of other countries to keep up with carry traders. Significant buying opportunity exists as dollar approaches a bottom. Though I would wait a by the end of this week to reassess, it is possible that it will continue to drag lower through into next week, as indicated by volume.

For the Feds Decision: I can see a .25 cut with no surprise with another preemptive .50% cut with a series of smaller cuts to come, as inflation will not allow all the necessary cuts to fix the internal structural and integral parts of the financials that need to be worked out themselves. I would say it is necessary to let them feel the effects of their mistakes but global capitals markets cannot sustain such extended periods of illiquid markets, as there for necessary for the feds to keep providing relief through adding reserves, and cutting rates to provide more liquidity as the problem sorts itself out over a longer term.

Bullish Aspects to economy: Durable good strong, Consumer is not as dead as appears, growth and demand from abroad, technology, and other strong earnings reports will be solid, and weak dollar.

Bearish Aspects: Housing situated has slightly worsened but not that significant, as the wealth affect may take a slight hit but not significant to kill GDP. GDP growth is in decline, Inflation is prevalent, credit problems, illiquid markets, industrials are weaker along with financials, weak dollar possible, political pressures, job of Fed to maintain system risk.

I say the fundamentals overall have changed to the downside, but the cut will be more of a political pressured and media driven move; though also necessary to help the financials, and housing. Though already with the low interest rates housing may improve from spurred refinancing, as interest rates are significantly lower from the past 2 months.

Monday, October 8, 2007

Entry for Oct 08, 2007

The newly found Japanese Prime Minister, has clearly set the tone as towards his policies. I have recently learned from my business pen pal's in Japan, Former Former Prime Minister Koizumi was one of the most Pro American Factions, which Former President Abe was once under. The relevency lies in that PM Fukuda has reinstated much of Abe's former cabinet, this coupled with his strong stance on the refueling of warships all screams pro american to me.

Obviously the natural consquence of his actions can be traced back in part to economic reasons. The last time i checked approximately 1/4 of Japanese exports are to America, hence why the reason in the past why the Japanese have sold yen in the secondary markets to enable this relationship. Though most interestingly, the yen has been able to float and has strengthend quite considerably. As to the effects can be seen a stronger shift of carry trade to other other currencies away from the yen/us to the AUS dollar or New Zealand Dollar whose interest rates are still quite siginficant. With the BOJ interest rates of .05% vs the AUS or NZ interest rates of 6-7% + any strengthening should not shake carry traders as the interest gained is still quite significant more so over than the US dollars interest gains.

Though as the dollar is poised in better footing perhaps a shift will be seen back to investors bring carry trade to the U.S. if interest rates are on hold, and economic growth can show more strength. This would be most benifical for the Japanese economy since the stronger yen will dampen their own growth since exports will drop, any drop is siginficant considering how much the country relies on exports considering the resources, size and population (increasing growing old) population. Though despite the yen being stronger this will be a lagged affect shown in the economy since as i stated the dollar is strengthening, which most likely will lead to the weakening of the yen, which only reflect in a later quarter...

Fukuda also, is very bold and ambitious in his statements. He plans to some how attain an economic surplus with the current conditions. I find this hard to believe considering prevailing inflation felt among the japanese people which leads to bad news for the Bond Markets, and I don't see how else Fukuda will try to gain capitial if no one wants to take up debt... Further more the stronger currency will certainly not help grow the GDP making Japan a less attractive place for foreign investors, Whatever his solution maybe, will certainly amazing he can achieve what he says.

(Espcially when he loves giving away free resources such as oil/gasoline by the tons to other countries...)

As for the US domestic equity markets, the strong bullish upmove from last week resulted in more gains takers than I had expected, this probably has to more with a pyschological factor ahead of earnings with mroe investors erring on the side of caution (better be safe than sorry). As i had expected the revisions of the Job markets really leaves the fundamentals not that significantly different from summer...

On the chart for S&P 500:
back testing shows shows, in my opinion at least 5-6 months of bullishness. The 20 SMA seems to do the job on the back test. Around july through september for the past 3 years the 20 SMA traded within the price before breaking under for upward support. Strong support of the 50 and 200 SMA also ensue, in bullish order of 20 on top of 50 which is on top 200. The RSI shows it got room of around 10 before considered oversold. what only worries me is that each year the downward movements became more significant with each year. It is possible that the bullishness may not last the full 5-6 months and may take a downward turn earlier. Primarily in the short term I am bullish, volume still is letting up in a traditional pattern which alludes to higher highs.

Complentary techinicals and fundamentals, what remans the sentiment...

Bond Market is now not as certain on anothe Fed cut considering the strength of the Job Market, but the bond markets sentiment is as fickle as ever. More importantly the consumer...

With lagged affects perhaps the consumer may feel in part what the finanicals have been experience the past months... Which naturally leads to this slow down in consumption. But i think this move has already happend or is occuring, and the consumer is bound to spring back, considering my inflationary scenario i presented prior...

*back thoughts
As I have been going through IBD, I just can't shake the nagging reoccuring feeling that the tech sector will start catching up with the other indices as the past year as I have followed it has always been some what laggard to the other indexes.

Friday, October 5, 2007

Entry for October 5, 2007

Ahead of Jobs reports and consumer credit report, we have media beating a bullish sentiment. Though questionably to the effect it will have on the economy is still in question. Ahead of the opening of domestic markets people are pricing in a bullish open, though i would be surprised a strong open to fade. Any positive news is always good for wall street but not overly positive as to have the Fed's breathing down everyones neck.

Upon speaking to many recent graduates and my own sister, the labor markets are very unreceptive to theses new graduates despite all their prestige and ivy league diplomas. Many are forced into jobs that are unwanted or jobs that significantly pay less than desired. As though I can only speak from an east coast perspective, it is no doubt it is reflective of the current business cycle. Though this may be more bullish news for my own graduating class, by then hopefully the business cycle will be more receptive for our group, and mostly likely will be in a few years given that in that time span all the current sup prime and credit problems and housing should smooth out by then.

The US dollar finally seems to get a footing, though is stalling before the open. Taking off from my forex trading platform at 1.41 28. Strengthening against vs the majority of major currencies. Given positive economic conditions the dollar is poised only to strengthen further, though I get more of the feeling of a stale jobs report. Numbers may not be as expected but won't disappoint by a large margin. Obviously any significant negative number will definitely give more weight for Fed's to cut rates more, and will be reflected in the interest rates.

Given a strong enough number in the job reports, the S&P 500 which is scratching resistance may break through today depending on how much momentum can be sustained through the day.

Tuesday, October 2, 2007

Oct 1, 2007 cont...

Following my prediction on a higher inflation by next quarter showing up this would definitely lead to a significantly weaker dollar, looking on the dollar index charts, there is significant downward momentum, i don't think the dollar has been this low for many years. The only way this weak dollar, would not weaken further if the interest rates were raised... there is no way the Fed is going to do that with current economic conditions. If anything this is better for long term recovery, domestic production should spur, and we should be exporting more, which should help the balance of payments deficit. This current weakening in the exchange rates for the US all reflects this.

Entry For October 1, 2007

Though as i do not like to beat my chest, but i believe my technical analysis was pretty decent. Despite hesitating fundamentals the equity markets rallied quite significantly. The Dow broke through 14,000, I believe the only significance only being in that people were psychologically ready this time to follow through instead of immediately dragging down the index by taking mass gains. I believe the Dow will add to the bullish tone in the markets fueling a break through resistance in the s&p 500. Volume and momentum don't warrant this enough alone to break through. But, people jumping on the bull train will be able to accomplish this. I'm sure there will be some people who are going to take gains on the break or on resistance, when this occurs I only see steady growth, as once the break occurs it sets up a nice support line at around 1555. With the current volume, it is about the same as the previous day and not a significant or abnormal spike though as volume will dwindle steady increases in price will occur. Looking on the 2 year chart this is a similar dip that occurs where the 50 SMA crosses under both for about 3 months and thing finally crosses back on top followed by a nice rally for about a year (one can consider march 2007 to be a whipsaw in the broader prospective).

One thing i would like to mention about the economy and bond markets tonight...
I feel that this cut will spur inflation that may not be huge but it will be unexpected. All the recent information has been lagged and will in turn lead to what my belief to be increases in the CPI and PPI. Though i mentioned before there will be a retreat on the yield of interest rates, if my prediction is correct, a sellout will occur and yields may go back up...

To confirm this on the technical side:
Longer term rates (5, 10, and 30) say that there is still upside momentum for about 2-3 months in my opinion. That is when resistance will tend to kick in. Shorter term rates may react sooner... So by the next quarter or so, inflationary pressures may increase by the next quarter or possibly sooner. ..
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