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Dallas, TX
April 29, 2008, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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The Fed, Foreclosures, And Calls To Stop
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What's Hot Today: |
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Global stock markets pulled back overnight as traders start their Federal
Reserve vigil.
Today's Economic Calendar: 7:45a.m. ICSC Chain Store Sales Index. Previous: -0.7%. 8:55a.m. Redbook Retail Sales Index. Previous: -1.3%. 9:00a.m. Feb Case-Shiller Home Price Index. Previous: -11.4%. 10:00a.m. Apr Conference Board Consumer Confidence. Previous: 64.5. 5:00p.m. ABC/Wash Post Consumer Conf. Previous: -40. Sources: The Wall Street Journal and Marketwatch.com.
News For Thought
Empty nests set record. According to The Wall Street Journal: "The share of homes vacant and for sale, an important measure of the nation's housing supply, set a record in the first quarter in a signal that the glut of homes on the market isn't improving. The homeowner vacancy rate, which measures the number of vacant homes for sale, rose to a record 2.9% in the first quarter from 2.8% in the fourth quarter, about one percentage point higher than normal, according to new Census Bureau data. The vacancy rate has jumped nationwide and in cities, suburbs and rural areas since the housing bubble popped. From 1995 until the fourth quarter of 2005, the rate held between 1.5% and 2%."
Deutsche Bank reported its first loss in five years as the subprime mortgage crisis continued to work its wiley ways into all corners of the financial world.
Obama's former pastor, Reverend Wright shook up the National Press Club and a national television audience. According to The Wall Street Journal 'The address prompted Sen. Obama to repeat previous comments that he was offended by his pastor's incendiary remarks. He said the minister's recent comments "don't represent my views, and they don't represent what this campaign is about. But he's obviously free to make those statements."' |
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The Fed, Foreclosures, And Calls To Stop
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Should They Stay Or Should They Go?
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The Federal Reserve is walking a tightrope as it meets today and tomorrow in order to decide about the future of interest rates and the market's lack of action is just one sign of how much is at stake.
Trading volume has slowed in the last couple of days, as players are moving to the sidelines awaiting the Fed's decision on interest rates, due out tomorrow afternoon. At stake could be the rally in stocks, but also any semblance of stability in the economy.
So far, the Fed has at least slowed the bleeding in other areas of the economy outside of housing and financial services, the centerpieces of the subprime mortgage mess. But that doesn't mean that the problems are over by any means.
In fact, the number of foreclosures has more than doubled compared to last year. According to Bloomberg "Almost 650,000 properties were in some stage of foreclosure during the quarter, or 1 in every 194 U.S. households, Irvine, California-based RealtyTrac Inc., a seller of foreclosure data, said today in a statement. The number was 112 percent above a year ago. Nevada, California and Arizona had the highest rates."
Furthermore "The median U.S. home price may drop by a record 5.8 percent this year, Fannie Mae, the world's largest mortgage buyer, said April 7. "
Emotions are running high on both sides of the issue. On one side, politicians are trying to bail out anyone who can vote, while business diehards are calling for harsher measures. According to Bloomberg, one billionaire was less than kind: '``This country needs a cleansing,'' billionaire real estate investor Sam Zell, chairman of Equity Group Investments LLC, said yesterday at the Milken Institute Global Conference in Los Angeles. ``We need to clean out all those people who never should have bought in the first place, and not give them sympathy.'' '
Others are calling for the Fed to stop lowering interest rates. Among them is Marketwatch.com's Chief Economist Irwin Kellner who is predicting that the Fed will lower the Fed Funds rate to 2% this week, but that this will be their last cut.
Kellner thinks that the Fed's interest cuts have "done nothing to thaw out the frozen financial markets," and "that will occur only when the value of mortgage-backed securities comes into view, and this will not happen until housing prices stabilize." In fact, Kellner blames the Fed's easings for leading to higher inflation 'and the expectation of inflation. This spells trouble with a capital "T".'
In fact, Kellner, among others blames the Fed's easings with causing two major problems, the fall in the dollar, and the rising cost of oil, since oil is a dollar denomited commodity. The more dollars in circulation, the higher the price of oil goes.
According to The Wall Street Journal: "Fed-funds futures, in which traders bet on future rate moves, are betting that Wednesday's cut will be the Fed's last and that rates will start to rise again later this year."
Conclusion
Damned if they do, and damned if they don't. We're sure some will get fairly tense if the Fed signals that this will be the end of the rate cuts, while others will cheer.
It's all in what they say and how they say it, as always. The fact that the Fed is floating a trial balloon about paying interest on bank deposits suggests that the central bank is looking for other ways to keep the banking system afloat without actually lowering rates much further.
This gives credence to the notion that this could be the last rate cut for some time. If it is, we hope the market takes it well, because the line in the sand seems to be the S & P 1400 area.
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Technical Summary: |
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Chart Courtesy of StockCharts.com
S & P Stalls Below 1400
The S & P 500 is doing the same near the 1380 area. Yet, both remain below their 200 day moving averages. Breaks above the key line could lead to higher prices.
Still more time passes, if there is no major break in prices, the chances of an upward break out and an extension are likely to rise.
That could still change, though, especially in a jittery market such as this one. For now, though, we are looking to add positions to our growth stock list. We have added one new position. See below.
Our S & P timing model is still on the long side and we still have several open positions in our growth stock list.
Chart Courtesy of StockCharts.com
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Market Moves - Stock Of The Day
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Monsanto (NYSE: MON) and Syngenta (NYSE: SYT) Signal Pause In Seed Boom
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Monsanto (NYSE: MON) and Syngenta (NYSE: SYT) have boomed over the last 12 months as the market priced in rising profits in seed markets due to biofuels and food demand raising the company's pricing power and product timeliness.
Chart Courtesy of StockCharts.com
Yet as the debate over whether biofuels lead to food shortages and whether the impetus on biofuels will be decreased has cast a bit of uncertainty on the seed sector, making the two stocks a bit less sure of themselves lately.
As with all momentum trades, this one is no different. It can't go on forever. But, it doesn't necessarily have to stop when the majority expects it to do so.
That means that we could be in a temporary pause and that the technicals are important. For now, both stocks remain in up trends, and are above their 50 day moving averages. Breaks below those key support levels would be of some concern. |
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