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| Weekly Economic Review Economic Calendar About | ||
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Inside the Market |
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12/14/2009 Is the economy actually showing signs of life or is it just stubborn consumers determined to ring in a positive Christmas Holiday Last weeks Retail Sales data surprised just about the entire market with a robust consumer spending pace while Unemployment dipped just a tad from horrific levels. And on a personal front, the Doc was quite impressed with the apparently exuberant level of consumer activity this past weekend in the Northeast. Malls were buzzing, restaurants packed and traffic wild and crazy as usual as Christmas quickly approaches. Then the idea actually crossed my mind. Despite the long term bearishness of macro level indicators, could the economy be experiencing a blip up? And the next question, which is more important….is it the mark of things to come? The slight decline in last months unemployment rate is not really any surprise given the increase in demand for short term labor as a result of Christmas consumption patterns. Even the surprise in Retail activity could be explained away as cost conscious consumers began Christmas shopping early in pursuit of price discounts rather than waiting for the last minute. The real answer to the economic uptick lies in the next week or so as Christmas arrives and of course the post holiday season activities. US consumers are a determined bunch who would rather sacrifice consumption on post holiday essentials in order to enjoy the holiday season. Will this Christmas register perkier consumption compared to last year? Very likely as the abyss seems a little farther away than it was last year at this time. Is the economy really turning? Not likely, given the problematic reality in the housing industry and sticky unemployment. But the real issue to focus on at this juncture is not consumption, but the spirit of the Christmas season. Focusing on the true meaning of Christmas and not getting caught up with consumerism is what the trend should be. Here’s an idea…instead of running around looking for yet another present that someone probably may not like…take the time to try and make someone’s Christmas a positive one through a nice gesture.
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12/07/2009 Is the exuberant Stock rally a function of fundamental or technical forces? Sure looks like technicals, baby. The massive and unrelenting rally in the major US equity indexes that followed the abyss-like drop this past March has perplexed many well-respected analysts given the host of horrible economic fundamentals that continue to plague the US economy. The Dow, S&P and NASDAQ are all posting over 15% returns so far in 2009 as massive unemployment, ballooning deficits, increasing foreclosures remain a reality. So what’s really driving things? Outside of the reflation trade….the main driver is good old technicals. How so you say? Well here’s how so. The main index that initiated the bull move was the Dow Jones which formed a traditional head and shoulders bottom, where the break above Dow 9000 kicked the formation into gear implying an upside objective of about 12,000. Now of course head and shoulders come and go, and sometimes end up merely sucking in speculators only to force them to bail out of positions after the technical formation fails. However the presence of technical trading has been reinforced lately and this refers to the reason why the Dow has not been able to take out 10,500. That level is roughly the 50 percent retracement zone from the Dow highs to the bottom put in back in March. The real debacle now is the battle between technical bulls playing the head and shoulder upside objective and technical bears that are playing the 50 retracement resistance level. Which will prevail?…let’s just say that given the momentum on the up-trade, the Doc is quite surprised that Dow 10,500 has held. However, one key fact to remember, is that technical indicators without sound fundamental support create asset imbalances which eventually re-adjust. Fundamentals support the fact that Dow 10500 should hold, while pure momentum supports the Dow breaking through the key resistance on its way to 12000. Play all the bull technicals you want…fundamentals are seriously lacking that side.
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11/30/2009 As we near the end of the year, we’d just like to rehash some long term market opinions Over the past couple of years or so and perhaps
even longer, two of the most consistent messages we have communicated
regarding market moving potential have been the continued bearish
outlook for the US$ and the potential upside for the Gold market. Back
at levels such as 1.20 EURO and the 600s in the gold market, and well
before the great fallout of the US economy about a year ago, the market
doctor team had sounded the alarm bells over the technical and
fundamental outlooks for these markets. Factors such as near zero
interest rate policies, the real estate bubble, the growing leverage of
the US consumer and lack of savings rates, increased outsourcing of
quality jobs and perhaps industry sectors were ticking time bombs
regarding the stability of the US$ and conversely an enhanced potential
for flight to quality in Gold. Can the US$ go even lower and Gold go even higher ?…of course they can. But one point to consider given the recent exuberant moves in these markets…a correction from time to time is not out of the question.
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11/23/2009 Will US political activities provide the next big impact on financial markets? The US economy has been riddled with uncertainties as to the amounts of stimulus packages, bail out funds, the recipients of these funds and whether any of these liquidity injections have resulted in job creation for the sputtering economy. These various forms of, let’s call them “support funds” have drastically increased the US deficit to alarming levels, which has taken a toll on certain financial markets such as the value of the US Dollar. Just when TARP appears to be grinding to an end (but not yet terminated) and the pace of bail outs has been mitigated recently, another source of significant demand for deficit spending is pending, and this refers to the new “wide sweeping” healthcare reform bill currently being debated. Although the focus of the bill is to overhaul the current US healthcare system (which does need revamping in a number of areas), the pending costs for the entire program and very questionable allocations of resources that are being introduced in the widely encompassing legislation could just provide yet another negative jolt to a US system that is in no shape to absorb such. It is an economic situation that needs ample time to heal, stabilize and hopefully rebound. Yes, US healthcare needs reform, however the complexity of the issue requires a less aggressive and more focused series of potential solutions to problematic areas in a structured process over a prolonged period. International investors would like to see some fiscal discipline at this stage in the game in order to preserve and enhance the allure of the US. Pushing a high level, fix it all, solution to such a major institution as healthcare at this time may just be met with negative ramifications from some financial markets.
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11/17/2009 Has anything really changed over the past couple of months? (Higher Stocks, Higher Unemployment, Zero Interest Rates, Weak US$, Expanding Deficits, Shaky Real Estate markets) The theme for the world of high finance in the US has been the reflation trade which has been the pulse for months now. The bad news is….there really hasn’t been any change in the ridiculous scenario. Unemployment in the US has continued to rise and will undoubtedly increase over the next months, yet US Equities continue to be on a tear. This is despite the fact that Ben Bernanke mentioned in his latest address to Congress that any near term economic rebound would not be robust and that extremely accommodative interest rate policy (e.g. near zero rates) would probably prevail for the foreseeable future. The re-flation trade that takes its roots in a weak US currency has been further exemplified by the extreme bull moves in commodity markets, more specifically in Gold and Silver, however appreciations in these markets make perfect fundamental sense. The question that needs to be raised yet again is that despite the bleak long term economic/financial imbalances (e.g. US debt) that prevail, how long can stocks continue to rise? One may look to the Japanese situation in which the once great island economy tried to print currency in order to increase inflation during their decade long recessionary, deflation ridden economy. The result has been an explosion in their national debt, weak spurts of growth, but no noticeable, sustained increase in Equity prices (still about 70% from the peak achieved over 20 years ago). The US situation mirrors a number of these scenarios except for the deflationary situation, where prices are actually rising in the US for consumer goods (not real estate however). Believe it or not, but its almost as if another bubble is evolving…can you believe that?
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11/2/2009 In the US, it’s a tale of two economies…and this is not a good thing. An unsustainable trend has gained incredible momentum over the past year and that is a split between the haves and have nots in the US economy. Over the past year, as a result of the fallout from the bursting of the real estate bubble, the US economy dropped into free fall for some time and continues to struggle dramatically in realistic terms. Extreme injections of moneys in the form of bailouts and market altering initiatives helped slow the deterioration, but the state of affairs is not a good one for most US citizens. Despite double digit gains of the major US equity markets, and despite the fact the many CEOs continue to earn in the tens to hundreds of millions of dollars and despite the fact that employees of select investment banks will earn bonuses in the hundreds of thousands of US$s conservatively, US unemployment in realistic terms is well above 10% and one in eight Americans is now receiving food stamps (that’s over 30 million people). A large portion of the unemployed population is young educated adults graduating from both graduate and undergraduate institutions. In fact, the concept of the “lost generation” of workers is beginning to surface as these individuals have little opportunity to apply their skills. All of this is despite the fact that many spinners have stated that globalization was to increase the quality of life for Americans. Increased the quality you say? Perhaps some goods are cheaper, but unemployment and the quality of employment is in dire straits. Globalization has simply been bad for America in general, where the vast benefits have been limited to CEOs who extract more and more profits for themselves. Something is broken in the current system and more and more average Joes are paying the price…this is simply unsustainable.
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10/19/2009 So far the new millennium has involved nearly a decade of pathetic monetary policy strategy and asset bubbles... If you think that things haven’t changed much over the past decade, you may be correct on the big picture. What that scenario depicts is a creation of an asset bubble with near zero and often negative real interest rate monetary policy. The pricking of that asset bubble with only a mild increase in short term rates , as gross dis-equilibriums (the past real estate situation) were getting out of control and finally a rebuilding of asset bubbles with zero interest rate policies again. The private consumer who adheres to traditional and sound investment strategies (especially senior citizens) have been simply rocked in terms of lack of return in shorter dated interest bearing products. Despite the fact that inflation has been on the rise consistently over this past decade (which is very likely being understated) short term interest rates for many years barely breached 1%. As a result, many investors have been almost forced into the Equity side of the markets to achieve some sort of solid return. However, this has been a problem, given that the Dow Jones was actually about 10% higher at the beginning of the new millennium as it is now. Investor options for the moderately fiscal minded individual now? Grab those (.25%) 3 month rates or get into that exuberant stock market…doesn’t it feel like a broken record?
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10/12/2009 Will the evolving bubble in US Equities spillover into positive economic data? The major Equity Indexes are well into double digit returns for the 2009 period, despite a host of dismal fundamentals. The gains however seem to be resting on the questionable fundamentals of inflation expectations or should we say “the reflation trade”. As speculators push funds into Stocks with the expectations of a falling US$ that will increase asset prices, and as other investors get sucked into the evolving bubble because they don’t want to miss the boat, the major Indexes have been posting exuberant gains. Now let’s see if this newly forming Stock bubble begins to spill over into economic activity as consumers get some relief in the form of increased values in their 401ks (that’s assuming that they didn’t liquidate their stock holdings during the massive sell-off). Over the next week or so the corporations will be reporting earnings and retail activity will be updated as well. The results may be positive on face value, however remember what the positive Stock scenario is built on…unemployment at 10% with real unemployment much higher, significant foreclosure activity and an international community that is beginning to allocate assets away from US$s…just to name a few interesting factors. Can Stocks go up? Of course they can…there’s plenty of air out there and the inflation trade could have much more upside. But just keep in mind what those potential gains are built on and all it takes is a little pin prick to let the air out.
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10/5/2009 A Jobless Recover is No Recovery Last week’s manufacturing and more importantly, employment report quickly provided a reality check for the US economy…it’s simply not recovering to a pace of sustainable growth. Non-farm payrolls disappointed a majority of street expectations and revisions to previous reports were negative as well. Yes, the rate of change of monthly declines has probably subsided somewhat from the falling off the cliff pace, but reality is that corporations remain in job cutting mode. As the unemployment rate continues to rise, it’s only natural that the rate of increase in joblessness begins to slow, otherwise there would be an outright crisis. The unemployment rate has now doubled from when the economy began its quick descend over a year ago and the real unemployment rate is edging its way much closer to 20% than to the 10% mark, given underemployment and those just quitting the search. Finally, the US equity market, which simply was trading up on air released some of the wind that was propping it up. The bottom line remains that the US needs to reward savers and increase the saving rate to spur real investment to fix the balance sheet of private consumers (but this will take a very long time). Currently zero interest rate policy is punishing those who practice sound financial personal management. The other major problem is the continued shift of US jobs to low wage nations. The US can maintain free trade of goods but needs to produce those goods at home and trade abroad. Recovery you say? Yes, cash for clunkers may help produce a positive 3rd quarter GDP but just keep an eye on job creation.
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9/29/2009 Will the post FOMC exhaustion Stock reversal signal the start of a market correction? Who the heck knows. Last week the Federal Reserve came out of its deliberations with no change in interest rate policy, mentioning the recovery was continuing for the US economy. The already exuberant Equity market responded with an explosive rally, sending the Dow above 9,900 with bulls seeking the 10,000 mark. As exuberant as this move was, it marked at least a short term top to the unbelievable gains posted in stocks over the past couple of months, as the major Indexes posted losses by the closing bell. Given yesterday’s explosive rally on very light volume and on no significant news, the question is…will last week’s reversal hold and mark the turning point for continued declines in Stock prices? And the answer is….Who the Heck Knows. Reality is that the recent rally for the major Indexes, some 50% off their lows, has been a function of short squeezes and an inflation trade, both of which provide pathetic fundamentals for sound economic growth. Can the market go higher? Of course it can. It’s been known to trade on air for years and post exuberant gains only to suffer destabilizing declines at some point. It appears that good old risk taking and high speculation is back…and the result should be a very destabilizing event at some point.
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9/22/2009 As the post Summer markets continue to trade, it appears that the consensus on the state of affairs is simply, Confusion. Latest reports from a variety of sources are pontificating that the recession is over, US Equity markets have extended their rally to post double digit gains for the year of 2009, and there have been some spotty signs of a pick-up in Retail activity and Housing data. However, the unemployment rate continues to rise with actual unemployment probably well into the double digits, the US$ has suffered significant losses, the commercial real estate sector is experiencing severe problems, short term interest rates remain at near zero, the deficit has exploded higher with interest payments on debt reaching alarming levels, trillions of dollars in bail outs and “stimulus money” have been allocated but remain difficult to track. In case you’ve thought about any of this or have felt like throwing in the towel on trying to make sound fundamental sense of the state of affairs, don’t feel bad, it seems as though that’s become a growing trend. So what’s the bottom line? Simply put, the argument solidly falls on the side of the existence of extremely high risk in the realm of economic growth. So, when dabbling in trading or investing to try to catch some positive returns in a variety of markets, be wary of that risk.
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9/14/2009 IS there a problem with the re-flation trade?? Of course there is and it’s not just potential inflation. Over the past month or so, we raised the awareness on the potential of a re-flation strategy to help re-ignite the US economy. An inflation of asset prices could imply higher Stocks and higher real estate prices, both of which could stimulate our beleaguered state of affairs. However, as simple as this idea may be, the downside of some of the factors needed to support this tactic are dire. Initially, the no-brainer factor to consider is that with a falling US currency and a just about zero interest rate policy, with ongoing injections of liquidity into the system, the most dangerous fallout from re-flation is a significant increase in inflation. This would be particularly detrimental to our situation given the high level of unemployment and ultra stagnant wage growth for those that have jobs. Believe it or not, this is not the greatest danger. The true danger lies in substantial deprecations in the US currency. The Greenback is not far from historic lows via the EURO and recent market moves have been a weakening of the US currency. If this continues to transpire, potential fallout could be lack of international investment in US financial assets, where market ramifications could involve higher US interest rates, lower stock prices and yes, inflation on goods and services imported from abroad, to name a few. The strategy of re-flation could be seen as a short term fix (although the Doc doesn’t like any part of it) but the long term fallout or even medium term could be a mess.
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9/09/2009 Here we go again…exuberant market moves that don’t seem to go in tandem very well…or do they? The summer session is over and it’s getting back to normal for trading volume but perhaps market direction is baffling the streets. Stocks have held onto their exuberant gains established over the summer and the Forex markets have opened with a bang, hammering the Greenback to fresh lows. On the other side of the spectrum the glittering Gold market has taken on the $1,000 mark again. Good stuff….but what the heck is going on? Do all of these make sense? One explanation is the re-flation trade again which infers that the US$ deprecation may be tolerated to inflate asset values. The falling US$ also has a positive impact for earnings for US multinationals and the falling US$ and rising asset prices is a nice set of drivers for higher Gold prices. But one market that isn’t reacting to this is the US fixed income market as Yields are holding steady. So once again, the proper conclusion to be deduced from this scenario is that something smells very bad from a long term economic perspective. And if that’s the case, then one of the recent market moves that has transpired is laden with risk. Can you guess which one?
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8/31/2009 Well, it’s just about that time of year again…the end of summer and a return to higher volume trading. The Doc left you early this past summer mentioning that he would tread light on interpreting market moves, as many global players focus more on vacations and market activity is characterized by thinner volumes. Although it may be a few days early to sound the beginning of a return to normalcy, we’ll just say that things may get a bit more interesting soon. The real talk of the markets over this past summer was the continued and almost unbelievable rally in US Stocks. The bulls continue to justify the move by mentioning that inventories are light and business activity will have to improve to rebuild them. The Doc says…is that all you got? On the bear side, one could write a book on why the market is simply laden with risk at current levels. That being said, can Stocks continue to rally? Of course they can. As we mentioned before, Stocks rallied for years based on a false economy underpinned by the unsustainable real estate bubble. Bottom line at this point…let price action roll for a few days and get a feel for volume in conjunction with price action and remember, the market has a boat load of risk at current levels. How big a boat….let’s give it a 45 footer, twin engine size.
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8/24/2009 Equity exuberance quickly regained momentum, but sound fundamental support still remains at bay Despite a bout of weak economic data about a week ago, US equities quickly shrugged off short term selling to resume an exuberant trend higher. Friday’s action was buoyed by a small surprise in housing data, but barring that indicator, fundamentals remain rather suspect. So what’s driving stocks higher you ask? One underpinning for higher US stocks that reared
its ugly head again last week was talk of the reflation or should we say
inflation trade in the US. In other words, the powers to be may
sacrifice a stable currency platform in order to increase valuations of
asset prices as an impetus to jump start economic activity. Allowing
the US$ to continue to depreciate would make US goods more attractive
abroad, and also increase profits for some multinationals who receive
payments in foreign currency. Higher prices at home could also be a
driver to placing a bottom in the decimated US real estate market. The bottom line…can stocks go higher? If the inflation trade continues, all bets are off from the Doc on Equity market direction. Yes, stocks could continue to move higher, but the underlying risk to holding these assets will be substantial.
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8/17/2009 After non-stop hype over the past few weeks, a little reality check is always nice. You’ve all heard the jawboning from analysts, economists and traders mentioning that the “recession is over”, referring to the fact that Stocks were pricing in a return to growth in the near future. Factors such as some increased auto sales resulting from the cash for clunkers program, some slightly better than expected housing data and some OK earnings reports, got the bulls on stocks and the economy sounding the bells that all is better. However, last week brought a series of reports and events that clearly did not support this notion. Retail data came in anemic, Initial unemployment claims indicated that joblessness continues to increase and consumer sentiment information was disturbing. What you had was a reality check on what is really transpiring in the economy as opposed to what has been hoped for. Simply put, the US consumer, who has been the cornerstone for US economic growth, is retrenching into survival mode regarding consumption patterns as significant uncertainty as to their stability of income remains a factor. The early trade in global equities this week has taken notice to these data series and the results have included some sharp declines. So you may ask yourself….why did Stock prices rally so impressively over the past few months? Probably the same reason why they rose back in 2005 and 2006 only to be decimated on reality….misperceptions on the state of the economy.
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8/10/2009 US Consumers may begin to feel the pinch of higher costs due to the economic fallout A majority of economists/analysts are of the
opinion that inflation is likely to rise significantly down the road
given the massive liquidity injected in the system through the numerous
bailouts, Fed purchases of Treasuries, the falling US$, etc. This
opinion is no doubt a sound one but the timing of the effects will be
hard to fine tune. Another increase in costs for consumers will most
likely be a hike in taxes to help address the massive deficits that have
been created, but that may be a ways off as well. So why haven’t credit card companies adopted such a tactic years ago since it would raise their revenues? The answer is that this policy may not raise revenues. What may just transpire is that individuals cut back on credit card usage and conduct transactions with good old cash or checks. Is this point of payment interest accrual likely to happen? Let’s just say it’s a 50/50 shot. What may seem to be a revenue generator for credit card issuers may just backfire into losses. And you thought I was going to do some analysis on last week’s employment report...boring.
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8/03/2009 With continued Equity exuberance the recession has to be over, doesn’t it? You’ve all seen the almost unbelievable gains in US stocks over the past few weeks and so far the only fundamental news has been some slightly better than expected housing data and oh yes, a rash of hype. Without going into what’s really driving stocks higher (you may actually find it disturbing to know), let’s focus on this verbal assault on our senses by the media that the recession is over. More specifically let’s take a look at a few major factors that are implying that we’re not coming out of the recession. The employment picture as been the focal point of our economic turmoil, as well it should, given that joblessness is about to reach double digits and when considering the more traditional and accurate method of measuring unemployment it’s well above 10% already. The spinners supporting the “recession is over argument” state that employment is a lagging indicator and that hiring only transpires after economic growth rebounds. But that implies that unemployment has to at least bottom or should we say reach a peak and stabilize before a recession is over. Unfortunately our employment situation is one where joblessness is still on the rise and has not stabilized just yet. This implies the recession is not over. Additionally, unemployment benefits for those who have been unemployed for some time are winding down. Severance packages and unemployment benefits are ending for a sizable percentage of the unemployed population. This renders a very bleak scenario for future economic growth. IS the recession over? For some reason, next quarter’s GDP may some how come in on the positive side (and it would be quite odd), however the real underlying economic scenario depicts continued weakness on a number of fronts. Let’s take a look at this week’s employment report and one or two reports over the following months to see what’s really going on. And as far as why Stocks keep screaming higher?....don’t look at fundamentals, just ask one or two major speculative investment banks out there (wait a minute…are they still called investment banks?)
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7/28/2009 Is the Equity rally a function of fundamentals or money funds chasing price action? The exuberant rally in US equities managed to continue over the past week and with a majority of short covering completed, the next couple of weeks will be the real test of this sector. The latest hype, given some better than expected housing data releases, is that the recession is over, however the question to address at this point is….are the recent gains in US stocks the result of solid fundamental corporate news or is there something else pushing the major indexes higher. First of all, sounding the alarm bells that the recession is over because of a couple of OK housing data releases is a bit premature to say the least. As far as sound fundamentals on the corporate front…they’re just not there, given the high likelihood of continued job cuts. What seems to be a better explanation of what’s driving stocks higher is the catch-up game that fund managers are playing. In other words, as the major Indexes post continued gains, many managed money funds need to increase their allocations to stocks in order to “not be left on the sidelines” should the equity sector produce double digit returns for 2009. However, with a lack of sound fundamental support, what you may just see is a classic bull trap, as many players get long the market and with a lack of fundamental support, the pendulum quickly swings in the opposite direction. Remember, July and August are classic summer markets, where seemingly sound market moves quickly turn direction. The recent gains in the major Indexes have kicked technicals into positive mode….will it be a head fake? Buyer beware.
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7/20/2009 So what’s driving this recent Equity exuberance? Something called summer markets. If you have been following the Doc’s material over the past few weeks, you would have known that we ceased posting the daily write-ups for the next month or so because of something called summer markets. This notion refers to the fact that thin volume days can produce huge price swings in markets with the absence of solid fundamental news. This type of market can also render technical indicators as not reliable. The last week of US Stock price action is case in point. The major Indexes, after suffering double digit losses, turned on a dime to post almost double digit gains. When the major Indexes were at their weaker low points (prior to last week’s rally), technical objectives pointed to much lower price levels, which caused speculators to initiate aggressive short positions. However, just prior to Goldman Sachs posting their incredible earnings, the market turned. The upside action gained momentum as Intel and IBM added to the positive earnings news. The result was a massive squeeze of speculative shorts as traders needed to cover their positions in reaction to the positive price action and hence an aggressive up-move for the major Indexes. One major problem to this scenario barring the Goldman news (which was quite interesting given all the artificial activity transpiring in the US Fixed Income market) was that the Intel and IBM good news was more the function of cost cutting and not top line revenue growth (hence, no reason for any Stock exuberance). What you had was summer markets that negated bearish technicals and caught the market short. In case you thought that the economy was recovering because of this stock activity, try to catch an excellent piece by CNBC, titled The House of Cards. It is an excellent documentary that describes what really happened to the US economy over the past five to six years. The only weak part of the show was interviews with Greenspan who is seen saying that the Fed couldn’t do anything about the bubble. That assertion is simply nonsense. |
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| Stephan Kudyba (MBA, PhD) THE MARKET DOCTOR |
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Market Doctor Disclaimer All information contained herein is for informational purposes only and does not constitute an offer to sell nor the solicitation of an offer to buy any security. “The Market Doctor” or anyone affiliated with the production of the investment market information is not responsible for any activities conducted by viewers. This material is informational only and does not recommend investment activities for corresponding viewers. |
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