Thursday, June 17, 2010

Daily recap- 17/06/2010

New doubts on the recovery of the US economy were revived as new disappointing data were presented today. Here are some of the key challenges:

1. Jobless claims in the previous week rose to 472000 from 46000. A number that is higher than foretasted and that posses some concerns over the health of the domestic economy.

2. The CPI inflation slowed to 2.0 percent after a drop of 0.2% in May. Although there are still no concerns over deflation, a disinflationary period is a sign of economic slowdown.

3. Drop of retail sales by 1.2% in May, which casts a new doubt on the rebound of consumer spending.

The negative data was the reason for the Dow trading on the downside for most of the day; however, stronger technological sector, led by Apple Inc., helped the Dow to end on the green side at 10,434.17 which is 24.71 (0.24%) higher than yesterday. The S&P 500 climbed 0.1 % to finish at 1116.04. After a huge surge that broke through the SMA(200), the S&P 500 ended with a two day “doji,” which to me look like a long-legged doji. That gives a sense of indirection between buyers and sellers after the rally on June 15th. I would wait to see a bearish candle stick before shorting. Taking in the consideration my previous analysis on the S&P 500, I believe that the index might have a small dip in the next few weeks to complete the correction formation.

On the fundamental side, there are few things that come to my mind. Gold ended to 1,245.80, which is record high. Paring the fact that investors are seeking safety haven with the drop on CPI, we have some quite strong indicators that the economy might stall here. Now the question is what else the government and the FED can do? Drop on interest rates is impossible as it is already at the lowest point and big stimulus will most certainly not work again because of the strong opposition. Now, from all this information, in my opinion, it is most likely that the interest rates will not be increased any time soon, maybe not even before the Q1 of 2011. Housing data has been quite weak, partially also because of the expiration of the tax break that the government created during the period of recession. Will the government extent the tax break? Very possibly! Another thing that concerns me is related to the safety of the USD. If other countries were to increase the rates before the U.S. does, the USD will undoubtedly be hammered.

Luong T. Hai
Summer Analyst
Analyze Capital LLC


  1. whats a long legged doji? i think you might referring to the shadow? theres a proper name for that i think. Your time frame is quite vague, the next few weeks? and what is a small dip? 2%? 5%? 10%?

    You talking about the fundamental side of the economy or the SPX? Wheres the relation to what you said about the technical analysis to what you are saying in your last paragraph?

  2. To clarify few of the uncertainties:

    long legged doji:

    Concerning the time frame, in my opinion, I see the swing happening in the next 2-3 weeks, but no more than that. And also the dip should not be more than 2%.

    While the technical analysis was more short term, the fundamental part addresses some of the long term issues of the economy. Some of them also represent questions that concerns me, which I yet have to find an answer about.

    Very good questions!

  3. Also on doji you can see here:

  4. IMHO that wasn't a long legged doji it had a much lower shadow then upper


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