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.
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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.
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