What will happen today?
I don't know -- I'm asking you! Really. I have no clue the way this market's been acting. It didn't like $70 oil, but it doesn't seem to like $55 oil either.
I am wondering if the larger trading community is so unsophisticated that they can be spooked out of the whole market by a correction (long overdue) in the commodities sector. Last I read most businesses make stuff out of commodities, and tend to do well when those prices drop, but maybe I'm just getting old and out of touch with the new-fangled economy...
Cap sent me an interesting article by David Nichols who makes a somewhat disturbing point that perhaps stocks are a commodity too, and are subject to the same bubble deflation as oil, gold and copper as the money supply tightens up and the dollar rises. I have thought about this in the past, and we have discussed the market movement relative to foreign currencies, but REALLY thinking about it as just another commodity (with M&A taking $1.3T out of circulation this year accounting for the bulk of the move) makes this whole thing seem a little tenuous.
Of course nothing is as disturbing as the report we discussed yesterday by perma-bear Marc Faber entitled "Irreparable Cracks in the Financial System" which you should force yourself to read even though it's depressing, as he makes a lot of good points. I'm saying this today as I see several disturbing market trends while I also see a lot of irrational exuberance and like Uncle Greenspan, I may feel the need to take away the punch bowl if the party starts getting out of hand!
Asia was getting out of hand, and China is tightening up on the money supply in conjunction (or related to) the rapid decline in commodity stocks. Apple had a VERY interesting effect on Japanese electronics manufacturers as they sold off on concerns that they have lost their innovative edge to the Americans. When did you think you would ever hear those words again? If you think about it, it's true. While it's been many, many years since we held the title, America used to lead the world in new and cool technology, while Asia used to mainly refine and miniaturize.
As I write this right now you are reading this article, which I published myself (unheard of) in a window (which we didn't have then) on the Internet (we didn't even have modems) and I instantly get feedback from Brazil, Jakara, London and Taiwan from readers who immediately fill me in on the local gossip. In short, we have better access to "information at our fingertips" now than the entire CIA did in 1984.
Forget the fact that we use it to look at pictures of Paris Hilton going commando -- it is still a Brave New World we have all become a part of and I, for one am excited to be here!
Asian investors were not too excited with the Hang Seng down another 329 points and the Nikkei playing catch-up by dropping 295 points. Are you prepared for a 295 point down day? Remember I am a bull with a short-term target of Dow 11,500! I would like to say I would be pleasantly surprised to be wrong, but I won't be. I will not be able to really enjoy additional advances unless we get a long-overdue correction out of the way. As I said yesterday, if the iPhone can't inspire people to get back into tech, then we really do have to lighten up at this point.
Europe is selling off as well, but this started at their close yesterday as they panicked about our weak open and will continue until/unless we can turn things around, which will be difficult as they are bidding our futures down sharply in the pre-market!
- If we don't recover Dow 12,400, be afraid, be very afraid! Next stop is 12,300 on the express train to 12,000.
- The transports can save us by breaking through 2,700.
- S&P must hold 1,407 or it will be testing the 50 DMA at 1,400.
- NYSE 9,000 is still the line in the sand -- we held it so far but the bears are grinding us down! As I said Monday morning, this is our canary in quicksand...
- Nasdaq MUST hold 2,425! Without the Nasdaq we have no hope -- end of story.
- The SOX broke out over 470 yesterday! Can they hold it? Imagine the demand for state-of-the-art components as everyone plays catch-up with Apple.
- Russell needs to retake 780 or it is a dead canary!
So on the whole I am going to play this week close to the vest until we see next week's economic data. While I would welcome a correction, this may also be the early stage of a massive global rotation out of commodities and Asian stocks and back to the good old U.S. equity market -- it could happen but don't hold your breath!
Wasn't it just yesterday that I accused major oil companies of being as bad as OPEC. Well, I've done a little more reading and I will have to apologize -- they are worse than OPEC! BP PLC (NYSE:BP) is now reporting that, unlike OPEC, who failed to enforce a 3% production cut, they did manage to reduce oil and gas output by 5% in Q4. Chevron Corp. (NYSE:CVX) also did their share by cutting back 2% -- very suspicious considering the quarter they are comparing it to came after we got hit with 2 major hurricanes!
On the whole, international oil production is off about 3% from last year's hurricane constrained flow -- and we still have too much oil! ROFL!!! Oh I hate to say I told you so but -- oh, who am I kidding -- I TOLD YOU SO!!!
The dollar is looking stronger and will really confuse everybody by breaking over 85, where it should retest a nasty descending 200 DMA at 85.5. A breakout over that and my global rotation theory will come into direct competition with Mr. Nichols' stocks-are-a-commodity theory, and I would love to see how that turns out!
Gold will do whatever the dollar doesn't, and its complacency indicated just how calm the geopolitical situation has become of late. $620 is still the line to watch, but I think we're looking at a weak bounce on the way to $575.
The trade deficit "unexpectedly" narrowed to 58.2B -- unexpectedly to economists who don't understand that oil is something we buy. Try to remember this next time you are reading their "economic forecasts."
Alcoa Inc. (NYSE:AA) reminded everyone that they do, indeed use tin to make planes. I never include them as a Boeing Buddy™ as they do so much other stuff, but it was, in fact, aircraft orders that made their quarter. Our Apr $30s ($1.20) should be in exceptional shape and we are finally getting the value recognition I expected last quarter.
No picks today -- let's just be careful out there!
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