Run for the Roses

The market is quietly making another push higher, having nearly eliminated the losses last week stemming from the geopolitical front.

Energy prices have also subsided in the wake of a failed attack on a Saudi Facility on Friday.

Retail sales reports also came in strong, continuing the volatile nature of the data.

I believe the focus will once again be on rates and the Fed’s course of action. The recent reintroduction of the 30yr Treasury bond may also regain its stature of a the investment vehicle of choice for foreigners, namely the Japanese and Chinese.



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NASDAQ appears to break out from Jan-Feb trading range. Will higher prices follow?

Rates on the Rise

Many Wall Street firms have taken their year end rate targets higher following the congressional testimony of the new chairman. Many wirehouses went from 5% up to 5.5% or even 6% in light of the reemerging inflation worries and underlying overall strength of the economy.

Oddly enough, bond traders are still unconvinced as the yield on the 30yr is at 4.512% and the 10yr at 4.5678%, signaling a continued inversion and lack of rate hike fears.

Commodities markets still figure prominently as Gold, Oil and the base metals remain a proxy for future economic activity.



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Downward channel remains intact on 30 yr Treasury Yield

Port Havoc

The clamor over foreign control of our ports apparently has grown loud enough to divert attention away from the Vice President’s most recent hunting trip and energy prices. Both Republicans and Democrats are having a “go” at the White House over its perceived ambivalence toward handing control over several of our most vital waterways to a company that retains a sizeable governmental stake from the UAE. President Bush has promised his first veto to any bill that arises attempting to complicate the handover.

This is a very delicate matter concerning foreign relations, especially in light of recent tensions arising over the cartoon fiasco, Iran, Hamas, etc.

From a free trade perspective, this is an unusually complicated case. While the U.S. will remain in charge of security surrounding P&O’s (or Dubai Ports World) operations, it is still a vestige of a foreign government operating in our harbors. Conversely, we cannot pressure other countries to repeal tariffs and other barriers to entry while denying others the same opportunities.

If Congress does act, hopefully it will retain a measure of decency—unlike its member’s behavior during the proposed CNOOC/Unocal merger.

At any rate, it will be interesting to see how the debate unfolds as more details of proposed security control are released. Once again, free trade will be pitted against national debate, and nary a politician will fail to put in his or her two cents.



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Dow Jones Transportation Average continues its climb higher. Pattern is wedge-like (bearish) but unconfirmed.

Plenty of Thunder to Go Around

As more and more people accused Greenspan of stealing Bernanke’s thunder by inferring the direction of rates at a few private engagements over the past week; denouement was reached with the presentation to Congress yesterday. He was poised, knowledgeable and answered questions with a clarity unforeseen in the past decade. He also moved the market.

This is a good sign—his words carry weight.

After a few comments intimating that rates still had to go higher the market initially sold off. By the time he had fleshed out all the strengths in the economy and onto the Q&A the market had climbed to the highs of the day.

In my opinion, most notable was his commentary on the risks that GSE’s (notably Fannie and Freddie) pose to the system. In his first testimony he appeared to have gone farther than his predecessor had by not only diagnosing the problem, listing the hazards posed by their utter size and magnitude— and offering up a blueprint for the solution.

The market action this week has been interesting to say the very least. Large caps resumed their trudge higher with the Dow closing at a 52week high of 11058.97, within 7.5% of its all time high of 11750.

The S&P 500 and NASDAQ both remain well below their annual highs, but look poised for a move higher. Their charts are looking far more constructive than they did at this time last week and even yesterday. While many here feel the market has made a decent move since the 4th Quarter of last year, it pales in comparison to the NIKKEI and DAX. All in all, there is no reason to rule the U.S. markets D.O.A. at this point.




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Back up above 50day with possible reversal higher setup.

Dazed and Confused

I am still trying to figure out whether or not the new Fed Chair did make an address to Congress yesterday.

If he didn’t, the reason why probably had something to do with the ultimate defeat of the asbestos bill. Senate Majority Frist announced yesterday afternoon that if it failed to pass—it was done for the rest of the year (in Congressional terms that means forever). The bill, while important, is more demonstrative of a weakened White House with a failed second term agenda. It is probably a reliable indicator that tax cuts, tort reform and other parts of the business-friendly plan are increasingly likely to fall by the wayside (provided the President’s popularity is still below 50%).

Despite the above, the market managed to put on a much-needed rally, with the Dow leading the pack, closing up 136 points and above the all-important psychological 11,000 psychological barrier. The tech heavy NASDAQ and S&P 500 also managed 1% gains, but it was the large caps leading the charge higher.

Stocks tend to move like (and on occasion with) the ebb and flow of the economy. Typically small caps (being the most sensitive to financial conditions) move first. Large Caps like GE, HON, UTX and others tend to move last, as they require dramatic shifts in prevailing conditions for it to affect their top and bottom lines.

At times a large cap rally will signal the end of a “secular” bull market, other times it will not. At any rate, keep an eye on the Dow as the “megaphone” or “expanding triangle” pattern may signal an imminent top. But then again, it might not.



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Topping pattern?

Markets on Hold

The market will be on hold until after newly sworn-in Fed Chairman Ben Bernanke makes his first address to Congress later today. While many Fed watchers are eager to glean insight from this speech, I believe it is highly unlikely any light will be shed onto the machinations of the interest rate guiding body under its new leader.

Greenspan also appears to have done his successor a disservice by speaking at a Lehman Brothers conference, appearing to infer rates had higher to go yet. Whether or not this was his intent, it clearly goes against the thanks he heaped on his predecessor Paul Volcker for quietly riding off into the sunset and not adding to the tenuous first weeks sure to daunt any central banker.

It is worth noting that the market has given back most of its January rally, once again confounding those beholden to the “January Effect” or “January Indicator” as a yardstick for the duration of the year.

The tech laden NASDAQ closed nearly 100 points under its 52 week high, finishing at 2239. It entered this year at 2205.

Japan’s NIKKEI finally broke out of its slump, managing its first positive close in three sessions (over which the index lost over 600 pts).

Finally, be sure to keep an eye on the M&A front, as it is likely more big deals will grace the headlines.




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Everybody Wins

Toward the middle of last year there was a rumor going around Wall Street that Apple was set to use Intel Chips in its next Mac line. It wasn’t the first time I had heard it, but I doubted it nonetheless. Intel and Microsoft have always been beholden to one another and a deal with Apple would shatter the comfortable static state of their relationship. On these grounds alone I concluded what many of the large wire houses had already—such an alliance was not fathomable, let alone possible.

A few months later many (including myself) would be proven wrong. Intel is producing the guts for the next Mac series, throwing caution to Windows and the relationship that was.

Yesterday, The Wall Street Journal reported that Dell is set to include Google software on the desktop of its latest PC. Microsoft and Dell were just as cozy as Microsoft and Intel, this deal seemed to be less plausible than the first.

The bottom line? Everybody wins. The focus returns to the best quality product, manufactured at the cheapest price, yielding the greatest profit. For quite some time these three have leveraged their brands in an effort to steer competition from their markets. This has hurt their businesses, the consumer and shareholders respectively.

Compare the stock performances AAPL vs. Dell, AMD vs. INTC and GOOG vs. MSFT.

The big three of PC’s are losing ground to newer, more competitive, and nimbler adversaries. They moved away from what made them successful in the first place—new technologies and cost-effective innovation. Perhaps these deals will force the hand of management to re-examine their business models and get back on track. The companies they are competing against today are far stronger than those swallowed up in the tech bubble and won’t/can’t be priced out of the marketplace.

These are welcome developments. No one will be surprised now if Dell and AMD finally consummate their rumored relationship either.



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The Next Big Test

The S&P 500, Dow Jones Industrial Average and NASDAQ Composite all hit multiyear highs on the 11th of January. Since that time, the indexes have been turned back every time they approached resistance, but have also failed to make lower lows off the initial pullback. This, in and of itself is not bad. However, a closer look at the market leadership paints a different picture.

Google (GOOG), Apple Computer (AAPL), Whole Foods Market (WFMI), Hansen Natural Corp. (HANS) and other companies responsible for leading the surge higher have begun to come under fire. Apple and Google alone are off roughly 20% in less than a month. Granted, the stocks mentioned above have gone up several-fold over the last few years, so a pullback is not abnormal—in fact, it’s very healthy for the market long-term.

The most important question is this: will a new leadership group emerge or will the market follow the leaders lower?

The key may lie in the commodities based stocks. Global demand for energy and metals has been at record levels as a result of China and India continuing to build their infrastructures. Worries about the supply side of the equation persist as Iran, rioting across the Middle East and Russia, have all figured prominently into investor’s fears over the past few weeks.

Large legs of the move up beginning in 2003 have been led by Gold, Silver, Copper, Titanium, Steel, Coal, Oil, Natural Gas and Railroads (used to transport commodities). While the market was still trying to gauge future interest in technology during the post-bubble era, these stocks were in a steady, stealth bull market. Most have not had a serious pullback since October (and before that, March/April); so a retracement here would not be a shock.

If the commodities stocks corrected here also, it would be difficult for market players to ignore the amount of distribution taking place. It would also give new life to the bears, which have been unable to knock this bull from its foundation despite numerous tries since last fall. At any rate, keep a close eye on these sectors. This will be the market’s next big test.

(WILSHIRE 5000 CHART)

Wilshire still trending higher within channel. Remains above both 50 and 200 day moving averages.




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