Markets are at crucial pivot area

Discussion in 'Trading' started by mhashe, Nov 7, 2005.

  1. mhashe


    Lately I noticed many signatures from the late 2002 rally that could signal an impending break upwards. Low cap stocks are jumpy and moving off lengthy accumulation bases. Larger cap stocks seem to have higher intraday $ ranges. Inspite of layoffs and low job growth, companies are flush with cash and there has been increased share buy-back activity this year. I enclosed a QQQQ chart as a proxy for the nasdaq; recalling nasdaq stocks lead the 2003 rally. Also it seems to me that real estate is finally deflating, smart money is getting out and will have to look for other markets to nest. US multi-nationals are doing very well in foreign markets, so dividend payouts are not being effected as severly as some thought earlier. New Fed chairman will do his best to not upset his first year of tenure, so I strongly suspect rate hikes are done for now. We may have one last one since he is supposedly paranoid about inflation, but the fed will strongly signal that to be the last hike in the forseeable future. Note bonds are holding steady at a major support area, no strong sell-off yet, so my hypothesis could be correct. I also think the USD will break higher and EUR will take a nosedive shortly.

    After reviewing a few other external data, my opinion is that US stocks will break higher. This will probably be the climax before the final working out of the late 90's excesses.
  2. We may be heading for a sideways market... but the interest rates are going to make a huge move to the upside. The 10 year yield has just broken out of major trading range and is easily going to break 5% in the next few months.

    Smart money willl not be moving money from the housing market to stocks. They will be moving them to money market funds yielding %4+.

    I think the story of 2006 will the bond market.. because the rates will be through the roof. This will keep a lid on the stock market and commidities will put a lid.. and the dollar will stay firm.

  3. ozzy


    I think we have another week (possibly more) of chop before we see any significant move in either direction.
  4. Wait 'till the fed is done.
  5. mhashe


    Mike, it looks like a heavy supply area to me. You could very well be correct, but difference in views is what makes this game interesting. There is more at play than interest rates. There is some serious petro-dollars floating around , which I think are being filtered into US equities. Also like you mentioned, we'll have higher interest rates, this imo is going to increase demand for the USD, hence my comments on the USD going higher. Another point; why would smart money sit on 4% money market accounts when they can get a higher yield in bonds? Hence the title, crucial pivot area. The next qtr will see how this unfolds.

    edit: btw, these are all weekly charts.
  6. They will stay away from bonds because the prices will come down and yield will go up.. money markets are riskless... bonds are not... unless held to matuirty which is too long for most.

    Look at this chart
    • ten.jpg
      File size:
      252 KB
  7. mhashe


    Good points. The market will go up and it will go down. In the long run we're all dead anyway. Right now I'm watching the EUR for a break below 1.1800 to go short.

  8. yes the smart and affluent are becoming much more conservative with their finances {they were already burned once in their lifetimes -- 2000}.
  9. 1. Agree that there is potential for a serious pop in equity markets to entice people to move their retirement funds back into equities. Fundamentals while poor for wage earners are potentially good for equities, particularly large caps. Note that some of the largest caps have been at favorable p/e ratios for a while now. Pick quality with dividends and wait for the pop. If it comes, great. If not, sit back, collect your divvy, and range trade or buy more on dips.

    2. Any bond >5 yrs out is gonna get crushed as persistent fed rate hikes move rates higher. 10yr and 30 yr short plays are sexy, aren't they? I can't decide which is better, but have put my money on the 30 year. High yield bonds might really get hammered when risk premiums increase.

    3. USD strengthens in response to stable to better financial markets, and interest rate differentials which make it almost nuts to be out of the dollar. At least for a little while, until it begins its downward course again. (why - it has to if we are going to be globally competitive!)

    4. Don't forget - Bernake's focus is not inflation, but deflation. I can't emphasize this strongly enough. A lot of people are going to be surprised on this one.

    So, which part of the yield curve are people shorting here? I'm short the 30.
  10. Mhaste,

    No need for a breakout, the market's already trending higher.
    Bottom 10/13 in the NAZ, already up 155 points. NDX already at new highs.
    #10     Nov 7, 2005