No thump on a Thursday? That’s great!
Back on Wednesday morning, after Tuesday’s massive gains, I said: "We don’t know what will happen today but holding 75% of yesterday’s gains would be just great and anything else will be a bonus for the day, it’s all up to Bernanke this morning and we’ll have to stay light on our feet but there is not much market moving news this morning other than a strong quarter from BBY, which should be a nice boost for the electronics sector and, hopefully the semis." Well, we got exactly what I was looking for, good consolidation and SOX leadership with a huge breakout well above our 350 line, now 370.
The dollar has weakened slightly, which has been supporting commodity prices and I don’t think we’re going to get through 72.50 (20% below our median top of 90 in ’05 and ’06) without some catalyst – something I was expecting this week but clearly we are not getting. This has allowed oil to hold $100 for the week but Wednesday’s 8Mb build in crude will not be the last as nervous speculators continue to rush barrels to market before the bottom falls out. Priced in Euros, you can see that oil is in a more pronounced downtrend and we have seen late session sell-offs at the NYMEX in 3 of the past 4 days. There is a lot riding on defending $100 for oil and we have several bets on that they will not be able to keep it together for 2 more weeks.
Gold traders are much smarter than oil traders and they have been selling off fast as gold traders tend to anticipate currency moves in advance while energy traders are always hoping that there’s a catastrophe right around the corner that will justify the extra 40% they paid for their oil. Here’s an interesting chart of oil priced in gold – notice how it’s run back up to December highs already, if gold doesn’t turn up and support oils move, $100 is very unlikely to hold. Oil fell 15% from its December highs and has no real support above $88 if they fail at $100 so let’s keep an eye on gold $900 as a make or break for crude as much of the hot speculation money in oil now is as a relative inflation hedge.
Another indicator we like to watch is the transports, as their fortunes are heavily tied in with the price of oil. The transports did break over our 2,600 target on Tuesday and have been holding it nicely, indicating they think the "recovery" in crude that was engineered this week was total BS as well.
You know the commodity bulls are in trouble when Goldman Sachs has to "warn us" about dollar weakness due to a poor us economy causing a global recession or record demand causing commodity prices to rise or some other contradictory rubbish that suits their purpose for the day. This morning it was a downgrade of the Japan auto industry, citing the yen’s gain against the dollar AND rising steel prices (which are rising in dollars but not in Yen if the Yen is going up). The dollar is down 30% against the Yen since last year and is just recovering 5% after being down 20% from just December!
We shorted X yesterday as Goldman’s premise is ridiculous and TM already warned that they expect to sell 10% less cars (which are still the main consumer of steel) and contstruction is slowing down (the other big consumer of steel) and iron ore and coking coal costs are through the roof. I used to worry when I went up against Goldman but they’ve been on the wrong side of everything lately, at least in their published reports – internally, their bets seem to be working, perhaps something Congress should take a look at when they are done with BSC…
The SEC is taking "very seriously" BSC CEO Schwartz’s statement that "It looked like more than just fear, it looked like people wanted to induce a panic. The minute we got a fact out, more rumors started or there was a different set of rumors." This may be enough to muzzle the hyenas for a few weeks and that, by itself, could lead to a market rally.
Meanwhile, I pointed out last month that 86% of the CEOs surveyed thought business was going to be pretty good this year and InsiderScore.com shows that they are putting their money where their mouths are with a massive upswing in insider buying.
Tomorrow we get the jobs report and people are expecting a drop of 50,000 jobs, pushing us dangerously close to recession levels of unemployment. Since jobs numbers are routinely adjusted up and down by 50,000 jobs in revisions, we need to be ready for anything in the morning but we’re pretty well covered and most of our headaches will come from a big upside rally and I’d rather deal with that than the alternative so we’ll see what happens in the morning.
