Wednesday, May 20, 2009

The Market's Next S&P Targets


Stocks continue to gently whipsaw Wednesday, but the Vix volatility/fear index is still subsiding.

Art Cashin, UBS Financial Services director of floor operations, offered CNBC his stock-market insights.

In a sports metaphor, Cashin agreed that the bulls have stolen the ball back from the bears. "But now we have to see if they can score with it."

"What you're going to test for is...yesterday's highs, followed by a real resistance." (more)

MarketTrends: May 20, 2009

Issued by Colin Cieszynski, CFA, CMT, Market Analyst, CMC Markets Canada

North American Indices and Commodities: Broad-Based Commodity Breakout

Energy prices have been leading commodities higher today, with buying momentum accelerating following the release of the weekly US DOE inventories report. Last week, US crude oil inventories fell by 2.1 million bbls when a 0.4 million bbl decrease had been expected, while gasoline inventories fell by 4.3 million bbls, more than the 1.2 million bbl drop expected. This may be viewed as particularly significant with US summer driving season set to kick off this weekend (Memorial Day holiday on Monday).

Earlier this week, US crude broke through $60.00/bbl resistance, successfully tested it as a new support level, and now has broken out to a new high on trend. Next significant resistance hurdle appears at the 200-day moving average near $63.30/bbl.

A number of other commodities have also been posting significant gains today in oil’s wake, suggesting that attitudes toward the health of the global economy continues to improve and that investors may be starting to anticipate an improvement in the demand for resources. For example, wheat has climbed to test $6.00/bushel resistance, corn has broken through $4.25/bushel, and natural gas has been trending toward a test of $4.00/mmbtu. Copper has broken through $2.10/lb once again, but still faces significant resistance in the $2.20-$2.25/lb range.

Precious metals have also been picking up today despite gains in equities and commodities. This suggests that short term fear capital may have already rotated back out into other market areas. It also indicates that investors may now be focusing on the long-term implications of bailouts and stimulus on inflation. Gold has broken through resistance at $935/oz this morning with next resistance near $945-950/oz and $970-975/oz. Meanwhile, silver has broken through $14.25/oz resistance with next resistance near the $14.70/oz level.

Equity markets have also been climbing today, but remain short of the highs set last week. Significant resistance levels that would need to be overcome to signal the start of a new upleg include: 8,600 for the Dow Industrials (US30 CFD), 930 for the S&P 500 (SPX500 CFD), 1,435 for the NASDAQ100 (NDAQ100 CFD), 4,700 for the FTSE 100 (UK100 CFD) and 5,000 for the DAX (German30 CFD). Next significant resistance levels for US markets appear near 8,900 for the Dow, 965 for the S&P, and 1,470 for the NASDAQ.

Canadian markets have been benefiting from improvement in general equity sentiment and commodity price gains. The S&P/TSX Composite has been testing resistance at 10.350 today with next resistance near 10,700, while the S&P/TSX 60 (Toronto60 CFD) has been testing 630 resistance with next resistance near 670.

Note that the minutes from the last Fed meeting are due for release at 2:00pm ET, which may have an impact on afternoon trading.

Canada and US Share Update: Semis, Solar and Steels Lead Market Gains

The Semiconductor sector continues to rally today. Sentiment toward the group has continued to turn positive after Analog Devices (ADI up 14.0%) reported EPS of $0.21 which handily beat the $0.07 street estimate, and posted guidance of $0.17-$0.19 for next quarter, well above the $0.11 street estimate. Other leading advancers in the group include: National Semiconductor (NSM) up 9.1%, Micron (MU) up 7.1% and AMD (AMD) up 7.6%.

Interest in the energy sector also appears to be increasing with US crude oil prices holding above their key $60.00/bbl support/resistance level. In Canada oil and gas producers have been attracting attention led by Iteration (ITX) up 9.4%, Advantage Energy (AVN-u) up 8.7%, and Crew Energy (CR) up 6.8%. In the US, attention appears to be more focused on the alternative energy/solar group, led by JA Solar (JASO) up 16.0%, Yingli Green Energy (YGE) up 9.7%, and First Solar (FSLR) up 5.3%. Coal producers have also been climbing, led by Massey Energy (MEE) up 8.9%, Arch Coal (ACI) up 8.6%, and Consol Energy (CNX) up 6.5%.

Steel producers have also been picking up today, which suggests that investors may be looking at deep cyclical plays for a potential early economic recovery situation. Leading advancers in the group include: AK Steel (AKS) up 8.3%, US Steel (X) up 8,5%, and Steel Dynamics (STLD) up 7.5%.

The Truth about Option ARMs,the Eye of the $469 Billion Toxic Mortgage Hurricane

The Truth about Option ARMs, Pick-a-Pay Mortgages, and Alt-A Loans: Looking at Wells Fargo, Bank of America, and JP Morgan. We are in the Eye of the $469 Billion Toxic Mortgage Hurricane and Silence is not Golden.

Let me be abundantly clear. We still have a Pay Option ARM and Alt-A mortgage problem. This will hit in full force in 2010 and we are already seeing many mortgage holders having trouble with actual recasts brought on by negative amortization. Yet there is a crew of people saying that Alt-A mortgage products will not bring any trouble because of the low interest rate environment. Unfortunately the low rate misses the bigger issue. Low rates are helping but the problem that we will be seeing is the massive onslaught of recasts, not resets that will be occurring over the next few years. This is a big reason why we won’t see a housing bottom in California until 2011 at the earliest. Many of these loans were made to supposedly better qualified borrowers in mid to upper priced areas. These areas will begin to crack like an egg dropped on the floor late in 2009. The Notice of Default tsunami will guarantee this much. (more)

Trading the Australian Dollar

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