 |
 |
Dallas, TX
April 4, 2008, 08:00 EST |
 |
Dr. Joe Duarte's Market I.Q. |
 |
 |
|
|
 |
The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
|
|
Federal Reserve Dampens Hopes For More Rate Cuts
|
|
|
 |
 |
What's Hot Today: |
|
U.S. stocks index futures were flat in pre-U.S. market trading as Wall Street
awaits the employment report. Most expect job losses between 50 and 60,000. Our
own indicators suggest that a flatter number is possible. What's more important
for trading purposes is how the market responds.
Today's Economic Calendar: 8:30a.m. Mar Nonfarm Payrolls. Expected: -60K. Previous: -63K. 8:30a.m. Mar Unemployment Rate. Expected: 5%. Previous: 4.8%. Sources: The Wall Street Journal and Marketwatch.com.
News For Thought
Jobless claims reached recessionary levels according to government figures released yesterday. This is the highest level since the aftermath of hurricane Katrina.
Credit availability is tightening in the U.K. says a survey releaed by the Bank of England, with conditions expected to worsen in the next few months. |
|
|
Federal Reserve Dampens Hopes For More Rate Cuts
|
|
 |
|
What's The Hurry?
|
 |
|
|
Federal Reserve officials seem to be telling the markets that more rate cuts are not guaranteed, at least not right away. That means that if the economy shows some resiliency, the central bank may be done with rate cuts in the short term.
Two Fed officials, Fed Chief Bernanke and non-voting FOMC member and San Francisco Fed president Janet Yellen are now on record as saying that the economy may have slipped into "recesssion." Yellen, in a recent speech noted that economic growth has "stalled" and "at best, slowed to a crawl" while the Federal Reserve is fighting against a "negative feedback loop," as tight credit, housing problems and other signs of economic slowing continue to linger.
According to Reuters: 'Yellen declined to point the way toward additional interest rate cuts to pull the economy out of its malaise. Instead, she forecast a minor pickup in growth in the second half on the back of rate cuts already in the pipeline, and "timely" fiscal stimulus checks -- even though the drag from falling house prices will linger into 2009."
Perhaps, most troubling for those who expect lower rates until the end of time is this: 'Yellen told reporters that she was "very uncertain" on the outlook for interest rates, especially over the next few Fed policy meetings.'
At the center of the Fed's uncertainty seems to be the potential for a wage based inflationary spiral, similar to that of the 1970s. The Fed's dual mandates call for the central bank to create an economic climate that has nearly full employment but also low inflation.
The markets don't seem to be too concerned at this point as the short term focus is on the employment report. If that is an extremely weak number, say below the expected 50-60,000 job losses in March, the Fed may have little choice but to ease again, as one end of its mandate will be seen as falling way short.
Chart Courtesy of StockCharts.com
The S & P 500 (SPX, above) has short term resistance at the 1380 level, and longer term resistance at 1440, its 200 day moving average. Support is at 1260.
Chart Courtesy of StockCharts.com
The Nasdaq 100 (NDX, above) is also poised for a break out, if it can get above the 1850 area convincingly.
Chart Courtesy of StockCharts.com
The strength in the markets at this point is coming from oil service, oil exploration, and natural gas stocks (XNG, above), while traditional leadership, the financial and technology stocks is lagging.
Conclusion
The consensus is that the U.S. economy is already in a recession. Estimates of how bad things will be range from those who expect a few months of weakness, to those who expect a Japan style lengthy contraction of economic activity. Some are even predicting a Depression.
The Federal Reserve, the people who can do something about the economy are starting to sound a cautious note with regard to priming the economic pump further, at least in the short term.
In other words, it looks as if the market may be setting itself up for a bit of disappointment in the days ahead, especially if the employment report and other economic data suggests that the deep doom and gloom expected by some on the fringe doesn't materialize.
|
|
|
|
 |
Technical Summary: |
|
Chart Courtesy of StockCharts.com
Stocks Await Employment Data
The employment report will likely move the markets. The S & P 500 is poised for a big decision at 1380. A break above this area on the employment data, and a close above the key level would be very bullish going into the weekend.
The market continues to hold up quite well after the big April Fool's day rally. Our growth stock section is doing quite well.
Another round of interest cuts is still possible, making the case for stocks even more attractive. And there is plenty of money on the sidelines waiting to come in.
Our growth stock list is starting to expand. Our SPY model is long. See below for details.
For now, patience is still important, but it's a good time to start building long positions.
Chart Courtesy of StockCharts.com
|
|
|
|
|
|
|
|
Market Moves - Stock Of The Day
|
|
|
|
Google (Nasdaq: GOOG) Fails In Latest Bid For Bounce
|
|
|
|
| |
Google (Nasdaq: GOOG) shares seem to have run into a wall of aggressive sellers as the company's future earning are called into question.
Chart Courtesy of StockCharts.com
For Google it's all about advertising revenue. If the clicks don't add up, the stock falls. And that's what seems to have been happening of late.
The stock had bounced back along with the market, but ran into trouble near the 20-day moving average, the first major resistance area that it faced.
That's not too encouraging for a stock that has lost some 40% of its value since November 2007, a scant five months.
The bottom line seems to be that Google's growth days are over for now. And making matters worse, the stock is stil expensive on a valuation level, as it trades at over 30 times earnings, and a large multiple over its book value. |
|
|
|
