OK, let's see if we can hold this rally through some significant points today.
We ran the Big Chart on Thursday and I'm very pleased to say we touched our "Feeling Better" goal on the Dow (11,808), S&P (1,311) while we broke it on the Nasdaq (2,380) and the Russell (712) Friday and never looked back. Our laggards are the NYSE, who need to take out 8,642, the SOX, who are so far away from 465 that we will settle for 419, which would be "just" 25% off their last summer's high and the Transports – who need to get to 2,591 but do deserve a pat on the back for breaking their 20% off line at 2,491 and holding it yesterday.
Wow, that's more information in one paragraph than most people give you in a week! What's really amazing is we are dead on all these levels that we set over 3 months ago, using the 5% Rule… When I want technical information I go to David Fry (and Tom, but he's on vacation) and I strongly recommend you take a look at his charts today as we are critical in so many sectors you need to get the feel of what a focal point this week is going to be. As I mentioned in last night's article on the dollar, I'm a little skeptical about the recent movement as I think it's more to do with a slight change in sentiment than lasting fundamentals. Combine the dollar bounce with a commodity pop (chickens and eggs) and an equity rally that was certainly boosted by the enforcement of the uptick rule and a crackdown on naked shorting and we have to watch these levels VERY CLOSELY to see if this is going to be enough to get us past the serious technical resistance.
Let's keep those levels on a post-it and make sure we're gaining, not losing them during the day. It's only 150 NYSE points and 91 Transport points to make our last two critical greens and, if we hit those, then I'll be putting a big bet on the IGW to show (up that is) as the semis have been lagging in a tech rally and seem like a real no-brainer investment if this thing has real legs. Options are VERY thinly traded on this index but that's no reason not to pick up the Jan $45s for $7.95, with just $2 in premium as we can sell the Sept $50s for $2.50 but my plan there is to place a "sell-stop" at $2, triggering the sell only if the position heads down on us. We may also play the $SOX in our Butterfly Collection depending if they hold $370 on today's pullback.
If you ever doubted Barron's role as a tool for the Goldman/Cramer/Whitney crowd, check out these two lead stories today: "Unlocking the Auction-Rate Mess" (gee, tell us how you really feel) and a BUYBUYBUY piece on energy stocks called "High-Octane Plays at Regular Prices," which was (coincidentally I'm sure) the theme of Cramer's mid-day Mad Money show yesterday. If I had a research department I'm willing to bet I'd have the same article telling you what a great bargain the builders were when they lost 25% of their value and were trading at p/e's of 10 or less – everything old is new again.
It turns out our Trade Deficit was not too bad at $56.8Bn, our lowest deficit in 3 months and better than the $61.5Bn expected as the cratering dollar in June boosted exports. I'm still very nervous about the terrifying Treasury Budget at 2pm with an $86.8Bn July deficit projected – the worst deficit ever accomplished by a country on this planet in a single month! Actually there are very few countries in the history of this planet that have run up a deficit of $86Bn in an entire year so we are really into uncharted territory here – yet another mission accomplished by this administration…
Asian markets ran a 1% deficit this morning with the Nikkei down all day but the Hang Seng making a dramatic 500-point reversal after lunch as rapidly falling commodity prices hit the steel sector. The BOJ showed corporate goods prices rose 7.1%, the worst since 1981 so the Nikkei never stood a chance. X is already off sharply, it will be interesting to see if they can hold $130.
Europe is flat ahead of our open but Russia is standing down in Georgia saying they "have achieved their goals" but have not said they will be withdrawing troops so I guess occupying Georgia was one of those goals. Perhaps President Bush will be able to tell the Russians that it is outrageous to send troops into a sovereign nation, occupy its land and refuse to leave – that is something America simply should not stand for!
I'm remaining cautious today ahead of the Budget at 2pm and tomorrow's Retail Sales report and Crude Inventories, as a bounce from this level ($110-$113) would not surprise me. BP shut down a couple of pipelines in Georgia as "a precautionary measure" even though the fighting stopped and the pipelines were never near the fighting. I guess the precaution they are taking is against oil falling to $110… I said yesterday to get ready for shenanigans from the oil manipulators and BP is one of the convicted ones so it's no surprise they take the lead today. Thank goodness they are only in control of 10% of the world's oil, right?
Be careful out there.
