EQUITIES ARE HIGHER ACROSS THE WORLD THIS MORNING:
They are higher in Asia, they are higher in Europe; however, the US futures markets haven’t been able to hold above the ‘zero line’. Ostensibly, the rise in Asia and Europe is related to crude oil prices coming off their highs, and in fact trading lower by 38 cents to $58.99/barrel for July delivery. Still, higher prices haven’t impacted stocks to the degree one would have thought; there appears to be a thought running around Wall Street that crude oil prices are ‘headed lower’ again. One cannot find very many analysts who are ‘bullish’ of crude prices as inventories are quite high. We still feel these analysts are ‘missing the bigger picture’, which will ultimately require equity traders to push stock prices lower…perhaps sharply so.
Also this morning we have the US dollar sharply higher once again, with bond yields rising too. This tandem has spot gold nearly $4 lower to $334/oz. We haven’t much to comment upon here that we haven’t said in the past; the US dollar remains in a well-defined uptrend – it is overbought and in need of a correction; bond yields are headed higher…and gold is headed higher in both USD and Euro terms.
THE SWEDISH NATIONAL BANK LOWER RATES BY 50 BASIS POINTS TO 1.5%:
We applaud the SNB for doing so; growth in the Sweden and the Eurozone mandates a cut in rates and we think the European Central Bank (ECB) should step up to the plate and ‘swing the bat’ in favor of lower rates…sharply lower rates to get their economy moving forward again. But we fear that will not be the case; Eurozone labor costs were released this morning for 1Q-2005…and they rose +3.1%. This figure was far larger than consensus, and quite a bit larger than the +2.5% gain of one year ago. Germany showed a gain of +1.2%, while Spain rose +4.5%.
This will keep the ECB on “hold” given their recent comments about current levels being appropriate; their intransigence is a holdover from the old inflation-hawkish Bundesbank mentality – and ill serves the Europeans. It ill serves the Asians, the Americans and the world et al…we just wish they would “get it” and move on. The Swedes certainly did…and we applaud them a second time.
THE HOUSING DRUM CONTINUES TO DRONE…LOUDER AND LOUDER:
Earlier this morning, Lennar (LEN) released 2Q earnings that were ‘above expectations’; this isn’t a surprise per se given all the homebuilders are showing outsized earnings numbers. For the record, they printed $1.42/share from continuing operations vs. consensus of $1.28; the further raised guidance for 2005 to $7.80/share from $7.15/share.
We are now interested in how the homebuilders respond to this number – they all ‘gapped’ sharply higher last Friday, and thus opened up the possibility – however remote it may seem – that a larger top is being put in. This is ‘what we want to discern’, for if it is a top…then a top picking expedition is what we will embark upon; there will be outsized gains to be had once the top is in. If we ‘play’, we will start small with an initial position and look to add to that position as it becomes insulated from random noise.
OIL STOCKS CONTINUE ‘RELATIVE OUTPERFORMANCE’ – BUT FOR HOW MUCH LONGER??:
There is no secret we have been and continue to like long positions in the oil patch. However, there are times to be aggressively long and times to be not so aggressively long; the latter situation on a technical basis is coming sooner rather than later and very well may argue for us ‘cutting back’ our long exposure. Perhaps we shall cut back 1/2 of our exposure...perhaps not; we do know the position has worked rather well, but further understand the now rather well understood by the hedge fund community.
This concerns us quite a great deal; and while we welcome the company...too much of anything is a ‘bad thing’. Forewarned is prepared.
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ETF Chart Comments
GENERAL TECHNICAL COMMENTS:
The short-term daily technical outlook remains ‘modestly bearish’ given the overbought condition and increasingly bullish sentiment, but the fact that the S&P 500 continues to hold major support at 1190-1192 is rather impressive with this correction taking place in ‘time’ instead of prices. But while this argues for another attempt at surpassing the highs as the ‘pause that refreshes’ scenario is gaining more credence – we cannot help but see that ‘everyone’ is postured towards this resolution. When this happens...there is usually a ‘trap door’ below; of which more aggressive short positions are warranted on a break of 1190.
We have been, and remain on a ‘top picking expedition’, and are realigning that position today to exit QQQQ and put on a short position in IWM. This ‘small cap for technology witch’ is due to the QQQQ/IWM ratio that is back to its highs, which coupled with the IWM ‘failure’ yesterday at resistance, while QQQQ has already corrected...makes good practical trading sense from our perspective.
Our rather confident positions are: TLT, it is trading as would be expected given the larger reversal pattern nearly 2-weeks prior; sit tight...a normal downside consolidation is forming, which will resolve itself to the downside. This trade has only just begun.
And NEM...it is gaining participation in both US dollars and Euros...a highly bullish scenario.
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