Archive for September, 2009

Bad News Smacks Market But Shrugs It Off

Wednesday, September 30th, 2009

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Well today, we had some unexpected bad news from the Chicago Purchasing Managers Index. It came in at a reading of 46, down from 50, and below the expected 52. This caused concern that the economy is not on the road to recovery like everyone had anticipated.

As you can see from the graph the downside was contained by the 20-day moving average as it has been over the last several sessions. The middle green line on the graph, the dashed one, is part of an indicator I follow called the Bolinger Band. It represents the 20-day moving average and prices two standard deviations on either side of it.

In a healthy market, where prices are rising in a sustained uptrend, you will see prices trade within the bands, running up the top band, consolidating those gains within the upper half as the prices trade toward the middle band, then if contained, move back up to the top of the band. As long as the downside is contained by the middle band, this uptrend will remain intact.

The other thing you like to see as an indicator of potentially higher prices is the upper line pointing up and the lower line of the band curling up. Generally, this is a good sign – not perfect, but good.

So, if you have money in the market there is no reason to sell during this consolidation. You should protect it with some stop losses just in case some exogenous event or disturbing news shocks the market. That is our plan and one which we are executing.

Mark

From the Financial Times of London

Monday, September 28th, 2009

Below is an article on China continuing to buy up the world’s resources – this time 1/6 of all the oil reserves of Nigeria – while the west tries to recover from its financial problems. This is a critically important issue that will have a big impact on prices of energy and commodities in coming years.


China seeks big stake in Nigerian oil

By Tom Burgis in Lagos

Published: September 28 2009 23:30 | Last updated: September 28 2009 23:30

A Chinese state-owned oil company is in talks with Nigeria to buy large stakes in some of the world’s richest oil blocks in a deal that would eclipse Beijing’s previous efforts to secure crude overseas.

The attempt could pitch the Chinese into competition with western oil groups, including Shell, Chevron, Total and ExxonMobil, which partly or wholly control and operate the 23 blocks under discussion. Sixteen licences are up for renewal.

CNOOC, one of China’s three energy majors, is trying to buy 6bn barrels of oil, equivalent to one in every six barrels of the proven reserves in Nigeria, sub-Saharan Africa’s biggest crude producer and a major supplier to the US.

Details of the talks were revealed in a letter from the office of Umaru Yar’Adua, Nigeria’s president, to Sunrise, CNOOC’s representative, a copy of which was obtained by the Financial Times. The overall value of the Chinese offer is not disclosed, although some details suggest a figure of about $30bn. Some oil sector executives said the total on the table was $50bn.

A spokesman for Mr Yar’Adua said: “Negotiations are ongoing not only with Sunrise/CNOOC but also with all other stakeholders in the industry. The federal government has not taken any final position on the issue.”

The letter, dated August 13, said an initial offer was “unacceptable” but added: “Your interest in all the listed blocks will be considered if your revised offer is favourable.”

Details of how the Nigerian government would allocate equity in the blocks to CNOOC have yet to emerge and it is unclear whether this would involve forcing western groups to relinquish stakes.

“There are serious legal implications. You don’t want to go to court but if it gets to this then you have little choice,” an oil industry insider said.

China’s push to gain a significant foothold in Nigeria underlines the scale of its long-term ambitions to secure access to energy resources across the globe. Much of its investment has been for exploration, in contrast with the Nigerian blocks which are already producing or due to start pumping soon.

Tanimu Yakubu, the Nigerian president’s economic adviser, said China might not secure “anything close” to 6bn barrels from the negotiations, adding: “We want to retain our traditional friends.”

However, Mr Yakubu told the FT the Chinese “are really offering multiples of what existing producers are pledging [for licences] . . . we love to see this kind of competition”.

The talks come with oil groups and the government at loggerheads over a planned overhaul of the energy sector, where underinvestment and unrest in the oil-producing Niger Delta have drastically curbed production.

Basil Omiyi, Shell’s country chair in Nigeria, said: “The blocks referred to are under active exploration, development and production, mostly by the majority government-owned joint venture operated by Shell.” CNOOC declined to comment.

A Look At the S&P 500

Sunday, September 27th, 2009

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I’ve posted the chart above so we can see what the broad market is doing. It was off 2% last week and you can see that it dipped below the 13 day moving average. This keyed a few of our stop losses that we had set, and we will be watching to see whether it dips below the 34 day moving average.

The market is still in an uptrend as long as the short-term moving averages reman above the longer term moving averages.

You can also see that the pull back was on low volume, well below the moving average.

At this point, there really is no need to panic and sell everything to cash like many talking heads are advising. We will stick with our plan and keep stop losses in place to protect the upside we’ve seen this year but continue to ride the uptrend as long as it will last.

Mark

From Bloomberg: Dollar Drop on G20 Speculation

Tuesday, September 22nd, 2009

(Bloomberg) — The dollar weakened for the first time in three days against the euro on speculation Group-of-20 leaders this week will call for gains in other currencies to help reduce global trade imbalances.  The greenback fell versus 14 of the 16 major currencies after a spokesman for Canadian Prime Minister Stephen Harper said leaders meeting in Pittsburgh on Sept. 24-25 will discuss “a framework for balanced and sustainable growth.” New Zealand’s dollar rose toward a six-week high against the yen after a government report showed the current-account deficit shrank to the narrowest in more than four years.

“There’s talk that world leaders may seek to address the U.S. imbalances,” said Masashi Kurabe, head of currency sales and trading in Hong Kong at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest publicly traded bank. “This may lead to weakness in the dollar.”

The U.S. currency dropped to $1.4714 per euro as of 1:31 p.m. in Tokyo, from $1.4680 yesterday in New York. It declined to 91.75 yen from 91.93 yen and weakened to $1.6237 per pound from $1.6217. The yen was little changed at 135.01 versus the euro from 134.96.

New Zealand’s dollar strengthened 1.2 percent to 65.79 yen, after earlier climbing to 65.89 yen, the highest level since Aug. 10. The so-called kiwi rose 1.5 percent to 71.71 U.S. cents. Australia’s dollar advanced 0.7 percent to 86.93 cents.

Structural Reform

Policy makers need to promote a “sustained growth track and facilitate global adjustment, as well as structural reform which will need to be undertaken in both deficit and surplus countries,” Dimitri Soudas, a spokesman for Harper, told reporters yesterday in Ottawa.

The U.S. trade deficit widened in July and imports gained by a record 4.7 percent, the Commerce Department said in Washington on Sept. 10. The gap between imports and exports increased 16 percent, the most in more than a decade.

The Dollar Index, which the ICE uses to track the dollar against the currencies of six major U.S. trading partners including the euro and the yen, fell 0.3 percent to 76.537.

The U.S. currency also weakened as gains in Asian stocks spurred investors to buy higher-yielding assets.

The MSCI Asia-Pacific excluding Japan Index of shares climbed 0.7 percent. The Australian dollar-U.S. dollar exchange rate had a correlation of 0.98 with the MSCI in the past year, according to data compiled by Bloomberg. A reading of 1 would mean the two moved in lockstep. Japan’s financial markets were closed today for the second of three consecutive public holidays.

‘More Positive’

“Risk sentiment seems to be slightly more positive, with equity markets higher,” said Lee Wai Tuck, a foreign-exchange strategist at Forecast Pte in Singapore. “It’s dollar-selling” against major currencies, he said.

Benchmark interest rates are 0.1 percent in Japan and as low as zero in the U.S., compared with 2.5 percent in New Zealand and 3 percent in Australia, attracting investors to the South Pacific nations’ assets.

New Zealand’s dollar rose for a second day versus the yen after Statistics New Zealand said the current-account deficit shrank to NZ$10.61 billion ($7.57 billion) in the 12 months ended June 30, from NZ$14.57 billion in the year through March. The median estimate in a Bloomberg survey was for a NZ$13.3 billion shortfall.

The annual deficit was 5.9 percent of gross domestic product, less than the 7.4 percent forecast by economists, and the least since the period ended September 2004.

“That’s the best number since September 2004 in GDP terms — a significant improvement,” said Imre Speizer, a market strategist at Westpac Banking Corp. in Wellington. “Appetite for risk is pretty subdued and till we get out of the FOMC meeting it will be hard for the global rally to take another step up.”

Fed Meeting

Losses in the dollar may be limited before a Federal Reserve meeting at which policy makers may signal an exit from economic stimulus measures, increasing the allure of U.S. assets.

The Fed will keep its target rate for overnight loans at a range of zero to 0.25 percent at its two-day policy meeting starting today, according to all 93 economists surveyed by Bloomberg News. Chairman Ben S. Bernanke and his colleagues may discuss how to wind down purchases of mortgage-backed securities.

“We wait to see how much the Fed acknowledges the improvement in the data recently,” said John Horner, a currency strategist in Sydney at Deutsche Bank AG, the world’s largest foreign-exchange trader. “The risk is that dollar short positions get taken off prior to that event.” A short position is a bet an asset will decline.

The Conference Board said yesterday its gauge of the U.S. economic outlook for the next three to six months increased in August, rising 0.6 percent, after a revised 0.9 percent gain in July. The median forecast of economists surveyed by Bloomberg News was for a 0.7 percent advance. Full: http://www.bloomberg.com/apps/news?pid=20601087&sid=aN1bX_i007C0

Random Thoughts From DCA

Friday, September 18th, 2009

Pardon my typing. I’m stuck at the airport in DC with no wifi hotspot for my laptop so this is coming from my phone. Also, no graphics today.

1. The dollar rallied a smidge yesterday but don’t expect a major reversal. You probably have some shorts booking profits after 9 days of the dollar losing value. The chat still looks like we are headed lower after a short rally.

2. Oil continues to show strength. Everytime it falls below $70 we have a rally back to +$72. This is the type of strength that bill markets start with.

3. Have you seen the move in natural gas? Industry insiders are talking about a doubling in it’s price in2010. Maybe even higher if the govt adopts a US-centric energy policy. It costs $300 to convert your car to run on LNG but the per mile cost is much less than gasoline. Plus energy independence from the areas of the world that hate us AND a lowering of the trade deficit … What’s the downside?

I will have fewer postings jverthe next week. I am spending a long weekend with friends away from CU and then have a conference following that. If anything major happens I will give you my thoughts, though.

Enjoy the weekend!

Mark

S&P Target Reached

Wednesday, September 16th, 2009

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Well, as you can see on the graph we closed yesterday at 1052 on the S&P 5000 Index. In previous client communications and this blog I wrote that 1050 was our near-term target.

What now? I can tell you that for a target to actually be achieved, you have to close above it three days in a row or close 3% above it any one day. So, we still do not have an actual achievement of the target, but it could happen. The technical indicators I follow are very strong, probably the strongest I’ve seen since the NASDAQ rally.

The real issue this morning is that gold is trading pre-market at $1018. This is the highest level since its record of $1033 in early 2008, and reflects the country’s worries about the dollar, inflation, deflation, you name it.

I’ll be back with more, including the next price target for the S&P and the reasoning behind it.

Mark

One Year Later

Monday, September 14th, 2009

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Well, its been a year since the Lehman Brothers bankruptcy (or it will be tomorrow).

You can see on the graph above that we’ve recovered a bit over half the crash that started with the government not rescuing Lehman Brothers through early March.

From a technical standpoint, you can see that all of the various short-term moving average lines have crossed their longer-term counterparts, and are all headed up. The safest thing is always to invest with a trend that is this strong.

That said, this weekend’s trade sanctions against China and their anticipated retaliation will likely move the market lower today. My biggest worry, though, is what impact it will have on the dollar…my assessment is that it will put further pressure on the dollar (if China needs less dollars due to a trade war, that equals less demand for dollars and they will go down).

Anyway, we’ll keep an eye on things and alert you if we see any change in the trend (like the shorter-term moving averages starting to cross down over the longer-term ones.

I’m off to an estate planning seminar.

Have a good Monday.

Mark

Market Continues Moving Higher

Friday, September 11th, 2009

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It’s been a few posts since I’ve shown this chart, but its behaving much as we anticipated.

You see that we did in fact bounce off the converging moving average and 50% retracement lines and now are headed up to test the 38.2% retracement.

Historically, most bear market rallies stall out between the 50% and 38.2% levels. The one big thing going for this rally is that there is not a lot of volume-based overhead resistance (see the small horizontal bars along the left side). We will have to see how this one shapes up.

Have a nice weekend!

Mark