Food Inflation In a bit
over 5 years oil went from $17 to over $100 and the
oil companies are the big winners. As food prices
now dramatically continue their rise we will have to find
who will be the winners there as it sure will not be
the consumer. USA Today wrote, "The world is facing
the most destabilizing bout of food inflation since
the "Great Grain Robbery" of the early 1970s when
the former Soviet Union bought massive quantities of
U.S. grain, sending prices soaring." "North Dakota,
the top U.S. wheat-producing state, may import from
Canada due to tight supplies." One of our
StockTiger subscribers owns a pizza restaurant and he told us
this week that he was paying $12 for a 50-pound bag
of flour in September and it now is $27. A similar
rise is going on with corn and soybeans so this will
also cause an increase in milk and meat prices.
This is not going to help the
economy except for those futures players and some of
the producers. Still even the US inflation is low
compared to what Barrons reports today
that Zimbabwe set
a record this year of an annual inflation rate of
100,580%. As for corporate earnings, so far this quarter with over
three-quarters of earnings results reported the
median growth rate is 9.6% according to Zacks
Investment Research. This growth rate is
boosted by the major oil companies. When looking
at total income growth the median though is 20.1% below
last year.
The figures have not been
bad and the Fed has forecast that GDP will be 1.6%
for this year and 2.4% for 2009. One has to question
however, how long will the consumer maintain
consumption with prices continuing to inflate. Home
prices may drop another 15% or so in time and the
use of homes as ATMs have diminished and this will
likely necessitate an increase in personal savings and
diminish spending. In 2004 the Fed wrote that the
average household savings rate was at about 1% of
disposable income as compared to 11% in 1984. This
month the Commerce Department reported that the
savings rate fell into negative territory at minus
0.5 percent, meaning that Americans not only spent
all of their after-tax income last year but had to
dip into previous savings or increase borrowing. At
some point the saving's rate will have to increase and
this money will not be going into buying items.
It does not look like we can
inflate our way out of the current financial
problems even as the Fed is trying. We had the
Internet/Tech bubble where great wealth was produced
and then much lost but this was replaced by another
bubble in housing where again great wealth was
produced. Now it almost seems another bubble is in
the making with commodities.
Here is the CRB as it already has
doubled since 2002. It now consists of 17
commodities: Gold, silver, platinum, copper, coffee,
sugar, orange juice, cocoa, cotton, wheat, soybeans,
corn, cattle, hogs, natural gas, heating oil and
crude oil.
Demand of course for most of
these products is up as many countries in the world
increase demand but these dramatic moves up are
bubbleish appearing as demand just does not rise
this fast in such a short time. Much of this, as was
in Tech and Housing bubbles, must be caused by
speculation. Keep stops in these sectors and it seems
better to buy at support on pullbacks. As we know, these bubbles can go on for quite a
while though so enjoy if you are playing in them.
The economic stimulus money may go somewhere and not
into buying goods - maybe some will go into these
newly created wealth machines - oil. metals, grains
etc. The Fed pumps money into the economy and if
this money does go into these sectors then they may
experience an even more
exaggerated move. The
surge in these commodities will move earnings higher
for companies in the commodity-producing emerging
markets.
"Speculation is only a word
covering the making of money out of the manipulation
of prices, instead of supplying goods and
services."-- Henry Ford
The Fed now is projecting core
inflation to be about 2.1% this year, so clearly they
expect a slow down in inflation. This may be the
reason they can justify their recent rate cuts as
usually we would expect rate increases to fight
inflation but they seem to think inflation will
slow. (Though core is really not a very good
indication of real inflation) Anyway recessions are generally
disinflation. This uncertainty makes for a tough
market.
"The Dow currently trades 13% below its all-time
record high. For some further perspective into how
the stock market is actually performing, this
chart presents the Dow divided by the price of one
ounce of gold. This results in what is referred to
as the Dow / gold ratio or the cost of the Dow in
ounces of gold. For example, it currently takes 12.9
ounces of gold to “buy the Dow.” This is
considerably less that the 44.8 ounces back in the
year 1999. When priced in that other world currency
(gold), the Dow is in the midst of a massive eight
year bear market!"
From
RTTNews - A report released by
the Labor Department showed that jobless claims
declined 9,000 in the week ended February 16th to
349,000 from the previous week's revised figure of
358,000. Economists had been expecting jobless
claims to rise to 350,000 from the 348,000
originally reported for the previous week.
Some of the major indexes this
past week. Note Palladium as PAL and SWC
continued their meteoric rise.
The top and bottom sectors for the
week.
We had 15 new trades from our watch list this
week in four days so we continue to outperform the markets by a
long shot. This is also far ahead of services
charging $69 to $179 per month.
We mention the indexes each day on our daily
video and morning audio update (you can receive the
audio update by sending a note to news@stocktiger.com)
You can use ETFs to trade the major indexes but using
futures gives you dramatically better leverage. If
as example you have an account at Global Futures you
can buy an E-mini contract tying up only $300-$500
in margin. (you can open a free
simulated account here
to try) Each E-mini has a different pay structure
but for S&P 500 it pays $50 per point of movement.
As likewhen buying stocks, you buy at support or at a
break out of resistance, you can set a stop not far
away to minimize any losses.
Here is the S&P 500 5-min chart
from Friday. This is for the
cash market but the futures chart will look about
the same. We like to use stochastics indicators on
both the 5-minute and 15-minute charts to help spot
and confirm possible buy and sell signals.
On Friday if you bought each time the stochastics
went above 20 and sold each time it went back under
80 you would have made 4 buys and 3 sells and a
forth to close the position for the day. If you
instead (a more prudent way) waited until a trading
range set up and then had both a break out and a
stochastics signal you would have bought on Friday
at the break out at about 1334 as it broke above the
yellow line as stochastics had already signaled a
buy also. Before the close it ran to 1354 so a gain
of 20 points or $1,000 on each $500 invested (margin
tied up) That is a 200% gain.
The Friday move was a bit unusual as it was so
fast due to a CNBC commentator saying that a bailout plan for
bond insurer Ambac could be announced as early as Monday or
Tuesday. The gain may have been dramatic but
not the set up as this type of thing happens a
couple of times a week in general if you prepare and
wait. You can see that if you had bought the bottom
range at about 1328 or 1329 you could have been
stopped out if you had only a 2 point stop but you
would have made it back up in the next buy.
This is a reason for stops - as even a couple of
stop outs, as long as they are small, can be made up
in spades in other trades. This can be easily
practiced in a simulated account.
This is a chart we put in the
chat room on
Thursday. The QQQQ 60-min chart showing the
triangle and expected bounce point. Now the chart
did not know that the CNBC commentator would put out
the rumor or news yet the possible bounce point was
clear. Quiet often charts predict news as if someone
waits for the right time to release it. There is
resistance here at the 50-period blue line but more
at the top line.
Another chart shown in the chat room is this Russell 2000 daily showing the 62%
Fibonacci level at 680 and the Friday low of 683. Note that the bounce in the
Russell was not so dramatic as the S&P 500 and this may suggest higher odds that
the January low needs to be tested as the secondaries are underperforming S&P.
Not much to say about the chart this week as it
has been only 4 days.
Here is the Dow - not changed much in the
short week. Now at a minor trend with the 50-day at
12600.
We point out the the two ProShares
ETFs for trading the Dow. The DDM is for long
trades though you can short it also.
The DXD is if you think
the Dow is going lower. (though you an short this
also) Both move about 200% the percentage move of
the Dow.
The Nasdaq still at this trend though lower than last week a bit.
The BPCOMP is up and
stochastics went over 20 on the weekly chart but the
index in the lower section has not yet turned up as
it had done every other time on the lines shown.
The Nasdaq Advance-Decline
is still going lower - perhaps we will see the
yellow trend line touched by the Nasdaq.
The S&P 500 range bound
S&P long term as reference
Nasdaq 100 QQQQ monthly
still over the 50-month EMA. RSI and stochastics at
possible bounce point.
Russell 2000 similar chart to
the others but weaker bounce on Friday.
Bingo! We showed the
copper chart last week in anticipation that it would
break out and it did. It is not yet at an all time
high but that does not look far away. The three
stock we mentioned all hit their buy points and made
profits and may be pulling back a bit now. You can
also trade copper futures.
Gold again made new highs
and MACD did move back over bullishly.
Here is the XAU that we
showed last week and the break out that happened.
Has not yet made new highs however.
Oil still near highs and
we expect it may see the $103 level.
30-year bond yield filled
that gap and moved up a bit on Friday.
The US dollar still base making
|
Butch Cooley Market Comments
(Butch is founder of
Leg Up House
and the
Butch Cooley Worldwide
Hunting and Fishing . He has
been an active trader for decades.)
Market Comments February 22, 2008
I have heard more nonsense this week coming out of
CNBC, I can't stand it anymore. Every now and then
I just have to turn those people off. Stagflation,
Recession, Soft Landing, even heard the "D"
word...Depression....... and now Recession Obsession
Anxiety! So now, if I worry about the market
being negative...it will be negative??? Do I need
to take Zanex??? I guess the idea is if you have
enough people come on your show and talk about what
you want people to believe, then it will come
true?? And what, the markets will go up??.
Wishful thinking. I am convinced for the markets to
go up, they have to go down further. At least the
11600 mark on the Dow needs to be tested again, and
then we can proceed from there. What will make that
happen, or when, I don't know. But if we don't test
this low, we stagnate into a trading range.
The issue here is and has been and will
be, money...liquid capital and the banks. Citi, Wells
Fargo, US Bank all know just how bad their respective
books are. How much cash do they have on hand versus
their leveraged notes (which are showing up as losses)?
The problem is we don't know how bad they are. This
problem doesn't go away until the wreckage is cleared
out.
The "hope" has been that the bond companies insuring
these notes can somehow maintain their AAA ratings.
A rating, AA rating, AAA rating....doesn't matter.
The problem is not in the rating system, the problem is
in the junk securities that the bond companies are
insuring. It really doesn't matter now what Moody
does. All these bond companies are holding some junk.
What amount they are leveraged for is the key. They
can't pay what they don't have. IMO it is already
over. Assume that Moody allows MBIA to keep it's AAA
rating. Is this the fix the market is looking for? The
answer is simple....NO....the money is lost. They have
been "writing down" for months now. And once all of the
dirt is on the table, it will still take time to repair
the damages. Patience.
The Fed, through the central bank is pumping out
money to all of these financial institutions. The
problem is it is disappearing at a faster rate than
the Fed can handle.
It doesn't matter how much a steak costs in Omaha
right now, or how many people are bandwagoning
investments in Futures. It doesn't matter if oil
goes to $85 or to $120. The system needs capital and
needs it badly. Anything else is rhetoric or out
and out right lies.
Let just one of these banks "fail" (in some form)
and you will see some downward action in the
markets. Let a rumor fly that it's going to happen,
same thing. But, I am not advocating a collapse.
In fact, so far, the data I track is simply not that
bad. It's bad, but not really, really bad. The
GDP is a lagging indicator, so are the
unemployment numbers. And let's face it....not too
bad so far. Yet!!!!! We are talking about lost
capital totaling $400 billion or more, like it's a
bushel of apples. It's not. It is serious, so take
it seriously, and keep your investments tight, and
never forget that cash is king. When it doubt, get
out!!!
I still have some longs, and I have many more
shorts, and I have a lot of sidelined cash right
now. It just seems like the safe and smart play to
me. Always protect your investment capital.
BC
|
Weekly economic calendar from briefing.com
We will see home sales,
inflation, consumer confidence, durable goods
orders, GDP, personal income and more. In addition,
another speech by Ben Bernanke.
Hote:
When any of
you sign up for a new
stockcharts.com
account there is a space to put in a referral
name on that form. If you enter
stocktiger@stocktiger.com they give us credit.
Thanks!
In the long term department
NNRI started the week with additional gains from
its $0.60 low rising 90% to an intra-day $1.09. It
then tested the center Bollinger band area and
closed up again on Friday. Virtually every day there
is news of world nuclear energy expansion and over
the years we expect NNRF, Inc. to benefit greatly
from this so at this low stock price it remains very
attractive.
Other longer term stocks had no news this week except PYR.v
Pyramid Petroleum Engages CHF Investor Relations
and
Pyramid Petroleum opens operational head office in Houston
and adds depth to management team
This will help in expansion and in recognition as the stock is under priced due
to low volume while it is on the venture exchange.
Additions to our
watch list:
JRCC On break out of flag around $17.00 or a bit higher with good volume
SPPI Short
under $2.30
SATC Over $1.86
AEZ Over $4.60 - trend line at $4.93 and
50-day EMA
ENZN Short
under $8.00 may have support $7.70 area as shown
F Short
under $6.00
HDY Pullback buy between $1.40 to $1.55 -
watch for reversal
ANO Pullback buy between $3.60 and $3.80
HBHC
Short under $37.00
or long over about $39.60 on strong volume
IFSIA A pullback to not under $16.00 to about
$16.50
ENR A dip to not under $94.00 or a
continuation on good volume over $99.00
Photograph
by Rosa
Photograph
by Gundega
Photograph by
Makallex
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