Itz Week End Review 1-23-11

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Well just like the UConn Women's basketball team's 90-0 streak came to an end...so did the S&P500 & NASDAQ at seven-weeks. Even with Apple's highly expected good earnings; doing better than expected...it too succumb to profit taking. Itz has highlighted in past posts that the 1,300 level on the S&P 500 would more than likely present an opportunity for some to take some money off the table. The commodities sector to it on the chin hard this past week. Gold prices headed south as did the dollar and that is not supposed to happen. Concerns over China's inflation cure, the hike in margin on futures contracts at the CME, worries over potential position limits and a serious need for a correction. Traders are also anticipating the end of the QE2 program as the economy improves. Gold rises on cheap money. However, rising interest rates push the value of the currency higher and that is what traders are expecting in China and several other countries. Global inflation is rising and that means higher interest rates. Doug Kass believes gold will decline -$250 from its highs before finding support. Take a look at this past Thursday's post for Itz commodity charts.
For the coming week, Tuesday night President Obama has his State of the Union Address. This should be interesting to say the least. First, just to see the bipartisan reaction since the November shellacking & the AZ shooting. Secondly, the tone of the president, having just appointed Jeff Immelt to head the president's new Council on Jobs and Competitiveness, an advisory group on economic policy. 
The real market focus next week will of course be the acceleration in the pace of earnings. There are 128 S&P-500 companies reporting next week. The big reports of the week are AXP, MCD, JNPR, MMM, ADP, UTX, AMZN, MSFT, F, HON, CVX and COP. 
On the energy front, crude oil continues to hover around $90, as the US enters the statistically coldest part of winter. Interesting just prior to Friday's close the weekly Commitment of Traders Report numbers came out. Nymex light sweet crude commercial traders increased their net short position to -210,000, one of the highest levels in several years. >>LINK They've been adding to their short positions as oil prices have risen, should things reverse, expect crude oil to see a significant correction.

Bottom line the week ahead should be volatile,  as traders digest the full calendar of economic events, a FOMC meeting and several hundred earnings reports. This could be a pivotal week and there is risk to the downside as post earnings depression settles in. Market sentiment is still bullish but it has weakened to a more tolerable level.

Hedge fund manager and New Jersey resident David Tepper isn't hedging his bets in today's market. He believes investors need to be cautious as well as optimistic.
"It's not a free ride in the market," he said. "We are at a higher level, but pretty darn good. So you can't be too negative but you can't be uncautious."

Gold, Silver, Copper & Crude Oil Outlook

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We're finally seeing a correction in the commodity sector, fears that China may raise interest rates to slow their economy, took a toll today. Here are some levels we could see gold, silver, copper & oil trend to near term. Longer term Itz remains bullish on this sector. Crude oil saw a build of 2.6 million bbl this week, EIA Inventory Report

Will the S&P Rise in 2011?

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Itz Week End Review 1-16-11

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JP Morgan reported earnings this past week and beat estimates pushing the banking sector higher and the S&P closer to the 1,300 level. For this week the heavy hitters are Apple and IBM  report on Tuesday followed by Ebay and Goldman on Wednesday and Google on Thursday. Bank America and General Electric close out the week on Friday. JP Morgan reported earnings on Friday of $1.12 that beat the street estimates for $1.00 a share. The +47% rise in earnings came on from a pickup in consumer banking and lower reserves for loan losses. JPM said it could raise its annual dividend from $0.20 to as much as $1.00 if the Fed approves its plans later this year. Since the financial crisis the Fed requires the top ten banks to submit detailed financials for their review. If the Fed likes what it sees it could approve the dividend increase. JPM CEO Jamie Dimon said the bank would raise another $30 billion in working capital from operations in 2011 and the bank's capitalization would be well in excess of that required by the Basel accords. 
The big loser this week was the metals, gold & silver. Surprisingly, gold prices collapsed despite a continued decline in the dollar. The improving economics in the U.S. suggests the Fed will not announce QE3 and the dollar will not decline much longer. Bascially, the QE2 trade in commodities is slowly fading.
Another hard blow to gold came from China, it raised its bank reserve requirement by 50 basis points on Friday. That was the fourth hike in the last two months and the seventh since 2009. China is trying to slow consumer prices, which have risen more than 5% over the last 12 months led by food and real estate. By raising the reserve requirement it takes more money out of the banks and makes it harder to do real estate loans. Investors fear China is going to tighten the screws too far and put the country back into low single digit growth. Numerous analysts believe China's inflation rate is much higher than government figures show. Some believe it could be as high as 20%. China has raised the minimum wage twice in the last six month by 20% each time. That means the inflation is rampant and the large labor pool is shrinking. China is racing towards a business cycle top but it could still be a couple years away. The decline from that top is going to be very painful for the world economy.
So considering with the Fed, QE2, Chinese inflation and the European debt crisis, is it time to get out gold or to buy the corretcion? John Mauldin  renowned financial expert and New York Times best-selling author suggests Europe has only delayed their debt problems and kicked the can down the road.  He gives his views on the current state of the global economy and commodities. Interview & Website

Itz Week End Review 1-9-11

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Hopes were raised when ADP reported on Wednesday a gain of 297,000 jobs in December that was 2.5 times the prevailing estimates at the time for a gain of +125,000 jobs. Unfortunately those hopes were dashed when the Non-Farm Payroll report showed a net gain of only 103,000 jobs. Private payrolls rose +113,000 jobs but government jobs declined by -10,000. Over all of 2010 the economy averaged job gains of 112,000 per month in the private sector. After subtracting government job losses the average drops to 94,000 jobs gained per month. State and local governments are facing serious budget shortfalls and the result is a steady stream of job cuts.  Job creation needs to rise to a minimum of 350,000 per month before making any material dent in the 14.5 million unemployed and 8.9 million underemployed workers.
So what does this mean? If the ADP number had carried over to the BLS number, then the Federal reserve would of been at a point, where to go with further stimulus. Grant one month is not a trend, however it appears that this recovery will take a very long time. Ben Bernanke told the House Banking Committee on Friday the employment rate could remain in the 8% range through 2013. He also said employment could take 4-5 years before a full recovery.Will there be a QE3 or 4?
The problems in Europe pushed the dollar to a +3.6% gain against the euro for the week. That was the biggest move for the dollar since August. The rise in the dollar crushed commodities with silver falling -7% for the week along with gold (-$54), copper and crude falling -3.7% each. The CFTC will meet this week to vote on position limits on all commodities, any funds holding large positions may want to avoid the rush to the exits if the vote passes.
Itz Stock Chartz sees the dollar rallying for a few more weeks, but to resume its trend lower as US debt continues to grow. Bottom line is even if the U.S. taxes the rich for every penny, it would not put a dent into it's debt. It needs to reduce spending... how optimistic should one be on Congress being able to do that? Expect the dollar to head lower & commodity prices to resume trending higher. In the near term Itz see gold, silver & crude oil and most commodity prices trending lower for a few more weeks. Suggesting investors have & continue to hedge their portfolios and to raise some cash.
Don't fear a correction/pullback, rather look at it as an opportunity.

The Week Ahead



Commodities Next Week



The lows in commodities is a much needed and sever correction, says Dennis Gartman, The Gartman Letter.

Itz Videos of the Week: Doug Kass & Dennis Gartman Market Views

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Revealing the risks to U.S. economic growth, with Doug Kass, Seabreeze Partners Management.



Insight on why the bond market is over, with Dennis Gartman, The Gartman Letter.