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Was Last Thursday The Bottom?

 Need a mood-boost before the markets open?  How can anyone be down seeing “shiny, happy people having fun”?!

Trivia Question?

Since mid-July the Dow is down 6.6% from its high of 14000.  Which currency shares are up almost the exact same amount in the same time period?

Answer:  It is the FXY (Currency Shares Japanese Yen Trust).  Bloomberg reports that “The yen gained versus all 16 major currencies this week as the carry trades unwound”. 

Bloomberg also reports that “Economists forecast the Bank of Japan will refrain from raising interest rates next week after the global subprime and credit turmoil.”  Meanwhile on this side of the Pacific, the fed funds futures contract is pricing in a 100% probability of a cut in the fed funds rate on September 18. 

The expectation is for a 25 basis point cut with a further cut in future months.  This follows the recent 50 basis point cut by the Fed in the discount rate – the rate it charges banks for direct loans.  The Fed Chairman has been attacked for his steadfast approach in maintaining the sub-prime mortgage rout was contained before his concession on Friday that all was not as he purported it to be.  “It was a rookie mistake,” said Kenneth Thomas, a finance professor at the University of Pennsylvania’s Wharton School in Philadelphia. The Fed “underestimated liquidity needs” of investors and the fallout from the housing recession, he said, adding, “This demonstrates the difference between book-smart and street-smart.”

In Europe, speculation was rife just a few weeks back that the rates would be hiked again, but recent liquidity injections have poured water over those flaming rumors.  If interest rates do continue to rise around the world but fall in the US, the dollar may indeed reach the forecasts set by some analysts of $1.50 against the euro within 12 months.  Is it time to bid Adieu or maybe Sayonara to the dollar?  I prefer Auf Wiedersehn…it implies we may see the dollar again one day in the future reclaiming its old glory!

In the short-term, any dollar demise should not have a significant impact on the market.  The long-term fallout is just too painful to think about so let’s skip quickly past such torturous considerations.  The result of a weak dollar is likely going to mean a continued stock market rally.  International companies prosper handsomely from currency conversions back to dollars, which has the effect of appearing to boost earnings.  Before jumping on board the Dow 15,000 bandwagon though, we have to navigate past this volatile market.  Much like a ship sailing through rough waters, the increasing magnitude of the undulations tends to precipitate sea-sickness for the uninitiated while the old sailors tend to remain unperturbed by short-term storms in favor of remaining focused on their destination (the long-term!).

It appears to me that we could rise up another couple of hundred points on the Dow before encountering a down-trending resistance line that began with the 14,000 peak and continued with the 13,600 rejection.  Until that resistance is broken convincingly I remain unconvinced that we won’t test the lows again.  On the other hand, a convincing break above the 13,400 level would be a very positive sign.  Happy will be noting levels he is watching and the volatility on the charts is such that any number of points could be highlighted as critical, but the bottom line is the charts still show a bearish trend and a moderate up day on Monday is unlikely to change that.

The old adage reads “the trend is your friend” and it has protected us at Phil’s Stock World over the past few weeks.  Don’t ignore the adage until we hit extreme levels – in the past the VIX hitting 50 has been emblematic of the market hitting extreme panic levels and was historically a perfect time to go contrary to the trend.  Those contrarian opportunities do not present themselves frequently so patience is still warranted until we see trend changing confirmations.

And, as highlighted in this valuable e-book mentioned in the pig-wrestling article earlier in the week, sentiment can dominate fundamental and technical analysis in the short-term!  Phil and I both integrate all aspects of due diligence into our trading.  We are not solely fundamental value investors or solely technical analysts or solely contrarian sentiment traders.  Instead we integrate all aspects into a trading system that transcends each alone. 

As a result, you will see Phil trading a long-term virtual portfolio based primarily on fundamental due diligence while simultaneously trading short-term moves that incorporate technical analysis amongst other things!  And one of Phil’s favorite rules:  “Always sell into the initial excitement” is based in an understanding of sentiment and emotion. 

Do you typically sell into the initial excitement or are you tempted to buy into the excitement?  If you don’t have a system that works for you, you can increase your trading skills by increasing your learning.  We are dedicated to improving your education at PSW and encourage you to strive to learn more. .  

For now, I will wish you all a wonderful week ahead.  Phil has handed the vacation baton to me.  So, now that he is back, I am taking off for the sun!  I’ll be around for most of the week before travelling abroad and plan on returning in early September.  Make it a great week!

Trade Safely!

OptionSage


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    Click here to see some testimonials from our members!


  1. Asia – waaaaay up – ALL GREEN BELOW

    ^AORD All Ordinaries 5,926.50 2:11AM ET 256.20 (4.52%)
    ^SSEC Shanghai Composite 4,881.16 2:10AM ET 224.59 (4.82%)
    ^HSI Hang Seng 21,124.10 1:40AM ET 736.97 (3.61%)
    ^BSESN BSE 30 14,440.30 2:40AM ET 298.78 (2.11%)
    ^JKSE Jakarta Composite 2,023.44 2:40AM ET 114.81 (6.02%)
    ^N225 Nikkei 225 15,732.48 2:00AM ET 458.80 (3.00%)
    ^NZ50 NZSE 50 3,982.38 1:31AM ET 88.03 (2.26%)
    ^STI Straits Times 3,305.78 2:41AM ET 175.07 (5.59%)
    ^KS11 Seoul Composite 1,731.27 2:02AM ET 93.20 (5.69%)
    ^TWII Taiwan Weighted 8,515.60 1:46AM ET 425.31 (5.26%)


  2. Asia Markets : Monday, August 20, 2007

    Japan*

    15732.48
    458.80
    3.0%

    Hong Kong*

    21595.63
    1208.50
    5.93%

    DJ Shanghai*

    497.66
    24.58
    5.2%

    S.Korea*

    1731.27
    93.20
    5.69%

    India

    14444.78
    303.26
    2.14%

    * at close

    Sources: Dow Jones, Reuters


  3. Asia & European Markets

    European Stocks Rebound Further on Fed-Funds Cut

    European stocks maintained their positive momentum Monday, continuing a global equity rally on the back of the Federal Reserve’s surprise cut in overnight lending rates Friday.Underlying concern about the effect of subprime-related losses and difficulties in valuing bundled mortgage products remained.

    Asia Stocks Rally

    Asian stocks continued their rally into the afternoon session Monday — Japan, South Korea and Australia all booked huge percentage gains. The surge was in line with a rebound in global markets after the U.S. Federal Reserve slashed a key U.S. bank lending rate, soothing jitters about a global credit credit.

    Still markets will likely remain volatile in the next few weeks as uncertainty over the credit environment continues and U.S. growth weakens.

    Hong Kong blue chips rose 3.6% and China plays jumped 5.3%, tracking a rebound in global equities on the Fed’s discount rate cut. But, though the hefty blue-chip gains were on par with levels last seen in April 2003, investors remained wary of the credit crisis.

    http://www.cnbc.com/id/20350320


  4. Oil, Yen & China Inflation

    Oil Prices Tumble over 1% as Hurricane Dean Moves Westhttp://www.cnbc.com/id/20350321
    Oil prices tumbled over 1% in early trade on Monday as powerful Hurricane Dean appeared unlikely to plough through key production and refining centres in the U.S. Gulf.

    Yen Slides Against Dollar, as Fed Cut Eases Carry-Unwinding Fearshttp://www.cnbc.com/id/20350319
    The yen weakened broadly on Monday, continuing to give back some of last week’s hefty gains in a turnaround sparked by the U.S. Federal Reserve’s surprise decision on Friday to cut its discount lending rate.

    Rising Food Prices Fuel Chinese Inflation Worrieshttp://www.cnbc.com/id/20349659
    After a run that has seen sizzling growth top 10 percent for four years, analysts say China’s supercharged economy is facing strains that could break out into an upsurge of inflation.

    So far the worst damage has been confined to food prices, which jumped 15.4 percent in July over the same month a year ago and drove overall inflation to a decade-high 5.6 percent. But wages are rising too, as are the costs of oil and electric power. Record-setting exports and a stock market boom are sending cash flooding through the economy, stoking demand for goods


  5. Minsky Moment – An interesting article from the front page of Saturday’s WSJ.

    In Time of Tumult, Obscure Economist Gains Currency
    Mr. Minsky Long Argued Markets Were Crisis Prone; His ‘Moment’ Has Arrived

    Hyman Minsky, who died more than a decade ago, spent much of his career advancing the idea that financial systems are inherently susceptible to bouts of speculation that, if they last long enough, end in crises. At a time when many economists were coming to believe in the efficiency of markets, Mr. Minsky was considered somewhat of a radical for his stress on their tendency toward excess and upheaval.

    http://tinyurl.com/2llx82


  6. Shiny Happy People / Love Shack

    I don’t know if that was Phil or OptionSage, but Thanks! Brought back a lot of good memories, Id forgotten that Kate Pierson of the B-52s kicked that song into gear.

    SO, let’s hope that there’s some shiny happy people heading into the “LoVe Shack” today.

    I had several large and successful trades in and out of LVS over the past two weeks after hearing Phil and Happy resonate ( what Gabelli Multimedia’s Larry Haverty commented in Barron’s) on the subject.

    As we miners wear on our hard hats: SAFETY PAYS!


  7. CLIMBING THE WaLL OF WORRY.

    Not to be funny, but applying a little humor to the dart method of picking stocks:

    WLL – Whiting Petroleum

    WRI – Weingarten Realty (REIT)

    Both are good cos. and appear to be at long term support levels.

    SAFETY FIRST!


  8. Morning all
    any1 an opnion on CFC this morning. A link which may interest the bearish

    http://www.bbc.co.uk/blogs/thereporters/robertpeston/2007/08/liars_loans.html