Thursday’s market tried to keep the rally going but the Dow struggled to close up and then only by 2 points. The Dow has had a weak advance, relatively speaking by not being able to get over 10,900. The NASDAQ COMP on the other hand has shown some strength over the past three days.
Friday gives us the monthly jobs report since it is the first Friday of the month. Thursday evening’s CNN Money headline was “Hoping for the worst on jobs?” Here is a time when even the bulls don’t really know what to think. They now currently see that the Fed clearly is indicating the end is in sight for further rate hikes. This thought pattern was bullish this past Tuesday as the market sprinted ahead after that news. So, now the jobs report must be weak in order to keep the Fed to their promise.
Another announcement on Thursday that seemed noteworthy was from IBM. They said they would discontinue their contributions to their pension plan starting in 2008 and concentrate more on their 401(k). IBM said this action would save them about $3 billion in four years. We find it interesting that now that the pension plan is starting to cost more money due to lower interest rates, IBM doesn’t want to make these contributions.
Take a look at Friday’s WSJ for an article titled “Home-Sales Index Declines Again; Jobless Claims Fall”. We point this out so that you can read for yourself the news coming out of the housing market. The pending-sales index fell 2.5% in November from October, falling for the third consecutive month. The article says that the data seems to suggest the housing market peaked in mid-2005 somewhere around when we were starting to see signs.
The housing market is a difficult animal to wrestle. I’m not sure that the article is completely honest about the future of that market. Human nature forces people to do things that cause prices to roll over slowly rather than immediately crash. We have discussed the slow rollover and it reminds us of a roller coaster coming over the top, it starts slowly as the first cars come over the top and by the time the last car is over the top the speed picks up quite a bit. People hold back on selling their homes and then start dropping prices.
Our core philosophy about the stock market centers on the housing juggernaut slowing down. The ability for people to take money out of the ATM’s they live in is being reduced by slower increases in prices. The key is that so many people have speculated on housing and these are the people who will Have to sell at some point. They never thought they would hold the houses for long anyway. It will be a rough year if housing fails. There are many jobs in that business and a Lot of debt that needs to be paid.
As for the jobs report, the estimate is for about 220,000 new jobs. We don’t know what effect the real report will have on the market but we said yesterday that Thursday would probably be a top and so far we think that is just about right.
We hope you are taking steps to sell into this rally. Cash is king again. We see no good alternative to cash at the moment. That is, unless you think you can go short. Be careful and be selling any further rallies.
Dow Industrials: 10,882.15 +2.00
RYVNX: 18.06 (buy now)
TLT: 91.89
BEGBX: 13.34 (the dollar finally stopped falling, for a day)
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