Tuesday Outlook: Commodities, Global Markets

<< Return to page 1 - Another Stormy Monday














































We’re paying a big price for past excesses, primarily from bubbles caused by easy money policies of the past combined with the demise of Glass-Steagall in 1999. So the lying and cover-ups just continue apace since, given the election cycle, politicians would just as soon inflate as admit mistakes and make the hard choices. It’s all quite shameful but that’s what we have and it might be the undoing of our democracy.

Volume remains low and this just means markets are in the hands of professionals, from trading desks to hedge funds. There isn’t a lot of flow from individuals into markets and brokers' phones are generally quiet in that regard.

Aside from swine flu we didn’t get much news today but tomorrow is GS Store Sales, Redbook Case-Shiller HPI and Consumer Confidence data. And, did you know the Fed is meeting again with an announcement on Wednesday? The Fed focus groups are meeting at the same time to test the wording that the grand Pooh-Bahs of TV and Wall Street will be dissecting.

So, as usual—let’s see what happens.

Disclaimer: Among other issues the ETF Digest maintains positions in SPY, MDY, IWM, QQQQ, XLF, XLI, XLY, IYR, XLB, DBC, USL, DBB, DBA, MOO, EFA, EEM, IEV, EWJ, EWZ, IFN and FXI.

The charts and comments are only the author’s view of market activity and aren’t recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations aren’t predictive of any future market action rather they only demonstrate the author’s opinion as to a range of possibilities going forward. More in-depth analysis is available to subscribers at www.etfdigest.com

Comments

[Daniel Herkes:]

A somber and succinct summary. Any distraction at all puts the markets in a tizzy. The earnings have been ho hum. The "big" auto failures are obviously not helping things much either. Today more housing data (sure to be a thriller) and the Fed. will leak its news in that not so subtle manner they have developed.

Apr 28 06:59 AM

[schlumpf:]

U.S. regulators have told Bank of America and Citigroup they may need to raise more capital following stress testing of the two banks, the Wall Street Journal reported.

Wow, i thought they are all strong and solvent.
All smoke and mirrors to steal the last money from the investors.
Now its make sense why the bank stocks are skyrocking.

Apr 28 07:16 AM

[ozcutty:]

Sentiment turning negative, not sure i want to risk being in cash though with all the volitility

Apr 28 08:01 AM

[Seeking Advice:]

"We’re paying a big price for past excesses, primarily from bubbles caused by easy money policies of the past combined with the demise of Glass-Steagall in 1999. So the lying and cover-ups just continue apace since, given the election cycle, politicians would just as soon inflate as admit mistakes and make the hard choices."

I guess that about says it all, Dave. It makes it very hard to believe in this rally. I guess my growing concern is that "we" eventually reflate a portion of the economy and equities come along for the ride only to be crushed on the next downside when the stimulus runs dry. If, by then, many small investors have jumped back in, this may do at least as much damage to investors as the initial downturn in equities. I'm afraid I could even become too complacent just in time for the next big leg down.

Apr 28 08:12 AM

[doubleguns:]

Another big leg down could be all she wrote. As it is there are not enough Walmart greeters positions to employ all of the senior citizens that will not be retireing as expected.

Apr 28 08:42 AM

[aarc:]

XLI is the least likely to produce lower lows on the weekly charts if we go down at this stage. They need more consolidation range before the next run down.

Risky to short IYT and expecting for a lower low. Transports more likely has just completed a 1-2-3-4-5 down on the weekly. It remains to be seen whether this is a C-wave that will lead to higher highs, or an A-wave/1st-wave.that will lead to lower lows. Price structure on the monthly chart does not support any particular pattern. If the latter, it will require a lot of consolidation time before going down to lower lows.

The rest of the bottom dwellers will most likely make a pullback, go lower low or double bottom in some cases - IF we go down at this stage. Momentum to the downside is on their side.

There is still an equal risk of higher highs for Dow Jones, SnP, and Compq that will scare the bejesus out of shorts - if the indeces are defining a triangle at the top of the daily chart. The low daily volumes for the last few weeks indicate the presence of a triangle, some are calling it a wedge. Whether the triangle, not necessarily the wedge, is still in progress or has already completed is extremely hard to determine. A spike rally or a spike sell-off will confirm the presence of the triangle. No spike = no triangle.

Most bulls are just waiting for either a pullback or a selloff to buy some more for long-term investment specially those who were left behind by this unexpectedly strong rally. Many were expecting a weak bear rally.

We are now at the most confusing stage of this 19th-month "economic crisis of the century".

So we don't know which has a higher probability and the daily chart is confirming the ongoing confusion.
Another rally? A pullback or a selloff? - Or a triangle from hell if the ongoing confusion goes for weeks and months.

Good luck.

Apr 28 09:07 AM

[cynewulf:]

Its raining, it's pouring,The old man is snoring.

Apr 28 09:53 AM

[Emerald:]

Intermediate corporate bonds, muni's and Ginnie Mae's provide a very nice port in this storm versus cash. Very foolish to try playing in a very unsettled stock market that is being manipulated by "lies" and short term options traders with Cray computers. Using stop losses results in you getting blown out mid day, every day when playing stocks. Wait for the end of the next correction that will come in this quarter.

Apr 28 10:34 AM

[AndrewBaker:]

There's no trend evident in the short term, so I'm staying with my unleveraged ETF shorts on the S&P and financials, and trading leveraged ETF on a daily basis. Wish the market would take a position, up or down: then I could relax for a while.

Apr 28 11:19 AM

[Just Say Whoa!:]

>politicians would just as soon inflate as admit mistakes and make the hard choices

Fortunately for America, the majority of voters have caught on that giving tax breaks to the Richest 5% and deregulating everything is not going to do squat.

The politicians that made the mistakes have been thrown out on the sidewalk.

Admittedly, there are still a few who voted to repeal Glass-Steagall who need to be dumped out with the trash....

Apr 28 12:59 PM

[David White:]

Thanks for another great article Dave. It's always good to know where you are. It does look like the near term bias is to the low side, especially given the swine flu threat. It looks like BAC, C, WFC, RF, and FITB all need to raise more capital. Plus lawmakers are now saying the stress tests are too close to the current economic conditions. Soon others should realize this.

Then there are other banks, which one might think are well capitalized such as COF with a TCE of 4.8. However, they have an increasing percentage of NPL's. Plus the charge off rate on credit cards is going up with the rise in unemployment, while credit card use is going down. With the swine flu threat, the use of credit cards will really go down. This should up the charge off rate still further as it will be a higher percentage of all monies. Watch the swine flu closely if you want to play COF (and its like) to the low side. A swine flu pandemic will mean less air travel, less restaurant trade, less shopping in malls, etc. In other words, poeple will be avoiding crowds (and other people). Productivity will go down as key employees go missing (or are slowed by illness). Logically you wouldn't expect COF to shoot up on an end to the swine flu. However, COF (et al) could go through the floor if the swine flu becomes a pandemic. There would be good fundamental reasons for it doing so (not just market emotion). More people are saying it will be hard to contain the swine flu.

One point worth noting is that Mexico City is extremely smoggy. If there are more deaths there, it may be because a lot of the inhabitants already suffer from some kind of respiratory distress due to the smog. The virus may not be nearly as deadly in cities with better air quality.

Apr 28 01:47 PM

[David White:]

Consumer Confidence was way up today.

However, the bond market is showing that people really have no confidence in the economy. Corporate spreads are going up (i.e. a lot of businesses may need to raise money). Some businesses will likely do this through stock offerings. This will lead to further dilution of share holder vlaue. This is a good reason for the equities markets to go down.

CNBC reported today that an economic panel believed Consumer Optimism was wishful thinking. The panel said, "surging unemployment and the slow-moving impact of the government stimulus program will stall any real economic recovery until 2010 or even later".

Lawmakers are saying the stress tests are too close to the current economic situation (i.e. don't allow for worse coniditions than those we expect currently). Notably most economic estimates have worsened over the last 6 months or more. For example the IMF estimates have worsened each time they have been announced.

Given all of this, Dave Fry is almost certainly correct in his "sell" assessment. The only question may be when. The first few weeks of earnings may prop the equities markets up. The earnings have been generally better than expected. However, the expectations were for a decrease of -37% over last year. Even if the decrease is only -30%, it is still a terrible result. The GDP figure comes out tomorrow. It may be better than expected. It may be worse. However, it will certainly be very bad. If it is not, we'll know someone has doctored the numbers. When we get the fact of these bad numbers, the markets may start to face how bad the problem really is. Unemployment is still going way up. We are still in serious trouble.

Perhaps the GDP data will just set people thinking. When the Treasury realeases all of the banking data, the equities markets may really start to fall. At that point earnings season will be much closer to over. There will be little to hold the markets up.

Perhaps the historical precedent that bad recessions have always put in at least a double bottom will push the markets down. There seem so many reasons to sell these days. We have rallied a long way.

The old saying, "go away in May", may be particularly true this year. I don't think I will challenge it this year.

Apr 28 03:05 PM

[Yankee Runn...:]

"We’re paying a big price for past excesses, primarily from bubbles caused by easy money policies of the past combined with the demise of Glass-Steagall in 1999. So the lying and cover-ups just continue apace since, given the election cycle, politicians would just as soon inflate as admit mistakes and make the hard choices. It’s all quite shameful but that’s what we have and it might be the undoing of our democracy."

Well said, all I would add is that it might go back to the Federal Reserve Act of 1913 (also the year that income taxes were started, who knew the connection?) . Something has to be done about the Fractional Reserve Banking that controls the world. As long as the fools in charge of the financial oligarchy can print air money at 10 to 1(what they are supposed to, more like 30 to 1 after they finish their accounting tricks) we will continue to go through the boom bubble bust and dust cycle. They have coined a nicer name for the game, the business cycle. A total rethink on leverage (air money) needs to brought to the table, but I doubt that the people in charge want to change the rules. It is shameful to watch what is going on.

Apr 28 06:10 PM