Wednesday Outlook: Commodities, Emerging Markets

<< Return to page 1 - No Rhyme or Reason

“Incredulity” certainly was my reaction to market moves yesterday. Good earnings drive stock prices higher generally. But horrible numbers the past few trading days don’t seem a bother to bulls that are dismissive of this “old news” and are “forward looking”. They have other things on their minds like falling energy, commodities and a good short squeeze opportunity. After 35 years of exposure to this business,  not much should faze me. But Tuesday was one I’ll remember for a long time.

As I said, the market is in the hands of professional short-term traders abetted by government policy and actions. You’re not seeing Main Street beating down the doors of their brokers wanting to buy stocks - that’s for sure. So understand today within that in mindset.

Have a pleasant day.

Disclaimer: Among other issues the ETF Digest maintains long or short positions in MZZ, IWM, TWM, IEF, PST, TLT, TBT, GLD, DBP, EFA, EFU, EEM, EEV, EWZ, RSX, FXI and FXP.

Comments

[SA Editor J...:]

Dave,

I think we're all scratching our heads after yesterday's action. Just wondering, what percentage of it was simply a short squeeze? My guess would be almost all of it.

Wachovia and WaMu especially were heavily shorted going into earnings (12% and 26% respectively since late June according to Yahoo - I can only imagine these numbers increased since). Once most of the shorts cover, I think we'll see significant downward pressure on the financials again as who is willing to ante up after these rallies and with these kinds of earnings reported?

2008 Jul 23 05:21 AM

[Alan von Al...:]

Always, always a pleasure to read you, David. Thanks.

2008 Jul 23 06:34 AM

[scobbydube:]

Come on Dave, haven't you been listening to MSM, the bottom is in.. Time to buy.. Thanks enjoyed your comments as usual.

2008 Jul 23 07:06 AM

[buyitcheap:]

Funny how these non-recurring charges show up every year. Oh wait, they're "different" non-recurring charges.

Good weather reports on the wheat front is going to drive DBA down further, a good ETF is the AGA (short ag) but the volume on it is horrible.

Great post again David - bought your book and am looking forward to reading it over the hot hazy days that remain.

2008 Jul 23 07:20 AM

[fatcat:]

Love your articles,David...top 10 of all financial authors,IMO..

2008 Jul 23 07:49 AM

[Brian in Mo...:]

Thanks Dave, I thought I was losing it yesterday especially between 2 and 4pm, I was mostly watching AAPL do an impressive comeback, and I thought it would finish weak. Even worse, most of the out of the money puts (for protection) closed negative even though AAPL was down $4. Large volumes too, I guess nobody needs protection any more. The morning prices were'nt great either of course but that I expected from Wall Street.

2008 Jul 23 08:35 AM

[eh:]

It's called short covering -- you must have heard of it. 'Sell the rumor, but the news.' Also as a result of recent rule changes disallowing naked short selling, all the big players/hedge funds who were doing it -- your average retail brokerage customer cannot naked short sell -- are being forced to cover.

2008 Jul 23 08:51 AM

[SA Editor J...:]

'eh' - Wachovia and WaMu were left off the SEC's 'Protected List' so that argument doesn't really explain the action in WB and WM specifically.

2008 Jul 23 09:01 AM

[bluesmoke:]

Dave, a lot of us are scratching our heads! Thanks for the posts.

2008 Jul 23 09:18 AM

[ICouldBeWrong:]

Great article.

I plead guilty by the way. Went short S&P500 at 1259 got squeezed out at 1271. Sold all my Yen, have to totally regroup and rethink.

It was an exciting day, great battle.

2008 Jul 23 09:24 AM

[John Pseudonym:]

Prediction:

Wells Fargo execs are now selling their shares and this news will sink the stock once again.

My guess is that they announced the dividend increase and did everything they could to paint a "rosy" picture of their business in order cause the shorts to run for the door.

Now they have a second opportunity to get out with their heads and I bet you they will take it.

2008 Jul 23 09:25 AM

[mr.verymuch:]

what's an ordinary small fry investor to do?

2008 Jul 23 09:42 AM

[parnelli96:]

"The week's not over!"

2008 Jul 23 09:49 AM

[kellertax:]

Enjoy your work and, especially, your comments. Just noticed, though, some major discrepancies between your 200 day ma's and those posted by yahoo & several brokers. For example, you show GLD at 61.88. Yahoo charts it at 85.73 using yesterday's close. Why the difference?

2008 Jul 23 10:16 AM

[J. Fredrickson:]

I want whatever Wall Street is having! There is something in the water out there. LSD?, PCP?, Ludes? Any other guesses?

2008 Jul 23 11:22 AM

[Mark W.:]

You comment about the XLF and the prior retracement higher, compared to the current one, omits one important difference: volume. Volume declined on the prior retracement higher, as would be expected of a bear flag. Volume on the recent move higher, no doubt fueled by government intervention, shows higher volume as price forms a bear flag.

2008 Jul 23 11:22 AM

[secmaven:]

Thanks, David, for another informative post. Compare Apple's earnings announcement with Wachovia's. Then compare the price action! Logic has never been a hallmark of the market of stocks or has it? The question is..who is left hanging around to sell banks stocks? The weak sisters have pretty much been shaken out. On the other hand there are ton of Apple shareholders in at much, much lower prices who are using every opportunity to lock up their gains before they grow smaller. Fear trumps greed every time.

2008 Jul 23 11:36 AM

[Mr. Hamilton:]

Well...

2008 Jul 23 01:37 PM

[Mr. Hamilton:]

Interestingly enough... As soon as bad news turns into worse news... A.K.A. bankruptcy, the shorts mentality will change.

2008 Jul 23 01:41 PM

[whatadifada...:]

I just posted an article specifically on this topic...WB........Find it, read it if you wish.............The WB rally is nothing more than another Goldman Sachs Croney fools rush in theory..........Regard...

2008 Jul 23 09:43 PM