Thursday, December 25, 2008

Happy Holidays

Happy HolidaysSocialTwist Tell-a-Friend
Fari Hamzei

As this tumultuous year comes to a close, we are all grateful for our resilience in a very tough market. With volatility at the highest in a decade, coupled with heavy losses and redemptions at hedge funds, it has been truly bloody out there. The wisest course has been to lay low, waiting for clearer days to set sail again in these rough seas.

Yet at this holiday time we are reminded that the treasures of this world come and go. We must always be thankful, therefore, to God for our health and our confidence as we move forward. Above all, we must never forget those who are less fortunate during this Holiday Season.

Wishing you and yours peace and blessings at the Holidays, and a healthy and prosperous New Year.

Tuesday, October 21, 2008

I think the worst is over

I think the worst is overSocialTwist Tell-a-Friend
Fari Hamzei

Last Wednesday thru Friday, NDX $wPut/Call Ratio hit 4.6, 5.9 & 40+ on huge $wVolume ($700M, $2.4B and $7.4B, respectively). That is a lot of put buying by the institutions (NDX options are NOT for mom & pop traders, even at normal vol levels (VXN stayed above 60 last week)). The last time we saw these $wPCR levels for NDX, it was during the 2001-2002 dotcom debacle.

For those of you who remember my calls on CNBC back then, the readings at these levels for NDX are very bullish 1 to 3 days forward. We should expect 100 pt move in NDX in 3 days (registered 41+ today) which means, most likely, the AAPL earnings report tomorrow after the close, will be viewed very favorably.

In addition, a major perma bear threw in the towel today, LIBOR had eased off overnight and US short-term interest rates went up. In the last hour, there was a lot of mutual fund buying today. This is all good for equities.

Bottom Line: The chance of revisiting the Oct lows is now highly diminished albeit not zero.

Friday, October 17, 2008

Warren Buffett has been buying here

Warren Buffett has been buying hereSocialTwist Tell-a-Friend
Fari Hamzei

"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors."

from http://www.nytimes.com/2008/10/17/opinion/17buffett.html

China is closed right now. This news will get more exposure over the weekend. Stay LONG !!!!

We like DDM, MOS, KBR, JPM, GS, MS, GE, DD, HIG, HPQ, QQQQ and SPY here.

Reg FD: We have established, for some of our affiliates (family and friends), long positions in the above names in the last two weeks for a long term hold (with no use of margin or leverage).

Saturday, October 11, 2008

What History Tells Us About the Market

What History Tells Us About the MarketSocialTwist Tell-a-Friend
Fari Hamzei

http://online.wsj.com/article/SB122368241652024977.html

Friday, October 10, 2008

Food for Thought for this Chapter of our Journey Together

Food for Thought for this Chapter of our Journey TogetherSocialTwist Tell-a-Friend
Fari Hamzei

http://faithhopeandfiction.com/blog/comments.php?no=203

Friday, September 26, 2008

Comments for Timer Digest as of Friday, September 26, 2008

Comments for Timer Digest as of Friday, September 26, 2008SocialTwist Tell-a-Friend
Fari Hamzei

As I sat down to write the commentary for today, Friday, September 26—given what we have gone through in these tumultuous past two weeks—I recalled the words of wisdom of a respected colleague and good friend. These words were bestowed on us as the first salvo in the first chapter of Master Traders by none other than one of the greatest market tacticians in recent years, Jeff deGraaf, CMT, CFA, formerly of Lehman Brothers.

"In the market, arrogance without fear will eventually break you. Fear without arrogance will leave you paralyzed at the most inopportune time. The delicate balance of fear and arrogance fosters appropriate aggressiveness without the recklessness."

As Washington continues to bicker over the fate of our frozen credit markets, while investors worldwide hold their breath, and with Presidential and Congressional elections in less than 40 days, I see our forward near-term game shaping up as a binary trade, with a 1 or 0 outcome. Since the ZERO outcome is not acceptable to our way of life in this great nation, we will march forward with a strong LONG BIAS. Our markets are eager to ratchet up as soon as the Proposed Treasury Authority to Purchase Troubled Assets is approved by both houses of the Congress and the news hits the wires.

For this play, we prefer the financials, capital goods, technology and consumer cyclicals.

Saturday, September 20, 2008

My Market Timing Comments for Timer Digest as of Friday, September 19, 2008

My Market Timing Comments for Timer Digest as of Friday, September 19, 2008SocialTwist Tell-a-Friend
Fari Hamzei

Last week, we experienced an extremely oversold market that led to a classic capitulation as our global financial system shook to its core. This was telegraphed by very high “new lows” readings, high “down-volume to up-volume ratio” readings, and also very high VXO and VXN readings (based on our Sigma Channels patterns). Sunday marks the Fall Equinox. As I have written every year, within +/- 2 days, Fall Equinox often marks a key reversal for the markets—in this case, mostly likely to the upside.

Comrade Paulson (who was just awarded his second Order of Lenin Medal for his Thursday Night Massacre of Net Short Hedge Funds) and Uncle Ben timed the US Government's $700+ Billion taxpayer (read: poor) bailout of our investment banks (read: super rich) extremely well—just hours ahead of expirations of September Equity Index Futures and European-style Equity Index Options. (Seriously, I consider this a brilliant move that truly did save the integrity of our equity and credit markets and, perhaps, Capitalism as well, from a meltdown).

For the next two weeks, we suggest that you stay the course and keep your longs in tact. We expect a "local" peak around Oct 2nd / 3rd and a "local" trough by Election time (Nov 4th).

Thursday, September 18, 2008

Implications of Gold's Rise Relative to Oil

Implications of Gold's Rise Relative to OilSocialTwist Tell-a-Friend
Ashraf Laidi

Over the past 8 weeks, we alerted clients that the gold/oil ratio would continue to recover from its July record lows as oil begins to underperform gold. The latter would recover as the dollar drops on deteriorating macroeconomic fundamentals and further erosion in financial markets, thus, triggering re-emerging expectations of Fed cuts. Ever since the gold-oil ratio bottomed to a record low of 5.8 in July-courtesy of soaring oil prices relative to gold, the rebound was inevitable, especially as the ratio was well below its 37-year monthly average of 13.0 (see dotted horizontal line).

The latest jump in gold oil prices to a 5-week high of $895 per ounce and the simultaneous dip in oil prices below $92 per barrel is consistent with the aforementioned analysis. The chart below shows each time the gold/oil ratio had bottomed, a rebound was accompanied with a US recession, Fed easing and dollar weakness (accompanied by rising gold). In fact, since 1972, each of the last five U.S. recessions was preceded by 20-30% declines in the gold-oil ratio from its most recent highs. (See attached file )

RATIONALE
During economic expansions, rising demand for industrial metals and energy boosts both oil and gold prices, thus leading to a rising or steady gold-oil ratio. But when substantial advances in oil are the result of supply factors (political risk, wars, acts of god, labor union action, OPEC action/rhetoric, refinery shutdowns and falling inventories), oil prices tend to overshoot, clearly outpacing any gains in gold in relative terms, producing cost and inflationary repercussions for importers and consumers.

The chart shows how bottoms in the gold/oil ratio (shaded areas) were followed by declining or contracting GDP growth. In each of those cases, the Fed was obliged to cut rates and the dollar sustained fresh damage.




1973-75 Recession
1974 quadrupling of oil prices triggered sharp run-ups in US gasoline prices and a subsequent halt in consumer demand. Resulting USD drop pushed gold up by 15%. But faster oil appreciation dragged down gold-oil ratio from a high of 34.0 in July 1973 to 23.2 in October of the same year, before extending its fall to12.2 in January 1974. By 1974-75, the U.S. and the major industrialized economies had fallen into recession.

1980-82 Recession
Tumbling dollar and record oil main culprits to the 1980-82 recession. Gold-oil ratio dropped from 15.3 in January 1979 to 11.4 in August 1979 due to a doubling in oil to $29 and a more modest 30% increase in gold.

The 1977-79 dollar crisis forced OPEC to further hike prices to offset FX value of oil revenues. Iran revolution endangered oil supplies, thus ensued a 200% increase in oil between 1979 and 1980, giving rise to the second oil shock within less than 10 years.

The Gold-oil ratio fell anew from early 1981 to mid 1982 as oil remained around the mid $30s while gold plummeted from the $830s territory to $400 on waning impact of Soviet-Afghan. In summer 1981, the gold-oil ratio dipped to a 4-year low of 11.4 amid plummeting gold and stable oil, then onto 9.0 in Summer 1982, in line with the deepening 1981 recession which extended into mid 1982.

1985- 86 Slowdown
In autumn 1985, the gold-oil ratio bottomed at 10.6 from its 16.9 high in February 1983 due to relative stability in gold & oil. 35% decline in gold-oil ratio proved successful in signaling the 1985-1986 slowdown and resulting Fed rate cuts in February-July 1986.
Unlike in prior cases of falling gold-oil ratios, GDP growth avoided a contraction partly due to the offsetting positive effects of 1986 oil price collapse following OPECs flooding of oil.
The same idea applied for the recessions of 1990-91, 2001-2 and the current slowdown which has yet to called a recession.

MORE DETAIL ON HOW THE GOLD/OIL RATIO IS USED CAN BE FOUND IN CHAPTERS 6 AND 9 OF MY BOOK.

Tuesday, September 16, 2008

Confluence of Dollar Top

Confluence of Dollar TopSocialTwist Tell-a-Friend
Ashraf Laidi

Risk aversion is increasing looking like a pendulum swinging violently, with both extremes signifying heightened fear, with the lowest point of the pendulum reflecting short-lived reductions in aversion. Barclays announcement to reject the purchase of Lehman, the confirmed bankruptcy of Lehman and Merrill Lynchs announcement to sell itself to Bank of America each signified a rapid reduction in risk, which was principally guided by broad dollar declines and yen rallies. Temporary relief in volatility and risk aversion were triggered by announcements from a group of international banks forming a $50 bln fund to save help troubled banks.

Careful with FIFO Analysis on Currencies
A major fundamental argument sustaining the prior dollar rally was that of First-In-First Out (FIFO), supporting the hypothesis of the US recovering earlier than Europe because it had preceded it in entering the global slowdown and has delivered more aggressive fiscal and monetary measures than the old continent. While this notion is partially true, it overlooks the fact the impaired US banking capital and broadening credit woes (in interbank market and hedge funds) are the main factors distinguishing the US challenges from those in continental Europe. Stated differently, the Eurozone patients may have joined the global intensive care unit well after the U.S., but it in no way suggests that their condition is more critical than that of the U.S. Consequently, the collapse of Fannie/Freddie and Lehman, and near collapse of Merrill Lynch exemplify the repercussion on the increasingly fragile consumer fabric and employment foundation. The argument for Fed rate cuts is not only aimed at shoring up liquidity or inter-bank confidence, but adding from what remains of the Feds firepower to the ailing economy.

A Cut in the Discount Rate or Fed Funds?
As in August 2007, the Fed may be expected to try markets reactions with a rate cut in the discount rate rather than in the Fed funds rate to further increase banks access to the feds lending window. The discount rate currently stands 25-bps above the 2.00% Fed funds rate, half than where it was before the beginning of the easing campaign last August. At a time when the Fed has tripled the period of term loans to banks and expanded the range of loans it could buy from banks, it only makes sense to lower the discount rate down to the Fed funds level. The Fed's inflation priorities are now largely overwhelmed by their obligation to save the financial system as well as the economy.



Since June, I have been predicting that the next interest rate change will be down than up, compare to majority of pundits who had expected rate hike. Here are the articles June 27 and June 18 .

Planet Alignment for a Dollar Top?
The charts below show confluence of macro forces acting to halt the dollar rally. US dollar index gives way at the 3-year trend line resistance of 80.70, while EURUSD stabilized last week at the major support of $1.3877, which is near the 3-year trend line (blue line) and 50% retracement of the rise from the $1.1638 low (Nov 2005) to the record high of $1.6036. Similarly, oil's decline has yet to breach the $98.66 support, which is the trend line support from the January 2006 low. Gold shows to have bottomed at $745, which is just above the key support of $730 support (previous resistance in May 2006) and the 50% retracement of the rise from the March 2005 low to this years fecord high.

The fundamental underpinning of these chart formations is emerging from the latest woes in Wall Street and from a possible reduction in the dollars yield foundation in the discount rate. We continue to expect 50 bps in the fed funds rate, with the most plausible scenario occurring between Tuesdays FOMC meeting and the October meeting. But we are not yet ready to pronounce the end of the dollars upward correction due to what may occur in European banks ties to Lehman as well as the macroeconomic weakness in the continent.

CHF and JPY continue to outperform across the board, especially against the wobbly USD and GBP. USDJPY seen capped at 106.20, with pressure pulling back towards 105.20 and 104.80. USDCHF eyes 1.1160, EURCHF eyes 1.5850, AUDJPY capped at 86.20, eyes 84.60 and 84.20.




Friday, September 12, 2008

Comments for Timer Digest as of Friday, September 12, 2008

Comments for Timer Digest as of Friday, September 12, 2008SocialTwist Tell-a-Friend
Fari Hamzei


Last Wednesday (before the close) we wrote you the following:

all eyes are on LEH ..... Fed will stand ready to protect the 4th largest investment bank as Treasury stepped in to protect the housing market (by buying 80% of FNM & FRE) last Sunday.

STAY LONG for now...



as of the Close today, very little has changed:

LEH will be sold in an orderly manner, most probably to the BAC-led group. LEH does not have a liquidity crunch like BSC did back in March. GM & F (and Chrysler) will be helped out too with retooling loans. As I wrote to you a few weeks back, it is election time and the politicians will have no other choice but to push to the right our Economy's structural problems and past the November Elections.

With Housing (Mortgages) and Autos [temporarily] fixed (but not cleaned up, and more like, band-aided for now), the market should get less risk averse in the coming weeks.

For now CONTINUE to STAY LONG......

Have a great weekend.....

Go Chicago Cubs !!!!

Monday, September 8, 2008

Notice of Change of Bias

Notice of Change of BiasSocialTwist Tell-a-Friend
Fari Hamzei


From: Hamzei Analytics LLC Admin [mailto:Admin@HamzeiAnalytics.com]
Sent: Monday, September 08, 2008 7:31 AM
To: MSA (M_S_A@HamzeiAnalytics.com)
Subject: Notice of Our Change of Bias

This morning Timer Digest has confirmed our Change of Bias as of Sunday afternoon ~ 3 pm EDT.

F



From: Timerdiges@aol.com [mailto:Timerdiges@aol.com]
Sent: Monday, September 08, 2008 6:07 AM
To: Fari@HamzeiAnalytics.com
Subject: Re: URGENT>>> how late can I change my bias today (Sunday) on SPX Short I put on August 22nd ???

September 8, 2008

Fari

We will log your S&P 500 Buy signal as of the 09/05/08 close, but confirm that this is what you want to do.

Technically you have until 4:00 AM ET to receive the previous market close.

Thank,

Jim


In a message dated 9/7/2008 3:04:10 P.M. Eastern Daylight Time, Fari@HamzeiAnalytics.com writes:

From: Fari Hamzei [mailto:Fari@HamzeiAnalytics.com]
Sent: Sunday, September 07, 2008 2:04 PM
To: Jim Schmidt (Timerdiges@aol.com)
Subject: URGENT>>> how late can I change my bias today (Sunday) on SPX Short I put on Aug 22nd ???

Wednesday, September 3, 2008

Comments for Timer Digest as of Wednesday, September 3, 2008

Comments for Timer Digest as of Wednesday, September 3, 2008SocialTwist Tell-a-Friend
Fari Hamzei

Reading that FNM & FRE have approximately $223 Billion of debt maturing in September. Warren Buffet, in an interview back on August 22nd, called it as he saw it: "[They] don't have any net worth...the game is over..."

Barron's valued them recently at approximately negative $50 Bils each.

And, yesterday, Fitch Ratings slashed its debt ratings for preferred stock of Fannie Mae and Freddie Mac's from "A" to "BBB-," the lowest investment grade rating.

Balance these with a comment from a former advisor to China's Central Bank (holding some $376 Billion in US GSE debt):

“If the US Government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic. If it is not the end of the world, it is the end of the current international financial system.”

-- Stay SHORT Broad Indices and Financials, this could get very ugly very fast....

Sunday, August 31, 2008

Let me clear something up once and for all

Let me clear something up once and for allSocialTwist Tell-a-Friend
Fari Hamzei

This morning emails are continuing to pour in and I feel it is better I write to all of you all at once, clear some air and get every body focused back on the markets and the week ahead. My only request is that, after reading my explanations, whether you agree with it or not, let's just move on by NOT replying to this email and spare me of your response. We all have a lot to prepare for this coming week. Thanks for your understanding in advance.

First and foremost, I am not a political observer. And my market comment last Friday for Timer Digest was not supposed to be interpreted as a political statement. At Timer Digest, the Top Ten market timers (out of approximately 150 timers) are encouraged, twice a week, to email in and highlight what each of us observe as key issues facing/impacting the markets in the short term. Our comments are posted on Timer Digest's hotline on Wednesday late afternoons and Saturday mornings.

Second, I am a die-hard Reagan Republican. As the part of my preparation for the markets, I read a lot of market-related reports, on a daily basis, from highly regarded authors and I was simply highlighting what issues this fragile market might be reacting to, including, but not limited to, the general elections, the bond and commodity markets, hurricanes, and the Russian behavior in the Caucasus.

If you carefully review the minute by minute trading data on Friday (after a series of better-than-expected economic sentiment data during the first 30 min of regular trading), market began selling [hard] exactly when McCain Campaign confirmed the rumors that Gov Palin was indeed Senator McCain's choice for his VP. Markets, in aggregate, are smarter than any one of us and we should heed their hidden message. (sometimes we do not get it right, including yours truly, back in May 19th --oh, well !!).

IMHO, what Senator McCain did is most unnerving -- he gave away a very tight election at the time us Republicans must endure the many failures of Bush-Cheney era. If you look at this morning's highly rated CBS "Face the Nation" or NBC "Meet the Press", both anchors, Bob Schieffer and Tom Brokaw, opened with or brought up same concerns I wrote to you and Timer Digest on Friday.

I think I will sit this election out. My Republican vote won't make a difference in IL where I reside now or back in CA where I lived most of my adult life. And by doing so, I think it may help me be more objective, and less emotional, than the previous five presidential elections I eagerly participated in.

About the Top of the Republican Ticket:
I've been privileged to work with the best and the brightest this great country has to offer and in the process it has raised my standards very high. I just can't vote for a guy who came in 5th from the BOTTOM at Annapolis (for your info, I got into Princeton Engineering School at the age of 16, having been admitted to Annapolis, MIT & Cornell but finally opting for Princeton). For admission to Annapolis, as an allied officer, I received an appointment from President Richard Nixon. At Northrop Grumman, I was honored to work on US Navy F-18A Hornets and in my last two years there I reported to the Father of the Stealth Bomber (USAF B-2 Spirit), which some geopolitical analysts believe, its mere existence, crumbled the Soviet control over Eastern Europe.

And the Veep:
State of Alaska is less populated than the City of Chicago with a windfall budget surplus that you and I pay for at the gas pump. Per capita, that is an outlier fiscal condition. Lower 48 Governors are vastly better experienced as they operate in a more "normal" fiscal conditions. And before that, Gov. Palin was a mayor of a town with 9,000 people. These short and very limited experiences do not train her to be one heart beat away from becoming the Commander-in-Chief of the sole superpower the Free World has. This I know. I grew up and worked in the Military Industrial Complex in my backyards (in Washington & Los Angeles).

Read this http://www.ktva.com/ci_10339580?source=most_emailed

and this http://thebruceblog.wordpress.com/2008/08/29/interesting-mccain-chose-palin-when-she-is-under-scrutiny-and-investigation/

These are issues that Dems will bring up in the Presidential Debates.


About the Democratic Ticket:
oh, BTW, Senator Obama, although I understand he is very smart, IMHO, is not qualified either and does have a number of unsavory associates. Senator Biden is a wild card and gaffe central.


If these two tickets are the best this Great Land can come up with, then, it is indeed a very sad commentary on the State of Our Union.

Saturday, August 30, 2008

Comments for Timer Digest as of Friday, August 29, 2008

Comments for Timer Digest as of Friday, August 29, 2008SocialTwist Tell-a-Friend
Fari Hamzei

nothing new to add .....but

For Senator McCain who is 72 years old and has had four bouts with cancer to have chosen someone so completely unqualified as Gov. Sarah Palin to be a heart beat away to become the CINC, is shockingly irresponsible. Suddenly, Senator McCain's age and health become central issues in the campaign, as does his judgment.


Market should sell hard as Obama/Biden Victory is all but guaranteed now.

So in effect, as Labor Day approaches, we are walking into a perfect storm, with Elections outcome (as discussed above), Financials in disarray, Czar Putin on a rampage in the Caucasus and Hurricane Gustav heading right into the Gulf of Mexico with elevated water temperatures.

My God save and protect the Union....

Friday, August 22, 2008

Notice of Change of Bias on SPX and My Comments as of Friday August 22, 2008

Notice of Change of Bias on SPX and My Comments as of Friday August 22, 2008SocialTwist Tell-a-Friend
Fari Hamzei


Dear Jim,

I am reversing my existing LONG position (from April 10 @ 1360.54) and going SHORT S&P-500 Cash Index (SPX) as of the Close Today at 1292.20 (almost touching its +1 sigma).



We have a rough patch ahead of us. The problem is the unresolved turmoil in the Credit Markets as we enter the season of high volatility for our Equity Markets. Brace yourself (and your portfolio).

Here is our Timer Chart:

Friday, August 8, 2008

Comments for Timer Digest as of Friday, August 8, 2008

Comments for Timer Digest as of Friday, August 8, 2008SocialTwist Tell-a-Friend
Dear Jim,
As I wrote you two days ago (before the close -- see below), both of those events happened today but not first without a sharp sell-off (yesterday), which brings us to this point:

we did observe outside bar reversals on vol indices (VXO and VXN) today... but our proprietary volume and breadth indicators are not looking very terrific here. putting all of this together and noting that the rally from March 17th low had more upward pressure, we read this as a very skeptical market. considering that seasonality wise, the more volatile part of the year is ahead of us and not behind us, the market may be bracing for another shoe to drop in financial/housing/energy markets.

given that next week is August Options Expiry, we need to see more volume before we can press it. we will, but when it's time (IOHO) !!

I have attached our Vol Charts:


FH





From: Fari Hamzei [mailto:Fari@HamzeiAnalytics.com]
Sent: Wednesday, August 06, 2008 1:57 PM
To: Jim Schmidt (Timerdiges@aol.com)
Subject: my comments for Wednesday August 6, 2008

we are about to see our SPX channel breakout confirmation...........with a close above 1292.00, STAY LONG or GET LONGER. Volume is key determinant here.

NDX (and QQQQs) will go up to test their 200-day MovAvg in the coming days.


All the best;

Fari Hamzei
Founder
Hamzei Analytics, LLC

Friday, August 1, 2008

Comments for Timer Digest as of Friday, August 1, 2008

Comments for Timer Digest as of Friday, August 1, 2008SocialTwist Tell-a-Friend
Fari Hamzei

With the non-event July Non-Farm-Payroll behind us (except Jobless Rate spiking to 5.7%), the worry is now on GM, MER & C. If you do the math, GM has about 60-day cash on hand to pay its bills. That is awfully tight for a company with $180Bils in Revs. CDO write-downs for MER will force another round of write-downs for C and other major large international banks (22 cents on a Dollar sale by MER vs 50 cents on a Dollar held on books by C, and alike). Vikram Pandit, one of the best and brightest on Wall Street, has an uphill battle ahead of him in the next few quarters. The Credit Bears continue to Rule this Market.

Technically, the market structure has not changed. Look at NDX for month of July. It went completely sideways. The TechLand guidances have been very perturbing to many investors, small and large. The only bright spot seems to be the BioTechs (see BBH components).

Bottom Line: We expect more or less sideways action during the remaining dogs days of the Summer. Come Labor Day and the final push for the Presidential Elections, we should see some follow thru in the Equity Markets. Direction is unknown at this point.

Friday, July 25, 2008

Comments for Timer Digest as of Friday, July 25, 2008

Comments for Timer Digest as of Friday, July 25, 2008SocialTwist Tell-a-Friend
Fari Hamzei

We are getting cautiously optimistic that we are in the process of building a bottom. While our credits woes are not over yet (see news on Chrysler completely pulling out of Auto and SUV LEASES today and S&P downgrade of FNM & FRE Subordinated Bonds and Preferred Stocks) and summer trading this year could be rather gut-wrenching, we are fully cognizant of the fact that Bear Market Bottoms take time to build. They are not an event. Rather, they are an evolution.

With RUT and NDX catching a bid here today following better than expected news in new home sales, consumer confidence, durable goods and lower crude oil prices, we are hopeful that our Equity Markets will finally make a turn here for good.
Having said that, for now the best advise is to "Stay Defensive and Collapse Your Bet Size" !!!

Below is our Timer Chart.


Wednesday, June 25, 2008

Comments for Timer Digest as of Wednesday, June 25, 2008

Comments for Timer Digest as of Wednesday, June 25, 2008SocialTwist Tell-a-Friend
Fari Hamzei

We are going thru a mild rebound here but due to lack of volume, lack of panic and lack of rise in VIX, it is troubling us here.

Stay defensive. The flush is not over yet, in our opinion.

Sunday, June 22, 2008

Market Commentary sent to Timer Digest on Friday, June 20, 2008

Market Commentary sent to Timer Digest on Friday, June 20, 2008SocialTwist Tell-a-Friend
Fari Hamzei

Volatility has increased in line with our projections. We are currently extremely oversold. We should see another bounce this week. Whether it is a dead cat bounce or not we do not know at this point.

In our opinion, this was not a complete FLUSH of the weak longs.

Wednesday, June 18, 2008

Market Commentary sent to Timer Digest on Wednesday, June 18, 2008

Market Commentary sent to Timer Digest on Wednesday, June 18, 2008SocialTwist Tell-a-Friend
Fari Hamzei

Our Market Pulse Indicator (MPI) is getting ready to setup for a [ROYAL] FLUSH of the weak longs. Once we are thru that painful process, we should be ready for a blast off. The window is 2 to 5 days. Brace Yourself.

Market Commentary sent to Timer Digest on Friday, June 13, 2008

Market Commentary sent to Timer Digest on Friday, June 13, 2008SocialTwist Tell-a-Friend
Fari Hamzei



Well, first they told everyone LEH and YHOO were in trouble, and so the market sold hard. By Wednesday night, we were extremely oversold with NYSE McClellan Osc reading of -245. Today, of course, with good retail sales and inline CPI, it was a brand new day, and with MSFT, GS and LEH leading the way, we closed with a -108 reading on the same indicator. We are not out of the woods yet, but the next leg has a positive bias to it -- as long as GS Earnings Report is well received Tuesday morning before the market opens.


NDX is retesting its 200 day Moving Average but key to this market is XLF and XBD behavior (Banks and Broker/Dealers).


Go WSox !!!

Thursday, June 12, 2008

Market Commentary sent to Timer Digest on Wednesday, June 11, 2008

Market Commentary sent to Timer Digest on Wednesday, June 11, 2008SocialTwist Tell-a-Friend
Fari Hamzei

Our Market Pulse Indicator is getting in the rebound region. NYSE McClellan Osc closed at -241 and its NAZZ brethren closed at -141. We are deeply oversold here and next week is June Options Expiration Week. The puts bought in the last few days must go worthless by next week. So expect at least a dead cat bounce here.

The caveat is XLF. The Financials are in deep trouble. Best example is LEH (short bias) and SKF (long bias).

Sunday, June 8, 2008

Market Commentary sent to Timer Digest on Friday June 6th, 2008

Market Commentary sent to Timer Digest on Friday June 6th, 2008SocialTwist Tell-a-Friend

Fari Hamzei


What a day it was........DJIA -394, SPX -43 & NDX -64 !!

As we warned you earlier this week (on Wednesday) to stay nimble as we have a very bumpy road ahead of us. Next week undoubtedly, we shall observe some form of Fed and/or PPT Intervention in our financial markets. But first, we have to go thru Monday and it could be a very tough day.

With Vol Indices at +3 sigma and major equity index averages at -2 sigma, we should be close to a local bottom once NYSE McClellan Oscillator dips below -150. This by no means can be construed as THE bottom for this leg down. We closed today at -110 for this popular indicator.

Friday, May 30, 2008

Market Commentary sent to Timer Digest on Friday May 30th, 2008

Market Commentary sent to Timer Digest on Friday May 30th, 2008SocialTwist Tell-a-Friend
Fari Hamzei

On Tuesday, it seemed as if the PPT (Presidential Working Group on Financial Markets: http://en.wikipedia.org/wiki/Working_Group_on_Financial_Markets) was recalled from the Hamptons to buy some SP Futures (by the VEEP), when we dropped below the 1375 levels on the June basis. And, buying they did, ahead of the month end window dressing deadline. By late this afternoon, SP 500 Futures closed the month at 1402.50 at the critical zero(0) sigma level.

Both our Market Pulse Indicator (pointing up), the 5-day vs 10-day TRIN (pointing down) and Vol Indices (easing) point to at least a 1 to 3 days more move upward in this leg. But a failure by SPX (the Cash Index) at 200 day MA (1425.2 area) will be ominous for this fragile market.

So Stay Defensive.........in the mean time, we like select oil services and technology names here.


This and more will be discussed interactively in our webinar on Saturday, May 31st at 11:00 CDT. Click here to get free access: https://www1.gotomeeting.com/register/222922774

Monday, May 12, 2008

Market Commentary sent to Timer Digest on May 12, 2008

Market Commentary sent to Timer Digest on May 12, 2008SocialTwist Tell-a-Friend
Fari Hamzei


Today, finally the Shorts were handed their heads, as Nasdaq-100 (NDX) closed above its MR1 (Monthly Resistance One) Level. This is a multi-month breakout and almost a new high for 2008. SPX is poised to do the same shortly (its MR1 is at 1418xx) and then next it will challenge its 200 Day Mov Avg now approximately standing at ~1429.

Stay LONG....we like oil services and select techland names here.

There will be no mid-week comments from me as I will be speaking at The Three Gurus Event (http://www.thethreegurus.com/) in Las Vegas.





Sunday, May 4, 2008

Market Commentary sent to Timer Digest on Friday May 2nd, 2008

Market Commentary sent to Timer Digest on Friday May 2nd, 2008SocialTwist Tell-a-Friend
Fari Hamzei

As we wrote last night for our MSA List Members, we felt that early this week, FED knew the April NFP will come in better than consensus estimate and that is why they signaled they may be done lowering rates for now... historically, any time FED stopped lowering the FF rates, it boded well for all Equities. So, STAY LONG as SPX yesterday broke a multi-month breakout channel...

and Trade with Courage.

Tuesday, April 29, 2008

Market Commentary sent to Timer Digest on Friday April 25, 2008

Market Commentary sent to Timer Digest on Friday April 25, 2008SocialTwist Tell-a-Friend
Fari Hamzei

With a bid to the Financial (most sold sector in Q1) last two days, we shall stay the course. Our Market Pulse Indicator (MPI) is a bit stretched but with SPX trading very clearly in the Zone (+1 to +2 sigma), all is well with our Long SPX Position on April 10 (~1360). Our next target for DJIA sits at ~13075 (200 day MA) to ~13150 (+3 simga) confluence.

Saturday, April 19, 2008

SocialTwist Tell-a-Friend
Fari Hamzei


"And, Nostradamus, shall lead them...."

With SPX and NDX closing at two sigma, and McClellan Oscillator readings of 168 and 94, we are a bit stretched. But there is huge bid to the market and I doubted this bid will wane till we go thru AAPL Earnings Report on Tuesday AH.

DJIA, having gone thru our 12,700 multi-month channel breakout target, is now poised to hunt down the current levels of +3 sigma (12,987) and 200 Day MA (13,093) confluence.


By the way, next Wednesday morning, Alexis Glick, the very cute & very smart anchor (a five sigma event by itself) for FOX Business Network has invited me to her "The Opening Bell" segment @ their NYC HQ, so there will be no mid-week commentary from me. Alexis, a former head of NYSE Floor Operations for Morgan Stanley & Co and a Columbia grad, is as smart as they come. We just linked her blog to to this blog.

Friday, April 11, 2008

Market Commentary sent to Timer Digest on Friday April 11, 2008

Market Commentary sent to Timer Digest on Friday April 11, 2008SocialTwist Tell-a-Friend
Fari Hamzei

Technically, the damage caused pre-open today by Jeff Immelt & Co was heavy, GE being the 3rd largest US company by market cap. SPX closed below zero sigma (20 day MA) and NDX stopped exactly at zero sigma. McClellan Oscillators closed at -30 and -36 for NYSE and NAZZ, respectively. With this backdrop, next week could be pretty tough for the longs. We have Q1 Earnings, Tax Selling and April OX. Sounds like the script was written in a backroom of Central Casting.

As you know, we went long as of Thursday close (1360.54). While we are not panicking yet, nonetheless, we are alarmed at the huge miss by one of the most reliable reporting companies (and still the only original member of Dow 30).

But next week is another week, and God willing, we shall fight another battle.

Notice of the Change of Our Market Bias

Notice of the Change of Our Market BiasSocialTwist Tell-a-Friend
Fari Hamzei


From: Fari Hamzei [mailto:Fari@HamzeiAnalytics.com]
Sent: Friday, April 11, 2008 4:42 AM
To: Jim Schmidt (Timerdiges@aol.com)
Subject: Timer of the Year Competition



Dear Jim,

We are going LONG SPX as of Close of Thursday, April 10 @ 1360.54.
Please confirm the receipt of this email.




All the best;


Fari Hamzei
Founder
Hamzei Analytics, LLC




This Timer Chart is for our readers.

Sunday, April 6, 2008

Phoenix Options Trading Service finishes its first month UP 22%

Phoenix Options Trading Service finishes its first month UP 22%SocialTwist Tell-a-Friend


Well, first month is behind us. We made some mistakes and not all of our risk management systems are fully operational as we want them. And, yes, I am still trying to get settled in the Windy City.

Nevertheless, the first month, marked-to-the-market, brought in 22% return on total capital. Cash on Cash Return was even juicier.

While past performance is not indicative of future returns, we will stride to do our very best. One of the items we have recently added is ability to show current portfolio P/L without divulging trades in progress on an automated basis. See our Phoenix Visitors' Calendar: http://www.hamzeianalytics.com/PHOENIX_visitors_calendar.asp (Once you are a paid subscriber, you can see the detail of all trades in progress).

On Monday, we will have some new options trades and on the top of our list are some Solar Power Sector plays. To subscribe, here is the link that offers the best value: http://www.hamzeianalytics.com/phoenix_launch_6.asp


Godspeed Phoenix .....

Saturday, April 5, 2008

Market Commentary sent to Timer Digest on Friday April 4, 2008

Market Commentary sent to Timer Digest on Friday April 4, 2008SocialTwist Tell-a-Friend
Fari Hamzei

As of this writing (1 hour before the close on Friday, April 4th), we are in an extremely overbought condition (+195 reading on NYSE McClellan Osc and +137 for NASDAQ) -- thus, a pause is in order next week before the April OX, the following week!!!

Given that the equity markets reacted well to the March Non-Farm Payroll's -80K bad news, this tell us that six months down the road, we should be trading higher. Again we re-iterate our belief that the bad news is priced in and the Street is viewing the FED rescue of BSC from a near catastrophe as pro-active.

On a pull-back, we plan to go long SPX again for your coveted "Timer of the Year Competition."



Editors' Note: Per March 31st, 2008 Issue of Timer Digest, Fari is ranked 1-1-2 in the Nation among 150 market timers. That is 1st in the last 3 months, 1st in the last 6 months and 2nd in the last 12 months.

Tuesday, April 1, 2008

Notice of Change of Market Bias

Notice of Change of Market BiasSocialTwist Tell-a-Friend
From: Fari Hamzei [mailto:Fari@HamzeiAnalytics.com]
Sent: Tuesday, April 01, 2008 2:12 PM
To: 'Timerdiges@aol.com'
Subject: Notice of Change of Market Bias


Dear Jim,

For your coveted Timer of the Year Competition, we are going NEUTRAL on S&P-500 Stock Cash Index (SPX) at the CLOSE today. Please confirm your receipt of this email.

Fari Hamzei
Founder
Hamzei Analytics, LLC




Additional notes for our readers:
Our reasoning is very simply -- we are up some 90+ handles since March 17.
It is too good to give up and we are very overbought here with NYSE McClellan Oscillator (A/D Line) reading of ~155 and SPX is at +2 sigma ....Fari

Saturday, March 29, 2008

Market Commentary sent to Timer Digest on Friday March 28, 2008

Market Commentary sent to Timer Digest on Friday March 28, 2008SocialTwist Tell-a-Friend
Fari Hamzei

When the McClellan Oscillators hooked earlier this week, the short-term trade was to sell the market indices. Don't be fooled, the longer trend is still up and we should be oversold shortly as this is all part of the bottoming process.

Stay the course and enjoy the Spring Madness...



Tuesday, March 25, 2008

The Commodity Bull Market is Alive and Well

The Commodity Bull Market is Alive and WellSocialTwist Tell-a-Friend
Sally Limantour

As most of you know, commodities went through an overdue correction last week. This shouldn’t have been a big deal. Here’s the problem though. As a result of that correction, some folks are making assumptions that don’t make sense. In fact, some of these assumptions are downright dangerous.

For example, the media and others are giving Fed Chairman Bernanke credit for “putting an end to commodity inflation” with his brilliant strategies.
On March 21st, Bloomberg stated that “the biggest commodity collapse in at least five decades may signal Federal reserve Chairman Ben Bernanke has revived confidence in financial firms.”

Or how about this: Ron Goodis, a trader with the Equidex Brokerage group, tells us that “Bernanke took care of the commodity bubble.”

This is faulty thinking. To imagine that Bernanke deserves credit as the commodity dragon slayer, even as he lowers interest rates and continues to stoke inflation, is mind-boggling.

Sources of the Sell-off

So what exactly caused the vicious sell-off in commodities? When all was said and done, by last Thursday’s close, gold had its biggest weekly loss since August 1990. Oil had plunged almost $10 over three days. The corn market was off by 9%. There were a number of things that contributed to the sell-off. First, the commodity markets had gotten ahead of themselves, and were in a classic “overbought” situation. Second, derivative trading losses and shrinking credit lines were forcing hedge funds to liquidate their winning trades – many of those trades in commodities – in order to free up capital.

There was also fear that the CFTC (Commodity Futures Trading Commission) was on the verge of raising margin requirements for commodity positions. This is what happened at the end of the last big commodity bull market, when the Hunt brothers were forced to liquidate their silver positions. (I was on the trading floor at the time… it wasn’t pretty.)

Furthermore, the dollar was oversold and ready for a bounce. All these factors combined to create a swift break, which has now taken many commodities back to more attractive buying levels.


Facing the Facts

To say the commodity bull market is over is just, well, a bunch of bull. Let’s take a look at the facts. Energy prices, precious metals, agriculture prices, and other commodities have been in a bull market trend since 2000. The UBS Bloomberg Constant Maturity Commodity Index has gained 20 percent every year since 2001. For 2008 the index is up over 10%.

The big picture has not changed. We still have central banks pumping money like mad into the global financial system. This is obviously long-term inflationary. Helicopter Ben is not going away. Nor is his one-trick strategy to save the world – running a printing press. This is long-term bullish for gold and silver.

In regard to agricultural commodities, the 2008 crops are not even in the ground. Demand issues are pressing and widespread. There are still record high rice prices (a global food staple) in Asia. Egypt is in the midst of a serious “bread crisis” for lack of grain. An outbreak of “sharp eyespot disease,” or SED, now threatens 4.83 million hectares of wheat in major producing areas throughout China. Water is increasingly scarce.

In regard to energy, no major new finds have been tapped in recent memory, North American natural gas demand is set to outpace supply over time, and the global supply-demand situation is still supportive of high oil prices. (That said, crude oil’s parabolic move from $85 has been enormous, and a trading range may be in order for crude.)

Three Billion Strong

In the macro picture, we still have the incredible growth stories of China, India, Brazil and Russia under way – not to mention many other fast-growing countries that get less attention in the headlines.


While there is talk of “recoupling” (the tongue in cheek opposite of decoupling), it is hard to argue with the fact that 5.6 billion people currently consume just one third of the world’s raw materials. That 5.6 billion grows more successful, and more hungry, every day.

As my good friend Clyde Harrison (www.brookeshirerawmaterials.com) says ,“the industrial revolution involved 300 million people. The emerging nation revolution involves 3 billion.”

When discussing the general supply-demand imbalance for commodities, I am referring to a very, very big trend. In fact, we now have two “megatrends” that are colliding. Thirty years of restrained and neglected natural resource supply are coming face to face with three billion people intent on discovering capitalism. Irresistible force meets immovable object? We haven’t seen anything yet.


Reversing the Reversal

Monday’s trading action in commodities saw a “reversal of the reversal,” with solid moves higher in many different areas. Today we are seeing follow through on the upside. Soybeans have tacked on $1.00 per bushel since the Thursday’s lows and are limit up today.. Wheat is up over 10% and corn has rallied 8%. The metals are recovering as well with gold, silver and copper all gaining between 3-5%.

The commodity bull market is alive and well. Last week’s correction let some much needed air out of the balloon, that’s all. It would be healthy at this point to see some consolidation, but we might not get it. Already it looks like commodities could be off to the races once again.

Tuesday, March 18, 2008

Markt Timing Bias Change

Markt Timing Bias ChangeSocialTwist Tell-a-Friend
March 17, 2008

Fari,

We have logged your S&P 500 Buy signal as of the 03/17/08 Close.

Thanks,

Jim


In a message dated 3/17/2008 3:59:26 P.M. Eastern Daylight Time, Support@HamzeiAnalytics.com writes:


Dear Jim,
For your coveted Timer of the Year Competition, we are going LONG S&P-500 Stock Cash Index (SPX) at the CLOSE today. Please confirm your receipt of this email.
Cheers............

All the best;

Fari Hamzei
Founder
Hamzei Analytics, LLC


Tel: (310) 306-1200
Fax: (615) 858-5448
Cell: (310) 995-8386



YAHOO IM: Hamzei_Analytics

Past Group Leader of Los Angeles eSignal, MetaStock, RealTick & TradeStation Users Group: http://www.activetraders.org/


CONFIDENTIALITY NOTICE: This email message is for the sole use of the intended recipient(s) and may contain confidential and/or privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. If you are not the intended recipient, please contact the sender by reply email and destroy all copies of the original message.


Sunday, March 16, 2008

Market Commentary sent to Timer Digest on Friday March 14, 2008

Market Commentary sent to Timer Digest on Friday March 14, 2008SocialTwist Tell-a-Friend
Fari Hamzei

This week, Uncle Ben and Comrade Paulson, with a coordinated attack plan in their back pocket, came in to rescue the Credit Markets, in general, and now we find out, the Bear Stearns & Co. (NYSE: BSC) in particular. BSC is an 85-year old primary broker dealer for the Treasury Bills, Notes and Bonds. All of this ahead of Spring Equinox and Mar OX.

Market smelled blood and went short big time. It is a bleak Friday on both Wall Street and Main Streets. With low Consumer Confidence numbers, record gold and oil prices, and a big investment house having its market cap getting clipped by 50%, the bottoming process is well under way.

Given the most recent market action (near -2 sigma on major indices), we fully expect that The President's Working Group on Financial Markets, better known as PPT, will move in next week and that is the time to hunt for some bargains. Novices better stay on the sidelines till the dust settles.

Wednesday, March 12, 2008

We Closed our Short SPX Position with Timer Digest

We Closed our Short SPX Position with Timer DigestSocialTwist Tell-a-Friend
Fari Hamzei

The following email went out to our MSA List Members this morning at 1037 CST (w/o the chart).


Timer Digest just confirmed that we are FLAT SPX as of last night close.

NYSE McClellan Oscillator yesterday hit -279 while NASDAQ McClellan Oscillator closed at -179. DJIA, SPX, DJ Trans & RUT each closed just a tad above -3 sigma, NDX was at -3 sigma, VIX, VXO & VXN closed above +2 sigma.



So late last night, we decided to cover our SPX SHORT position from 1507 (put on 6/8/07) and booked 234 SPX points for now.

Again we repeat, we are NOT LONG SPX here. We are FLAT SPX. If and when we go LONG, we will update you all immediately.

Sunday, March 9, 2008

A Few 30 Minutes Charts Worth Noting

A Few 30 Minutes Charts Worth NotingSocialTwist Tell-a-Friend
Brad Sullivan

These charts were posted on Thursday March 6, 2008 at 1215 CST in our SuperPlatinum Virtual Trading Room.









Equity Index Update

Equity Index UpdateSocialTwist Tell-a-Friend
Brad Sullivan

This article and accompanying charts were posted on Thursday March 6, 2008 at 0830 CST in our SuperPlatinum Virtual Trading Room.

The index markets appear to be set for another volatile session as news out of MER, FNM and TMA have knocked the markets substantially from overnight highs. On the positive side of the ledger, WMT boosted their dividend and announced slightly better than anticipated monthly sales figures. Currently, the SPH is trading at 1328.50, -7.00 on the session and in the heart of yesterday’s final hour choppy trading zone. Considering that the Employment reading will be tomorrow morning, one has to wonder if the market will have enough “juice” to move substantially in either direction. However, if the news cycle continues to deteriorate and the dollar freefalls, anything can happen.

I have included several charts today…among them is a chart with daily closes in the SP Cash. It is worth noting that we are, for all intents and purposes, locked in a range between the January closing low of 1310.50 and the Feb High of 1392. However, the substantial portion of the settlements in the index has occurred between 1360 and 1335. The situation now is this…is we building a base from which to move higher or a topping base from which to move lower?









Friday, March 7, 2008

Timer Digest Market Commentary

Timer Digest Market CommentarySocialTwist Tell-a-Friend
Fari Hamzei


"And, Nostradamus Shall Lead 'em....."


As Uncle Ben & Co. pre-empted the BLS' Feb NFP Release early this morning, much to the liking of GW, Dick Cheney and the rest of the usual suspects on both ends of the Pennsylvania Ave. in Washington, it was a different story on Wall Street. The Smart Money sold, and sold relentlessly. And, as the Mortgage Mess CEOs showed up to defend their 8-digits pay packages on the Hill, the fall in share prices steepened.



Pre-open we had warned that today could be a negative 300 day on the Dow. Well, we closed half as much on normal volume. This tells us the bleeding should continue as VIX, VXO and VXN patterns have not reached an climatic structure from a sigma channels standpoint.



Could we see that pattern completed next week? We don't think so. Not so fast at least.

But....the following week is March Options X featuring FOMC Meeting on Tuesday, March 18th and Quadruple Witching Expiration on Thursday, March 2oth. Good Friday, March 21st, falls on the Spring Equinox (often an inflection point). And, indeed, this Spring, could be a time for renewal on Wall Street and the Main Street. But first, we do need to go thru a FLUSH of the weak longs by then.


Have a great weekend ...... STAY SHORT a little bit longer!!

Wednesday, March 5, 2008

Monthly FX Strategy

Monthly FX StrategySocialTwist Tell-a-Friend
Ashraf Laidi

Euro Momentum Remains Intact

The latest episode of Euro strength is underpinned by not only the breadth of the rally (gaining versus EUR, GBP and CAD) but is also founded on the unlikelihood that the European Central Bank will intervene to stem its strength. With inflation at a record high of 3.2%--well over the central bank’s preferred level of 2.0%--and oil prices surging above $103, markets are well aware of the anti-inflationary benefits of a strong euro during the soaring energy prices. And unlike in past episodes of Euro strengthening such as 2004 and early 2005, European politicians have shown remarkable coordination and cooperation with the ECB by tempering their complaints against the high currency, considering the ongoing slowdown in their economies. Such cooperation bolsters the credibility of the ECB and its president JC Trichet, in contrast to escalating criticism facing Fed Chairman Bernanke and BoE Governor Mervyn King.

But the Euro has more going in its favor than simply credibility and containing costs of rising oil. Two consecutive increases in Germany’s main business and investor sentiment surveys (IFO and ZEW) defying expectations of a decrease have played a major role in validating the monetary policy contrast to the Federal Reserve, Bank of England and Bank of Canada. The Euro is also boosted by the lowest net interest rate disadvantage since December 2002 against the top traded 7 currencies (USD, JPY, GBP, CHF, CAD, AUD and NZD), in contrast to the US dollar whose net interest rate disadvantage is at a record high, beating the levels of 2003-04 when US interest rates drifted at 45-year lows of 1.00%.

Another reason to expect further gains in EURUSD is the historical ways in which the pair has added to its gains each time it broke key figures; $1.20, $1.30, $1.40. This leads us to believe that $1.5400 maybe in the works as early as this month, especially in the event that the Fed opts for a 75-bp cut on March 18. A subsequent retracement later in the month is expected to stabilize at $1.5250 as jawboning from European politicians and policy makers is seen on the rise.


Yen Marshes Onward Seasonally in March

Shaky global investor confidence and deteriorating USD sentiment is expected to continue boosting the yen during the month before temporary stability in April and May. The yen’s historical strengthening during the month of March in light of pre-fiscal year-end repatriation by Japanese firms and institutions is likely to test the 102.30s. Markets will continue shrugging jawboning remarks from Japanese officials until policy makers are forced to threaten operational intervention, which has not been done since early 2004. One main reason Japanese officials have stayed away from intervention is the avoidance of accusations of a double standard, as the industrialized world has largely criticized China on its interventionist approach to keep the yuan from strengthening more rapidly. Another reason to the lack of interventions is the fundamental backdrop to the current gains, especially against the USD. Japanese officials have long stated that the impact of US sub-prime losses was limited in Japan and praised Tokyo’s ability to stave off the costs of yen strength. Therefore any remarks from Tokyo are unlikely to carry much weight without the threat to follow up with real intervention.


This week’s US labor report as well as the FOMC decision later this month will act as major possible determinants of the fate of the 102.00 figure. Unlike last year when aggressive Fed cuts weighed on the Japanese currency to the benefit of the USD on the argument of rising risk appetite, aggressive rate cuts today are largely seen to the detriment of the already floundering interest rate foundation of the greenback. Upside remains capped at 105.








Sterling Crosses Remain on the Wane

The fact that cable’s gains have largely emerged on USD weakness highlights sterling’s own weakness, especially as the currency has hit 11-year lows against the euro, 5-year lows against the Swiss franc and 7-year lows against the yen. The deteriorating landscape in UK housing as well as eroding public finances are seen spilling over to consumer demand, thereby, capping inflationary pressures and paving the way for further BoE easing. The proposed tax levy on non-domicile residents in the UK has already been received by threats from foreign workers to leave the UK. If the law is passed, it should accelerate home sales in up market real estate areas, thereby, exacerbating the decline in UK housing.

We expect three more rate cuts this year, bringing down base rates to 4.50% as the deteriorating picture in the housing market and public finances spills over to the private consumption, capping inflationary pressures and paving the way for BoE easing.

Sterling’s plays remain most attractive on the crosses, against the higher yielding AUD and more fundamentally sound EUR and firming CHF. Cable seen retreating to $1.97 while EURUSD seen above $1.52, implying further gains in EURUSD past the 0.77 level.


Loonie Hurt by BoC Words and Action

Today’s Bank of Canada decision to cut interest rates by 50 bps to 3.50% following yesterday’s release of weaker than expected Q4 figures confirms our recent bearish CAD calls versus EUD, AUD and even the USD. CAD’s post-decision sell-off accelerates after the BoC indicated “intensifying” and “significant spillover effects” from the US slowdown. The US-element implies that ongoing US data weakness will drag CAD crosses in the future, thus highlighting our stance favoring EUR, AUD, CHF and JPY against the CAD. While we cannot ignore the positive impact on the currency from rising oil prices, we can deduce that any periodic retreat in oil will be especially punishing for CAD. Another negative for the currency is the current account balance’s descent into deficit territory, which removes an important positive element to the currency’s safe haven status. USDCAD is seen remaining underpinned at the 0.9850 trend line support, eyeing parity before middle of the month. We also see rising probability of 101 in CADJPY ahead.



Aussie’s Waning Momentum

Short term sentiment may be working against the Aussie in light of the overnight RBA decision to raise rates to 7.25%, which was accompanied by a statement indicating "substantial tightening in financial conditions since mid-2007". The statement implies that the central bank will wait and see the impact of previous rate hikes combined with slowing global growth filter through the economy. Last night's unexpectedly flat reading in February retail sales was the second monthly deceleration, further signaling that private demand is starting to wane. The highly leveraged Australian consumer has already faced 13 rate hikes. But the price surge in wheat and copper continues to benefit overall growth. Markets will await the release of Australia’s February jobs report, which will be vital in influencing future interest rate expectations. Finally, the market requires evidence from Q1 CPI report before concluding whether the rate hike campaign has ended.

The neutral tone of the RBA policy statement and the sharp slowdown in February retail sales will reduce some of the positive bias enjoyed by the Aussie, thus, likely reducing the currency's potential to rebound from risk reduction episodes. But the ongoing rally in commodities as well as the robust yield foundation will likely provide decent demand for the currency in the current low yielding environment.

Sharp pullbacks in equities could potentially drag the Aussie to as low as 91 cents vs the USD but deeper declines vs the JPY at 92 yen. But renewed bouts of risk appetite will offset the downside currents as long as further rate hikes have not yet been completely ruled out. But we should not discount the Aussie’s high yield stance, which is and of itself a positive element underpinning the Aussie back towards 93 cents by month-end.

Friday, February 29, 2008

Timer Digest Market Commentary

Timer Digest Market CommentarySocialTwist Tell-a-Friend
Fari Hamzei

Our early morning call today for DJIA touching its -1 sigma price (~12250) was covered by Robert Gray on FOX Business Channel at the bottom of the last hour of the market. Our next target is -2 sigma on SPX which today stands at 1316.




Our Equity Markets are in the process of building a bottom but the WEAK LONGs have to take in more pain in the short term. Look for a big volume day with a huge (4 to 5 sigma) spike on VIX, VXO and VXN. We are not there yet !!



Editors' note: This commentary was sent to Timer Digest about 14:50 CST today.

Thursday, February 21, 2008

Equity Index Update (Special Edition)

Equity Index Update (Special Edition)SocialTwist Tell-a-Friend
Brad Sullivan

Editor's Note: Brad Sullivan's Morning Commentary is usually posted in our SuperPlatinum Virtual Trading Room around 0845 CST.


The index markets are called to open higher as the market attempts to follow through on yesterday’s strong reversal. The SPH is trading at 1366, + 7.00 on the session. The real strength this morning lies in the NQH futures which are trading higher by +1% at 1807. Strength in the technology sector is being led by RIMM (Research In Motion) which updated guidance this morning and is trading higher by +12pts to 109.50. In addition, CSCO (Cisco) was upgraded in a research note and is higher by +2% in the premarket.

Today’s session should hinge on whether or not buyers step up at higher levels. Yesterday’s action was quite constructive for the buyside as sellers could not generate any selling below key support zones. Will the buyers step up today? Certainly the table is set.

I have enclosed 3 charts showing that show some interesting situations in the near term.






Wednesday, February 20, 2008

Equity Index Update (Special Edition)

Equity Index Update (Special Edition)SocialTwist Tell-a-Friend
Brad Sullivan

Editor's Note: Brad Sullivan's Morning Commentary is usually posted in our SuperPlatinum Virtual Trading Room around 0845 CST.

The index markets are called to open sharply lower on the heels of aggressive selling in the far east (Nikkei and Hang Seng lower by 2 and 3% respectively) and economic data that shows some signs of inflation here at home. The SPH is trading at 1336.50, lower by -19.00 on the session. Some of this headline decline is due to the premium settlement in the futures trade yesterday. After the cash close, HPQ reported better than anticipated earnings and the SPH rallied to settle +5.50 above fair value.

Today’s session should be dominated by the key support zone built up in the SPH from 1340 to 1330. If the index were to break below this zone on a 30 minute close it is a negative that should produce a test of the 1315 zone (chart enclosed). If the market holds this zone, there is potential for short covering towards the 1350 level; however given the makeup of our current environment (4 % range) a bounce like that should be sold.

External factors in today’s session will be the commodity market, specifically the energy complex. Yesterday, front month Crude Oil traded over $100 per barrel and seemed to trigger selling in the equity indices. Clearly any sustained trade above par is not helpful to the equity market and could be the trigger for a larger move. Conversely if Crude were to come off towards 98 it may be supportive in the shortest of time frames for equity traders.

I have enclosed 3 charts today…the first being a all session SP futures chart since Feb 1st on a 30 m inute basis. The second being a daily NDX 100 chart from the 2006 bottom and last a comparison chart of GS and the SPX.















Timer Digest Market Commentary

Timer Digest Market CommentarySocialTwist Tell-a-Friend
Fari Hamzei


We again reiterate our position: SELL SHORT & HOLD...

Here is why:

Sub-prime writedowns continue to resurface by the "usual suspects" announcing on both sides of the Pond (CONUS and Western Europe). The Three Amigos' hands (Uncle Ben, Comrade Paulson & Chris Cox) are all but tied behind their backs. They can no longer drop FF rate unilaterally as depicted by recent rise in Gold and Crude Oil spot/forward prices. With UofMich Senti at 16-yr lows due to high energy prices, falling home prices and credit concerns, consumers continue to worsen their sentiment and economic outlook. And now the inflation expectations component is edging back up.


Editors' note: This was sent to Timer Digest about 01:32 CST today.

Sunday, February 10, 2008

Timer Digest Market Timing Commentary

Timer Digest Market Timing CommentarySocialTwist Tell-a-Friend
Fari Hamzei

With Feb Options X this week and overall negative sentiment in every traders' mind, it is not a surprise that market participants have been dumping stocks on Fridays. This week is a slow economic news week which will make the popular stocks bleed further.

Be aware of expiration week reversals -- come Tuesday or Wednesday of the expiration week........till then stay short your core positions... we should see 11,700 on DJIA before the next dead cat bounce commences.

Cheers......

Wednesday, February 6, 2008

Timer Digest Market Commentary

Timer Digest Market CommentarySocialTwist Tell-a-Friend
Fari Hamzei

Given that on Feb. 1st, the McClellan Oscillators for NYSE & NASDAQ went into a massive over-bought condition, the sell-off this week should not be a surprise to any avid student of our markets. Our current target is 1267 area on SPX (down to -3 sigma).



What was interesting is the intensity of big names being discarded, i.e., GOOG, RIMM, AAPL and CME. These were the darlings of Wall Street during the run-up last year.

Here is Sigma Channels for SPX Volatility Index (VIX): Given that we are still at +1 sigma, this leg down has ways to go (up to +3 sigma).




At this point, ceteris paribus, we fully expect the January lows to be exceeded (to the downside) since the reversal on Jan. 23rd did NOT come from oversold conditions and which told us (as we mentioned here before) the ensuing run-up will not be more than a dead cat bounce.

STAY SHORT.......

Tuesday, February 5, 2008

Barbell Time

Barbell TimeSocialTwist Tell-a-Friend
Fil Zucchi

I won’t begin to guess whether we have seen a multi-month bottom in the broad indices, or whether we will knife through the late January lows on our way to a full-fledged nasty bear market. But I am quite convinced that whichever way the market breaks, it is likely to put in some jaw-dropping moves. Based on that I am adopting a barbell approach to my positions: shorts consist of leveraged bearish ETF’s and volatility in the form of long dated puts, and longs include high beta equities, many of which have suffered some truly remarkable beatings relative to their fundamentals.

Here are some long ideas that should play-out well for longer than a trade if we embark on a multi-month ramp:

Harris Corp. (HRS): the company has a long history and culture of being a build-to-suit manufacturer of military radios; it’s been a safe business model because its market was pre-determined, but it’s also been a frustrating low grower. HRS is now vowing to design spec products, i.e. the “build’em and they will come” approach. If they are successful, the new market and growth opportunities could be tremendous. If it works, this is a “multiple expanding” event for HRS, and if you multiply that by current EPS estimates well north of $4, this stock has the potential of trading at par within two years. Its Broadcast business and the appeal of the company as a take-out candidate (ITT, L-3 Communication, and any number of major defense contractors being possible buyers) are but the cherry on top of this story. If however HRS fails to compete on the basis of innovation, then things could get ugly. But at least the reward here seems commensurate with the new and higher level of risk.

The traffic jams in certain areas of the IP highway are growing worse by the day, and carriers do not seem to have a choice over upgrading their networks. Sticking with the high beta factor, Infinera (INFN) begs to be bought here. They have bar none the most cost effective chassis/blade product to add capacity to any network in a matter of days, and the just reported quarter proves that customers have taken notice. If they can ramp a “metro” product (right now they operate mostly in the long haul area) in time to compete with the Ciena’s (CIEN) of the world, this stock has multi-bagger potential. And speaking of CIEN, much of the skepticism about gross margins and revenue growth for the rest of the year seems to be in the price, and then some. If CIEN can shoehorn itself in the coming Verizon optical build-out, it’s fair to say that none of that upside is in the estimates. Otherwise CIEN may still do just fine by continuing to cater to its largest customer, AT&T (T).

Also in the internet space, I have discussed Akamai (AKAM) at length before, and at risk of stepping in front of its earnings, my sense is that the story there is as good as ever, and the stock has not been this cheap in years.

After the rout of the last couple of months, dry-bulk carriers are setup to trade more like internet stocks than stodgy ship operators. Excel Maritime just agreed to a buy-out of Quintana Marine (QMAR), and while the combined company will have a fair chunk of debt, leverage cuts both ways; both fleets are mostly booked for ’08, ’09 and most of ’10, and at some point the cash flow will have to be discounted in the stock price. The same applies to smaller Paragon Shipping (PRGN), which yields more than 12% right now and was trading north of $25 just a couple of months ago.

In the med-tech area Hologix’ (HOLX) merger with Cytic Corp. (formerly CYTC) has formed the kind of company that will either eat the competition alive, or else is big enough to be a nice addition to a mega-cap looking to juice its growth. I own this one in the “buy it and forget it” part of the Fund.

In the GPS/logistics space, TomTom (TOM2 NA) and Garmin (GRMN) are putting the screws on the component makers – as you can tell by the beating Sirf Tech. (SIRF) has taken in response to its earnings (or lack thereof). That’s not to say that GRMN and TOM are not seeing their share of pricing pressures, but with Broadcom (BRCM) selling its soul to penetrate that market, the gadget makers are in the catbird seat. If the economy holds up and/or the speculative juices return (and remember that assumption is one of the ends of the barbell) GRMN and TOM can make up a lot of lost ground in a hurry.

I stated at the beginning that I would not try to guess which way the markets will break, and I won’t. But my bet (not my guess, just my bet) is that we are in the early stages of a secular bear market. That’s why I rather play the short side with leveraged ETF’s / and or Index puts, rather than individual names. The longs above (and I have positions in almost all of them) are just the kind of names I must and want to own in case the market decides to move higher.

One last macro comment: the media is incessantly comparing the current credit / macro problems to the various credit/currency crisis of the ‘90’s, the junk credit meltdown of ’00-’02, the GM debt crisis in ’05, etc., all of which resolved themselves with equities eventually going higher. Here are the major differences (imho): (i) those past events did not take place with a backdrop of $45 trillion of debt derivatives bet against the credit markets; (ii) even if counterparties risk on these derivatives could be managed, the clearing system for these derivatives has never been stress tested; if it fails to work the consequences on the markets would likely be similar to a counterparty credit failure; and (iii) the past crisis consisted of neatly contained / containable default events: the current credit crisis is already no longer contained; the only question we can’t yet answer is how widespread it will end up being. And that by itself is a frightening proposition.

Thursday, January 24, 2008

Counter-Trend Rally

Counter-Trend RallySocialTwist Tell-a-Friend
Frank Barbera

Primary Wave (A) to the downside of a developing cyclical bear market that is likely bottomed over the last two days. From here, we expect a sizable counter-trend rally in stocks moving the S&P back up into the 1400 zone, with the daily news flow improving over the next few weeks taking away some of the negative gloom overhanging the credit crisis. For a time in the weeks ahead, it may well appear as though the skies have cleared and the sun is out shining once again in the land of financial markets.

This is the job of Wave B, to move the herd back to the center of the boat. That said, stocks have been, and are very likely to remain in bear market mode for some time, even if one or two market averages were to record a matching or token new all time high, unlikely, but not impossible. Commodities look toppy and are expected to weaken as the US and the world deals with the deflationary trend now emerging in the global economy...

Margin Data Suggest Prolonged Bear Market to Come

Margin Data Suggest Prolonged Bear Market to ComeSocialTwist Tell-a-Friend
Ashraf Laidi

One essential indicator for the future performance of US equity indices is the aggregate margin debt used by member firms of the NYSE. After attaining a record high of $381 billion in July, member firms’ margin use continued to tumble for the following 4 months, reaching a low of $322 billion. Such declines in debt result from the execution of margin calls as client losses escalate to unsustainable levels, which is the case during mounting market volatility.

The chart below clearly shows that the rapid declines in margin debt from their record highs correctly predicted the prolonged bear market in equities in fall 1987, fall 1998 and spring 2000. The continued declines in margin debt in December to $322 billion from the July high of $381 billion suggests that continued losses are due in the market, which is consistent with our expectations for a prolonged bear market in equities. The 12-15% declines in stocks we predicted back in December are already underway. We expect another 15-25% of declines to come by end of H1 as the macroeconomic deterioration coupled with prolonged losses in US banks and profit warnings (no currency translation effect this time as the dollar stabilized in Q4-Q1) will overwhelm the easing measures of the Fed.

The importance of determining where the general equity indices are heading is highlighted by the 70-20-10 rule, which states that 70% of a stock’s movements are influenced by the broad indices, 20% are driven by stock’s sector and 10% by the fundamentals of the individual stock. As history has shown without fail, individual stocks have consistently followed the broad averages during prolonged bear markets regardless of their individual fundamentals.

Incorporating this outlook to currencies, continued risk reduction should maintain the yen as the key beneficiary of falling risk appetite and unwinding of carry trades. Further declines in USDJPY, GBPJPY and CADJPY are in store as we anticipate 103, 202 and 100 respectively before the end of the quarter.











Editor's Note: Do not miss Mr. Laidi's Q&A session with the Financial Times last week regarding currencies located at
http://www.ft.com/cms/s/2/34139f9c-c50b-11dc-811a-0000779fd2ac.html

Wednesday, January 23, 2008

Timer Digest Market Commentary

Timer Digest Market CommentarySocialTwist Tell-a-Friend
Fari Hamzei

While the Equity and Debt Markets were having a wild ride on Tuesday, Uncle Ben joined the White House to pressure Nancy Pelosi, Harry Reid & Co. to move faster on a gigantic Stimulus Package. The real facts are a) Washington is too slow to move effectively in this Internet Age and b) the damage done by the Subprime Go-Go Days is simply huge.

The collective brain of the market is smarter than all of the above. While we may have seen a short-term-bottom-in-progress yesterday, this is no more that a dead cat bounce. Tuesday action reminds me of April 4, 2000. There is a lot of pain ahead for the longs.

Here are some charts. We will get into more details in our Webinar this afternoon.


I wanted us to see a -300 or lower reading on NYSE Advance-Decline McClellan Oscillator as we did last March.



Dow Jones Industrial Average closed below 12K but NYSE Volume did not get over 3 Bils. Notice we did not reach -3 sigma as we did last Aug 16th.



Notice we almost hit 5 sigma on VIX. This is rare.

Wednesday, January 9, 2008

Equity Index Update

Equity Index UpdateSocialTwist Tell-a-Friend
Brad Sullivan

The index markets suffered through a massive liquidation in the final 90 minutes of trading. At 1:30cst yesterday the SPH contract was trading at a recent high of 1432.50, that bid was quickly erased as heavy selling hit the market below 1425 and 1415…eventually leading to the ultimate puke that pushed the contract as low as 1393 after the cash close. Clearly the market is in a state of turmoil and during these times prices get out of line due to “need” based selling. The question, of course, is whether or not we are at that juncture…lets take a look at the past down moves in 2007:




As one can discern, the market has been awfully difficult for those that are purely long over this period. However, given the extremes in price movement one should be prepared for buying opportunities, even in the shortest of durations (from a time frame perspective). We have entered a spot that markets do not see that often and one thing that I have learned throughout these moves is that the market tends to go further than one thinks possible. In other words, yesterday may not have been the washout.

From the intraday perspective…the obvious target for the SP is the cash closing low from the spring of ’06 (1377.95). That level is certainly not to be construed as a line in the sand. Rather, just a benchmark about where the current market is trading. Keep a close eye on bounces, particularly in the morning that lose steam in the afternoon. Resistance lies between 1407.50 and 1414 in the SPH. Any settlement above 1423 is a positive and should lead to a position long.

Friday, January 4, 2008

Gold and Silver Index (XAU)

Gold and Silver Index (XAU)SocialTwist Tell-a-Friend
Tim Ord





Above is the weekly chart of the XAU dating back to 1984. Significant lows form in the XAU when Price Relative to Gold ratio reaches below .20. We have market those instances with blue arrows in the Price Relative to Gold window. In all cases that condition marked a low in the XAU and went on to rally and in some cases the rally last over a year and produce over a 100% gain. On December 17 the Price Relative to Gold ratio reached below .20 but closed above .20 on the close of that week. We still consider this a bullish sign as the ratio is picking out a lower degree bullish turn in the market. The last time this ratio on the weekly timeframe closed below .20 was at the August 2007 low which marked the start of the major turn up. Another short term bullish sign is the weekly Stochastic RSI. Since we are dealing with the weekly Stochastic RSI, we are dealing with an intermediate term timeframe. The week of December 17, the Stochastic RSI, closed below .20 and has turned up which implies the XAU was making a low. The weekly bullish Stochastic RSI reading is coming on the heels of major support at 160 on the XAU along with Price Relative to Gold ratio hitting intra week below .20. A major trading range developed in the XAU dating back to 1984 that had support near 60 and resistance near 160. The XAU broke above 160 which should now act as support. One way to get a target price for the next resistance area on the XAU is take the distance between the high and low the trading range and add that number to the breakout area. The distance between the high and low of the trading range is 100 points and add that to the breakout area of 160, a target of 260 is achieved. A major rally up has started on the XAU from the August 2007 low. A minor wave down from the November 2007 highs to December 2007 low end a corrective wave. The next significant high may reach to 260 on the XAU.



Editor's Note: Look for Tim's new book due in February 2008 titled “The Secret Science of Price and Volume” to be published by John Wiley & Sons.

Thursday, January 3, 2008

2008 Global FOREX Outlook

2008 Global FOREX OutlookSocialTwist Tell-a-Friend
Ashraf Laidi

The currency developments of 2007 were undisputably dominated by two main themes; risk appetites trades benefiting AUD, CAD, NZD, GBP and AUD at the expense of USD, CHF and JPY, and; USD-specific selling against all major currencies including JPY. JPY amassed broad gains during periodic episodes of risk appetite reduction as global stocks sold off aggressively in the midst of subprime-related losses in the US finance/banking sector.

The two performance charts below illustrate that USD was the broadest losing currency in 2007, while the top four performing currencies against the USD were CAD, AUD, EUR and NZD. The commodity currencies of CAD, AUD and NZD were boosted by a favorable price environment for energy, metals and agriculture as well as high interest rate policies. EUR was propped by its role as the anti-US dollar and by the European Central Bank’s persistently hawkish rhetoric. While the three commodity currencies were clearly in command in the ranking of currencies’ performance against gold, no currency registered any gains versus the metal, illustrating the secular rally in gold and other commodities. As we will see below, this suggests significant implications for gold in 2008 as the onset of low global real interest rates -wide is maintained by a rising inflationary environment relative to nominal interest rates.







Current Dollar Rebound to Continue Into Mid Q2 2008

The current 4% rebound in the US dollar index off its November lows is a broad USD play emerging on a combination of end-of year repatriation by US institutions and more pronounced signs of slowdown in the UK and Eurozone. Year-in-Year out, currency markets have shown a noticeable reversal in December of the trends emerging from mid October to mid November. This has worked consistently in favor of the euro against the dollar in December of 1999, 2000, 2001, 2003, and 2005 as the single currency declined markedly during the prior 2 months in each of those years. The opposite of this pattern took place in December 2006 as the euro lost ground, reversing the gains of October-November 2006. Year-end repatriation and unwinding of cash and futures positions are behind such seasonal moves.

Fundamentally, the argument that the Federal Reserve intends to stick to its newly adopted liquidity-injecting policy, rather than reducing the fed funds rate may be less detrimental to the US dollar, while the Eurozone is seen moving towards reducing its inflation hawkishness-an element largely responsible to the euro’s recent resilience relative to AUD, GBP, NZD and CAD. Finally, the interest rate cuts from the Bank of Canada and Bank of England have cemented the cap on CAD while accelerating downside in GBP, solidifying the foundation of the USD rally.


Sources of Prolonged Dollar Rebound

1) Despite market perception that the Fed’s liquidity injection measures are behind the curve in alleviating the credit crisis and that the lack of aggressive rate cuts remains insufficient in bringing the US economy to a soft landing, growing inflationary pressures in the short-term may bolster the central bank’s non-interest rate easing liquidity solutions for the struggling money market, thus, underpinning the dollar from a relative yield perspective. This would be especially USD-positive at the expense of GBP due to more ample downside for UK interest rates. More on BoE and GBP found below.

2) The extent to which the ECB’s intransigence holds rates steady in the midst of further economic slowing is perceived by markets to be exacerbating the existing economic slowdown, business activity and investor sentiment. Markets are also fixated on the next European victim from sub-prime investment such as IKB. Preliminary reports of EUR 5 billion in writedowns from IKB banks have not bee followed by subsequent announcements from other banks.


A Repeat of 2001?

As the dollar strengthened in the last 6 weeks of 2007 despite prospects for further Fed cuts, the unavoidable question becomes whether 2008 will be a repeat of 2001, when markets rewarded currencies of growth-oriented central banks? Two business days into January 2001, the Fed delivered an inter-meeting 50-bp rate cut to start a 475-point rate reduction campaign which took the Fed funds rate to a 45 year low of 1.75% by end of the year. Although the Fed funds rate dropped below the overnight rates of all G7 nations with the exception of Japan, the US dollar outperformed all currencies in 2001.
But one of the many factors distinguishing the current environment from that of 2001 is the purpose of the Fed’s easing. The rate cuts of 2001-02 were driven by conventional dynamics of macroeconomic slowdown (cooling business activity, weak GDP growth, rising unemployment and falling equities). Today, the Fed is forced into uncharted territory highlighted by the following factors:

1. A pronounced shortage of money market liquidity, unwillingness of lending by commercial banks, uncertainty regarding the size of remaining write-downs and the resulting impact on banks’ rating, capital cushion and bottom line. Tightening lending requirements for private households and business are also expected to weigh on overall capital formation and aggregate demand.

2. The macroeconomic impact of i) falling prices of new and existing homes on construction and consumer spending 2) falling sales of new/existing homes 3) increased layoffs in housing-related industries, banking/finance and manufacturing jobs, will impose a severe test on consumer spending once the post-holiday sales season is behind us.

3. The Fed’s task of shoring up growth will be complicated by persistent inflationary pressures that are unlikely to abate as was the case in past economic contractions. The prevalent inflationary environment originating from high food and fuel prices is unlikely to abate due to weather factors bolstering agricultural supplies and a combination of supply/demand dynamics propping oil prices.

Accordingly we project the Fed to deliver 100-bps more in interest rate cuts, bringing the Fed funds rate down to 3.25% by end of 2008.
Unlike in 2001, 2008 will be accompanied by the economic spillover of broad erosion in the housing sector, dictated by falling prices, sales, construction and layoffs in related industries. Robust growth from Asian economies should also help fill in the slack from the US and Western Europe, which will likely support the Eurozone’s external economy and stabilize the anticipated downdraft from the US.


Fed’s Liquidity Injection is No Substitute for Rate Cuts

Although the Federal Reserve has distinguished its monetary policy maneuverings between liquidity injection operations (aimed at relieving funding shortages in the money market) and interest rate-cutting moves (aimed at shoring up the economy), we do not expect these liquidity measures to stave off the risk of recession. While the Fed is seen extending the expansion of its discount window via the Term Auction Facility “TAF”, we expect it to cut the Fed funds rate by 75-bps in H1 2008, taking the rate down to 3.50%. There is likely scope for 50-bps of easing in H2 that will push the fed funds rate down to 3.00% by year-end. The inflationary repercussions of the Fed’s easing will remain an in issue for the central bank, especially as food and energy prices remain robust. Although the Fed has recently begun stressing the durability of price pressures on the headline inflation front (headline CPI and PCE), an anticipated deterioration on the macro economic front (rising unemployment rate, higher jobless claims, soft post-holiday consumer demand and slowing prices/construction activity on the commercial property front) will maintain the Federal Reserve’s policy bias towards the downside, as per its December FOMC statement and November forecasts for lower term inflation and higher unemployment for 2008 and 2009. This in turn is likely to limit the dollar’s rebound against the euro, especially in the event that the ECB succeeds in maintaining interest rates at 4.00% throughout 2008. More on ECB and euro below.


Gold’s Secular Rally to Continue in 2008

While the increase in gold versus the dollar in 2007 was largely associated with an acceleration of the dollar’s declines, the strengthening of the metal was broad-based throughout the year. Gold rose 27% against the USD, 26% against GBP, 22% against JPY, 21% against JPY, 17% against EUR, 16% against AUD, 10% against CAD and 8% against NZD, totaling 146% in gains for the year against the major currencies. The global growth-backed commodity story as well as emerging inflationary pressures played a significant role in gold’s advances.

One theme expected to continue triggering further advances in gold is that of real interest rates. The modest declines in gold relative to the more protracted and uninterrupted recovery in the dollar since mid November are due to falling bond yields. As the Federal Reserve, Bank of England and Bank of Canada blitzed the money markets with over $600 billion in liquidity injections in the last two weeks of 2007, market interest rates headed lower while inflation continued to push upwards. Persistent liquefying operations of central banks are likely to highlight the luster of the precious metal relative to paper currencies, especially as the real cost of money is dragged down by high inflation and lower interest rates. The inflationary consequences of these expansionist monetary practices coupled with persistent robustness in commodity prices are expected to offset any downward pressures on inflation resulting from cooling economic activity. While the relationship between strong commodities and cooling economic growth may prove untenable, agriculture, energy and metals are likely to remain supported by supply constraints rather than demand factors.

We anticipate real US interest rates to remain pressured by a combination of an expansionist Federal policy and robust energy pressures. This should continue to reward gold versus the US dollar as well as the rest of the major currencies as inflation remains at the upper end of the targets set by most G10- central banks.

But the $900 target isn’t expected to be realized before a temporary decline to as low as $720. Periodic bouts of reduction in risk appetite are likely to trigger episodes of profit-taking in the metal. The expected pall on the metal is also expected to emerge from a modest slowdown in Chinese demand for commodities. The People’s Bank of China’s policy tightening coupled with the yuan’s 10% appreciation as well as the slowdown in the US, Canada, Eurozone and UK is likely to temper China’s appetite for metals and energy.


No Need for Textbook Recession Definition

While there has been much emphasis on whether the US economy has entered (or will enter) the textbook definition of recession --two consecutive quarterly GDP growth declines-- the consequences to the overall economy are sufficiently worrisome in the event of a back-to-back quarterly GDP growth of between 0.1% and 0.3%. The 2000-2001 recession was such an example, when GDP growth declined by 0.5% in Q3 2000, rebounded by 2.1% in Q4 2000 before contracting by 0.5% in Q1 2001. A subsequent rebound of 1.2% in Q2 2001 was then followed by a 1.4% contraction in Q3 2001. This time the impact goes beyond sluggish manufacturing and a shrinking wealth effect from falling equities, and extends to tens of billions of losses in the books of banks, which carries ominous implications for overall credit and capital formation.


EUR: Further Downside Prior to H2 Recovery

The prospects of a durable foundation in the euro lies primarily on the European Central Bank’s focus on upside price risks as inflation exceeds the 3.0% mark, its highest level in 6 years. But with the ECB also recognizing that the balance of risks for economic growth are clearly to the downside, the central bank may be closer to easing interest rates than its inflation vigilance suggests. Although the ECB has been the largest injector of liquidity since August, these operations have been proven more helpful in relieving short-term funding for commercial banks than in assisting an increasingly struggling corporate sector. With the euro retreating 5% off its highs against the dollar, any dovish overture by the ECB may risk furthering externally driven inflationary pressures, especially as energy prices maintain their lofty levels.

But just as markets punish currencies whose central banks are seen behind the curve in containing inflation, they also drag down currencies when central bank policy is perceived to be exacerbating the downside risks to growth. Signs of a possible growth contraction in Spain and Italy in Q1 2008 may prove highly euro negative especially if the ECB shows no signs of shifting away from its hawkish stance. Germany’s IFO and ZEW surveys on business and investment sentiment continue to trend lower over the past 6 months reaching 2-year lows but still do not suggest an accelerating loss of confidence. Eurozone GDP growth is expected to slow to 1.9% in 2008 from 2.5% in 2007, surpassing US growth for the second consecutive year.

We expect the ECB to continue stressing the downside risks to the economy and the upside risks to inflation, while being forced to cut rates once to 3.75% and continuing to maneuver policy via liquidity injections and FX rhetoric. In the event of persistent credit constraints and deteriorating economic dynamics, any signs of a retreat in headline inflation towards the 2.1%-2.2% range, accompanied by a decline in core CPI towards 2.0% from the current 2.3% will pave the way for another ECB rate cut. Further downside ground seen testing $1.42, while the risk of accelerating losses is projected to stabilize at $1.37. Renewed gains seen emerging in early H2, retesting $1.48 before claiming $1.55 in Q4.


JPY: Benefiting from Lower Carry Trades

Chances of further yen gains in 2007 will hinge on the interplay between further unwinding of yen carry trades and the onset of slowing demand from Japan’s major trading partners. Our expectations for further dislocation in US equity markets as well as prolonged uncertainty in global credit markets support the case for renewed yen gains as risk appetite remains under pressure and global liquidity is curtailed. And although futures speculators have boosted yen long contracts to 2-year highs against the dollar in early December, there remains wider scope for yen buying amid fresh revelations of write downs from US banks.

But we must also heed the yen’s downside risks from the downdraft of slowing growth. With 22% of Japanese exports going to Newly Industrialized Asian Economies (Hong Kong, Korea, Singapore and Taiwan) and 21% to the US, cooling economic growth should cast a pall on Japanese exports, especially with the risk of a US contraction weighing directly on Japan and indirectly via Japan’s trading neighbors. China’s absorption of 15% of Japan’s exports does play a significant role in filling the slack. But the downside risks to China’s economy may provide an indirect negative spillover on Japan, thereby exacerbating the already slowing demand from the US. With the combination of lower US demand for Chinese exports, a prolonged correction in Chinese equities, the transmission effect of the People’s Bank of China’s rate hikes and further strengthening in the yuan, the risk of a region-wide slowdown can be significant.

Internally, Japan’s 2008 GDP growth is seen slowing to 1.7% from 2.0% in 2007, still within the nation’s potential growth range of 1.5%-2.0%. We expect the combination of increased market volatility along with the onset for 100-bps of Fed funds rate cuts in 2008 to redefine the playing field for global carry trades. As a result, 110 yen is seen as the new anchor for USDJPY before retesting the 105 figure in late Q3.


GBP: Further Losses Ahead

The British pound’s breach above the $2.00 level may have been the only positive story for the currency in 2007. But even against the dollar, sterling gave up most of its 9% gains to end the year barely in positive territory up 1.0% against the greenback. The currency was the worst performer among G10 currencies after the US dollar. We anticipate continued losses in sterling as the Bank of England is seen cutting rates by 100 bps throughout the year.

Although official and IMF forecasts project 2008 UK GDP growth to slow towards 1.9% from 3.1% in 2007, the risk of a more protracted housing correction may drag growth down to 1.5% for the year, with the risk of recession an increasing possibility. The domestic savings ratio fell below zero, a level not seen since the late 1980s while household debt service soared to 14% of incomes, the highest since 1991. With over 1 million of fixed rate mortgages due for reset next year, the risks to the personal debt market are considerable. UK estimates place the number of homes to be repossessed in 2007 at 30K and 45K in 2008, the highest since the property crisis of the 1990s.
The Bank of England had already been forced into a unanimous decision to cut rates in December, one month earlier than it predicted at the November inflation report. We expect the BoE to cut by 100 bps in 2008, taking down rates to 4.50%, which would deal sharp erosion to real interest rates, currently at 3.40%.

Sterling weakness will be a major theme in currencies for 2008, which should help the US dollar obtain some stability. This also means further divergence in GBPUSD away from EURUSD, which should trigger further strengthening in EURGBP. GBPUSD downside is seen extending through $1.92, with the risk of extending losses towards $1.88. Upside remains capped at $2.06. Further carry trade unwinding is likely to drag GBPJPY towards 210, with downside acting on $235.00.


CAD: Limited Downside from the US

The Canadian dollar was the highest performer in 2007 among all G10 currencies thanks to rising prices of energy and agriculture products as well as robust economic growth resisting the downdraft from the US slowdown. Currency strength and retreating manufacturing activity did force the Bank of Canada to cut interest rates in December, partially due to some help from cooling inflation.

GDP growth is seen edging up to 2.8% in 2008 after an estimated 2.5% in 2007. With 80% of Canada’s exports going to a recession-bound US economy, the negative risks on overall growth can be significant. The 8% share of total exports going to the healthier Europe and Japan may help offset the situation. But the composition of exports is also crucial. Considering agriculture and energy exports make up over 25% of Canada’s exports, or 10% of GDP, the sector make up is expected to help the situation especially considering the expected favorable climate for commodity prices ahead.

While oil prices will continue acting as the wild card, we do not foresee any prolonged declines below the $70 level. Steady prices should be CAD-neutral, leaving the currency equation to be determined by inflation and BoC policy. We see a 100% chance for a 25-bp rate cut in Q1 2008, followed by another similar move in Q2 that will take the overnight rate to 3.75%.

Unlike most of its G7 counterparts, Canada’s currency remains characterized by high real interest rates, standing at 2.7%, versus 2.1%, 1.0% and -0.6% for the US, Japan and Eurozone respectively. Although real UK interest rates stand at 3.4%, expectations of 100-bps in BoE rate cuts have already began weighing on the British pound.

We expect a 25-bp rate cut in Q1 to boost USDCAD to as high as $1.070 as the currency sustains losses from a combination of risk reduced risk appetite and falling yield differential. One more rate cut in Q2 to 3.75% may be needed by the Bank of Canada to stave off further slowdown, but as long as the market deems these cuts as precautionary, there is upside ground for a CAD recovery in H2 towards the $US 0.95 level.


AUD: Yields & Commodities to Counter Risk Aversion

The unwinding of high yielding FX carry trades and the broad USD rebound in the last 6 weeks of the year has overshadowed the strengths of the Australian dollar and the currency’s potential to retest parity with the USD. Standing at 23-year highs versus the US dollar in November, the Aussie was 6 cents away from parity as the Reserve Bank of Australia raised rates to an 11-year high of 6.75% and signaled to do more. We expect the RBA to raise rates by 50-bps in 2008 to stem an accelerating inflation rate, already projected to exceed 3.00%, well over the central bank’s preferred target of 2.0%-3.00%.

Baring any negative price shocks in agriculture and minerals, the Australian dollar is set to be amid the highest performing currencies in the G10 in 2008. In addition to a strong yield foundation, the currency stands to gain from a favorable price environment for commodities, as the sector makes up 65% of exports. Specifically, grain prices are widely expected to pursue their upward run in 2008, delivering higher returns for wheat and barley. And with minerals making up 50% of overall exports, steady demand for items such as copper --propped by China’s power generation capacity --the benefits would combine price and volume. The latter is also expected to soften the shock from falling US construction expenditure.

Another likely boost for the Aussie is the exposure of Australia’s exports to a robust regional market. Over 40% of Australia’s exports are destined to Japan (19%), China (14%) and the Republic of Korea (8%), all of which are expected to maintain their robust expansion in 2008. Yet even, a modest cooling in these economies is unlikely to pose any headwinds for the currency.

The downside risks to the Aussie include a prolonged decline in commodities prices resulting from a global growth slowdown and extended bouts of risk appetite hitting global investor confidence as well as high yielding currencies. Accordingly, these dynamics may drag the pair down to as low as 77 cents. But as long as the RBA retains growth and inflation arguments for a tight policy, we expect the Aussie to maintain its potential to rebound from risk aversion declines. Further Fed easing will likely lift AUDUSD past the 90-cent figure and test 95 cents by Q3. Chances of seeing parity in Q4 stand at 70%.

Disclaimer and Terms of Service

© Copyright 1998-2018, Hamzei Analytics, LLC. Hamzei Financial Network is published by Hamzei Analytics, LLC, 6840 Huntington Lakes Circle, Suite 201, Naples, FL 34119, Admin@HamzeiAnalytics.com (310) 306-1200. The information herein was obtained from sources which Hamzei Anlaytics, LLC believes are reliable, but we can not and do not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that Hamzei Analytics, LLC or its principals may already have invested or may from time to time invest in securities or commodities that are recommended or otherwise covered on this website. Neither Hamzei Analytics, LLC nor its principals intend to disclose the extent of any current holdings or future transactions with respect to any particular security or commodity. You should consider this possibility before investing in any security or commodity based upon statements and information contained in any report, post, comment or recommendation you receive from us. The content on this site is provided as general information only and should not be taken as investment or trading advice. Any action that you take as a result of information, analysis, or conclusion on this site is ultimately your responsibility. Always consult your financial adviser(s) before making any investment or trading decisions.