So here’s the news for today. Today’s market is kind of mixed. But compared to the fall during the middle of the day, I’d have to say the bulls managed to squeak out a victory.
Here are the indexes.
S&P 500: -1.18
Here’s the big stories of today.
- DSK aside, there’s no question right now that the big themes of the market are: commodity weakness and economic softening, with a dollop of Euro crisis fears thrown in. Today we got more of all of those.
- The markets in Asia today were fairly calm. Nothing to say here.
- Europe continues to be consumed by Greece. The word of the day is “reprofiling” as Euro leaders figure out how to restructure Greek debt, but in a really soft and innocuous way that doesn’t change anything. Good luck on that. Interestingly, core-European equity markets are looking weak, as contagion fears spread. The euro currency itself had a strong day.
- 4:30 AM ET brought the daily dose of bad news from the UK. Inflation for April was hotter than expected.
- In the US, there was negative news on both the econ and corporate fronts. Walmart earnings were pretty mediocre. American sales are pretty dismal (gas price too high,decrease in traffic), but due to a weak dollar international sales are booming. HP reported terrible earnings. New home sales came in way weaker than expected, and industrial production was bad thanks to the situation in Japan, and its effect on the auto industry (earthquake, remember?). Deutsche Bank ended up slashing its Q2 GDP estimate.
- In the middle of the day, stocks were getting killed, with the Dow off over 130. Silver was below $33, and oil was around $95. They rebounded, but silver and oil did both end up lower. Treasuries continue to simply motor higher. Some Chinese tech stocks are having a bounce back.
- Banks see storm clouds gathering in the future. New home sales came in weaker than expected, and many home owners with mortgages are underwater. Many banks are still hugely exposed to mortgages and the housing industry. Click here to read the full story.
And that’s today’s closing bell!
Here is the scoreboard. A selloff, as you can see.
S&P 500: -8.00
Here are the top stories for today.
- In terms of attention and headlines, there’s no question that the arrest of Dominique Strauss-Kahn on 7 counts related to sexual assault was the primary area of attention. There were a lot of attempt to connect that news to the market — would it hit the euro or Greek debt or oil? — but there was no clear connection with anything. European stocks did get hit, although the euro was strong, and sovereign debt didn’t move too much.
- That being said, the situation in Greece is bad. Athens stocks fell hard (as did German equities) amid fears of an upcoming restructuring. Not that this is any news of course. The situation in Greece has been bad for a long long time.
- The US market started on a negative note, and basically got worse throughout the day. Tech stocks fell pretty hard, so the NASDAQ kind of died. Big tech stocks like Apple, Microsoft, and Google all fell 2% or more. Google announced its first ever bond offering (is this hinting at something?). Yahoo fell another 5%, as concerns continue to rise about losing its Chinese internet assets. Speaking of Chinese internet stocks, all the hot Chinese tech stocks like RenRen are falling pretty badly too.
- Along with the losses in the momentum equities, the commodity selloff continues to be the huge story. Silver fell below $34. Oil fell below $98. Odd; for some reason, the American dollar fell too.
- As for econ news, the most notable was the Empire State Manufacturing Index, which missed big early on, though it still showed growth.
So silver is down t $33.65 per ounce. That is quite a plunge from the $49 we witnessed just a few weeks ago. However, no to worry. Silver is still in a major bull market you know. Several big hedge fund managers are still holding onto silver. And the funny thing is, during the middle of the bull market, hedge fund managers are usually correct. Plus, silver hasn’t surpassed it”s old height, so it still has more to go above $50 an ounce.
Although, right now, in my practice investment account, I am short silver. But silver’s price by the end of 2012 will be above $50. That’s for sure.
• IMF Managing Director Dominique Strauss-Kahn charged and arrested on sexual assault charges;
• U.S. government expected to hit the $14.294 trillion debt ceiling Monday at midnight; still no solution
• Greece plead for more aid; EU officials to consider additional budget cuts in exchange for more aid.
• Goldman Sachs lowered its rating on Japanese & Korean Equities, (China and Taiwanese stocks remain “overweight and overvalued”) Asian stocks were lower on the day
• The US four day losing streak is the longest since February
• Euro trading at 1.4128, its lowest level since March.
• Silver dipped to $34.60 an ounce
• Gold & Oil extended declines from Friday.
• European earnings estimates drop the most since 2009
Recently I’ve been reading the book Technical Analysis A – Z, and I’m currently reading the part about support and resistance. So here is my summary of it. Support or resistance can either be fundamental or emotional. For example, when the Dow Jones is coming down, 10,000 will be a support zone (emotional) because people have an emotional attachment to 10,000. Or, a stock price might suddenly break it’s trading range if better than expected earnings come out.
Now I’m going to analyze the support and resistance technical analysis with the Dow Jones.
I read this interesting articles on the Ritholtz blog about the investment cycle for bonds and equities. In most cases this cycle is correct, but some extreme things may happen that may through off the cycle. Here it is.
1. After a washout, valuations are low and momentum is lousy. People/Institutions are scared to death of equities and any instruments with credit exposure. Only rebalancers and deep value players are buying here. There might even be some sales from leveraged players forced by regulators, margin desks, or “Risk control” desks. Liquidity is at a premium.
2. But eventually momentum flattens, and yield spreads for the survivors begin to tighten. Equities may have rallied some, but the move is widely disbelieved. This is usually a good time to buy; even if you do get faked out, and momentum takes another leg down, valuation levels are pretty good, so the net isn’t far below you.
3. Slowly, but persistently the equity market rallies. Momentum is strong. The credit markets are quicker, with spreads tightening to normal-ish levels. Bit-by-bit valuations rise until the markets are fairly valued.
4. Momentum remains strong. Credit spreads are tight. Valuations are high, and most value-type players have reduced their exposures. Liquidity is cheap, and only rebalancers are selling. (This is where we are now.)
5. The market continues to rise, but before the peak, momentum flattens, and the market meanders. Credit spreads remain tight, but are edgy, and maybe a little volatile. This is usually a good time to sell. Remember, tops are often a process.
6. Cash flow proves insufficient to cover the debt at some institution or set of institutions, and defaults ensue. Some think that the problem is an isolated one, but search begins for where there is additional weakness. Credit spreads widen, momentum is lousy, and valuations fall to normal-ish levels.
7. The true size of the crisis is revealed, defaults mount, valuations are low, credit spreads are high. A few institutions and investors fail who you wouldn’t have expected. Momentum is lousy. We are back to part 1 of the cycle. Remember, bottoms are often an event.
- Summary of the past week’s events; from May 8 2011 – May 13 2011 click here
- How American schools are failing click here
- Lessons from the flash crash click here
Recently, I’ve read GMO’s quarterly newsletter, and I came across Presidential Cycle Year 3. Now this theory is very interesting, and it seems to work. Presidential Cycle Year 3 states that in the third year of the President’s term, which is currently September 30 2010 – September 30 2011, the overall stock market will go up. Now here’s the evidence that supports the Presidential Cycle Year 3 theory.
Dow Jones Industrial Average (.DJI)
September 30 2010 – September 30 2011: so far + 16.25%
September 30 2006 – September 30 2007: +20.75%
September 30 2002 – September 30 2003: +16.62%
September 30 1998 – September 30 1999:+27.95%
September 30 1994 – September 30 1995: +52.36%
September 30 1990 – September 30 1991: + 19.65%
September 30 1986 – September 30 1987: +48.86%
Some people say that the Presidential Cycle Year 3 works because in the third year of the President’s term, he is facing the upcoming election. The government purposely manipulates the market so that everything seems good; that way the President has a better chance of getting re-eclected in the next election. Now who know’s if this reason is the truth. But even if it’s not, this Presidential Cycle Year 3 theory still holds true.
Unfortunately, I just learned about this cycle, so it might be too late to get in on this cycle and make a few bucks. :(
I’ve been thinking about the overall fundamental economy this past week, and I’ve come up with a conclusion. I believe that from a fundamental point of view, the American economy won’t be going anywhere in the next couple of years, even if the stock market keeps advancing. Here’s why.
First of all, in order for the economy to be growing, the average American needs to spend money on buying new stuff. Unfortunately, everyone’s feeling pretty poor right now, so no one’s in the mood to spend like there’s no tomorrow. The stock market may be up, and Americans may have recieved a little retirement portfolio boost, but people are still feeling poor. Housing prices are still down. And in today’s age, the biggest asset an average American owns is his or her house. Plus, people are still in debt after the go-go spending years of the 2002-2007. Workers’ incomes are increasing much either, because corporations nowadays are trying to squeeze employees. According to the government, inflation is at 3.1%. But that’s incorrect. Has anyone over at the government every been to Wal-Mart grocery shopping lately? Have they seen the gas prices at the pump recently? If the United States used the Tony Index for CPI, then I’d say that inflation is 7%.
All this stuff isn’t making the average American feel richer. And if the public doesn’t feel like it’s getting fat on excess money, then it’s not going to go out and buy all the wonderful stuff that’s been driving the American economy over the past 50 years.
WARNING: Even though the economy won’t get much better, but that doesn’t mean the stock market won’t increase. Look at the past two years, from March 2009 to today. The economy hasn’t improved much, but stocks have more than doubled. That’s because the Fed likes to manipulate the stock market. It makes it look like the Fed is actually “saving” the economy, when all they’re doing is helping the rich investor get even richer, while leaving the average American stressing how to pay his or her bills.