Wow, I love it when the world makes sense… I was starting to think I was crazy as not one person in CNBC agreed with my call for a rate hike and it was causing me to rethink my World view but, as the BOJ said in their statement: "生産・所得・支出の好循環メカニズムが維� ��されるもとで、緩やかな 拡大を続ける蓋然性が高いと判断した。"
This is exactly what I’ve been talking about! More telling was their very positive statement regarding our economy:
Uncertainties over the future course of overseas economies, including that of the United States, are abating, and this is likely to reinforce the prospects of continued increase in corporate profits and business fixed investment.
That first statement, "a virtuous circle of production, income, and spending" speaks volumes for the bank’s confidence in their own economy as well.
So, on the bright side, the world economy is chugging along and, although this hike, by necessity, puts the Fed back on the table, it’s doing so for all the right reasons. As I said yesterday (and for months), the only industries hurt by this are the bubble commodity industries, which simply aren’t worth what they are being paid and will come down hard when money is no longer free.
Asian stocks were mixed overall as Japanese stocks took their rate hike pretty well in stride. Tokyo Steel announced price hikes and jumped 8%. Nissan (OTCPK:NSANY) just said no to Chrysler in what I predict to be the first of many rejections for DaimlerChrysler AG (DCX), who paid $36Bn for the company in 1998. DCX plans on cutting 13,000 North American jobs this year, and it remains to be seen where they book those costs but I’m thinking this 15% rally in a company that will be lucky to get $10Bn back on their investment (after losing Billions operating it) is just a bit overdone. April $70 puts are $2.35 and we can set a stop at $1.90 as any upward movement here means I’m wrong so we can get out quick.
Speaking of overbought auto companies - how did we forget to short General Motors Corporation (NYSE:GM) at $36.50? I don’t like the June pricing, so I’ll take my chances with the March $35 puts for .80 and will roll to April, May, June and July if I have to wait that long for someone to realize how ridiculous it is to keep plowing money into this catastrophe.
Europe is waiting for us to do something this morning, very dull over there other than Blair setting a timetable to pull at least half the British troops out of Iraq. It will be interesting to hear how our administration spins this as a positive thing!
As to U.S. levels - up is good, down is bad. Rather than do our usual numbers today, I’m going to refer to the charts of our major indices and give you an idea of what I’m looking for when I come up with these seemingly random numbers in the morning:
We can see a VERY synchronous pattern forming with the Dow, the S&P and the NYSE while the Nasdaq suffered from an early (and failed) attempt at leadership coming out of the gate in January. Like a horse throwing a shoe, the SOX fell off the table and the Nasdaq quickly fell behind the rest of the pack.
Are we toppy here or are we heading higher? Today will be very telling, and I’ll update this after the CPI (6:30 now) but from a charting standpoint, we’ve done our test (the little spike at the bottom of each candle), and today is a day to confirm direction. What we don’t want to see is anything more than a 50% retracement of yesterday’s gains; you can see in prior sessions how that can quickly lead to trouble. Ideally, we’d like to see a floor established at yesterday’s highs - that would be a huge breakout signal but it would take some pretty low CPI numbers for that to happen.
If this is a genuine Meatball rally, then the BOJ, the CPI, oil inventories, Hewlett-Packard Company's (NYSE:HPQ) outlook… Just won’t matter and these charts should tell the tale. For more information on interpreting candlestick charts (which I highly recommend using), click HERE. The short story on today’s charts is, other than the briefest of spikes, we don’t want to spend any time in the lower half of yesterday’s candles - if we do, you need to consider lightening up on calls as we are likely in for another round of consolidation as we attempt to grind these markets higher.
Oil has no reason to go higher so perhaps it won’t. I don’t think we are getting inventories today (holiday), which means I could have held my puts another day but, since I won’t be around this afternoon, I still feel safer in cash! We are going to maintain $58.50 as our pivot point on the new April contract and, if it is unable to crack that, we may be on our way down to a test of $57. If I were an evil manipulative oil roach, I’d be pulling out all the stops this week to pump that contract over $60 before gravity gets hold of it as starting the month with 336M open barrels doesn’t give you a whole lot of room to play.
Zman is on his game today with an excellent overview of the NYMEX situation, pointing out that longs have been paring their positions, hitting an eight-month low in interest (45%) after the sell-off I pointed out last night. I will be putting up a post on the members site to highlight some additional energy plays we should be watching.
Gold SEEMS safe at $660, as it should provide some support, so let’s take it very seriously if it breaks down. As we discussed yesterday, the Yen carry trade can unwind in mysterious ways as I think a lot of Yens have been pouring into Euros and commodities, not so much into Dollars. The dollar looks beaten, defeated by the 200 dma we’ve been testing since mid-January and it will take a Rocky-like comeback for it to get back off the mat at 84. We would all do well to remember Rocky’s battle cry - Yo Adri-YEN!
8:30 Update: The CPI came in a little bit hot, that makes today a good test of the market’s true conviction, now we can expect a dip so let’s keep an eye on yesterday’s lows but a tiny bit of inflation is no reason for a big sell-off, if we get a big drop then it’s more about nervous investors taking an excuse to lighten up than a sudden concern for inflation.
HPQ’s earnings were pretty good, but outlook was tepid at best amid pricing concerns. I’m not too concerned, however, and we will be looking for a buy opportunity on the dip.
Who says it’s not worth making campaign contributions? Philip Morris dodged another bullet yesterday with a 5-4 Supreme court victory reversing a $79M award in Oregon. This is, of course, chump change compared to the $10Bn the court threw out in November as the Supremes upheld the right of the Illinois Supreme court to toss a lower court’s ruling that tobacco companies may have misled consumers since "light" cigarettes are actually worse than regular ones.
The Chicago Tribune reports that Philip Morris’ lawyers "contributed $16,800 to help elect a judge who cast a deciding vote" in the case. Judge Lloyd Karmeier "also received $1.2 million in campaign money from a group that filed an amicus brief supporting the cigarette-maker."
The Illinois Chamber of Commerce, "which also filed an amicus brief in support of Philip Morris, contributed $269,338" to Karmeier’s campaign. Yet Karmeier did not recuse himself. The court’s press secretary said Karmeier "has tried to insulate himself from knowing the identities of campaign contributors and would not allow campaign contributions to have any effect on his ruling in this or any other case."
Also last November, a U.S. appeals court issued a stay against a pending class-action suit by "light" cigarette smokers, overriding a Federal Judge, in what may have been a $200Bn industry lawsuit. The Florida supreme court did their part for democracy last summer by tossing out a $145Bn award against tobacco companies as "excessive."
How much does it cost to buy that kind of justice? Surprisingly little, Congress received " just " $33M in the past 10 years - talk about bang for your buck!