The Giants got their butts kicked yesterday which will put a lot of traders in a bad mood today.
Also getting their butts kicked are the dollar and the US trade numbers, which may make a new record on Friday. Last year the trade deficit was held down by a dock strike in California but this year shipping was at all-time levels and you don’t have to go further than Detroit to find out which way those ships were heading.
I’ve shown this chart before in recommending Toyota but we also need to look at it while thinking about the trade deficit: http://finance.yahoo.com/q/bc?t=1y&s=HMC&l=on&z=m&q=l&c=f+tm+gm
I’m not going to go on about how bad this is but here’s a very well written article you might want to at least look at the graphs of to help you understand why I’m still a tiny bit skeptical about this rally: http://www.321gold.com/editorials/conrad/conrad060205.html
It is interesting to note that the only country whose deficit even puts a dent in ours, Egypt, had one of the best performing markets last year (but they have oil). So, while I have strong underlying concerns, I also stand ready to ignore the facts and start buying if everyone else is but I will be ever vigilant, especially coming into Thursday’s trade report and Friday’s inflation numbers, which were surprisingly up in Europe, causing gold to break $540 an ounce.
$540 was the magic sell-off number for US traders last month so today will be a critical day for gold movement. Gold up and markets down today should make us very cautious indeed. Also look for the Alito confirmation hearings to highlight how divided our government is, this always sends a bad signal to foreign investors.
But the US stock market is not the same as the US government so we do not have to worry about them going up and down together. In fact there are definite advantages to a weak dollar if you can ignore our debt, which you can’t. Corporate debt is very low so it is really the consumer we have to worry about and, if the US consumer stops consuming, the world markets will all suffer.
On the brighter side, I am seeing similarities between the S&P of 2005 and the Nikkei of 2004. If the world markets don’t come down, expect the S&P (and other indexes) to really take off this year.
http://stockcharts.com/gallery/?$NIKK
I stick by my statement that Nasdaq leadership is absolutely critical to confirm a rally. Now that the excitement of the CES is over, we will see if the move up it had last week can be sustained. Dow 11,000 is make or break this week.
Back on Jan 1 I listed my conditions for a 2006 rally:
- An end to Fed tightening (not as likely as everyone thinks with Bernanke in charge)
- Housing slowing but not stopping, sending investment dollars into stocks
- A light at the end of the Iraqi tunnel.
- Democratic control of just one of the house or senate (markets love it when laws can’t be changed)
- A Nasdaq charge led by Microsoft (not looking good atm)
- GM recovery (if they can work it out, the Dow will fly).
As long as no 3 of these items look in doubt at the same time, we can continue forward but watch out below if 3 turn sour.
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I’m expecting a weak open today and will be taking most profits off the table this morning. I’d rather buy back into a rally a little behind than watch my holdings deteriorate on a bad day.
I’m watching big gainers like AAPL and SNDK for signs of a pullback but these are dangerous shorts.
Home builders will be interesting this week after modest gains last week. Watch BZH to guage market direction – if they drop then the sector will too.
Oil movement will be key as big traders come back from big vacations today. I have a long on HAL that I will be getting out of if oil hits $63.50.
I totally missed the resurgence of VZ last week but it still has a long way to go before it begins to catch up to AT, T and S who also look strong. http://finance.yahoo.com/q/bc?t=1y&s=S&l=on&z=m&q=l&c=vz%2Ct+at I’m going to take the Apr $30s for $2.50 (a $1.15 premium) but will get out if the stock is rejected by the 200 dma of $32.50.
IBM may give another entry point today on a mild pullback but I’m a lot more interested in whether GOOG can hold the $460s.
ABX is the way to go for a long gold position as long as gold stays over $540. It is a very slow mover due to worries over their PCD acquisition but, if gold hits $600, this stock can double.
For those who disagree with me on WFMI, take a look at what happened to GAP when they disappointed (and their p/e is 3!!!): http://finance.yahoo.com/q/bc?s=WFMI&t=3m&l=on&z=m&q=l&c=gap
YHOO is still a safer way to play a Google rally, I like the partnerships they are lining up.
CHRW is a another truck play I like (in addition to YRCW) as long as oil stays below $65. Look to FDX and UPS for sector leadership. FDX may be a bit overextended after a 40% rally since mid-September. Oil over $65 will drop this stock down to around $95.
Copper is back with a vengeance, expect PD and PCU to retake their recent highs.
The cat’s out of the bag on COP, it moved up nicely on Friday. I called this last month at $57 but they still have a long way to go if oil continues to go up.
Coal has hit a tipping point as South Africa and Pacific rim countries step up the exports of their generally more expensive brands. While I don’t think the price will deteriorate significantly, I think this may represent a ceiling.
BCRX has room to grow.
EK is still one of my favorites.
Trade of the Day looks like cash until we see where the markets are going. Best case scenario is for a light pullback early in the week and a turn at the end based on strong retail sales and easing oil prices.
Good trading,
– Phil
