Wednesday, October 18, 2006

12,000 Attained, Briefly

The stock market got off to a bang on Wednesday morning on the back of IBM and INTC with a little help from the moderate CPI, presumably.  With no possible problems in sight, the stock market, as measured by the Dow, jumped out of the blocks managing nearly 100 points in the first fifteen minutes of trading and trading above 12,000 for the first time.  (Did you all get your party hats out to celebrate?)  IBM was up about 5 and INTC was up about 75 cents in the early going to help push up the Dow.  

The situation was ripe for a reversal and a fairly good one ensued but that was mostly in the NASDAQ indexes which seem to be a bit weaker than the Dow.  In fact the NDX, the NASDAQ 100, our favorite index, nearly showed us an outside down day but couldn’t hold the lows of the day in place in order to make that happen.  We do think that there will be plenty of reversals like we saw Wednesday morning as the bear market takes hold.  There will continue to be a lot of optimism from the new Dow high euphoria in the early part of many trading days; but, the bear will maul those highs as the day wears on.  But, we are getting a bit ahead of ourselves…

Back to the CPI, we see that the overall rate was a drop of 0.5%, which of course is now becoming the headline number because it is negative.  While it was higher, due to higher energy prices, we focused more on the “core” rate.  Well, the core rate was up a bit, 0.2%, for the month right in line with expectations and the same as last month.  This report was mostly construed as positive for stocks as we said earlier and helped that 100 point spurt in the Dow.  

One of the biggest shocks in the news was the housing starts.  We are still in shock this evening as those starts were up 5.9% on expectations of a fall of 1.2%.  Now, let’s see the logic in that.  Housing inventories are near record highs, prices are falling, mortgage rates have moved up slightly.  That doesn’t sound like a perfect environment to add more supply but that’s exactly what the builders did???  In line with something closer to rational was the housing permits number falling 6.3% so maybe the housing starts figure is just an anomaly.  

In other housing news, we see that the WSJ may be publishing an article titled “More Home Loans Go Sour” with a subheading of “Though new data show rising delinquencies, lenders continue to loosen mortgage standards.”  As you can imagine this flows down the same river that the Update is on so we are bringing it to your attention.  If you can find it in Thursday’s WSJ, please take a minute to read it.  Otherwise, here are a few highlights:    
The increase in the number of past-due mortgages “is particularly notable because bad loans normally climb when the economy weakens and job losses rise, leaving more borrowers unable to make their monthly payments. By contrast, the latest increase appears to be more closely tied to looser lending standards, borrowers tapping their equity and slowing home-price growth. ‘We're seeing rises in delinquencies and loan losses that are unrelated to what's going on in the job market,’ says Mark Zandi, chief economist of Moody's ‘It's very unusual.’"

There are some earnings news that we wanted to discuss but have run out of time and space.  The big ones on Wednesday were EBAY and AAPL (Apple Computer) which gave good results but said they weren’t sure about them and they may need to be restated, ok.  Thursday we’re supposed to get GOOG and Nokia (NOK).  These both should be interesting due to the news out of YHOO and MOT.  We’ll discuss them tomorrow.

We note that today’s trading was the Wednesday of options expiration week and there normally can be a reversal of early week action going into Friday.  We are not sure what that means this week as we see the Dow up and the NASDAQ indexes down so we’ll have to just watch what happens.

Dow Industrials:  11,992.68  +42.66
VIX: 11.34
QQQQ:  41.80
RYVNX:   18.73
RYAIX:  22.50
RYCWX:  37.81
TLT:  87.80
BEGBX:  13.49

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