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Monday, April 15, 2024

Thrilling Thursday Morning


Finally we make the target we discussed since the beginning of the month but, sadly, it took another shot of Federal stimulus to get us there.  Now what?  I did say at the time that I thought it would be a short-term top as 8,200 is the 5% rule bottom of the 8,650 mid-range (8,217 to be exact) that we expected to get back to in May but we didn't expect to get there without a pullback test of 7,632.  Heck, we haven't even tested 7,900 properly since our very brief visit to 7,699 on the 21st.   I didn't count that as a test as it was brief and 1% off our mark but, since then, the market sure has acted like it aced the test and is ready to move up to the next set of levels.

As we can see from David Fry's chart of the S&P, the S&P is hitting very serious resistance at about the 885 mark and that ties right in with Dow 8,250 and Nas 1,717, which is our first US index to hit the 40% mark.  Our other 40% levels will take some work as we're looking for Dow 8,413, S&P 946, NYSE 6,232 and Russell 514.  The Dow and the Russell have the best chance of getting there but we'll have to see as, at the moment, the Nasdaq is more of an outlier at the moment.  We need to keep an eye on the Nasdaq leadership:  GOOG, AAPL, RIMM, AMZN, EBAY, ORCL, INTC…  for signs of weakness.  If they can't keep it going, the entire market rally may falter here.

XOM missed by .03 this morning but still earned .92 per share and seem to be forgiven for it.  While profits are down 58% from last year, last year was $10.9Bn so $4.6Bn may be disappointing but oil back over $50 does allow the company to project better times ahead (gee, maybe that's WHY oil is at $51.50 this morning).  I wouldn't touch them with a 10-foot pole as they did beat revenue forecasts by 20% ($64Bn vs $54Bn) which indicates the company is doing a lousy job of controlling costs and may face disaster if the economy doesn't improve or if oil collapses. 

While earnings have been pretty good, expectations have been really low.  This is like getting all excited about a limbo contest at the beginning, when all the kids are walking under the bar that's being held high by the adults – THERE'S NO CHALLENGE!  Oh boy, my little XOM only missed by 3%.  That's nice mom, but they missed by 3% the level that was set 55% lower than last year and the stock is still trading at better than 70% of last year's level.  There are plenty of bargains out there, XOM just isn't one of them…  As it's a major Dow component, I'm expecting us to take a hit at some point as someone wakes up and sells XOM.

Jobless claims just came out and we "only" lost 630,000 last month.  Continuing claims rose to a record 6.27M indicating that, when we lose a job, they tend to stay lost but I'm already hearing "green shoot" nonsense on CNBC so enjoy your morning spin!  Personal income was down 0.3% and personal spending was down 0.2% and Real Consumer Spending fell 0.2% – all worse than expected by "experts" and I'm amazed that, as of 8:35, we're holding a 1.5% gain in pre-markets on this data.

None of this end-of-month movement makes much sense:  The BOJ cut their economic outlook to a 3.1% contraction from -2%, saying:  "Economic conditions in Japan have deteriorated significantly," in its semiannual economic outlook report, noting that in the corporate sector exports have also decreased significantly because of the "sharp downturn in overseas economies."  What sent the Nikkei up 4% this morning though, was a surprising 1.6% increase in industrial production as well as relief from a rumor that the BOJ would be forecasting a 4% contraction.  The BOJ also voted to keep rates at 0.1% while forecasting continuing deflation of 1.5%, indicating that carry traders will be able to party on for quite some time as 0.1% Yen flow out to the world markets in search of net returns.

Free money from the BOJ, a rate cut from New Zealand and a tripling of funding from the Asian Development Bank sent the Hang Seng up 564 points (3.8%) but the Shanghai barely budged, up just 0.4% after yesterday's 2.5% move.  Auto makers and related suppliers led the march in Asia as Chrysler spins into bankruptcy, raising the possibility that 2 of Asia's top 3 competitors may be on life-support for the balance of 2009.  Auto demand may be down, but that's still great news for HMC and TM.  Airline stocks followed our bounce and the overall mood in Asia was good following what they interpreted as a positive Fed decision to match the BOJ's loose money policy as well as Obama's press conference last night.  "Markets may need much more concrete signs of bad news in the near-term to outweigh the quiet confidence the Fed has expressed," said analysts at Standard Chartered.

Europe is off it's highs but still up over 1.5% just ahead of the US open.  Inflation in the Euro-zone is seen as stabilizing at 0.6%, opening the door for additional ECB stimulus.  Both business and consumer sentiment bounced back in April and that, coupled with what is being spun as a very positive Fed statement is boosting the European markets and that has been boosting our pre-markets as Asian and European investors grab thinly traded shares ahead of our open.  The real question is – are the US buyers going to be as confident as their global counterparts or will they take the money and run on this last day of the month?

While I think we may get held up today in order to make the tape look pretty for the month, I am very concerned about tomorrow and especially Monday so we'll be playing it cautious.  My play of the day is SKF, which I called on the nose when it topped out at $270 on March 6th (see me doing this live on TV) and I will now say it is getting too low at $54.  Thanks to the huge volatility of the ultra-ETF, we can create execute a buy by taking the $45 calls for $12.55, selling the $54 calls for $7 and selling the $50 puts for $3.  That is in on for net $2.55 so our effective buy of SKF is $47.55 if it closes over $50 and $48.77 if it closes below $50 as we will be forced to buy another round.  That's still 13% below today's price so it makes a nice way to make an initial entry to guard against a downturn in the financials.

We'll see what the day brings, if we hold 8,200 we need to stop worrying and love the rally but I'll be very surprised



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