Thursday, June 26, 2008

Entry for June 27, 2008

How exciting the markets are...

Once again I have underestimated crowd sentiment and its ability to exaggerate movements. My thinking that people would rush in to defend the S&P500 1300 level support was wrong as in probably most people are looking to real support at 1270, however due to short covering I believe the a trend reversal to happen before touching actual support. From June 24 - 25 the S&P500 took a breather before todays fall going from 1314 to 1321 after the Fed's announcement. Unfortunately I was not able to follow the markets that day, but goes to show how reports or news sentiment can temporarily disrupt an established trends. It looks though as if I correctly said that on June 11th more bad news and pent up bearish sentiment may lead the s&p500 to 1270's range. Though I must admit I must improve my discipline as I would have covered a short earlier due to temporary whipsaws, and I would have missed out on the further drop.

Since I was not following the markets on the day of the Fed Announcement, I would have missed a chance to hedge on the whipsaw or trade a temporary counter trend.

I think its pretty obvious now that the Fed may be on a series of holds until they can get enough stronger data to use to warrant any increase in Fed Funds rates. Because of this the equity markets may stabilize in the short term (the third quarter), in the sense that the economy may possibly improving. As to what range and what time frame is appropriate will be hard to assess. Fundamentally the financial sector and many soft spots in the economy are still looming. this tied with strong spike in volume with todays drop in the equity markets makes worried that a bottom may not be found in the 1270's range. Fundamentals, technicals, and current sentiment does warrant further movements down along with the max chart on the s&p500 (which is still in a down trend). However, in the short term looking at the 2 year chart i find it hard that people would not defend such a clear line of support of around 1270. Its quite possible that through the third quarter that the s&p500 will stabilize and though its fate may be more unclear in the 4th quarter .

There is one thing i would like to note that i noticed on the day of the Fed, though it might mean absolutely nothing or maybe an interesting indicator.

The day the Fed rates, which I believe was on the 25th of June, the s&p500 rallied though the DOW remained negative. Due to the nature of the DOW, (it being price weighted and only 30 companies), I always feel the DOW is a better gage for sentiment or has move that are over-exaggerated than the actual fundamentals warrant. I was thinking that day, that the divergence in the two indexes could either mean a further drop or a reversal to the upside. It would seem that this in a bearish environment a divergence with the s&p500 to the upside with the DOW to the downside could indicate further movements to the downside. I should also note that volume for that day was not totally abnormal as it was still lower than the day of the 22nd when the s&p500 dropped from 1340 to 1320. Also, by examining the actually candle stick pattern for the day of the 25th would confirm bearish sentiment as there was a strong up shadow but eventually the index closed closer to its open (though the bulls won that day the bears seemed to be getting a foothold).

So maybe this may mean something or not, I obviously need to review many more charts and confirm this, though currently I'm lacking resources to do so, the main one being mostly time, though i think it would be a nice idea to entertain the next time i see it again.

Moving right a long let us talk about crude oil...

I can just imagine my dear friends who are currently trading oil. All's I can hope is that they are using their stops wisely, or more tightly should I say, as the past weeks have been a roller coaster.

It would seem that oil markets touched the new 140 range and retreated, I see this as quite natural before any new range is established. In part, a lot of it has to do with speculators taking back some gains, preparing for the second wind. I think tightened regulation of crude oil in the from US House of Reps will have only temporary or minimal effects on the price of oil. It is true speculators do push levels higher, but if prices stay in the range it is probably due to fundamental reasons. I still maintain that oil will reach into the 140's range and stay.

Though its possible that due to high inflation experienced by all nations, there will be forced slowed economic growth and demand from emerging nations may diminish temporarily. Though I am no expert in oil, its possible that inflation effects if its a real problem probably won't start to surface in late 4th quarter or into the next year. I know, currently by working in Vietnam, that Vietnam and its neighboring countries are experiencing exponential increases in inflation. I know the government has already taken measures to curb inflation which will naturally have to result in slowed growth, though interestingly the rate of FDI inflows are not seeming to diminish...

In inflation continues for EU, United States, Japan and Emerging Countries, Oil will definitely have to peak out temporarily.


About what I wrote about the dollar last time:

If oil does indeed continue to trend up and stay in a new range, above 140+, there should be strong inflationary pressures. Compounding this inflation could possibly no slow down in the commodities rallying as many staple commodities will still be demanded from emerging nations despite economic slow down. Due to fear of slow growth in the US along with Housing problems a series of holds from the Fed will be in place until the conditions stabilize. Once conditions stabilize the Feds will be able to focus on fighting inflation. This could happen in the late fourth quarter into the first quarter 09. I do not believe the Feds to be aggressive during election time. Though I believe the dollar to strengthen in the 4th quarter, earlier strength may be seen from political affects. After the elections, it is possible consumer sentiment maybe temporarily renewed and along with possible increase in fed funds rates if inflation is still a problem. With this should come a rally in the dollar...

Monday, June 23, 2008

Entry for June 24, 2008

I was surprised to see yesterday that the equity indexes dropped significantly. It seems that my call of next support of 1300 - 1315 on June 11 was correct with there being enough momentum to continue a downward trend from back then. However, the bigger question is if I would have been able to have enough discipline (or guts) to hold on to a losing trade for 3 days as the slide unfolded after.


From June 18, if I had bought oil and held I would have probably broke even as prices slide down to 133 and are back now to around 137 a barrel. A lot of bearish sentiment is coming form high oil prices. The perception is that business are cutting production or experiencing slowed growth due to high prices. Despite high oil prices, the ppi seems to indicate that companies are feeling the pressure strongly enough to pas it on to the consumer. Though if oil prices do maintain in 140's range, which is yet to be seen, some bigger adverse affects on equities may be seen. Prices might be passed on to the consumer and one can expect some noise from the Federal Reserve.

Though the Fed is indeed "between a rock and a hard place" as inflationary pressures with bleak prospects for inflationary growth. No increase will be seen in my opinion for the next Fed meeting. Though a series of holds maybe in place. For certain a raising of interest rates in an already tight credit scenario would not help business grow and would only worsen the housing situation. For the 3rd quarter I do not think there will be any interest rate raising, though it maybe more possible towards the end of 2008 as inflationary affects may be more apparent.

If this is this is certainly the case, the pre-emptive upwards move in the dollar will be seen even than current levels, and new levels on the dollar will be establ

Wednesday, June 18, 2008

Entry for June 19, 2008

It would seem for the past four days following my last entry i was wrong as the US equity markets rallied for 3 days and stalled on the 4th day. I underestimated the power of some interim reports like retail sales that added to some bullishness for those days. However for the past to days the markets have taken a sour turn. It seems though as of now, the support of 1328 on the S&P500 is holding, and the bigger question remains is if there is enough to momentum to push th equity indexes lower to 1300 or 1315. These market fluctuations are in part tied to sentiment pertaining to oil prices or at least correlated. it seems those four days that the market rallied prices of crude pulled back to 133 and now is currently back around 137 per barrel. The EIA petroleum status report may have a impact on the upward movements if data contradicts it, though if consensus is inline with the supply reports, new levels will be seen. As levels of 139.00+ were reached levels in the the 140's is more likely.

Other possible economic reports that may affect equity indexes are jobless claims or possibly the leading economic indicator (LEI). Though i have never been a strong believer in the accuracy of the LEI, though it may add to enough bearish sentiment to continue any downward momentum.

Though, overall equity index performance may be nonsensically skewed as this end of the week is quadruple witching. Reading into any economic/finance signs this weak may be no indicator for next weeks performance.

Wednesday, June 11, 2008

Entry for June 12, 2008

Though I was expecting further drop on the S&P500 I didn't think drop so rapidly. I was thinking the S&P500 was going to find an average support of around 1350 however, it seems I was wrong and the markets wants to find lower support. The next support levels I'm looking to is 1328 from April 08, however due to the large volume accompanying yesterdays 1.69% drop, I will be looking to levels between 1300 and 1315, I do not think support should break 1300 as it is more of a psychological level. Jobs reports may be key for indicating the effects of consumer sentiment. If a better than jobs reports is reported , it may soften the affect of the consumer report on Friday. However, poor jobs report along with the building up bearish sentiment throughout the week, may as well carry the s&p500 below 1300 in the 1270's range by the end of the next week.

The dollar has been due for a rally, the question is how much longer can it be sustained. It was interesting as how when the equity markets were at higher levels the dollar remained weaker. However, prior to the drop in equity markets the dollar was stronger. It will be interesting to see if this trend/correlation continues.

On the sentiment side and on what people perceive as the fundamental condition of the economy the dollar should be weaker. However, I believe that wall street is wrongly expecting a rate hike in the Feds Fund rate. In the short term I would like to check to see how much farther the dollar can extend based of technicals, but a shorting opportunity on the dollar may come around the time of the next fed decision.

One must account for housing, as the housing reports still have significant effects on sentiment and may have caused a diminished wealth affect. Its possible that by raising rates, you make the housing situation more difficult as the credit markets are already tight as ever. Raising Interest rates might as well choke consumer spending over the next few quarters. As of now maintaining liquidity in the markets is still important.

Though, based of the past, many observers like to argue that the fed decisions were being directed by market movements. In this traditional sense perhaps wall street would be right in thinking the Feds would raise rates. However, I think, as indicated by bernakes speech, that the stock market volatile fluctuations will not be weighed in as much in Fed decision.

Sunday, June 8, 2008

Entry for June 09 2008

It seems that I have underestimated market psychology and sentiment. Resistance level of 1375 were broken at the close June 6 at 1360.68. Considering the tone of the close I would not be surprised for continued momentum to carry the markets to lower levels this week. Pending home sales will certainly not help current sentiment unless investors were able to price in much of the bearish news last Friday. The oil report on Wednesday will be a important as to keying in whether or not prices will head higher. I would not be surprised to see crude oil hit around 145 by the end of the week. Trying to think about the weaknesses in the economy, is possible to see many industries slowed growth from lessened consumer demand. In part, by higher oil prices but, much of these affects will not be seen in the month of June. With the Job's report for this week, I don't think there will be a significant increase in jobless claims, though I don't see the situation improving much either (as another better than expected decline might happen). Core CPI numbers probably will not be significant, though there seems to be more of a hoorah these days on fighting "high energy and food prices," so it begs the question if central banks will continue to focus on core numbers or will start to factor in headline inflation as well, as current policy is critical for sustained growth or a prolonged recession. Retail sales, i expect maybe better than expected, though i hate to attribute to "tax rebate," and its limited multiplier effect. I would expect most of money to help pay down debt or for people to hold on to money considering poor economic conditions and poor consumer sentiment. If better retail sales are indeed from tax rebates primarily I would certainly expect extended poor performance for the 3rd quarter.

Though considering my performance in the short term, perhaps one would do well by taking a contrarian perspective on my analysis ;)

Thursday, June 5, 2008

Entry for June 06, 2008

After a better than expected jobs and retail report all the fence sitters fell to the bullish side. For a long time sentiment is will be a good indicator for how the financial markets will do for the rest of the year, though overall for the economy much of the bad news seems to be priced in or furthermore being priced in. Despite high foreclosure rates and crude oil returning to levels to $128 per barrel seemed not to deter the bullish sentiment. However, the close of today might be a good indicator of where the markets will be next week. So far the us Equity indexes are acting as I predicted as no support levels were broken, with better than expected news. Though, in my opinion much risk is still looming that may come from the Asian markets and high inflation levels across countries. Watching monetary policy will be essential in order to predicted economic performance which still may be tightly correlated to financial markets as a full bull market is not yet underway, despite an early mentality (of bullishness) which is what is needed to start a sustained rally.

As for news in Vietnam:

A continued short term bearish sentiment is weighing down on the VNI as it is continuing to hit lows. Though, long term support of 400 is temporarily holding, though momentum would seem to indicate longer support at 300 from January 2006. However, since Vietnam is developing rapidly with 7-8% percent GDP with year to day inflation levels above 20% with a widening trade deficient, I would not give weight to a traditional reading of technical charts. The fundamentals of the economy are stronger indicators, and are closely tied to untested inexperienced policy makers. The government has taken action to slow down growth and cap inflation. Much expectation is weighing in on June, I believe that these are premature expectations and the financial markets will take a toll and it will not be unexpected to see the stock reach the 300 levels again. Any policy, if effective, will not be seen till the end of the quarter or the end of the year due lag effects. However, government intervention is also possibly for short side (though short side doesn’t exist), to float markets if volatility is too much. Also, the trading band should minimize some risk as well, though one should not count on this as downside protection.

As for the currency, the free markets the dollar is trading at all time highs of around 18,000 + vs the VND; while the banking systems are still trading around 16000+. Strong demand on the dollar can come from a number of reasons. Due to high inflation of the country and lack of faith in the government, many people maybe seeking dollars. Also, curbed growth should weaken the VND if interest rates are raised enough.

Despite this, there maintains medium term to long term bullish outlooks for Vietnam. Despite short term volatility, there has been increased number of companies wishing to be listed on the HOSE and the Hanoi bourse. Furthermore, FDI inflows have been strong from the start of the year.
In general, gold prices have been soaring as people are hedging against inflation. Though oil exports have been helping the country in actual output, this does not offset the other petroleum imports needed to grow the country. This is only one example of much growth within the country will little output. If growth continues in this manor the economy will not be sustainable and might possibly see a crisis.

Monday, June 2, 2008

Entry for June 03, 2008

After a two hit blow the US equity markets has dropped 1.06% on the DOW and 1.05% on the S&P. Leading this trend is mostly attributed to the weak economic data coming from the ISM, with is 4 monthly decline and construction spending has dipped for the month of April. This trend of bad news and bad economic data still suggest the bearish environment investors are facing. With bearish sentiment still loaming, more bad news will only hurt the financial markets further. However, I believe that economy will improve much before anyone believes quite possibly towards the end of the last quarter 08 or into first quarter 09. There is not going to be an amazingly strong recovery but markets will have stabilized. With the revisions of GDP and some solidifying of labor markets, I believe it’s possible to have better revisions, and this past news for April is not indicative of the present environment. Though, I do believe to see equity indexes to remain within a range for the rest of the year, on the S&P500 between the range of 1375 and 1450 a support line may form for the S&P500 to reach levels back around 1500 into the end of first quarter or into the second quarter 09. However, the only thing that can hamper this is another crisis or unseen affects from previous crisis. Overall, credit conditions have improved in the US, though tight lending will remain for awhile due crisis psychological affects. Other risks are that the full credit crisis has not unraveled such as more developed Asian economies have possibly yet to see the full effects. Furthermore, the financial sector may add to some instability to the labor markets, though the worst of layoffs may have already past. Though some see it as worrying as Ken Thompson, Wachovia’s CEO and Washington Mutual’s Kerry Killinger CEO has been replaced. Though, this is more of a positive sign for Wachovia in my opinion, as Wachovia management has been poor and is in need of better managers. By the time the economy is in a bull market, the financial sector landscape will probably completely different between collapses and M&A between banks and PE companies.

Along with these possible stronger fundamentals, I see the dollar rallying to higher levels from a fundamental perspective, though I have yet to double check the technicals.
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