Ashraf Laidi
I pretty much agree with Frank Barbera's outlook but not necessarily as bearish on the US Dollar in 2008. I think the Greenback will continue showing resiliency vs the British Pound, Kiwi and Aussie into mid Q2 before it starts to weaken again. Euro should start recovering after Q2.
As for our Stock Market, when you consider that the main catalysts to the recent gains were 1) Abu Dhabi buying part of Citi 2) rumors/hopes of aggressive Fed cuts 3) Bush rewriting legal contracts on mortgages, all of these factors fall under the "extraordinary items" category on which the ailing market cannot always count on. Unless of course, Arab Gulf SWFs, will alternate with Far Eastern SWFs every other week to announce new buyouts. The 2002 lows in stocks should come around by next summer.
Editors' Note: Ashraf Laidi will publish his 2008 outlook very soon.
Fari Hamzei
What a tumultuous week we went thru.
Market Internals and chartpatterns of key indices this past week tell us that Fed's Discount Rate Reduction by 50 bp was immediately viewed as very constructive by our equity markets. While we do not view Thursday SPX low as the final bottom of this leg, DJIA low print on Thursday, for all practical proposes, came in at our first support level (12,500).
We expect this low to be tested as Fed's combat of the SubPrime Mortgage Debacle is still an ongoing event. Ideally this test (and its accompanying vol retest) should come, ceteris paribus, in about 2 to 4 weeks from now. That process will build the tradable bottom which we have been looking for. We plan to go long then and hold it into Xmas.
I have attached our updated Timer Chart.
Jason Roney
Yesterday was a very dynamic day in markets of course. Let’s first note where we are in the cycle for equities. It’s the week after expiration. SP does not trade with same underlying bid it had the week before because of the expiration. At same time, stocks are increasingly sensitive to interest rates (just look at BKX index versus fixed income).
Now we throw in the Bear Stearns fund fallout. The fund held more than 20bill of derivative investments mostly backed by subprime mortgages. as redemptions came in, the fund was forced to auction off assets from in an already illiquid market (sub-prime stuff). actually, the subprime index began to melt down very late Friday afternoon.
due to conflicts of interest between fund / house, Bear Stearns had to allow other firms to handle the liquidation. this produced the "bid wanted" lists from MER, DB, etc. buyers of these had to of course sell treasuries against.
Early part of week, stocks held in relatively well as the bear fund assets had not yet been auctioned off, treasuries were still near their pullback highs, and Asian equities remained well bid. Yesterday morning we opened above prior day high with potential for breakout. But once the other firms sent out the bid wanted list and began auctioning off the bear assets, two things happened: (1) treasuries sold off as a result of the necessary hedge and (2) market began to realize there was very little liquidity for the bear assets. Those two combined to create selling pressure in SP. Given the expiry up bias was removed stocks were highly vulnerable to a meaningful pullback. Once the outside day was in (yesterday’s move below Tuesday’s low), the hook was in. classic trend day from gap reversal.
To revisit things I mentioned in the chat a few weeks ago. There were several “tells”: (1) SP pit session had 4 consecutive days range less than prior day range (as of Monday close) – implying larger than expected move was imminent. (2) SP had shown clear relationship with fixed income over the prior week(s) and fixed was clearly the lead. (3) Because it was the week after expiration, any surprise move should have been to the downside.
Fari Hamzei
February 7, 2007
Techs continue to improve...thanks to CSCO and AKAM........Defense stocks are on a tear......thanks to $700B proposed DoD budget....we like NOC, RTN, BA and LMT here;
Video Part 1
Video Part 2
Video Part 3
But our Timer Chart says we are in for a small pause here. McClellan Oscillators don't lie !!
Video Part 4
