The sell-off in U.S. Treasury securities appears to be finally weighing on the stock market. The prospect of higher interest rates may now be on the minds of stock traders and investors, as higher interest rates will stunt any U.S. recovery. The yield on the 10 Year Treasury Note is now over 3.7%, a full 120 basis points above the yield when the Fed announced its $300 billion Treasury purchase program in March.
Yesterday, I intentionally stayed quiet because I thought it was a bogus move, as the volume was a bit light for such a big move. Today, the market did not give back all of those gains, but there is an ominous formation that is potentially forming on the chart of the S&P 500 and the Dow. This is the Descending Triangle Top. If broken to the downside, it often leads to a sharp move down. That could be the final leg down in this Bear Market. Or, you could view it as the first correction in a new Bull Market. Either way, I think we are looking at a sluggish market going forward.
In my view, there seems to be too much bullish sentiment on Wall Street and now on Main Street, with these recent consumer confidence figures. Next week, we get another view of the employment situation, and that will likely be a market mover.
Stay Tuned!
Scott Cole
www.theultimatestocktradingsystem.com
Wednesday, May 27, 2009
Monday, May 25, 2009
Stocks end week Flat, Dollar sharply lower
U.S. stocks ended the week little changed from the previoius week, while the U.S. Dollar Index fell to fresh 2009 lows. One has to wonder why the greenback is so weak against the likes of the British Pound. Isn't the UK economy far worse than our own? Oh, maybe it is because we are printing all those dollars to pay for all of the government spending that will be coming down the line.
U.S. Treasuries do not paint a very bright picture either as the 10 Year Note was yielding 3.4% by the end of the week. This is going to start putting upward pressure on mortgage rates, which have held below 5% for a few months now. Unfortunately, many folks have not been able to refinance as they simply do not qualify to refinance.
Commodity prices are moving up in response to the weak Dollar and the prospect of a slower decline in the economy. Crude Oil closed above $60 for the first time since the first week of January. Coffee and Soybeans have moved sharply higher in recent weeks. Yet, for the most part, the Fed continues to focus on deflationary pressures. That may be the issue confronting us in the short term, but it seems painfully obvious we will have an inflation problem down the road. If not, it is only because interest rates have climbed high enough to shut off any economic recovery.
Nonetheless, there are some individual stocks that have been making some big moves into new high territory. Among these are a couple of coffee related businesses. Thus, there is still opportunity to make a buck even if this turns out to be a bear market rally.
Stay Tuned!
Scott Cole
www.theultimatestocktradingsystem.com
U.S. Treasuries do not paint a very bright picture either as the 10 Year Note was yielding 3.4% by the end of the week. This is going to start putting upward pressure on mortgage rates, which have held below 5% for a few months now. Unfortunately, many folks have not been able to refinance as they simply do not qualify to refinance.
Commodity prices are moving up in response to the weak Dollar and the prospect of a slower decline in the economy. Crude Oil closed above $60 for the first time since the first week of January. Coffee and Soybeans have moved sharply higher in recent weeks. Yet, for the most part, the Fed continues to focus on deflationary pressures. That may be the issue confronting us in the short term, but it seems painfully obvious we will have an inflation problem down the road. If not, it is only because interest rates have climbed high enough to shut off any economic recovery.
Nonetheless, there are some individual stocks that have been making some big moves into new high territory. Among these are a couple of coffee related businesses. Thus, there is still opportunity to make a buck even if this turns out to be a bear market rally.
Stay Tuned!
Scott Cole
www.theultimatestocktradingsystem.com
Sunday, May 10, 2009
How High Can Stocks Fly?
U.S. Stocks ended the week with another bang this week, continuing the run that began in March. The S&P 500 is now 37% above its closing low in March, showing gains in just about every week since its Bear Market nadir.
On Friday, stocks managed to rally in spite of an employment report that showed another 500,000 jobs were lost in April, and that the previous two reports were revised to show additional losses of 66,000. The unemployment rate stands at 8.9%.
However, stocks have been buoyed by better than expected earnings reports, some better news on the economic front, and a ho hum report on the bank stress tests. The problem is that while stocks have been rallying off of this Bear Market bottom, sentiment has turned bullish, long term Treasury yields have shot up, and the Dollar is getting pounded in the Forex markets. Commodity prices have also been on the rise, particularly the oil complex and agricultural markets.
In the long run, rising interest rates will make it difficult for stocks to go much higher. The 10 Year Treasury Note is now yielding 3.3%, nearly 80 basis points above its March low when the prices spiked in response to the Fed's $300 billion purchase announcement. That was a perfect sell signal for foreign investors looking to get out our Treasuries in the face of huge government deficits for the next ten years.
Nonetheless, you have to stay with the trend, which is solidly to the upside at the present time. We had a true selling day a couple weeks ago that was quickly negated by significant strength soon afterward. This market continues to be a traders market, so tread carefully. Long term investors should not be chasing stocks at these levels.
Scott Cole
www.theultimatestocktradingsystem.com
On Friday, stocks managed to rally in spite of an employment report that showed another 500,000 jobs were lost in April, and that the previous two reports were revised to show additional losses of 66,000. The unemployment rate stands at 8.9%.
However, stocks have been buoyed by better than expected earnings reports, some better news on the economic front, and a ho hum report on the bank stress tests. The problem is that while stocks have been rallying off of this Bear Market bottom, sentiment has turned bullish, long term Treasury yields have shot up, and the Dollar is getting pounded in the Forex markets. Commodity prices have also been on the rise, particularly the oil complex and agricultural markets.
In the long run, rising interest rates will make it difficult for stocks to go much higher. The 10 Year Treasury Note is now yielding 3.3%, nearly 80 basis points above its March low when the prices spiked in response to the Fed's $300 billion purchase announcement. That was a perfect sell signal for foreign investors looking to get out our Treasuries in the face of huge government deficits for the next ten years.
Nonetheless, you have to stay with the trend, which is solidly to the upside at the present time. We had a true selling day a couple weeks ago that was quickly negated by significant strength soon afterward. This market continues to be a traders market, so tread carefully. Long term investors should not be chasing stocks at these levels.
Scott Cole
www.theultimatestocktradingsystem.com
Sunday, May 3, 2009
Weekly Financial Market Review
After a weak start to the week, U.S. stocks clawed their way back to post another weekly gain, continuing the rally that started in March. Continuing to lead the way are the semiconductors, and some more economically sensitive groups, such as resorts and casinos, lodging, and even auto dealerships. Those groups have moved the most in the last seven weeks or so since the rally began.
Although we have seen some significant rallies in some individual stocks, there are not many that are trading at all time highs. Some are at 52 week highs, but still well below their peak prices seen in since the market topped out in late 2007.
I do not believe this is a great time to begin a new investment campaign in stocks. When this rally started, the market had been plunging at a substantial rate of decline that was unsustainable for long. A trading rally was overdue, and that is what we have seen. Now, however, the rate of ascent has slowed a bit, and volatility has shrunk quite a bit as well. Once earnings season is over, we will likely see a pullback of sorts. At that time, it may provide a safer opportunity to begin investing in stocks again. Keep in mind though, market returns going forward can not be expected to match those seen in the 1980's and 1990's. You just need to have a look at what happened to Japan over the last 20 years to get an idea of what could happen in the U.S. Government spending and propping up banks and auto companies without letting market forces take care of that issue itself is what Japan did, and that economy has languished.
I believe we are heading toward a period of stagflation. A view of the Treasury markets indicates that the yield curve has steepened quite rapidly over the last couple weeks. Optimists will say that the bond market is pricing in a recovering economy. However, I believe these markets, along with the currency markets, are pricing in an inflation problem down the road.
Since the Fed announced its Treasury purchase program to keep interest rates low back on March 18th, the 30 Year Treasury Bond has actually sold off to new 5 month lows. 10 Year Treasury Note yields are now HIGHER than before program was announced. So much for seeing any profit from government action in the financial markets!
I would also note that the U.S. Dollar is approaching multi-month lows while the Canadian $ and Australian $ are approaching their highs for the year. It is clear that Forex traders are betting on higher commodity prices by buying currencies that stand to benefit most from these higher prices. The Yen has been tanking for months due to a languishing economy and since Japan is a huge importer of natural resources.
Going forward, investors should continue to consider investments in commodities and businesses that produce them.
Scott Cole
www.theultimatestocktradingsystem.com
Although we have seen some significant rallies in some individual stocks, there are not many that are trading at all time highs. Some are at 52 week highs, but still well below their peak prices seen in since the market topped out in late 2007.
I do not believe this is a great time to begin a new investment campaign in stocks. When this rally started, the market had been plunging at a substantial rate of decline that was unsustainable for long. A trading rally was overdue, and that is what we have seen. Now, however, the rate of ascent has slowed a bit, and volatility has shrunk quite a bit as well. Once earnings season is over, we will likely see a pullback of sorts. At that time, it may provide a safer opportunity to begin investing in stocks again. Keep in mind though, market returns going forward can not be expected to match those seen in the 1980's and 1990's. You just need to have a look at what happened to Japan over the last 20 years to get an idea of what could happen in the U.S. Government spending and propping up banks and auto companies without letting market forces take care of that issue itself is what Japan did, and that economy has languished.
I believe we are heading toward a period of stagflation. A view of the Treasury markets indicates that the yield curve has steepened quite rapidly over the last couple weeks. Optimists will say that the bond market is pricing in a recovering economy. However, I believe these markets, along with the currency markets, are pricing in an inflation problem down the road.
Since the Fed announced its Treasury purchase program to keep interest rates low back on March 18th, the 30 Year Treasury Bond has actually sold off to new 5 month lows. 10 Year Treasury Note yields are now HIGHER than before program was announced. So much for seeing any profit from government action in the financial markets!
I would also note that the U.S. Dollar is approaching multi-month lows while the Canadian $ and Australian $ are approaching their highs for the year. It is clear that Forex traders are betting on higher commodity prices by buying currencies that stand to benefit most from these higher prices. The Yen has been tanking for months due to a languishing economy and since Japan is a huge importer of natural resources.
Going forward, investors should continue to consider investments in commodities and businesses that produce them.
Scott Cole
www.theultimatestocktradingsystem.com
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