World Clock

Tuesday, 3 August 2010

Relief Rally Monday and then Back Down to Earth Tuesday


OK. So can someone explain to me what has changed so dramatically in the last 24hours to spark a 2-3% gain across global stock market indices?

1) US employment is still at stubbornly high levels

2) Weak economic data continues to point to subdued growth

3) Economic data that came out of China on Monday indicates their economy is also slowing, so why the substantial rise in mining stocks BHP (BHP Billiton), RTP (Rio Tinto) & VALE etc...

4) Europe’s financial system is still weak, despite what the stress test may indicate. As Jim Rogers highlighted last week on CNBC it was all just a PR campaign.

5) Weak housing and retail figures i.e. Home Starts/Construction/Sales & Consumer Confidence are both extremely weak.

6) Europe’s sovereign debt problems are still in background

7) Also what happened to Ben Bernanke’s comments last week saying the outlook for the US economy is “unusually uncertain”?

8) Lastly did investors just forget about the worst than expected GDP figures last week

+ the rather strangely the continuing rise in copper and oil prices, given subdued growth in both the US and Europe.

So taking all this into account. What I ask is reason for today’s rally, I get the funny feeling this is just a relief rally and that we will stay in this trading range for a while yet.

That is somewhere between 10,000-10,500 on the DOW JONES and 1080-1120 on the S&P 500.

I continue to hold SDS (SPDR Ultra Short S&P 500( in my portfolio
Also have short positions in FXE (Currency Shares Euro Trust), ITB (iShares Dow Jones Home Construction & RTH (Retail HOLDERs)


It’s amazing the difference a day makes in the financial markets.

Noticed a rare event today in the market, that is oil prices and thus energy stocks traded inversely to the market despite a string of bad economic reports. Most likely due to the continued pressure on the dollar.

Negativity seemed to burst back to life today as a couple of important companies missed analyst earnings estimates. They include #P&G, which shed some light on the weakness of the US consumer as they move away from named brands and switched to lower priced alternatives. Additionally #DOW missed earnings expectations, the biggest US chemical company.

Another round of negative economic data also stopped yesterday’s rally in its tracks.

1. Personal spending came in at 0%
2. Personal income again came in flat
3. PCE prices were also at 0%
So few positive signs there of a strengthening economy

Dan Cook an analyst at IG Markets put it perfectly in my opinion when he said that “it’s the same battle between positive earnings and negative underlying fundamentals in the real economy”. He also went on to say that the “outlook is pretty dark... It’s not dire, but growth will be slow and investors are starting to wonder where these companies will draw profits from next year”. It is not surprising that investors are worried by this when the likes of Factory Orders come in well below expectations falling 1.2% compared to a projected fall of 0.5%.

These two articles were originally published on the Community Board on the TradeFields application website. This can be viewed from the link to the right of this post.

NB: Any mention of holdings are purely fictional and refer specifically to my TradeFields account. However these holdings do represent my views on the overall economy.

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