Thursday, June 22, 2006

LEI Disappoints

On Thursday, the stock market nearly reversed the gain from Wednesday’s trading.  Do you get the feeling of Volatility?  As we mentioned in the last post, the market drifted lower at the end of the day on Wednesday, cooling the bulls hope for a meaningful rally and Thursday morning continued the trend lower.  By midday, the Dow was down about 90 points but that was the low for the day and it managed to close down only about 60.  

The morning’s LEI number was about as expected down 0.6% versus expectations of down 0.5% but the market didn’t seem to like that.  

The other news, rumor, of the day was the Fed’s rate action anticipation for next week—apparently there was a rumor floating around that the Fed was going to bump rates a full 50 bps.  This sent the dollar up strongly and pushed the precious metals down and of course held the stock market down as well.  The most interesting market was the Treasury bonds which finally noticed the interest rate news and dropped a bit.  

The notion that the Fed would raise 50 bps next week is almost ludicrous.  While the Fed has talked tough over the past few weeks to have the market do their work for them, the last thing they want to do is raise rates at this time.  We have said that the Fed is desperately seeking weaker economic data so it can slow down on the interest rate hikes.  This week’s housing starts being higher than expected dashed those hopes so today the market decided to go overboard on the rate hike prediction.  It is something to pay attention to because the market would not react negatively if it really didn’t want to go down.

On the other hand, next week’s rate decision and corresponding announcement looms large and will be something that should move the markets.  We are still waiting for more information before stepping out on a prediction.  But we will try to make a decision so you have a little time to prepare.  We would suggest that the rally that might show up due to a statement that the Fed is backing off will be a good time to sell.  The market is vulnerable and will probably try to give the Fed its due but then it’s off to the cellar over the next few months.

After the close on Thursday, ORCL (Oracle) announced that earnings were pretty much in line with their last guidance.  This didn’t do too much to the stock or the market in the after hours trading.  We’ll see if there is something on Friday.  [Speaking of ORCL, CEO Ellison has been accused by Harvard that he hasn’t given them the $115 million that he promised them last year.  Maybe he’s not so sure about his fortune after all—he has plenty of money.]

Be careful out there…

Dow Industrials:  11,019.11  -60.35
RYVNX:   22.13
RYAIX:  24.18
TLT: 83.59
BEGBX:  13.25

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