OK – fun time is over…
Everyone is back from vacation, the big boys have had their strategy meetings and they've captured Paulson (just kidding about that but the article is great – thanks JB!) so it's time for us to get serious about 2007.
It's been a while since we had some data but it's coming in spades this week. Nothing of note today but tomorrow we get the NY Fed Mfg. Index, which was 23 last month and CAN'T get worse (one would think) followed by the Consumer Confidence number at 5pm which can't get better (I think it was 108 last time).
Wednesday morning we will be assaulted by data:
- 7:45a.m. MBA Refinancing Index.
- 7:45a.m. ICSC Store Sales Index.For Jan 13.
- 8:30a.m. Dec Producer Price Index. Previous: +2.0%.
- 8:30a.m. Dec Producer Price Index, Ex-Food & Energy. Previous: +1.3%.
- 8:55a.m. Redbook Retail Sales Index. For Jan 12. Previous: -1.6%.
- 9:15a.m. Dec Industrial Production. Previous: +0.2%.
- 9:15a.m. Dec Capacity Utilization. Previous: Unch.
1:00p.m. Jan NAHB Housing Market Index. Previous: 32.
Thursday brings us Jobless Claims, the CPI, Housing Starts (which were up 6.7% on warm weather), Consumer Confidence and the and the Philly Fed AND the EU's GDP report followed byt a rate decision from the ECB . Busy, busy, busy!!!
There's not much going on today but Asia took a dive in the morning as those markets are looking toppy and our sell-off on Friday really spooked them. Japan was closed but the Hang Seng dropped 200 points but held 20,000 and boy am I mad we never took those FXI puts! China is officially on inflation watch and China Mobil and China Telcom are moving from the madly profitable phase of their business to the "needing to spend $30Bn building next generation infrastructure phase" that our phone companies are just coming out of.
Oh yeah – just for the sake of nostalgia – some kid got bird flu in Jakarta. Remember when that was our biggest worry? I bet you don't hear a word about it all week! Good thing to remember next time they tell us to panic about something…
Europe is in a good mood ahead of their GDP report, and they probably should be! Unemployment there fell to 7.6%, the lowest level since EU measurement began in 1993 – just another example of how ridiculous it is to say our economy isn't strong!
Do we look up or down today? Sadly, down as anything up is great today but there is no way we're breaking out to the upside ahead of all this data so let's just make sure we stand our ground. We are actually a hair below many of the levels I set Friday and we must hold today or we face EXTREME danger of a major drop if we drop a data point tomorrow!!!
Dow 12,400 has to hold, below that is no support until a very critical test at the 50 dma at 12,300 that we’d rather not take.
Transports need to hold 2,650.
S&P must hold 1,410 or it will be testing the 50 dma at 1,400.
NYSE 9,000 has to be a line in the sand - last weeks line in the sand was 9.100 so this canary is in quicksand now!!!
Nasdaq MUST hold 2,425! If we are rotating out of commodities it will not be enough to move into transports, tech must take leadership.
The SOX will have a very tough time holding 470 - below 460 is death!
Russell needs to retake 780 or it is dead canary number 2!!!.
Oil is getting as pushed as it can be and the dollar is weakening in response to China's tightening and Europe's anticipated strength this week. We're looking to see if $57.21 holds to the upside. I think I'll be pleased with my XOM Apr $80 covers for today but inventories are shaping up to be a disaster for oil bulls this week. See Zman's excellent wrap-up on last week's crude data.
A responsible analyst would calculate the next upside target for crude so he'd be able to point to it later and say he did cover all the basis but I will tell you right now that there is no upside for crude right now and any upward movement today is engineered nonsense!
We're going to watch our bounce levels on the majors today, notably: XOM – $74.50, OIIH – $136, XLE – $57 and VLO – $50. If we get above these AND oil is above $58 then a rebel attack is on the way, otherwise it's just a desperate pump job rushing headlong into disaster.
You know an industry is in trouble when the big boys jump in and start snapping up small fish to create excitement… Last week we discussed how GE has hundreds of Billions of dollars riding on high oil prices and today they ponied up $1.9Bn for Vetco Gray, an E&P equipment supplier. The company is private but they take in $1.6Bn in revenues and, with an industry average 18% operating income, they sure didn't pay a premium!
FST also came through and is going to buy THX for $1.5Bn in a half-cash, half stock deal, just a 7.8% premium to THX's closing price and still 10% lower than they were on November 15th ($57.75) and WELL below last year's high of $71.47 or this year's high o f $66.21. When two companies who have lost 1/3 of their value start doing cash and stock deals you know THE PARTY IS OVER! Where's Dandy Don Meredith when you need him?
Gold is just sad at the moment and NEM (not very hedged) took a downgrade from someone (I don't see it but I heard it) but should get a little support as the dollar retests its own 50 dma at 84.25. Should the dollar fail there, gold may test $320 but, if the dollar bounces up, we'll see if shiny bits of metal you find in the dirt really are worth $600 an ounce.
You know gold is in trouble when the gold bugs start talking about "protecting yourself against inflation." What inflation? Inflation is 5%, 8%, 10% – not 2 or 3%!!! Damn, these "analysts" must think this is a country full of undereducated yokels who have no sense of historical perspective and believe any crap they hear from "experts" on TV as long as they take the trouble to draw a chart! Not on my watch….
Here's a chart for you. The price of gold vs. the price of the inflation protecting IMF fund. If you roll it back to 2 years we get a score of gold up 62%, IMF down 10%. That's a little bit of overhedging against inflation my friends!
It's a shifting global paradigm and they're still trying to tell you that governments may collapse and we'll all be gathered around the big black monolith again making bone weapons and trading our women for gold (I know a lot of you are already wondering how much gold for which women!).
I've got news for you, the monolith is the Internet and the knowledge of making fire is already being distributed around the world at the speed of light. There are over 2Bn humans on-line every day and that number is growing at a rate of 40M people per month – the genie is not going back in the bottle and soon there will be more people on the astronaut side than the monkey side.
An educated global populace will be a wonderful thing for our global economy and it is only too bad that the US is one of the few countries on the planet that is heading the other way in terms of education with an actual decline in the proportion of workers with advanced degrees. There is indeed no child left behind other than the 40 million who are projected to go through high school with 70% or less grades. Well, at least we taught them 70% of what an average 18 year-old should know – have a fun life in the information age kids!
I guess this is what we can expect from a President who pushes an education policy that denies we ever came from monkeys in the first place….
Next week is a short week (MLK day) and expirations are closer than you think!
Frankly I find picks a little distracting on a day we should be minding our positions so let's concentrate on that. We'll see which way things break and perhaps pick up some DIA or QQQQ plays in comments (and if you're not hedged you need to be!) but let's watch carefully as we get our first real market test with the big boys back in the saddle.