Wednesday, July 23, 2008

entry for july 23, 2009

July 22, 2008:
This past week is a perfect example of a contrarian perspective at work. However, my timing again was way too premature. Along, not having enough time to follow up on the markets, I missed one of the biggest shorting opportunities for oil recently and a nice rally in the S&P500.

July 23, 2008:

Today’s morning is a great opportunity to show how sentiment can move markets, but not in a traditional sense. Early trading in the futures market showed significant bearish sentiment with the markets pricing in the bad news for today’s early trading with fair value at -8% or so. However, this became a large divergence as markets opened today 1.35% higher on the S&P500. Interesting the oil and equity markets inverse correlation is still holding. The continued drop in oil despite bearish sentiment in the futures market could have been a good indicator for a bounce to the upside in the equities market. (However, I have yet to calculate how strong this correlation has been for the past few months). The many divergences in between different markets maybe indicating stronger moves to the upside in the equity markets on the longer term charts.

From a Vietnam perspective, I will take a position on steel prices. In general, due to high inflation seen across the world demand central banks will be forced either to hold rates or to increase rates depend on the regions economic situation. I am in the belief of that steel prices are still correlated to the strong growth of emerging markets. As markets need to take a breather from all the speculation and high amounts of FDI inflows to these emerging markets, the price of steel now should be decreasing in the short term, the short term of slowed growth experienced possible through the end of the first quarter 2009 or even second quarter 2009. The growth prospects in general for Asian markets for 2008 seem much bleaker compared to its past years of growth, however looking forward the prospects for growth in Asian markets are still very good considering majority of Asia is still undeveloped and is lacking infrastructure. If the Asian markets can reign in inflation to reasonable levels, continued development will push the price of steel higher as demand picks up again. However, risks to this model are the continued inflation from food and energy prices. Which may make inflation continually prevalent.

In terms of inflation, for the US, it seems the Fed Reserve has put themselves in a very difficult position. As the continued weakness is coming from the financial sector along with its contribution to the deteriorating jobs market, along with other industries who are also now contributing to a weaker jobs market, due to economic slowed growth, the Feds have rashly and pre-matured lowered interest rates to 2%. As many other analyst argued, when rates were at 4-5% were still considerably low compared historically. Now with high inflation, and prospects of weaker growth or continuing problems from the financial markets, the Fed has to look to other means to provide liquidity and price stability as its main weapon, the Fed Fund rates, has almost run out of ammunition.

Perhaps this information may be of use for those hedging interest rates or for those trading interest rate futures. It is unlikely the US will lower interest rates any lower, unless they plan on going all the way to zero, like Japan for some time. With US interest rates this low, this is just an economic boom waiting to happen, what is preventing this scenario is the unstable conditions from housing, the financial markets, and other weak macro conditions. If conditions can stabilize in the year 2009, the year 2010 maybe looking better for strong economic growth and possibilities for increase in interest rates if inflation is not yet under control.

Friday, July 11, 2008

Entry for July 9, 2008

Reviewing my performance as to what I missed, I think I need to look closer at the open high low close and volume relation for my analysis to be clearer. It seems that I there would a holes in my previous analysis for discounting some obvious information that would could have possibly made for a better more accurate analysis. Though it is not yet Friday, it is hard to believe that the close the s&p500 on tomorrow Friday will move 2.15% in the upward direction, thus making my last week's analysis wrong even if Friday is another up day. However, if volume does decrease to around low 4 Billion or 3 Billion range another big move maybe in place for the following week. If my previous analysis of support developing is correct the move should be the upside. However, considering the wide swings and whipsaws in prices it might be hard to call this week a week of trading sideways, as also the range i stated of 1350-1380 was broken below as the close of July 9th was at 1244. If anything prices are still forming a downward trend channel. Uncertainty from the fundamental side along with bearish sentiment for surely would seem to indicate further downward movement, however I think Friday's volume will be key to see where the start of next week will be (though i have not yet analyzed volume vs price open close and highs for weekend periods leading into the next week).
I would like to happily say that oil did indeed revisit levels in the 140's at the highs of 142, though currently prices retraced back to 141.84 as some investors were taking back some gains. For oil, I will remain bullish into next week, and though I will have to re-analyze oil during the next week as fundamentals may change.

Wednesday, July 9, 2008

Entry for July 9, 2008

On Monday, Bearish Sentiment indeed carry on through from the previous week. The extra holiday might have lead into Mondays trading as the S&P500 lows hit around 1240 and closed at 1252, which is a -.7% change from the close at last Thursday before July 4th. However, yesterday (the 8th of july) the markets were up 1.7% at 1273. Based of the close the S&P500 indeed are trading within the 1250 and 1280 range I previously mentioned. Though as I also previously said I expect the S&P500 to end on the high side by the end of the week of at least 1280 or more. I would consider the S&P500 trading in the stated range to be "trading sideways." Though these swings in my opinion are quite volatile (large and fast moves).

^--- written during the day in Vietnam or night in America

Continuing at night in Vietnam, during next trading day in America...

(ll:50 pm Vietnam time). Currently the equity markets are sending mix signals again. the DOW is down -.07% while the S&P500 was up a few minutes ago but now is down -.15%. If the S&P500 can end on a higher close than yesterdays close and the DOW closes lower, this could indicate further movement down for Thursday trading if there is a long enough lower shadow with a shorter upper shadow at the close of Wednesday today. Fundamentals certainly warrant further downward movement, however if the s&p500 does end up higher this may be indicative of bigger moves to the upside to come, or indicative of improving conditions.

There is much weak data coming economically and from financial sectors and a divergence of these fundamentals from the markets and economic may show a decoupling of the bear mode the markets have been with poor economic data equaling poor performance in the equity markets (wheres in bull markets you can see more divergence of economic data and moves in markets). However, this analysis may be a bit premature of naive as this is very short term and some more consistencies of this trend may need to be established before unfolding.

So currently I am waiting for the results of Thursday and Friday to assess my performance from last weeks analysis...

However, on other note, I unfortunately had neglected to follow up on oil, making it hard to gauge my performance as I missed out on a very large decline in crude oil prices. While my call of oil being in the 140's range was correct, which now may be meaningless since I did not follow up and missed a nice shorting opportunity. However, I feel that oil will be revisiting the 140 range again over the next two weeks, though this call is not coming from any analysis of the oil markets or economic analysis...

Recently I have been able to access some currency charts which I missed so dearly, since I have had such a poor internet connection here...I did have some analysis for last week but, now the the environment has changed and I need to revisit the charts again. Unfortunately (when busy)and fortunately (when bored) such is the nature of the forex marekets constantly changing making hard it hard follow when busy at work. I think I will go to bed now and hopefully sometime at the end of this week or next week I will be able to start covering or shifting to currencies...

Thursday, July 3, 2008

Entry for July 3, 2008

Ok, another lessoned learned: as I quote myself from my last blog, "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 do warrant further movements downward along with agreement from the max time frame chart on the s&p500 (which is still in a down trend)..." And it is so that within the past this past week that the S&P traded at 1280 and 1284 at the close of Jun 30 and July 1st respectively with lows going as far of 1260, as the candle sticks will indicate though the bulls did indeed defend support of the 1270's range for two days that there was more bearish momentum as indicated by the shadow of 1260 on July first, which would have been a good indicator of further downward movements. So overall I would have been wrong as this have not stabilized at all but are quite volatile within a range of 1250 and 1280 for the past few days. The lesson learned is that one should stick to what is shown, as there were weak fundamentals with agreement on technicals for further movements downwards. The psychological effects of supposed support of 1270 was of a short lived nature, as more clear support of 1260 maybe forming now. The correct move would have been to short on 1300 levels, of the time from my last blog, and then to have covered in the 1250 range however covering at current levels of 1260 still would be profitable (assuming no taxes or trading fees).

And so now...

I will have to take a contrarian stance for the upcoming week. I say the S&P500 may reach or break out of levels of 1280, however for the month it will probably trade in a similar range as support needs to be performed. Its possible by the end of the week or into the beginning of the next week the s&p500 will have a small rally. Though, in the beginning of next week the s&p500 will trade sideways or will experience further downward movement as bearish sentiment may carry into the beginning of next week.

I'm putting more weight on the contrarian approach for the upcoming two weeks since there what I believe to be too much of a build up of bearish sentiment. Between extreme downward movements from oil, jobs reports, and more worries stemming from the financial sector, would seem to indicate further movement with again agreement with technicals, however I think it is at a point where the cards are so low that a bounce of good is going have to come out of the culmination of bad.

Overall, all this bearishness is making me see more hope for the faster recovery in the economy. If the economy keeps getting beaten down, its just preparing to stand right back up, the faster and harder the beating the sooner it will probably react in opposite direction. (one can only push things so far before it pushes back).

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