Wednesday, November 29, 2006

11/29/2006 Morning Market Comment

The stock market looks poised to build on yesterday's modest rebound following a night that featured a pullback for gold, once again from the very stubborn $640 resistance area, and a slight dollar dumping reprieve with March Euro futures showing a .3% dip.

There are going to be plenty of catalysts to enhance moves either way in various markets. Economic data will begin to flow with the 8:30 ET release of GDP, predicted to be revised to a 1.8% annual pace in Q3. The PCE inflation gauge is expected to remain steady at 2.3% and will be closely watched after yesterday's whine by the Fed chief that inflation remains uncomfortably high. Did anyone get the feeling that helicopter-Ben with his forecast for continued GDP growth next year is not connected with reality? At 10, October new home sales data will be released and a slight decline to 1,050k annual rate is expected. The Beige Book will be out midday.

We continue to find it hard to be overly bearish about the stock market at this point, and indicators like a decline in the put to call ratio and volatility index yesterday keep us in the mildy bullish camp. No doubt, the dollar slide, if it continues, will pose major risk to stock holdings; but the stock market is not showing signs - as of this time - of rolling over. We would not consider initiating a bearish play on the broader market until or unless the cash S&P 500 breaks below 1375; the SPY puts might be in order. All that we've seen out of the selling of Friday and Monday is a testing of the lower range of the recent upward channel in the cash S&P 500 which closed yesterday at 1386.

Energy continues to attract a bid, with WTI climbing to $61.50 overnight, but now back at the 61.15 mark. With colder than normal temps forecast for the first 10 days of December in the northeast and talk of another OPEC production cut, we will continue to hold our long position in crude futures to see if WTI can close above the Rita/Katrina trend line of $61.49.

Gold - We're staying away until the metal can close above $641.

Euro - We're on the sidelines until the Euro looks a bit less overbought.

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