Browse Articles by Section : *Market Analysis*

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Market Analysis : Week 4/10

Obama dominated the market with the proposal of restructuring the banking operation. The banking industry sells off immediately amid the concern of the policy. Traders and investors adopted the sell first ask later attitude. There are other factors that cause the market to be very jittery in last week.

China latest policy to tighten up the money supply to curb the excessive speculation in housing and stocks had also send the investors and traders running out of the risky assets. Evident can be found in the selling off of the commodity industries and commodity currencies.

Ongoing worries in Europe did not help the market too. Greece continues to be the bashing sheep and the bond yield spread had skyrocket in last week. Greece will have a hard time surviving in this crisis without the external help.

Fed Chairman Ben Bernanke completes the hat trick on last Friday in bringing down the market to earth as the market worries about Uncle Ben not getting another term as Fed Chairman.

Earnings reports continue to be excellent for most of the companies that had announce theirs report in last week. However, the streets do not seem to like the result as they had high expectation in last quarter earnings.

The latest unemployment claim and Philly Fed Manufacturing data came out disappointing. The data suggested that the underlying weakness is still lurking in the economy.

Overall, there are plenty of bad news and data in last week. Furthermore, the stock markets had been quite over-value and expensive. Investors and traders see no reason to book some profit amid all the uncertainty in the market.

Earnings

This coming week will mark the peak of the earnings season, with 12 Dow components reporting and 130 companies from the S&P 500.

A broad range of companies will report results, including industrial bellwethers DuPont, Boeing Co. and Caterpillar Inc.

Energy companies Chevron Corp. ConocoPhillips and Halliburton.

Technology heavyweights Microsoft Corp., Apple Inc., Yahoo Inc. and Amazon are also on the tap to release in the coming week.

Economic Data

The first estimate of Q4 GDP on Friday will cap a very busy week for economic news in the coming week. Also on schedule are estimate for home sales, consumer confidence and durable goods orders.

An economist for Goldman Sachs expects the GDP number to be an eye-popper. Economists surveyed by MarketWatch are forecasting a 5.5% annualized increase after a 2.2% gain in the Q3. It would be the fastest growth since 6.9% growth rate in the Q3 of 2003.

Fed Chairman Confirmation Vote and the FMOC meeting will add more volatility into the market in the coming week.

Summary

This coming week will be very interesting with so many earnings and economic news coming out. The streets will slowly digest the information to decide on whether to be risk on or risk averse. The streets will also be watching the development of Obama’s proposal on the banking industry. The streets will be watching closely to the speech and action of the FOMC meeting and also the confirmation of Uncle Ben as the Fed Chairman.

The market in the coming week will likely continue to fall as traders and investors pull out the money first while assessing the market. Furthermore, there are too many uncertainties in the market that will cause it to turn red. And if the markets fall again in the coming week, it might cause a mini panic in the market. Lastly beware of the awakening Bear!!!

Lawrence Chua
Patterntradertools.com

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Market Analysis : Week 3/10

The stock market started the earnings season badly with Alcoa suffers the most. Even good earnings from Intel and J.P Morgan could not save the market as the streets sell on the good news. Furthermore, there are some concerns among the traders on the negative outlook from the J.P Morgan.

On the economic front, the Core Retail Sales (Dec) -0.2% V.S. 0.3% expected, surprisingly came out worst than expected as the consumer tightens up their budget in last years holiday Christmas sales. Besides the ugly results from the Retail Sales data, the Consumer Sentiment and Unemployment Claims did not fare pretty well too.

Google Inc. pull out its operation in China had cast a shadow of the ongoing international trade affair between China and United States. The streets will be keep an eyes on it as some of them fear that it might triggers a trade war between China and U.S.

Earnings

Earnings will be in the spotlight in the coming week. The streets will be looking for a good earnings result from the blue chip companies. Other than the good earnings reports, the streets will be much more interested to find out and look for good guidance from the major companies.

IBM and Citigroup will be kicking off the earnings season in the coming Tuesday. On Wednesday, Bank of America will be schedule to report the earnings result. Bell-weather companies such as General Electric and McDonald’s will be releasing the earnings results on Friday.

Others notable companies such as CSX Corporation, Starbucks, U.S. Bancorp, State Street Corporation, Coach Inc., American Express Company, Capital One Financial Corp., Fifth Third Bancorp, SunTrust, Schlumberger and Kimberly-Clark will also be schedule to release the earnings report in the coming week.

Economic Data

This coming week, the economic data will be quite light. There are only a handful of important data such as the Producer Price Index, Building Permits, TIC Long-Term Purchase, Philly Fed Manufacturing data and Weekly Unemployment Claims that will likely to move the market.

Summary

Earnings will be the key indicators to decide the fate of the market in the coming week. Last week earnings had already given some clue to the market players of the upcoming earnings. Investors and traders will be extra cautious after the bad results and lousy guidance from Alcoa and J.P. Morgan respectively. The streets are also wary about the sustainability of the market going forwards as the market sells off even after the good earnings result from Intel. Overall the Q4 earnings season did not seem to be very positive.

The on-going worries surrounding countries such as Greece, Spain, Italy, Dubai and others will likely to cause the market to be very volatile. The streets are worries about the dominos effects of the fiscal default that will cause a panic in the market, which will likely to result in another recession.

In conclusion, the market will likely to go lower in the coming week. The earnings result will likely to be better than expected. However, the streets will be looking at the forward guidance from most of the companies. Most of the companies will be unable to keep up with the high expectation from the streets in the coming quarters. Furthermore, there are many worries in European countries about the fiscal debts and the ongoing trade problems between U.S. Companies in China. Overall, the markets do not look good in the near future.

From
Lawrence Chua

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Market Analysis : Week 2/10

The stock market had enjoyed a wild ride in 2009. The 3 main indexes had recovered most of the losses from the financial meltdown. Looking forward, the year 2010 seems to be a good year for investors to venture into the market. So let us dissect the possible outcome that might install for us in 2010.

Interest Rate

Economists and Analyst throughout the world seems to agree that 2010 will be a difficult years for the market. This is because interest rate in United States will likely to increase in either Q2 or Q3 of 2010. The streets will be watching to the reaction of the market when the Fed take away the stimulus package and ultimately increase the Fed interest rate. Speculators will likely to cause wild swing in the market, as they will bet on the timing of the Fed interest rate.

China & Asia Economy

Asia economy will be the focus in the world. Many countries will continue to look at China to provide further strength in the economy. Many of them has hope that the new generation of Chinese will pick up the slack from the Westerners to spend more in the coming years. One of the keys towards a better consumption from the China will be the Yuan. The Western countries will continue to pressurize China to allow the Yuan to float freely in the market. However, China will resist the pressure to protect their exporting economy.

U.S. Economy

Consumer Debts, Commercial Real Estate Loan, Fiscal Debts and Unemployment Rate will be the main focus in 2010. The Unemployment Rate will be the number one concern for the country. Unemployment rate will likely to range around 9% to 10% in 2010. Based on the last 2 months result on the Non-farm Payroll and Unemployment rate, it seems that companies had started to commit themselves into hiring process. This week, the December Non-Farm Payroll result will review whether the improvement in the job sector is just a result from the holiday boost. The Fed will be force to take away the punch bowl when the economy data shows better results in the coming months. The Fed will have to drain away most of the liquidity in the market to prevent another bubble and imminent inflation.

The Fiscal twin tower deficits will be another headache for the economy in 2010. The Obama’s Administration will have to come out with a solution fast to reduce the deficits. They will likely to implement some sort of taxes in the near future.

There are still many uncertainties in the market. The biggest problems that still hinder the economy are Commercial Real Estate loans and surging default rate in Consumer Debts. These problems will likely hinder the growth of the U.S. economy.

European Countries

Another major concern in the market is huge debts from some of the countries in Europe. Countries such as Spain, Greece, Ireland, Iceland and a few others might face difficulties to repay their debts. If these problems escalate, it might trigger another meltdown in the economy as international trade will standstill.

Skyrocket Commodity Price

Will we ever see 140 plus dollars per barrel in oil? I think oil will likely to push for 100 dollars per barrel in the coming months as inflation threaten to run wild. This is especially so when the economy start to recover from the financial meltdown. As the oil prices run wild, the other commodities will likely to follow the footsteps too. This will weight on businesses, as the cost of materials will likely to eat into the profit margin. Consumer will also have a hard time to absorb the increasing food prices and oil prices. These will further reducing their purchasing power for the rest of the items.

Economic Data

Investors and traders will be looking at the most important piece of economic data in the first week of the year, December, Non-Farm Payroll. Economists expect non-farm payrolls to decline by 8,000 in December, after a decline of 11,000 during the previous month. They’re forecasting the December unemployment rate to edge up to 10.2% from 10%.

The December Non-Farm Payroll data came out disappointing (-84k). However the streets did get the positive growth in the job market as the November Non-Farm Payroll revise up to positive 4k. The streets will have to decide whether the lousy December job data is just a hiccup or a prolong problem in the U.S. economy.

This coming week, the streets will be turning their eyes on the retail sales, consumer sentiment and the wholesales inventories.

Summary

2010 will likely to prove to be a difficult year for investors to invest in the market. This year, the market will likely to be more selectively in term of good stocks and bad stocks. Companies with strong balance sheet and strong earnings growth with little debts will likely to stand out in the market.

Investors and traders will be looking at the performance of the stock market in the coming weeks. The first month of the year, January usually set the tone in the market for the rest of the year. This year, investors and traders will pay more attention to the speech of Fed Chairman Bernanke to judge the timing of a hike on the Fed Fund Rate.

In conclusion, the market will be extremely volatile in the coming weeks as there will be more traders and investors coming back to the market to make strategic decision on where the money will flow. Lingering problems will likely to weight on the public sentiments. Interest Rate will be the key issue in the mind of the streets. The streets will be looking at the retail sales data, consumer sentiments and wholesale inventories for further confirmation of the recovery of the economic. Overall, the positive start of the year will likely to attract more people to pile in their money into the market in the coming weeks before the Fed decide to tighten the monetary policy.

From,
Lawrence Chua

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Market Analysis : Week 49/09

The stock market experiences another rollercoaster ride for the week. The market had celebrated the resounding good news from the Existing and New Home Sales, improving CB Consumer Confidence and the less than 500K Unemployment Claims for the first time since the credit crisis. However the market got spook by the news from Dubai on late Wednesday night, which stated that Dubai would delay repayments on $60 billion of debt from its investment company, Dubai World. The decision raised broader questions about the safety of emerging market debt and strength of the global recovery.

The news spread quickly on late Wednesday and it cause wide selling off the next day when the market open in Asia and Europe. Investors and traders were seen selling first before questioning and find out the impact of the news. The action causes huge volatility in the equity, commodities and currency market. The U.S. market was spared on Thursday as it closed for Thanksgiving Day.

On Friday, the U.S. market opened heavily in the red falling more than 3%. However, the fear in the market did not last very long as the bargain hunters came in quickly during the short trading day. The market manages to erase the earlier losses to close at less than 1.5%.

The bargain hunters think that the market had overreacted itself on Thursday as they scoop up the cheap stocks on Friday. Many of them also believe that the oil-rich Abu Dhabi will save Dubai from defaulting the loan.

Also on Friday, the market was watching at the result of the retail stores’ sales. According to the National Retail Federation said on Sunday, there was more Americans hit the stores during Black Friday and the rest of the holiday-shopping weekend, but they spent lesser than a year ago.

Major Events

• Dubai delay repayments on $60 billion of debts from its investment company, Dubai World.
• Proposed reforms for Fed could hurt U.S., said Bernanke.

Economic Data

Investors and traders will be looking at the most important piece of economic data in the coming week, November, Non-Farm Payroll. Economists surveyed by MarketWatch expect a 23rd consecutive month of job losses, with nonfarm payrolls forecast to fall by 100,000 after a 190,000 decline in October. The unemployment rate would likely to remain at a 26-year high of 10.2% or above.

Manufacturing data will also be on the tap in the coming week. Starting with ISM manufacturing report, Construction spending and Total Vehicles Sales on Tuesday. On Thursday, ISM Non-Manufacturing report and Nonfarm Productivity will be released. Factory Orders will be due on Friday.

Others important economic data such as Chicago PMI, Pending Home Sales, ADP Non-Farm Employment Change and Fed Beige Book will be out in the coming week.

Fed Chairman Bernanke will be testifies on Thursday.

Summary

The implication of the Dubai news may have a greater effect on the market in the coming weeks. Investors and traders may start to be a little more risk averse in the emerging markets. Dubai’s announcement could also be seen as a sign of bubbles yet to burst, because Greece, Latvia and Hungary, all had the same problems, which are until now, limited the fallout by the central banks.

Investors and traders will be looking at the result of the retail sales in starting from Black Friday. The health of the consumer spending will set tone for the market to the end of the year.

In the coming week, the streets will have to ponder about the impact of the Dubai effect and the result of the holiday season sales. The market seems to be quite resilient even after the shock from the Dubai news. Last week, the market’s action had easily translated into the bullish tone in the street. This is because the market had seemed shaken the negative news easily as greed-overrun fear ever since the march low.

In conclusion, the market will likely to go higher as long as the Fed continues to favor the cheap credit and refuse to tighten the monetary policy. The news in Dubai will likely to unsettle some investors but it is unlikely to bring down this market. However, if others countries start to delay or default payment in the coming weeks, it will have massive impact to the market in the world. Therefore, it would be wise to trade extremely careful as uncertainty in the market spell doom easily.

From,
Lawrence

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Market Analysis : Week 47/09

Last Monday, IMF official hinted that the Dollar is not undervalued even when it had already drop 14% in this year. The market took the cue and spike on the Monday opening as traders capitalize on the weak dollars to scoop up more stocks. After the surge on Monday, the market hovers sideway for the rest of the week, as the earnings and economic news are light.

Consumer sentiment and the U.S. trade balance are the limelight for the week. Traders and investors are worried that the weak consumer sentiment will curb the spending on the holiday season with less than 40 days to go.

The Reuters/University of Michigan index of consumer sentiment fell to 66 in November, down from 70.6 in October. Analysts had been hoping to see the measure rise as high as 72 in the latest report. The negative numbers in the consumer sentiment will likely to weight on the market going ahead of the holiday season. In the coming holiday season, consumers will likely to buy only the quality and essential stuff for the celebration as some of the companies are still firing people in this week.

The U.S. trade balance widened more than expected in September, with import prices rising faster than export prices. The trade deficit widened to 36.5 billion in September, compared with expectations for an expansion to $32 billion, according to economists polled by MarketWatch. The Dollar suffered immediately after the release of the U.S. trade balance report. While the Dollar suffers losses, the rest of the markets such as equity, commodities and gold gained on the “Risk-On” trade.

Overall, the trading volumes in the market were below average throughout the week. The market basically went flat after the great start on Monday. Traders and investors were seen traded lightly as they are looking for the direction from the APEC meeting in Singapore later in the week.

Major Events

• Orion Bank closed as the federal deposit insurance fund take $1 billion hit.
• U.S. Trade balance widens more than 18%.
• Gold surge to a high of 1128 on Globex on Monday 16/11/09

Economic Data

There will be a glut of important economic data coming out in the coming week. The October U.S. Retail sales will be in the limelight and set the pace and sentiment for the week. Economist estimate a 1% seasonally adjusted increase in sales for October, a strong rebound after a 1.5% decline in September.

The street will be watching the inflation number from the Producer price index and the Consumer price index. The market will likely to feel the pressure from the Fed, if the data indicate a much stronger inflation reading.

Housing Start and Homebuilders’ index will shed more light in the process of the economy recovery. The October reports will be significant as the buyer and builders did not know that the Congress will extend the home-buyer tax credit past its Nov. 30 expiration and expanded it to repeat buyers.

Manufacturing data such as Industrial production, Capacity utilization and Philly Fed Index will be on the tap.

Lastly, the street will look at the weekly jobless claims and leading indicators to guide them for the rest of the year.

Earnings

The third-quarter earnings had finally come to an end in the coming week with the mildest profit decline in two years, easily topping low expectations, even as revenue growth is still out of reach.

80% of S&P 500 companies have beat analysts’ estimates for the third quarter, according to Thomson Reuters. Profits dropped about 14%, far better than in recent quarters.

While the street had an easy third quarter earnings expectation, the fourth quarter is likely to be a different story. This holiday season will hold the key for the fourth quarter earnings.

Summary

The streets had been watching on the leaders, especially from China at ongoing the APEC meeting in Singapore. The U.S. dollar and the Yuan issues had brought up at the meeting. One of the China official joint a renown Hong Kong businessman warn against the risk of the Asia asset bubble due to the ultra loose monetary policy in the United State of America.

The market will be watching closely on the economic data and looking for direction from the Fed Speeches in the coming week. However, the market will give number one priority to the U.S. Dollar, regardless of the economic data.
In conclusion, the market will likely to go higher as long as the Fed favor the cheap credit and refuse to tighten up the monetary policy. The market will continue to stay volatile in the coming week, as there are many economic data that are schedule to release. Furthermore, President Obama will likely to say something from his visit to the East.

Will we experience Santa Claus Rally in this year?

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Market Analysis : Week 46/09

The first trading week of the November look eerily similar to the first trading week of the September and October. The market had a great week with 4 out of 5 positive day in spite of the bad economic data.

The main topics for the week had to be the Fed policy and the Unemployment data. The market was indecisive in the beginning of the week as it looks for the direction from the Fed policy.

The street was looking forward to the same dovish FOMC statement that was being release in the last meeting. As expected, the street was rewarded as the Fed keep its Fed Fund Rate at a historical low of less than 0.25% for an extended period of time. After the release of the Fed Fund Rate, the market feels that the Fed will unlikely to raise the rate until the 2nd half of next year. The historical low interest rate will continue to pressure the Dollar and help to sustain the market for at least till the next Fed meeting.

The Labor Department reported that the U.S. Unemployment rate soars to 10.2% and Non-Farm Payrolls fell by -190K, with both fell short of expectation. The market did not react badly to the lousy jobless report on Friday. Some traders cited the strength of the market come from the fact that the Non-Farm Payrolls was revised up from the previous 2 months, which means that the job losses were less than previously estimated. There are some traders and investors was glad that the Non-Farm Payrolls had been slowly declining since the March low of this year. Overall, the market seems to look past the employment report again.

Warren Buffet made the headline last week when he made the largest acquisition in his 44 years running Berkshire Hathaway. He had broke the news on Thursday that he is buying American rail freight giant Burlington Northern Santa Fe at $44 Billions. The market loves the acquisition and the buying spree from Warren Buffet. The buying spree from Warren Buffets seems to give the market the “go ahead signal” to invest in the stock market even at this such a high price level.

Gold prices had surge tremendously for the week. It had managed to test the 1100 price level. Last week, India had bought 200 tons of gold from the international Monetary Fund to diversify its foreign exchange reserves which had lend a helping hand to the surge of the gold prices. Fund managers had been seen actively purchasing gold futures as a form of hedging the Dollar.

Overall, the street are looking past the bad news and looking forwards to the good news.

Major Events

• 5 banks were being shutdown by the FDIC on Friday.
• A California-based bank that focused on the Chinese-American market was the largest of five failures on Friday that cost the FDIC more than $1.5 billion.
• U.S. Jobless Rate 10.2% and Non-Farm Payrolls -190K
• Fed Fund Rate < 0.25% for extended period of time.
• Chinese Premier Wen exhorts the U.S. to keep its deficit in control so as to stabilize the U.S. dollar’s exchange rate.
• Warren Buffet acquired BNI for $44B.

Economic Data

Economic data will be light in the coming week. The market will be focusing on the Unemployment Claim on Thursday and the Trade Balance on Friday. The market will also watch out for the IBD/TIPP Economic Optimism that is being schedule to release on Tuesday.

Although the U.S. economic data is light for the week, there will be many economic data schedule to be release in the Euro-Zone. The economic data in the European Countries will have an impact to the Dollar Index, which will affect the U.S. equity market.

Earnings

Earnings season will come to an end in this coming week with 2 Dow Components (Wal-Mart and Disney) and 18 companies in the S&P500 reporting the earnings results.

Of the 440 companies in the S&P 500 that have already reported, some 80% have reported earnings above forecast, says Thomson Reuters.

S&P 500 profits are on track for a 15% drop from the year-ago quarter.

Summary

The markets will likely to be quiet in the coming week as the earnings seasons come to an end. Furthermore, the economic data will also be light.

Some of the Fed Members will be delivering speeches in the coming week. The streets will be listening for clues and hints that will make an impact to the market.

In conclusion, the market will likely to play out according to technical perspective. The market will likely to be positive as the cheap credit from the Fed encourage the street to continue borrow money to invest in the market. The market will still be very volatile as the bull and bear fight it out for another week.

From,
Lawrence Chua

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Market Analysis : Week 45/09

History seems to be repeating itself in the market. October proved to be a dodgy month for the stock market. The 3 main indices ended the month negatively after 7 months of gains from the March low. The Dow ended flat for the month and could not manage to establish itself above the psychological 10,000 level. The S&P500 Index and the Nasdaq Composite declined 2% and 3.6% respectively.

Last week, the market had experienced one of the worst weekly declines this year. On the last day of the month, the market tumbled more than 2%, giving up all its massive gains from Thursday after reporting strong GDP growth in the 3rd Quarter.

The main theme throughout the week was profit taking and reducing exposure in the market. Investors were spotted taking profit from the 7 month surge as fear returned to the market. The market had experienced a more than 30% volatility spike for the week. Fund managers were also busy closing some of their positions for the fiscal year.

The unwinding of the short-dollar trade on Monday caused the tumble of the stock market. The correlation between the Dollar and the Equity market was very strong since the surge in March. Thus, when the Dollar strengthened, the equity market weakened. This was largely due to the fact that fund managers had borrowed against the Dollar massively to seek returns on any asset that would have yielded a good return. Furthermore, the all time low cost of borrowing the U.S. dollar made it very attractive as a Carry Trade currency.

The street was concerned about the massive drop in the consumer confidence data last week. Weak consumer confidence is likely to lead to weak consumer spending in the coming holiday season.

Mounting job losses continue to grip the market as the latest weekly Jobless Claim report shows losses of 530K. The high (above 500K) weekly jobless claim remains the top concern for investors.

Personal Spending rate had declined -0.5% in September. Many people had tightened their purses after pre-school back in August and July. The on-going job losses did not really encourage people to spend as freely as they wished. Reports also showed that many people were starting to cut their spending on food.

Personal Income rate stayed flat at 0% in September. The drop in Personal Income did not bode well with the market as less income simply means less spending. Furthermore, the decline in the Personal Spending rate in September really prompted investors to re-evaluate the potential of having a great holiday season in the coming month.

New Home Sales came out weaker than expected and sparked another concern for investors. The weakness in the housing sector had prompted the Housing industry to seek help from the government to extend the housing credit stimulus into next year. The government might not extend the housing benefit as many voices are against the idea of more taxpayer’s money being spent on the economy when the budget deficit is running at a record numbers.

The talk of the week has to be the strong 3.5% GDP growth in the 3rd quarter which rallied the market on Thursday. However, the market did not follow through and reversed violently on Friday to wipe out all of Thursday’s gains. There were some concerns in the Q3 GDP report amongst the investors and fund managers. The main concern was that most of the gains had been largely due to the stimulus programs from the government. The street was questioning the sustainability of a strong GDP in the coming quarter when the stimulus programs expire. One of the most successful stimulus programs had to be the “Cash-For-Clunkers” program, which created an artificial demand for the auto industry. The Housing credit stimulus program had also contributed to the strong Q3 GDP growth. So far, the “Cash-For-Clunkers” program has expired and the Housing credit stimulus program is going to expire at the end of November.

Overall, the street had been busy unwinding their risky positions and locking in profit from the past 2 weeks.

Major Events

• CIT Group Inc., a major lender to small and midsize businesses, has filed for bankruptcy protection. With roughly $60 billion in assets, CIT’s filling is probably the fourth-largest bankruptcy in U.S. history, ranking between General Motors and Enron. CIT’s bankruptcy will mean that the Treasury Department loses the $2.3 billion it invested in the company (the biggest loss from TARP so far).
• 9 banks failed on Friday which brings the total number of failures to 115 for 2009. The FDIC fund will take on an estimated $2.5 billion in losses.
• Q3 GDP grew 3.5%, which is more than the analysts’ consensus estimate of 3.2%.
• Goldman Sachs revised down the estimate of NFP to -200K vs. the consensus -173K that is scheduled for release this coming Friday.

Economic data

The market will be facing a glut of important economic data scheduled for release this week. The most important piece of news will be the Non-Farm Payroll Employment Change that is scheduled for Friday, BMO. Failure to meet the market’s consensus of around -173K will prompt investors to unwind more risky assets.

Besides the Non-Farm Employment Change data, the market will have to brace itself for the ISM Manufacturing PMI and Pending Home Sales on Monday. Tuesday will bring on the Factory Orders and Total Vehicle Sales. ADP Non-Farm Employment Change and ISM Non-Manufacturing PMI will be on tap Wednesday. Then on Friday, all eyes will be on that crucial Non-Farm Payroll and Unemployment Rate.

The street will also watch closely, the FOMC statement on Wednesday to look for clues of the Fed’s monetary policy direction and the health of the economy status.

Earnings

Third-quarter earnings are on track for a 17.5% drop from the year-ago quarter, says Thomson Reuters. The rate is better than the 25% drop anticipated on October 1.

Some 80% of 344 companies that have already reported have beat earnings expectations and sales reports have also largely topped views.

2 Dow components, Kraft Food Inc. and Cisco Systems Inc. are set to report this week. 92 of the S&P500 members that include Ford Motor Co. and Time Warner will release earnings this week.

Summary

Earnings are likely to play a small part in the coming week as the street had look past the results recently. Cisco Systems Inc will garner some attention from the street as it is one of the prominent bell-weather Tech companies.

In the 4th quarter, investors and traders will be looking for clues that will impact the coming holiday season. The extension of the Housing Credit will be one of the main components in sustaining growth. The street will focus more on the Fed speech and the economic data going into the year-end.

The U.S. Dollar is expected to strengthen till the beginning of next year as traditionally, the Dollar is at its strongest in the month of January and February. The strength of the Dollar should cause the equity market to unwind. Watch the Dollar closely.

The month of October ended badly and this did not bode well with the market for the rest of the year. The market closed negatively in the month of January (Bearish January Barometer) and failed to break above the 2008 December Low at the end of March 2009. Base on the Stock Trader’s Almanac, this signals for the market to finish in the red, if the history is to repeat itself again.

In conclusion, the market will be focused on the manufacturing data and job report. Investors and traders will scrutinize the FOMC statement in the coming week. The market will be very edgy and volatile. It will be prudent to reduce risk by taking profit.

An old trader once told me, “Holding cash is also one of the trades besides the usual buying and selling”.

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Market Analysis : Week 44/09

The market had an extremely volatile roller coaster end to the week. The S&P500 Index failed to establish itself above the level of 1100, which marks the financial crash on 6th of October 2008. During the Black Week of the stock market, the S&P500 Index fell more than 20%.

Last week, the street assumed that the market would continue its surge due to all the notable companies and more than 80% of the Dow components posting better than expected earnings reports. On top of that, economic data came out more or less in line or better than market expectations. However, the market decided to sell-off in spite of several notable companies reporting better than expected earnings.

The street paid special attention to the development of Crude Oil Prices last week as it surged over $80. Last year when oil tipped over $80, it caused much pain to the economy which eventually triggered the “Panic Week”. Fundamentally, crude oil should not be in the range of $80 as the unemployment rate in U.S. is 9.8% currently. Even if the economy is in recovery growth, crude oil should only be in the range of $50. Speculators betting that oil prices will go higher were the main contributors to the acceleration in crude oil prices.

The Fed contributed largely to higher asset prices across the market by flooding it with trillions of dollars and the near-to-zero interest rates policy. The U.S. dollar has suffered more than 15% losses so far this year due to fears of hyperinflation. The street had been forced to invest in other markets as a hedge against the devaluation of the dollar. This has resulted in an influx of money into Equities, Oil, Gold, TIPS, Bonds, Housing and other strong currencies around the world.

The inflation of asset prices will create another bubble in the future. Should this asset bubble burst, the street will suffer another severe blow to their saving accounts. Furthermore, pricey oil will put a dent in the recovery of the economy.

The short-U.S. dollar trade had been overly crowded for the past few weeks according to several indicators and data. The overly crowded short-U.S. dollar trade eerily seems like a huge bubble that is likely to burst in the faces of these speculators. This is likely to cause other asset prices to burst too. This domino effect will have a massive impact on the economy which might lead to that double-dip recession scenario that so many have predicted.

Since the fate of the U.S. Dollar is likely to impact all the asset prices, many traders and investors have been closely watching speeches from Fed members and other central bankers around the world. Any hint of tightening the U.S. dollar is likely to cause a dip in asset prices.

The Fed members are likely to keep the easy monetary policy longer than expected as it does have some advantages to the U.S. economy. The advantages are spurring growth in the export industry which should create jobs, reduce the trade gap and reduce budget deficits.

Overall, the street had been focusing on the U.S. dollar for the past few weeks to look for the direction to trade in other asset prices. The street will be watching the speeches of Fed members and other central bankers in the coming weeks.

Major Events

• The number of U.S. bank failures in 2009 climbed to 106 after the FDIC shut down 7 banks in the South and Midwest. The Friday bank failures will cost the FDIC fund more than $297.7 million.
• Capmark Financial Group Inc., one of the nation’s largest commercial lenders will file for bankruptcy in the coming days.
• Bomb blasts in downtown Baghdad near 2 government buildings killed more than 130 people and wounded hundreds, according to media reports on Sunday.
• President Barack Obama declared the H1N1 flu outbreak a national emergency.
• On-going pay cut war in the Wall Street.

Economic data

A glut of economic data will be scheduled for release this week. The most important piece of news will be the GDP data which is scheduled to be released on Thursday. Failure to meet the market’s consensus of around 3.5% growth in the third quarter will bring fear to the equity market. It will be a very nervous market going into Thursday as traders reflect on the U.K. shock last week following their negative growth of 0.4% in their GDP instead of the expected positive growth of 0.2%.

On Tuesday, Consumer Confidence and the Case Shiller Home Index will be in focus. Wednesday brings Durable-goods orders, Core Durable-goods orders, New-home sales and weekly Crude Oil Inventories. On Thursday we have the 3rd quarter GDP result and weekly Unemployment Claims. Lastly on Friday, Personal income, Consumer spending, Consumer sentiment and Chicago PMI will be released.

Earnings

So far, 81% of the reported companies had topped analysts’ earnings forecasts and 62% of S&P500 companies beat analysts’ expectation for sales.

There will be another 149 S&P500 companies releasing their earnings in the coming week. Four Dow Jones Industrial Average components will issue results.

Among the highlights next week will be results from Visa, General Dynamics, Procter & Gamble, MetLife, Sprint Nextel, ConocoPhillips, Exxon Mobil and Chevron.

Summary

Earnings are likely to be better than expected again in the coming week. This is largely attributed to the low expectation bar from analysts. However, the street had been setting the bar higher and expects more solid growth from the major industry players.

The weakness of the Dollar will be a cause for concern in many of the exporting countries. Recently, Brazil started implementing taxes on the inflow of hot money. Some of the European officials had voiced concerns on the weak dollar. The Short-Dollar trade had been overly crowded that even the financial magazines are calling ‘Doom to the Dollar’.

The weakness of the Transportation sector last week will weigh on the market. Without the strength and leadership of this economic pillar, the market will struggle if a real recovery is to be realized.

In conclusion, the market will be focused on the GDP result this week. Fed movements will be scrutinized by investors and traders. The market will be very edgy and volatile. It will be prudent to reduce risk by taking profit off the table.

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Market Analysis : Week 43/09

The world celebrated the Dow Jones Industrial Average’s close above 10,000 level last Thursday. It took nearly a year to reclaim that important psychological level of 10,000.

The street had begun to question the strength of this market going into the next twelve months. Conservative investors are still showing doubts in the market while there are a growing number of traders and investors who believe that the recovery story is on the roll.

Conservative investors supported their argument by pointing towards the weak unemployment in the country. They also pointed out that the top line earnings still did not meet expectations. Furthermore, they cited that the regional banks are still suffering and small business could not manage to secure credit from these banks.

The other camp of investors and traders think that the recovery is already on the way. They cited that the market tends to lead the economy rather than vice versa. They also pointed to the fact that so far in quarter, companies that have reported their earnings results posted better than expected earnings. Their arguments are backed up by the fact that there are still many sidelined monies that will eventually come into the equity markets due to the weakness in the Dollar.

Looking at last week’s performance, the market had a great week with 4 out of 5 days registering gains. This great performance was fueled by the better than expected earnings results from notable companies such as JP Morgan Chase, Goldman Sachs, Intel Corp and Google Inc.

Easy Monetary policy also lent a helping hand to fuel the stock market growth for the past few weeks to months. Investors and traders will continue to do the re-inflation trade as long as the Fed maintains the easy credit policy.

The economic data was rather mixed last week. Sentiment reports such as the IBD/TIPP Economic Optimism and Michigan Consumer Sentiment shows that the reports came out worse than expected. However, the stronger than expected results from Retail Sales, Weekly Unemployment Claims and Weekly Crude Oil Inventory help to support the market.

Major Events

• California bank becomes 99th to fail in U.S. in 2009
• U.S. Dollar hit 14 months low
• Fed Chairman Bernanke hints that more stimulus package might hit the main street.

Economic Data

Investors and traders have been weighing earning results against the growth of the economy. This week, there are some important economic data that will make an impact on the market.

On Monday, the NAHB is due to post its October housing market index. Tuesday will bring in numbers from the September PPI, housing starts and building permits. On Wednesday we have the Fed Beige Book. Thursday brings weekly jobless claims and September leading indicators. Lastly on Friday, existing home sales data for September will be released.

Earnings

61 S&P 500 companies having reported earnings so far, with 79% topping analysts’ expectations, 11% having matched and only 10% have come in below expectations, according to Thomson Reuters.

So far, the earnings results have come out similar to the last quarter’s earnings with many companies beating lowered expectations.

Next week, another 75 S&P500 companies are due to report earnings along with 11 Dow components.

Among the highlights next week will be results from Apple Inc. due after the close of trading on Monday. Tuesday will bring, among others, Coca-Cola Co., Dupont, Pfizer Inc. and United Technologies Corp. Wednesday sees results from Boeing Co., Freeport McMoran, Morgan Stanley and Wells Fargo. On Thursday, results are expected from 3M Co., AT&T Inc., Credit Suisse Group, Dow Chemical Co., McDonald’s, Merck, and Travelers Cos. Microsoft Corp. are due to release its earnings on Friday.

Summary

Another week of better than expected earnings from the major companies. It has been the headline for the week as Goldman Sachs, JP Morgan Chase, Intel Corp. and Google Inc. smashed earnings records amid the slow economy.

The sentiment on the street has been surging along with the market recently. Many traders and investors seem to be comfortable in putting money into this market as it establishes itself above the psychological mark 10,000. Many of them are putting money into risky assets than holding the ever-depreciating Dollar in the near term. The correlation between the rising equity price and falling Dollar seems so obvious that even main street is shorting the Dollar to buy every other hard asset in the market.

The weakening Dollar so far has helped to boost earnings for the Conglomerates and helped the growth in exporting industries. However, the problem with a weakening Dollar will be a bigger bubble in the asset market and the loss of faith in the currency. The biggest problem of all will be Hyperinflation not too far down the road.

The coming week’s earnings results are likely to be the same as the previous week, showing better than expected grades. The market is likely to maintain its grip above the major psychological levels.

In conclusion, the market should stay higher in the coming week as long as companies post better than expected earnings results. The U.S. Dollar will be the main focus going forward. As long as the Fed maintains a loose monetary policy, the market should push higher. Any hints of dissatisfaction with the weak dollar will make the market very edgy.

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Market Analysis : Week 42/09

The market once again proved to be very resilient and strong. The market had regained all the losses from the past 2 weeks. It seems that the market is so confidence that the economy will be stronger in years to come. Indeed, the strengthening of the market in the last few days did back by better earnings report from major big corporation and better economy from other countries such as Australia and others.

On Monday, the economic data, ISM Non-Manufacturing PMI came out better than expected. The market began to rally as the traders and investors see a good opportunity to buy stocks after the major indexes hit the 50 Moving Average.

On Tuesday, the market was surprise by the rate hike from the Australia Central Bank. The market sees it as a positive to the emerging markets, which will help the recovery in the world economy. Earnings report from notable companies such as Yum Brand and Pepsi Bottling Group also posted better than expected earnings result. So the market continues to celebrate the recovery story of the world.

On Wednesday, the market gathers its bullish momentum from the better than expected earnings result from Alcoa, Costco Wholesale Corporation, Family Dollar and Monsanto.

On Thursday, Australia reported positive Employment Change and lower Unemployment Rate. This report give the Asia market lots of cheer and it also provide more evident that the recovery from the financial crisis had already began. Also Weekly Unemployment Claims from U.S. came out better than expected. Earnings reports continue to surprise to the upside as PepsiCo and Marriott International posted better than expected result. Once again, the market finds no excuse not to participate in this rally.

On Friday, the market cheer the better than expected Trade Balance report. The coming holiday Monday, which many Banks closes to celebrate, help to spur the bull to bid the market on a quiet Friday.

Major Events

• Dollar Under Attack.
• Violent in Pakistan.
• Fed Chairman Bernanke give the support to the Dollar and say that the FOMC will hike the interest rate once the economy had recovered.
• Australia hiked ¼ point of the interest rate from 3 to 3.25.

Economic Data

Investors and traders will be focusing on Retail Sales and CPI in this coming week. Also on the tap are weekly Unemployment Claims, Empire State Manufacturing Index, Philly Fed Manufacturing Index, TIC Long-Term Purchases and Michigan Consumer Sentiment report.

Earnings

This coming week, a slew of major giant technology and financial companies will be releasing their earnings reports. Financial companies such as JP Morgan Chase, Citigroup, CIT Group, Goldman Sachs and Bank of America will be schedule to release the earnings report.

Technology companies such as Google, IBM, Omniture and Advanced Mirco will be on the tap.

Notable companies such as General Electric, Halliburton, Mattel, Nokia, Harley-Davidson, Charles Schwab, Xilinx, Steel Dynamics and Abbott Labs will also release their earnings results.

Summary

Earnings reports seem to be getting better from the preview of this week. Most of the companies reported in this week show better than expected result. The market seem to like the earnings report so far even though some of the companies continue to post declining revenues and sales.

The same-stores sales in September bring joy and surprise to the retail industry. Many of them reported better than expected sales. Many of the retail companies hope that the strong result in September will carry forward towards the end of the year.

The U.S dollar was under attack yet again in last week. In a disturbing breaking news story, Arab states initiated a covert operation with China, Russia, Japan and France to stop using the US currency for oil trading and topple the US economy, according to British journalist Robert Fisk. Immediately after the news releases, some of the Arab states came out to deny the report.

All eyes will be on the earnings result from the major industry leaders especially the big banks such as Citigroups, JP Morgan, Bank of American and Goldman Sachs.

Many analysts and the street believe that the financial sectors had got out of the wood and they are likely to post strong earnings result in this quarter. However, Timothy Long, the chief national bank examiner at the Office of the Comptroller of the Currency see a different story as he warn that the risk of the Credit and Commercial Real Estate Crisis

Commodity prices had escalated in last week. Gold and Oil had been hitting the high of the year as the Dollar continue to be weaken. Investors, traders and even some of the Central Bankers seem to have lost faith in the Dollar recently. This situation will likely to spur the growth of the commodities as investors and traders seek out hard assets.

In conclusion, every market will likely to keep going higher if the Dollar keeps going down. The weirdest thing is that both the bond market and commodities market are going up. This means that there are equally people betting that the economy will experience either Inflation or deflation. This means that many people will likely to lose a lot of money either way the economy decide to go. This is a crazy economic environment we are witnessing at the moment. The pressure in the Dollar, the high unemployment rate in U.S, the surging stock market, bond market and commodities market will likely to explode in the near future. Meanwhile, it will be prudent to stay sideline, as there will be a better environment to invest in the future.

By,
Lawrence Chua

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