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Dallas, TX
January 27, 2010, 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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Wacky Wednesday Ahead
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What's Hot Today: |
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U.S. stock index futures are pointing to a flat opening
on Wednesday. Asian and European markets headed lower. By the way, the
Fed will be making its latest policy moves known this afternoon, which
is something that no one is paying much attention to, which of course means
that it could have a surprise or two in it.
Today's Economic Calendar:
- MBA Purchase Applications 7:00 AM ET
- New Home Sales 10:00 AM ET
- EIA Petroleum Status Report 10:30 AM ET
- 5-Yr Note Auction 1:00 PM ET
- FOMC Meeting Announcement 2:15 PM ET
News For Thought
Obama: aiming for small business targets. According to The Wall Street
Journal: "President Barack Obama intends to use Wednesday's State of the Union
address to put a new focus on his jobs agenda as he tries to regain the confidence
of a disheartened electorate. He will make small-business hiring the centerpiece
of that message, pressing Congress to act on a slate of tax cuts that have languished
for months, administration officials said Tuesday." The report added: "Mr. Obama
will call for eliminating capital-gains taxes on investments in small businesses.
He will redouble efforts to give small employers a tax credit for new hires.
And he will call for extending bigger tax breaks to those that purchase new facilities
and equipment."
As always, especially with Mr. Obama, the devil is in the details, as many of
his proposals are too narrow and fail to benefit those who could actually use
the breaks to hire workers or spend money on expanding their businesses. Yet,
he may be making some progress as "According to a new Wall Street Journal/NBC
poll, Americans think the president has paid too much attention to health care
and not enough to the economy. At the same time, the number of people who approve
of the job Mr. Obama is doing on the economy has ticked up to 47%, five points
higher than in the December survey."
But as we have noted, don't expect too much of a difference in the tone. According
to The Journal: "Even as he shifts some of his focus, White House officials say
the president will continue to press hard for the ambitious agenda he laid out
a year ago, much of which has encountered significant hurdles in Congress: an
overhaul of health care and financial regulations, a new energy strategy that
includes combating climate change, and a push for broader access to higher education,
paid for by eliminating subsidies to private student lenders."
China bank loans screech to halt. According to The Wall Street Journal: "Several
state-run Chinese banks have ordered some branches to suspend new lending for
the rest of this month, suggesting a coordinated effort by Beijing to manage
state banks' torrid lending in the year's first few weeks. A person with direct
knowledge of the matter said Tuesday that Industrial & Commercial Bank of
China Ltd., the country's biggest lender by assets, last Friday ordered its branches
in Beijing not to issue any new loans for the rest of January."
Some Chinese banks have used up loan quotas already. According to The
Wall Street Journal: "China Citic Bank Corp. also suspended new lending in Shanghai
last week because its local operations have already used up their monthly quota
for new loans in the city, a Shanghai-based official at the medium-sized bank
said Tuesday. The Citic Bank official added that both the bank's own headquarters
and the People's Bank of China, the country's central bank, "have told us to
control the pace of lending this year.""
O.K., let's get this straight. Obama is trying to "target" some modest tax cuts
and tax credits at small businesses, while in China, demand for money and the
willingness to lend is so high that some banks have reportedly used up all the
money that they were allowed to lend by the government. And the first month of
the year isn't even over. And everyday on CNBC people are saying that China isn't
a bubble. Except for Jim Chanos, the shortseller, who has made billions betting
against bad policy and bubbles. Hmm, let's see, do we believe the talking heads
for the big brokers who are still hawking buy and hold or do we believe one of
the guys who shorted subprime mortgages before they crashed?
More important, what are the charts saying? Read today's IQ carefully as we flesh
out what the charts are telling us about this increasingly important situation
in the markets.
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Wacky Wednesday Ahead
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When In Doubt, Follow The Money
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You can get caught up in the politics and make emotional and
costly mistakes. But as an investor, it pays to follow the money.
Chart Courtesy of StockCharts.com
First, the politics, as they are at a point where they could affect the flow
of money. It’s kind of eerie, as the S & P 500 (SPX, above) has closed
just about at 1090 for the last three trading days as traders don’t seem to
want to make any lasting bets. The markets have tumbled below key support levels,
but are essentially frozen, waiting for something to happen. And that something
could come on Wednesday evening, after the U.S. market has closed, as President
Obama will make his State of the Union address. To be sure, the speech will
be thoughtful and will be delivered flawlessly by Mr. Obama, an eloquent and
elegant speaker. The words will then be parsed, analyzed, and argued over clinically,
emotionally, and cynically. The spin meter will be on high on both sides of
the aisle. And at the end of the evening, we probably won’t know much more
than we knew when it started.
Sure, there will be token moves toward cutting spending and the budget deficit.
There will be talk of reassessing health care and not giving up. There will be
mentions of bipartisanship and looking out for the middle class. And yes, there
will be talk of better days ahead, but also warnings that the road will be bumpy
and that much pain and sacrifice will be required. But there won’t be talk of
extending the Bush tax cuts, and there won’t be any real concrete measures announced
that would lead to a boom in new jobs.
All that’s already baked into the cake. What the markets wants is a sign that
the White House will move toward the middle and that Congress will be gridlocked.
We’re not sure that either of those things is going to happen in a way that helps
anyone. The way we see it, Mr. Obama can’t or won’t move to the center. The far
left isn’t going to give on anything, and neither is the far right. That means
that things will stay where they are, leaving the taxpayers, employers, workers
and consumers with a double whammy hopelessness, and helplessness, which translates
into frustration, and apathy in the short term, but significant anger at some
point in the future.
Chart Courtesy of StockCharts.com
So let's look at some charts, as money is clearly moving in a very discernible
and interesting pattern. First, let's see where it's moving out of. As we can
see above, it's moving out of the S & P 500. But, it's not the only place
money is leaving. China's stock market is increasingly weak as tighter monetary
policy for the foreseeable future materializes there. As a result, the Shanghai
Stock Market (SSEC) is now seeing money outflows.
Chart Courtesy of StockCharts.com
Second, money has been moving out of gold (GOLD), although that may be slowing
as the metal seems to have found support. Yet, as stocks in the U.S. and China
were falling, so was gold, at least until recently.
Chart Courtesy of StockCharts.com
Now, the important question is where money is moving to, and what does it mean?
There are two major recipients of money in the last few weeks. One is the U.S.
Dollar (USD, above) and the other is the U.S. treasury bond market, which is
well represented by the yield on the U.S. Ten Year Note (TNX, below). As the
dollar has been rising, bond yields have been falling. That suggests that traders
are buying dollars and then plowing those dollars into treasuries.
Chart Courtesy of StockCharts.com
Here's what's really important from a timing standpoint. The U.S. dollar is brushing
up against resistance at its 200-day moving average, while the Shanghain stock
market is trying to find support at its 200 day moving average. That makes the
relationship between these two markets the key to the whole equation. Whichever
way these two break will likely define what the others do. And if current trend
remain intact, we are likely to see lower stocks, a higher dollar, and a continuation
of the rally in U.S. treasuries.
Conclusion
The markets are looking for safety as the investment climate is changing. But
the game has changed. It seems that traders are now responding to the tighter
monetary policy in China and seeing that as a greater problem to stocks than
the continuation of a weak U.S. economy and Washington politics.
That's big because it says that the markets are willing to move toward the perceived
safety of the U.S. dollar and the U.S. treasury markets than to wait and see
what develops in China, where further rounds of tighter money are almost a certainty.
Here's the caveat. The dollar and the Shanghai markets have moved to long term
resistance and support levels at the 200-day moving average. That's the line
that defines bull and bear markets. Bull markets live above the line and bear
markets prowl below the line.
Traders have not crossed the lines yet but seem ready to. A lot depends on several
things. One is President Obama's State of the Union address tonight. The other
is whatever happens with China's monetary policy.
We suspect that the next few days will be very interesting as the potential for
more changes in money flow and market directions are likely.
Know when to sell and how to make money when the market falls. Get a detailed
trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Market Moves - Stock Of The Day
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U.S. Oil Fund (NYSE: USO) Could Move On Supply Report
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Chart Courtesy of StockCharts.com
Crude oil is still straddling the $75 price area, while
USO is range bound between $35 and $41. Last nights API
report was mixed with crude and heating oil stocks falling
but gasoline stocks rising.
The market went nowhere overnight, which means that traders will be responding
to the U.S. government EIA data which will be released this morning. Weather
isn't as much of a factor now as spring is actually fairly close if Mr. Grounhog
says something different.
What's just as important for oil prices at this point, though, is what the dollar
does. A stronger dollar has been keeping oil prices at more modest levels. And
if the overall trends in the markets continue, the odds favor a strengthening
greenback.
And as with other important markets, USO is at its 200-day moving average, the
line that defines bull and bear markets. A slip below this key line and a continuation
of lower prices beyond that would be a signal that the markets are betting on
lower prices ahead.
That opens up a whole new can of worms, as it could be signalling expectations
of another down leg in the global economy.
How oil responds to the supply demand equation is important. But how it responds
to whatever happens in the dollar is just as relevant for investors, and eventually
for consumers.
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