Today we wait.
We wait for Bernanke to speak to Congress, we wait for oil inventories to see if the pullback was justified, we wait for Retail Sales, Inventories, Import/Export Prices, Industrial Production, Cap Utilization, the Philly Fed, Housing Starts and Permits and the PPI, all coming between now and Friday morning.
So we wait…
North Korea agreed to disarm and shut down their nuclear reactor as long as the South Park guys stop making disparaging puppets of their leader. We are jetting Matt and Trey off to Pyongyang where Mr. Il says he has something special waiting for them! Seriously, this is really great and we can only hope that we get a positive reaction to this news that was half of the negative reaction we got when they conducted their first test.
Asian stocks were mostly higher but you can't ignore that 461 point drop in the Hang Seng as China's runaway trade surplus caused concern that the Government would find it necessary to intervene. The G7 issued a communiqué this weekend that "in emerging economies with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments will occur."
Would Russia be pushing for a natural gas cartel if there was a shortage of natural gas? Even the IEA thinks this is a very bad idea as it "will encourage consumers to reduce demand or switch to other fuels. This is particularly true for gas, which can be substituted with coal and nuclear."
Elsewhere in Europe, Google was found guilty of violating Belgian copyright law by publishing "snippets and links to Belgian newspapers on its Web site without permission." Could this have been the reason for Google's recent decline? It is sort of their whole business model… Don't worry, Yahoo, MSFT and TWX are next!
European markets are flat but positive ahead of the US open.
I'm looking for flat to up over here today as well – there just isn't any real negative news and we have the possible AA buyout to boost the Dow right out of the box. We are still having our February Deal of the Month Contest so feel free to pick a winner in comments, it's not too late to pick AA as it's still just a rumor but someone should have jumped on that one after yesterday's NVL announcement!
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Dow needs to get back over 12,600!
- Transports need to hold 2,850.
- S&P needs to retake 1,440.
- NYSE is our king canary today and needs to break back over 9,300 – ANY downward move here should be taken as a very bad sign!
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Nasdaq must hold 2,450.
- SOX 455 must hold – this is big canary number 2! We are already at our final fallback level here…
- Russell 805 needs to hold – it would be nice to retake 810.
As I will be away for most of the day, I will be setting 20% trailing stops on all March and April contracts as I've been wanting to pare down positions anyway and this will help me let a few go. I'm anticipating a nice market move next week and I only wish I knew if it were going to be up or down but increasing my cash position seems prudent at this juncture.
A lot of that will depend on whether oil manages to go up or down from here. Shane Smith of the IRR Group has volunteered to be oil bear number 4 in our rapidly growing team (up 100% this week) and he submitted this less than bullish May 6th report on BP last night as credentials. I really thought we'd get a bounce off of BP so we could re-enter March puts but it's not happening and it looks like we took ours off the table too early!
We still need to keep an eye on $58.50 as a danger zone on top for oil but let's watch $57 as a floor test. Key downside resistance will be found at $56, $54 and $52 so these should be easy to remember but ZMan and I both expect tight inventories this week, especially on natural gas and if they don't pump that for all it's worth, they will be listening to next week's inventory report in shorts and t-shirts on the NYMEX floor as warm weather moves in early this year.
Don't be fooled by the snow storm. Snow doesn't make things colder and it cuts down on driving and severe snow slows manufacturing as people miss work, all of which uses LESS fuel, not more.
It's all about the dollar though and although there's a million reasons for it to go down, the problem is that there are already a million millionaires who are short on the dollar, giving it a full-scale $1T monolith of worry to climb. People will not be just wrong if the dollar breaks out over 86, they will be epically wrong, biblically wrong even!
This isn't the first time we've had a dollar crisis and it won't be the last but current bounce has been looking like a mere uptick in the long-term downtrend that the dollar has been in and, much like oil has been bet to the upside, the shorts on this commodity have been piling in.
As a good lesson in diversification, the bullish commodity play and the bearish dollar play are essentially the same bet and, if this thing starts to unwind, there will be many, many big players out there who will suddenly realize they are NOT DIVERSIFIED.
