Monday, March 19, 2007

PM Market Comment

I've been busy with various and sundry matters today.. sometimes my Mondays end up being my day off to run errands since weekends become overloaded with shuttling and participating in the activities of my 3 children.

I kept half an eye on the market through the day. Price wise the major indexes sizzled not only out of the open but through the day, it was volume that fizzled once again... NYSE volume figures among the slowest of the year. While some have suggested that both volume and the price spurt in the indexes might be an artificial post expiration phenomenon the fact remains that up-days have featured less than stellar participation since the late Feb swoon.

Another big missing ingredient in today's rally - the chip stocks. JP Morgan this morning warned that consensus estimates are going to have come down across the board for the semis and the SOX moved lower. Stare at this chart long enough and you'll notice similar topping formations in the past. While semiconductor stocks misbehaved the energy market was pulled to and fro. Crude oil futures fell today while RBOB (gasoline) futures surged. The first link says crude fell because supplies are going to rise, while the gasoline link says prices rose because supplies are going to be tight. The real reason? The RBOB crack is through the roof at above $20 and the contango on crude is clearly showing the market is getting ready for summer demand with summer barrels going up today even as the front month moved lower.

Tomorrow - Tuesday - will be the 'show me' day, at least for me. Can we have some follow through to today gains please, with some better volume, bulls?? 8:30 housing starts data will be released. The trend has not been perrty (sic)...
By 8:30 we will have also known for hours the BOJ rate decision - no rate change expected this time around; which reminds me that today's Yen decline was also very beneficial to U.S. stocks.

Tomorrow, no doubt, there will be much talk of the coming Fed rate decision on Wednesday. There has already been chatter about whether the Fed will signal the slightest chance for an easing later this year in light of the subprime prime debacle and growing evidence that GDP is likely to slow more than expected as manufacturing and retail sales, etc slow. While a rate cut hint from the Fed could certainly spark a near term short covering bonanza for the bulls, this little chart reminds that the last campaign of rate cuts was painful for stocks.

This isn't the best chart since the shortest short term rate on that i could find is the 3 month T-bill discount rate (reddish bar chart). It's compared to the S&P 500 (black line). Yes, as short term rates cratered stocks sank at least through more than half of the rate cut campaign and as rates rebounded, stocks rebounded - one of those be careful watch you wish for type of things.

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