The Dow is right on the 11,000 mark so it bears (oops, don't say bear!) watching while the S&P continues to treat the 200 dma of 1,260 like an unobtainable goal and the Nasdaq seems like a real lost cause. This is the perfect recipe for a huge rally!
To get a rally this week several things have to happen:
* Funds need to try to salvage the quarter. As we are close to negative the question is whether they would rather take a small loss or work hard to post a small gain needs to be answered but the quarter ends on what should be a wild Friday.
* Today's meeting of Central Bankers in Basel needs to go off without incident.
* Tuesday's economic forecast needs to be strong with consumer confidence over 103 and home sales flat.
* Thursday's Fed statement needs to give us something to hold on to at the same time as the ECB makes a statement.
If all of the above happens, we could have a really good week, otherwise - probably not!
Let's keep our eye on the NYSE which is right under its 200 dma of 7,928 and provides a nice, broad view of the markets.
Warren Buffet gave Bill Gates $37Bn this weekend (and I told there was no way America was going to win the World Cup!) and PD is giving N $40Bn (these soccer fans...) who is giving FAL $20Bn (cheapskates) in one of the more complicated deals of the weekend.
Oil and gold are off a bit on another quite weekend but it will take another few days for the new shot of terror fear to drain out of the markets.
Much like Asia, I will just watch and wait today hoping for a sign.
I fear another commodity rally today that will again give us false hopes to be dashed by the Fed. My big prediction is that if the 10 year hits 5.5% (possible if we get a half point hike) then the markets will drop another 5% as money flows into the safer securities (although there was a great article by Ben Stein in the Times this weekend that made the argument that our notes are literally not worth the paper they are written on).
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The PD deal is a huge bet on continued high commodity pricing but the downside for PD is pretty much the whole company if they are wrong. They are paying a 20% premium for a company that is paying a 20% premium to acquire FAL (so the FAL guys make out like bandits) but both N and FAL are up 300+% from '04.
Of course they are only spending 30% in cash and the rest is in PD stock which is up 400% since '04 so it could be argued that this is a good deal for PD but, like I said, they are betting the farm and every other farm on this one.
Clearly they are overpaying by $10Bn and PD is only worth $17Bn, smaller than N or FAL... If copper even flinches down this thing can sink faster than the titanic, as it is look for a successful test of the 5% rule for PD to the downside today.
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Now I wish we had just held that MT put as their persistence paid off and Arcelor accepted their ridiculous offer which should send MT below $30!
Let's keep our eyes on GM and CAT who were among the only Dow gainers last week but I still say GE, TXN, APPL and INTC are going to be the best indicators of market strength.
Oil looks to have a good week as Chinese demand shows no sign of slowing and US GDP will likely be over 5% so look for $70 to be well defended. Of course all this commodity bullishness backs the Fed into a corner as inflation cannot be denied at these prices.
JNJ picked up Pfizer's consumer health care division for $16.6Bn, this is great news for our JNJ Aug $60 puts (were .50), which may go in the money on this news!
It is also good news for PFE and I may want to play the Aug
I still think the oil majors are undervalued but there is now a fear factor built into them that they will get deal fever and start throwing their cash around and overpaying for E&P companies. XOM has stated over and over that they don't believe in $60 oil so I think they are least likely to pull the trigger so I will be hoping for a pullback to play the $57.50s for under $1.50.
Be very, very careful out there!
