November 27, 2007

Today is going to be a key day. One can say this would be a good gauge of how much housing is priced in the markets already. Already you can have a bearish argument of support from aug 07 is broken with the close at 1407, but its very possible that longer term resistance will hold, at march of 1373. If there is a break through support, I would be bearish for the rest of the year. Though a bounce of support is significant in my opinion. Resistence from 2000 of 1498 has already been broken, and bounce would indicate further consolidation to form stronger support before continuing. Which would mean, a bounce of support would lead the s&p 500 to trade in 1390 and 1560. The question remains, are the fundamentals there to support such a price move. I would think not. In the short term, through November and December, there is too much weakness to warrant such a move. There are too many liquidity issues that the fed's need to address meaning further cuts, which means further weakening of the dollar. Overall though this will be bullish long term, by the end of 1st quarter next year, if labor markets can remain tight, the feds may go hawkish on inflation again, as the economy picks up.

The movements of the dollar are quite natural, as the economy like any other living system is in dynamic equilibrium with its environment, whether it is perceived or not. Some see the bottoming of the dollar to have happened already, Although, i would not be too bullish on the dollar yet. Considering further rate cuts, and the dollar becoming more attractive for carry traders which will lead persistent weakness of the dollar may carry through into the first quarter of next year. Overall, as the economy is balancing itself out, this maybe good for the current account/trade deficit. The dollar will recover when the economy has more sound fundamentals, and is not moving of volatile sentiment.