Thursday Outlook: Commodities, Global Markets

<< Return to page 1 - Goldman to the Rescue

So, we had some profit-taking today. With markets much overbought and air under a lot of prices, any poison to the “green shoots” story is poorly received. GS came to the rescue with their economic upgrade.

After the close, Cisco (CSCO) reported earnings that beat estimates but is forecasting a decline in sales. Although this seems in line with consensus forecasts, investors sold the news.

I may not post tomorrow barring unexpected news, as the employment report on Friday should set the tone for what’s ahead. It should be interesting.

Let’s see what happens.

Disclaimer: Among other issues the ETF Digest maintains positions in: SPY, MDY, IWM, QQQQ, SMH, XLF, RKH, XLB, XLI, XLY, IYR, XLU, TBT, UDN, DBC, USL, DBB, BDD, XME, MOO, EFA, EEM, EWA, EWC, EWT, EWY, EWJ, EWZ, RSX, 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 detailed information, including actionable alerts, are available to subscribers at www.etfdigest.com.

Comments

[Dr. O:]

Thanks Dave. It struck me that since the March lows, out of the next 20 weeks, 16 have been up and only 4 down.

I woke up in a cold sweat last night. I had a nightmare that the US Dollar was near all-time lows, interest rates were at 0%, and the budget deficit was almost 2 trillion dollars.

In my nightmare the Federal Reserve was only interested in avoiding a depression, and had resigned itself to a weakening US Dollar. The Federal Reserve didn't care about bubbles blowing up in stocks or commodities, because they told themselves they could raise interest rates quickly if necessary once a recovery were underway.

What a crazy dream. Scary.

Aug 06 06:52 AM

[Dr. O:]

In real life, I have a little old currency from travels abroad too. I was in Switzerland in 1995 for a meeting, and wouldn't you know those leftover Francs are worth almost twice what they were back then. I'm just glad my mortgage isn't denominated in Francs, like many Eastern Europeans. Talk about being underwater!

Aug 06 07:01 AM

[basehitz:]

“Making you feel good makes them money and reelects incumbents.”

It also helps pass legislation. A rising market -> rising consumer sentiment -> higher poll numbers -> easier to get support from waffling party members, worried about re-election in 2010. So with 2 priority pieces of legislation (healthcare and Cap & trade) both losing majority support, they pull out all the stops.

Recall also that GS stands to be a big winner if carbon trading becomes law. Similarly, GE stands to win big on various green program aspects. Big surprise networks they own go out each day to promote the market.

David, I was surprised to see you take long positions this week. Your weekly charts show fading volume, the Achilles heel of this rally. I understand you follow a discipline.

Aug 06 07:02 AM

[sheople:]

This low ball roller is staying out of the casino.

Aug 06 07:21 AM

[Robespierre:]

"There’s a concerted effort in officialdom and with their Wall Street brethren to lift markets they’ll use whatever new rules and tools are needed to get things going."

My guess is that the government agreed to give the IBs all the cheap money they need to prop up the market to make people feel better so they start spending again. In exchange the IBs get to keep all their ill gotten gains.

It will not work. The reason people were able to spend way beyond their means is that they were able to extract cash from their homes. That is no longer available in any meaningful way. Moreover with real unemployment running at double digits most people are to scared to spend away.

What this government/IBs incestuous relationship will accomplish is a huge backslash to the current administration when main-street realizes that that their standard of living keeps dropping while increase their wealth via taxpayers subsides.

Aug 06 07:57 AM

[Robespierre:]

while increase their wealth via taxpayers subsides.

Should read: while the wealth of bankers increases via taxpayers subsides.


On Aug 06 07:57 AM Robespierre wrote:

> "There’s a concerted effort in officialdom and with their Wall Street
> brethren to lift markets they’ll use whatever new rules and tools
> are needed to get things going."
>
> My guess is that the government agreed to give the IBs all the cheap
> money they need to prop up the market to make people feel better
> so they start spending again. In exchange the IBs get to keep all
> their ill gotten gains.
>
> It will not work. The reason people were able to spend way beyond
> their means is that they were able to extract cash from their homes.
> That is no longer available in any meaningful way. Moreover with
> real unemployment running at double digits most people are to scared
> to spend away.
>
> What this government/IBs incestuous relationship will accomplish
> is a huge backslash to the current administration when main-street
> realizes that that their standard of living keeps dropping while
> increase their wealth via taxpayers subsides.

Aug 06 07:58 AM

[AndrewBaker:]

Well stated, Dave: roll with the big players or stay out. I agree. I've opened some long positions recently, with not too tight stops so as not to be whipsawed out, but tight enough that - subject to getting that far - profits can be taken on a reversal that looks like more than just a temporary fall-back. Risky maybe, but so were my shorts in the not-so-distant-past. Gold and natural gas are my mainstays, so all you out there wanting to help: buy some, please.

(Fundamentals: forget 'em. Nobody's taking any notice anyway!)

Aug 06 08:04 AM

[doubleguns:]

Andrew, its the PPT that is ignoring the fundamentals. They are trying to create a new reality. Until the old reality comes back.

Then I don't know what they are going to create.

Chaos?

Aug 06 08:19 AM

[SeeTheLight:]

I've started to take profits on my longs that have skyrocketed, and I continue to hold on to any laggard longs with the belief that people will realize, hey, they've been left behind and that is unacceptable, everything must be overvalued, good, bad or ugly.

It amazes me that despite the ho hum news we continue to rally well above 200 MAs. I guess I could be leaving the icing on the table but I've already had my cake.

The big concern I have is that no one is talking about Back to School nor Christmas yet. Back to School is going to be especially hard compares since the consumer really didn't get hit by the recession until 4Q. If that impossible situation can be spun positively, well, then we will truly be living on Fantasy Island.

You add in the fact that oil is back over 70, commodity prices are skyrocketing - that is taking more money out of the consumers pocketbooks. The market can remain irrational longer than one can remain solvent but euphoric panic buying, short capitulation and even GS's HFT can not buoy this rally indefinitely. The NYSE McClellan Index and NYSE Summation Index charts are especially telling.

Good Luck all

Aug 06 08:33 AM

[mb2:]

You can go long if you want. But, you had better be hedged nine ways to Sunday!

Grab a parachute boys....

Aug 06 09:19 AM

[indeolie:]

>I was in Switzerland in 1995 for a meeting, and wouldn't you know those leftover Francs are worth almost twice what they were back then.

Not against the Euro they're not! Exact same level as in 1995...

Aug 06 09:19 AM

[indeolie:]

>Should read: while the wealth of bankers increases via taxpayers subsides.

Oh but those wealthy bankers are also big contributors in taxes, so it's the way to rebalance public finances too. We all win!

Aug 06 09:25 AM

[robert.b.fe...:]

Thanks for the great charts and insights David. I went long in southern union (SUG) right at $16 and have put in a tight tracking stop (It's manual and is looked at daily). I think it has more room to run going into the fall.

Aug 06 09:26 AM

[corey mendel:]

XLU - "Doink!" ... haha

Aug 06 02:03 PM

[carey_jim:]

"There is something rotten in the state of Denmark, er, America."

This could be the (unofficial) end of American free-enterprise capitalism, the final proof that markets not only don't work but that they can (and therefore will) be controlled by the government.

The open question is, will this American controlled, oligopoly capitalism come to the rest of the world in the form of fixed currency rates? (Notice I didn't mention the word fascism.) Otherwise, the dollar is finished.

"By heaven, I'll make a ghost of him that holds me back! I say, get away from me! Go on, I'll follow you." Exit Ghost and Hamlet. ...

Aug 07 03:14 PM

[Kinabalu:]

"If you don’t think companies like this aren’t front-running their recommendations, you’re living in dreamland."

Actually the HFT programs aren't front-running their recommendations, which would be illegal, they're front-running everyones trades, which probably should be illegal, but isn't, yet.

Aug 07 07:37 PM