Investors Skeptical about how much further the market can go up + A Global Economy that has suffered some challenges lately (Dubai anyone?) + the fear that the Fed will start raising rates soon. = Pressure on the stock market and more people buying Treasuries which pushes prices down and rates up.
More investors—nervous about the global economic recovery and skeptical about how much further stocks can rise—are beginning to turn to the dollar as a safe haven. That has boosted the dollar’s value in recent days and led to speculation that the rebound may continue, regardless of what the Federal Reserve does with interest rates.
Ironically, the shift in sentiment was triggered partly by Friday’s better-than-expected employment report, which served a dual purpose: it reinforced the notion that the job market is still tight but raised fears that the Fed could start raising interest rates again.
The rising dollar has sent both stocks and commodities lower. And analysts see stronger signs that investors are moving away from those more risky investments and into the safety of the dollar and US Treasurys.
This is the weekly column by Max Whitmore that he writes after the market closes on Fridays…
Enjoy!
Tom
12-7-09
INTEREST RATES IN THE FEDS SIGHTS?
CURRENTBUY – 100% of portfolio stock allocation $$$
SUPER CHART 7-25-09 BUY 50% allocation only (S&P @ 970)
SIGNAL 10-9-09 BUY balance of 50% (S&P @ 1071)
Well, we got the best of both worlds last week, lower bond and gold prices and a higher dollar, plus a bonus by getting above the 1,100 S&P level and staying there most of the week, finally closing at 1,105.98 on the S&P cash index. And add to that the cooling of the Dubai problem, at least to the degree that it is not a front page worry. It was an almost perfect week for the charts.
But, don’t think that we are out of the woods just because all the good stuff lines up end to end. The weakness that the Dubai episode uncovered nearly two weeks ago is still there. But, as of this writing, it is fair to say that it is likely no longer a game-breaker. But, what it did show to all was that the world’s central banks still have a long way to go to regain the confidence of investors.
I have said a number of times over the last two years that the worst nightmare of Mr. Bernanke, our Fed chairman, is to lose the confidence of investors. His concern over this is one of the reasons that the huge flood of “newly printed” dollars continues. At all costs, he does not want deflation to gain the upper hand. So far he has been able to keep control, which is testified to by the stock markets seven month rise.
But, last Friday’s employment report may signal the beginning of a different battle for investors. Instead of the expected near 125,000 job loss, the report showed only an 11,000 job loss and every investor in the world suddenly looked up from their computer screens and said in unison “What!?!”
The bond guys were the only ones not caught flatfooted, as I see it. They began to sell bonds last Tuesday and sold bonds heavily on Wed and Thur. When the employment number came out they just continued to sell. Bonds fell over 4 points in those three days. That is a huge drop and a clear sign that they had some sense of the coming employment numbers. I don’t mean they knew somehow from a cheat sheet. They just sensed it coming from data released during the previous three weeks. They were right.
Now, the big fear gripping the markets shifts into a whole new direction. Remember last week when I told you that Australia had hiked their interest rates for the third month in a row? I told you that there was a drum beating in the distance. Well, the drummer is at the door now beating like there is no tomorrow. The tune is called “When?” That is, when will the Fed and other world banks begin to hike rates?
Last February the Fed said they would keep rates low for “an extended period," as you may recall. Now investors are wondering if that period is rapidly coming to an end. Will the Fed cease entering the market and buying bonds to thrust more funds into the economy? Will Mr. Bernanke say something soon (maybe even today as he continues to face Congress during hearings that seek to give him another four year term) to indicate that rates may finally go up a bit? You can be sure that investors will be watching. And, of course, so will I.
OK, with all this as the backdrop, just where are we on the charts? Well, there is a short answer and a long answer. Let’s just stay with the short one. OK? The short answer is that the S&P continues to climb. Right after the employment numbers were announced at 8:30am Friday, there was a shot by the markets to break above the current overhead resistance (at about S&P 1,130-40). But, the attempt failed as the dollar gained a huge chunk as the day progressed, mostly from the “carriage trade” traders buying dollars to cover their borrowing activities.
Whatever the reason, the bottom line for the charts was that supports did hold up as the markets backed off sharply. Will there be another try to break up through overhead resistance. For sure. When? Don’t know at this point, but a very important event occurred last week with regard to my Keyline that makes me more confident that this next try or two will succeed. For the first time since the crash 14 months ago late in 2008, my Keyline closed at tad higher price than the previous week. Why is this important? Because when my Keyline slope turns up, upside momentum has gained control of the chart.
Now this event is no guarantee we will just continue to climb higher, but in every BUY trade called by the Super Chart Keyline since I started to keep it 40+ years ago, that “turn-up” point was followed by at least 5-7 months of higher Keyline prices each week, with the S&P close each Friday staying above the Keyline.
Note I said Keyline prices continued higher each week. There were still ups and downs of the Friday S&P cash index prices, but even with these ups and downs the cash index stayed above the Keyline all during that time, too. My Super Chart Keyline still says that we are heading for the S&P 1,220-50 area (about 11,300-600 Dow) and, unless we close for six weeks consecutive below my Keyline, that is still where it indicates we are going. Will it be true to its 40+ year history again? No guarantee, but until it breaks my Keyline to the downside, we are going to the S&P 1,220-40 level, as I see it.
There was one other good chart development technically last week. Remember I told you of a concern I had about the Momentum Section possibly signaling a price retreat? Well, it did NOT come to pass. The green stochastic (fast) did drop to the 50 level as I felt it would, but then it move up sharply to close last Friday at 79.01. This means, also as I had hoped, that any potential decline that might have been signaled by this formation is, for the present moment, wiped away.
However, there is one cloud on the horizon, as I alluded to above. The most significant chart development of the week was the decline in bond prices last week. The bond market, one that no one can really control because it is so huge (not even the Fed), will now be watched closely by all savvy investors. For me, I will be watching my Bond Keyline like a hawk. Currently, it sits at last Friday’s close 115.26. I have attached the current Bond chart so you can see what last week looked like.
You can see that Bonds closed at 118 26/32 down from the over 123 reading of the previous Friday. But, we are still a tad over 3 points above the Keyline, still OK. But, if we were to close below my Keyline, it would signal to me that interest rates will likely be going up very soon, as the Fed anticipates a need to suck dollars out of the economy to dampen a possible inflation move. If that does occur, Mr. Bernanke will have achieved his goal of avoiding deflation for now. And it will be the first time in history that the Fed actually has changed the outcome of a possible depression. Will it work out that way? Hummmmmm. Stay tuned.
But, in the meantime, back at the ranch stock investors will be keying on the bonds far more than the dollar for awhile. Any real potential for higher rates – read that as pressure on earnings – will send them scurrying for the sidelines and we might see a test of my Keyline sooner than expected. But, let us not get ahead of ourselves. I would still be a stock buyer in here, albeit it on a bit of a reduced scale for now, until we see how this current change in the winds plays out. Keep checking here each day or so. For, if the situation gets more pronounced in bond selling and higher interest rates become a real threat, I will have a special report for you as to the next steps to take. Never a dull moment!
Now, for those of you that always like to have a quick wrap-up of what news influenced the market last week, here is how I saw it:
1. Dubai moved to the backburner, still there, but not a game breaker.
2. Bonds sold off as the big players in the bond market sensed a recovering economy worldwide that might lead to higher interest rates.
3. The Friday employment report caught most investors off guard, as it indicated only an 11,000 job loss, far below the expected 125,000 job loss. And the unemployment rate dropped to 10% from 10.2%. But, be careful, one month’s number does not a trend make!
4. The metal market, especially gold, eased off its recent new high price levels, as the dollar gained ground. And the dollar gained ground as “carriage trade” traders – those that borrow dollar at almost 0% and invest for higher interest rates elsewhere in the world – began to cover their borrowing by buying dollars to repay their borrowing.
5. Several of the big U.S. banks announced that will be paying back their government loans – opps, their Fed loans; remember the Fed is NOT a government entity – with the Bank of America the biggest one making such an announcement.
6. Not much in the way of political developments to move the market last week, but keep your eye on the troop surge progress and the Congress battling over the health care issue.
Of course, there were other events, but all were of much less importance that these six, as I see it. Hope that helps you put the markets reactions into perspective.
Well, that’s about all this week. The bottom line remains that the S&P is still above its Keyline by over 40 S&P points, bonds remain above their Keyline by over 3 points, gold is way above the Keyline, oil has been above its Keyline since early October (not such a good sign) and the dollar continues well BELOW its Keyline. Best scenario this week would be bonds steady, dollar steady to a little higher, gold soft, and the S&P staying above its 1,100 level. Worst scenario would be bonds dropping fast, dollar rising fast, and the S&P dropping below its 1,080 level.
Well, as always, do have a good investing week. And you keep in touch. I do! See you next week.
Max Whitmore
Closes as of Friday 11-27-09 CHANGE (cash index prices)
DOW Indu. 10,388.90 +79 points
S&P 1,105.98 +15 points
NASDAQ 2,194.35 +56 points
30 YR BONDS 118 12/32 -4 12/32 (big drop here!)
GOLD 1,169.50 -$10
OIL 75.81 -$.15
TOP 10 STOCK SECTORS LAST 6 MONTHS @12-6-09
1. BROADCAST (++67%) #2 LAST WEEK
2. PRINTING (+48.7%) SAME AS LAST WEEK
3. AUTO (+45.4% #4 LAST WEEK
4. ENGINES (41.3%) #1 LAST WEEK
5. PUBLISHING (40.8) SAME AS LAST WEEK
6. ELECTRICAL (+40.3%) SAME AS LAST WEEK
7. TOOLS (+37.7%) #9 LAST WEEK
8. CONSUMER PRODUCTS (+37.1%) NEW TO LIST THIS WEEK
9. MINING (+31.8%) #10 LAST WEEK
10. TEXTILE (+30.4%) #8 LAST WEEK
*The name Super Chart Keyline is a registered Trademark of Max Whitmore.
This was actually written on Monday, December 7, 2009 by Max Whitmore. I just didn’t get it up here until now.
Tom Vanderwell
December 7, 2009
MUNCHING THE NUMBERS
It was pretty much a nothing day in the markets. With Bernanke talking to Congress as they contemplate whether to give him another four years (they will) and the Copenhagen talks starting, you would have thought that either one would set off fireworks. No. Well, the truth be told, the market is still trying to digest the employment numbers from last Friday. How much to believe, how much will be revised, is this a start to a trend and other such questions will be rolled around in the minds of investors like a gumball under the tongue.
Don’t forget it is December 7th, too. It was a day that was to live in infamy, as you may recall if you are as old as I am. If not, it’s just another Monday to face the lions and bears in the “jungle” out there. But, I remember that day at the age of 5 quite well. All the grown-ups were very quiet. All but my uncle Bob, who decided to get into the Navy that night. In the end all the men in our family under 40 at that time did go, including my dad who had four kids at the time. It was a different world. They really were afraid their world was about to end. And it almost did.
Not much else to report today. We are still over 40 points above the Keyline on the S&P and bonds gained a bit today, removing some of the inflation fears they held last Friday. Reality is that inflation is still not the problem; deflation remains the gorilla in the room. He is quiet, true, but still a threat. Hummmmm. Don’t forget to buy some gold this month. Just put it away for the next 5 years. You will be glad you did.
So, until tomorrow, hope your investing day was a good one. Will be here again tomorrow, Lord willin’ and the creek don’t rise.
NEED SOMETHING TO TALK ABOUT TONIGHT?
SEVEN REASONS THE MARKET WAS FLAT TODAY
Bernanke reluctant to declare we are out of the woods. Jobs still the problem he says.
Conference Board goes the other way saying jobs data shows fourth month in row of growth.
Crude oil prices slump 4th day as investors fear slower growth expectations for economy.
Consumer Credit slips again and investors get a bit concerned they will be slow to spend
Copenhagen-Doha-WTO all weigh on market as fears of new taxes one day soon spread.
Told you so stuff – Obama says maybe use stimulus for other things beside stimulus.
Take your pick. Surely you can find one of them to talk about at dinner, over a beer, at the club, or while working out. Each one is sure to bring some kind of response from those that will listen to you.
Closes as of Friday 11-27-09 CHANGE(cash index prices)
I got introduced to Max Whitmore through my friend (and occasional guest blogger here) Jeff Brown. I can’t actually say that I’ve met Max yet, but I’ve had the opportunity to interact with him online and by phone multiple times and have considered every one of them a privilege.
So what are the top 5 things I think you should know about Max? In random order:
He’s been studying the stock markets since, well, lets just say since my older brother was an only child. That’s a lot of experience.
He uses what’s called “charting” to analyze the movements in the stock market. Now I’ll be the first to admit that I don’t know a lot about what’s in “charting” but after reading some of his stuff over at BawldguyTalking, I have to admit, the guy knows his stuff.
He provides a lot of common sense and analysis to what he sees going on.
If you were to assign a “batting average” to his analysis of the markets, let’s just say that he’d be heading to Cooperstown if he wasn’t there already.
I’m going to have the first of his daily and weekly posts on here tomorrow. As we get the new site up and running, we’ll move his stock market information over there.
Come back tomorrow for more and to experience a bit of what Max is really like. You’ll enjoy it (even if you have to read some of it twice to understand what it means!)
I don’t know about you, but it gives new meaning to the letter grade “F.”
Fannie and Freddie have been taken over by the government and are hemorrhaging billions of dollars every month.
FHA is very close to running out of money and, as we discussed earlier this week, looking at a variety of was to improve performance including tighter restrictions, larger downpayments, higher PMI costs etc.
and the FDIC?
As this chart shows and in light of the AmTrust seizure last night, they are doing fine. Nothing to see here, move along, move along……
That’s right, as of September, the balance in the FDIC deposit insurance fund, based on anticipated losses (if they seize control fo a bank, they don’t actually take the losses until they sell assets) through September. And take a look at the blue line. It keeps climbing and climbing……
From the FDIC: MB Financial Bank, National Association, Chicago, Illinois, Assumes All of the Deposits of Benchmark Bank, Aurora, Illinois
Benchmark Bank, Aurora, Illinois, was closed today by the Illinois Department of Financial and Professional Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. …
As of November 16, 2009, Benchmark Bank had total assets of approximately $170.0 million and total deposits of approximately $181.0 million….
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $64 million. … Benchmark Bank is the 129th FDIC-insured institution to fail in the nation this year, and the twentieth in Illinois. The last FDIC-insured institution closed in the state was Park National Bank, Chicago, on October 30, 2009.
My initial reaction this morning to the jobs report was that it just sounded too good to be true. Well, here’s some of why it might appear that really is true…..
As usual, CR over at Calculated Risk has a more in-depth analysis of it, but I’m going to hit on just one main point. Let me quote directly from his piece:
Retailers only hired 54.2 thousand workers (NSA) net in October. This is essentially the same as in 2008 (59.1 thousand NSA). However retailers hired 321.3 thousand workers in November (NSA), an increase from the 233.7 thousand last year.
Retailers hired 321,300 workers in November. How many of them do you think will remain gainfully employed with the same employer once the holiday season is over? Yeah, that’s what I thought too – maybe 10% if we’re lucky?
So, take that 321,300 and add it to the 11,000 jobs lost and you’ve got a significantly different number.
The market started out with a big movement up for stocks and a blood bath in the mortgage rate market. As I’m writing this, the stock market is currently down 11.65 points after having been up as much as 150 plus points. While we haven’t seen any actual rate changes for the better yet today, the trend is definitely reversing itself.
I’m going to quote a friend of mine (and fellow mortgage lender and fellow mortgage blogger), Dan Green because he’s the first one I’ve heard say this actual saying: “Mortgage rates take the elevator up and the stairs down.”
What does that mean? It means that they went up (we lost .125 to .25% this morning) quite quickly, but I expect that they will regain at least some of that over the next period of days/weeks.
In the mean time, if you want to get specific rate information for your situation, go to my other site, Straight Talk About Mortgages, and fill out the quote form on the side and I’ll let you know what we can do! I’ll have the same “quote form” up on here by the first of the week.
First Reaction – that’s going to make for an ugly day in the mortgage rate market.
Second Reaction – when you compare the ADP jobs report (160K lost) to the official jobs report (11K lost) something’s out of whack. Time will tell, but expect rates to be higher today.
