Archive for the ‘commodities’ Category
Friday, February 19th, 2010
As mentioned yesterday where the wholesale inflation number was surprisingly higher than expected the retail inflation out this morning was very low. It actually shrank for the first time since 1982 if you take out food and energy. With those two items it still was very low. Wholesalers can not pass through inflation to the consumers, at least not yet in the face of a very weak economy.
On the other hand last night the Fed raised one of the two interest rates it controls. This is the rate that the central bank charges for emergency loans to banks. It went from .50% to .75%. This is a sign that the Fed sees enough improvement in the financial sector to start tightening money though this is one of the most benign tightenings it could undertake.
Inflation and the Fed’s action is good news both for the economy and the stock market. Inflation is not a problem yet and the Fed has signaled a willingness to fight future inflation by making a move, albeit a minor one, early. It is also a sign that the dollar may not be as weak as feared. Of course this is only one small first step. Still the battered dollar is faced with a massive spending program which will continue to push its value down.
All and all this was a good week for the stock market and the economy. Only time will tell us if the correction is over.
Good Trading
Steve Peasley
Posted in Currency, Financial Outlook, Industry Analysis, Uncategorized, commodities, inflation | No Comments »
Tuesday, April 21st, 2009
The market this morning decided to give back some of its recent gains. This certainly should have been expected and it’s a question of how much will the market retract? Actually, a pullback will be a healthy sign that we have reached the bottom set in early March and that the market with the economy has a brighter future for the rest of the year.
The large merger deals announced by Pepsi and Oracle and a great earnings report by Eli Lilly Company did nothing to help the market. Also, Bank of America announced surprisingly good earnings this morning though the bank stated credit defaults were still rising. None of that good news mattered.
The stock market reaction today is a clear sign that it is ready for a pullback. It could be short and sharp, but it should only be a pullback and one that should be bought not sold. Having cash on the sidelines waiting for it to finish its pullback, and having a hedge against this fall has ‘not’ been a benefit in the recent rise, but the market will now give you an opportunity to enter the market at better prices and exit your short positions.
It would be prudent to wait a few days to let the market work.
Good Trading
Steve Peasley
Posted in Currency, Current News, Foreclosures, GDP, Hope, Important, Industry Analysis, Uncategorized, banks, commodities, jobs, recession, stimulus package, stock market | No Comments »
Monday, April 13th, 2009
Earnings reports for the first quarter picked up speed this week with the first big blue chip company Alcoa reporting poor numbers after hours on Tuesday and Wells Fargo reporting surprising record profits this morning. The market sold off Monday and Tuesday in anticipation of a tough earnings season but Alcoa, with its bad numbers, held up well on Wednesday because those bad numbers were expected. Some analysts actually upgraded Alcoa based on future numbers. The phenomenon of bad numbers or bad news not affecting the market or individual stocks is well documented. It is simple to understand but difficult to anticipate. When investors expect something in the future they price it in today. So bad earnings for the first quarter has been expected and thus if we get them it should not affect the market. Of course there is a large exception to this quirk of the market and that is if the earnings come in worse or better than expected. The devil is always in the details; Alcoa’s bad numbers were expected so the stock did not fall, but Wells Fargo’s good earnings were not expected so it went up sharply with the entire market this morning.
So what can you do about the daily gyrations of the market and individual stocks? Take a bigger picture perspective. Is the economy at its worst? When will the economy find its feet? When will the housing market start to improve? What is happening in interest rates, inflation, deflation and the money supply? After stepping back, your conclusion should be that we are in a very deep economic hole. It is deeper than most others and stock prices have collapsed over the past year.
The market expected this deep hole and it appears it is now expecting some kind of recovery. Always, stock prices lead the economy both down and up. It appears we need to be buying stocks not selling them. The market is one of the strongest leading economic indicators we have.
However, don’t expect the market just to move in one direction. We had a very steep downturn for the first two and half months of the year after a very bad 2008. Then we have had a steep rise in three weeks. Both moves were too violent to be sustainable. Expect a pullback of the recent rise. That pullback should give you an opportunity to exit any short positions and start to add long positions. Use any weakness. We had it this week.
It is time to be buying! The bottom is in and will hold. Retesting may happen but my guess, and it is a guess, is that a retest of the recent bottom will only be a half hearted effort, maybe retracing 50% from this steep up move. Resistance on the up side is at 8,000 on the DOW and 800 on the S&P 500. It looks like it is being broken to the up side. The charts are fairly clear about this resistance and this week has shown us that the market will struggle in this area. It struggles in this area because, we the investors and traders, see it on the charts and make it happen by our reactions. Charting is nothing more than watching human nature at work.
Still it is time to buy on any weakness. The market is on sale. It has been rare that it has been this inexpensive. Are you going to wait too long and be one of the last ones to enter, thus missing the upside? If you are in, stay in. If you are out, buy. We will be buying. We have been doing so very slowly waiting for some weakness to be more aggressive. We will exit the last of our short positions and buy more aggressively if we get the expected pullback. Earnings season is going to make it interesting which is another word for difficult. Don’t let fear paralyze you.
There is an old saying, “the market crawls up a wall of worry”. Are you worried? If you are, buy. Just don’t be too aggressive!
Good Trading,
Steve Peasley
Posted in Currency, Current News, Financial Outlook, Foreclosures, Hope, Industry Analysis, banks, commodities, inflation, jobs, recession, stock market | No Comments »
Monday, February 23rd, 2009
The trend in the DOW is certainly down and breaking down to new lows. The other indexes are not far behind though they have not fallen below previous lows made last year. Everyone is feeling that the economy is not going to recover anytime soon and the stock market has been leading the charge in that sentiment. There certainly has been no bounce from the new administration. President Obama’s stimulus package has hit the public with a loud thud. When the President himself expresses little confidence in it working how you do think the rest of the public, including the stock traders, are going to feel?
On another note, the government has said that they stand by the big banks and are not interested in taking ownership. At the same time Citigroup is in talks with the government in which Citi would give up to 40% ownership to Uncle Sam in exchange for a cash infusion. That may not be outright ownership but it certainly would constitute controlling interest.
Uncertainty and fear reign and until that changes there will be no sustained rally. We will likely have a relief rally from an oversold situation, but when and how much is a difficult call.
On a brighter note, the economy will recover and there are some small signs that the recession is lessening its grip. Small signs are much better than none. The turn is coming and the stock market is looking for any sign of it.
Good Trading
Steve Peasley
Posted in Currency, Current News, Financial Outlook, banks, commodities, stock market | No Comments »
Friday, February 13th, 2009
There was not a lot of economic news out this week other than the nebulous plans put forth by our government. There was great disappointment with our new Treasury Secretary’s ‘outline’ of a plan to help the financial industry, when the expectation was for a ‘plan’. There were no details and everyone wanted to see those details. The market was led to believe that there was going to be a ‘plan’ and that means details. The market crashed on Tuesday because of it. The only economic news of note was retail sales for January which were up 1% when the expectation was for it to be down. That is not much to cheer about but it is a nice surprise and better than a fall.
As the week progressed the market tried to find its footing. On Thursday an intraday collapse of over 200 points on the DOW was erased in the last hour of trading. That was a very large recovery in a short period of time. The support levels are trying to hold. They are 8,000 on the DOW and 800 on the S&P 500. This is the third test of that support. Will it hold or give up this level? That is the question on everyone’s mind.
The world economy is suffering. The recession is deep and will be long. It is already long and there are many who think it will last through the first two quarters of this year and that sometime in late 2009 GDP will start to show improvement. That assumption is based on a continued improvement in the financial system world wide. There has been improvement, but it has been very incremental. The new efforts by governments may or may not work as the first efforts have shown us that it is not just as simple as pouring money into the system. That money is important but that is not the cure-all for what ails our economy.
There are major issues in our economy but it all started with bubbles. The dot.com bubble with cheap money burst in 2000, the housing bubble burst in 2006 and its cause was cheap money. Cheap easy money will always cause a bubble in some asset category. Today we have cheap money, maybe not easy to get but low in price, so there will be another bubble produced somewhere. The key to preventing another bubble will be when that cheap money is withdrawn and dealing with the result. We need the cheap money to get us out of our current economic malaise. The most likely result of this cheap money this time is inflation. A rise in commodity prices worldwide is a likely result. A rise in interest rates is going to happen.
The speed and timing of removing this excess liquidity is going to be very important. Geithner said this week that his fear is that the government will withdraw liquidity too soon. I think it is just the opposite. They are likely to error in leaving the tap of cash wide open too long.
There will be a recovery in both our economy and the stock market and the market will be first. The stock market is a leading indicator and has always rallied long before any sign of an economic rally. The time frame is anywhere from 1 month to 1 year. On average the rally will happen 4 or 5 months before the economy shows signs of recovery.
So ‘when’ is the most important question. Some think we are in a spiral that will take us to the Great Depression levels. Anything is possible but that is unlikely. We have not seen a deep recession like the one we are in since 1973 and 1974. The current problem is tracking that recession very closely. If that is so, we are close to a bottom and those economists that have been calling for a recovery to start later this year will be vindicated. If that is true stocks can rally at any time.
Where is that crystal ball? No one knows anything for certain but you have to act on the probabilities not the possibilities. Meanwhile we are keeping our tight stops in and ready to exit if support does not hold.
Posted in Currency, Current News, Financial Outlook, Industry Analysis, banks, commodities, housing, jobs, stock market | No Comments »
