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.


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.


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...

Disclaimer and Terms of Service

© Copyright 1998-2023, Hamzei Analytics, LLC. Hamzei Financial Network is published by Hamzei Analytics, LLC, Naples, FL 34112, (310) 306-1200. The information herein was obtained from sources which Hamzei Analytics, 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.