April 2009

Below are the last two FOMC statements:

The most important part of the minutes will be the wording. The rates won’t be cut (we’re already at our lowest rate) and they won’t be raised (we’re in the middle of a deflationary cycle where raising interest rates would kill any hope of a recovery and send us for sure into a second depression). So that leaves the wording.

If you look at the 3rd paragraph of the March 18th release, they discuss actual numbers for the programs they plan to implement. Up until that point, we had no idea how big the programs were going to be. They said they intend to increase the purchasing of MBS, longer term treasuries, and agency debt. I’m not sure how much of this has actually been purchased already, and whether or not the programs need to be expanded just yet. I’m not sure if the numbers are out of exactly how much of the program they have spent. If someone has that info, that would probably be pretty helpful. If they expand the programs further I would expect another pop. If they don’t expand the programs, we could stay flat or sell off.

Last release, the move in commodities, particularly precious metals was extraordinary. Gold was hovering above 880, and closed the NY session at 950. FCX rose from 34 to 38 in that time period. All miners were on fire. Financials had a nice pop, but the extended move was in precious metals. Why? Because basically the Fed is beginning an inflationary cycle which at some point in the future will catch up to them. On the announcement, the key levels in gold will be 920 and 950 on the upside and 880 and 859(200 dma) on the downside.

I think if the market reacts negatively to the announcement we would see extended selling in the financials, and if it reacts positively we would see extended buying in precious metals. I think both will move on a strong reaction either way, so on the initial move I will probably trade financials. Then I will decide which of the two sectors I will continue to trade based upon what I expect and how they are reacting.

Well what looked like was going to be a week for the bears ended up being a pretty good week for he bulls.  Let’s keep an eye on that 88 level in the SPY, as it looks like it’s going to come into play again this upcoming week.

The dollar index looks like it is breaking down from a bear flag.  This is definitely something to keep an eye on, as a weaker dollar will lead to strength in commodities, particularly precious metals.

More than half of the companies that have reported Q1 earnings have beat estimates.  After what started off looking like a dismal earnings season, may turn out to be not that bad after all.  We’ll have to see if this trend holds up.

A comparison of rallies off bear market lows.  These two charts show where this most recent rally falls in terms of volume and percentage gains.

Gold is acting well.  After looking like it was going to trade back down to 800 for a day or two, gold has rallied and finished the week above 900.

Over at Naked Capitalism, Yves thinks the stress tests may be a charade.  Insiders are selling into this rally at very high levels.  A really interesting article, definitely worth the read.

Rumors are circulating that the SPY is becoming hard to borrow.  Very interesting indeed.

From the people who brought you FAZ and FAS, Direxion, has launched triple T-bond ETF’s.  It’s currently very thinly traded, but so were FAZ/FAS when they first started.  I think these will become increasing more liquid, and will provide equity traders with an opportunity to trade bonds for volatility swings on the release of economic numbers and Fed meetings.  Definitely keep an eye on these.

The SPY has formed a 3 push wedge, with a negative MACD divergence,  and could be presenting trader’s with a good risk/reward entry for a short.  88 was also a level where the SPY failed twice earlier this year.

A little humor.  I’ve seen some some pretty good stuff from Dilbert lately.  Here’s a few more. 

 Checking in on the 4 bad bear markets.  This is the second worst bear market of the past 100 years. 

An interesting article from the Journal talks about the possible effects leveraged ETF’s may have on the final 30 minutes of the trading day.  Definitely worth a read.

According to  Bespoke, stocks with the highest short interest have been the leaders in this rally.  Could this just be a short covering rally?  We’re not sure yet.  But they also note that market bottoms have started in similar fashion in the past. 

There’s a lot of skepticism on the bank earnings from the last week.  If one digs into Citi’s numbers, they see that the company actually lost money.   Goldman did some accounting acrobatics in order to report stellar numbers.  There’s also been some questioning on Wells Fargo’s loss reserves.  All in all, banks beat lowered estimates, but after Goldman’s earnings this past week, things felt like they changed, even if it was just a little.

China has made yet another move towards moving away from the US dollar.  This is something to keep an eye on in the future, as China is the biggest holder of US currency, and a change in their policy would have major effects on US monetary policy.  This will take some time to play out, but it would be prudent to not ignore this.