Tuesday, October 24, 2006

Wednesday is Fed Day, So What?

In our last post, we didn’t know that TXN (Texas Instruments) had published their earnings. TXN reported an 11% gain in third quarter profit but made some discouraging remarks about higher end cellphone sales. The stock dropped just marginally in Monday’s after hours trading and then just drifted down in Tuesday’s trading such that it ended down about 4% by the end of the day.

TXN’s news and downward price movement seemed to push tech stocks down a bit over the course of the day. The low of the day came around noon CDT and then the steady rally came back to help ease the NASDAQ losses; but, there was a late drop in those indexes and they closed on a weak note.

After the market closed on Tuesday, AMZN reported and whatever they said caused the stock to jump about 15% in the after hours market. We are not sure we understand the reason for the jump since the company reported that third quarter profit dropped 37% but rally them they did. The company said that it would slow its rate of investments in new projects which could increase profits??? Is that the reason for the rally? If you are spending money on new projects that will add to the bottom line long term, that would seem to be a good thing. Cutting back on these types of projects to bolster current income seems considerably short sighted. But, the market seemed to like it enough.

Getting back to market action, we did see a mixed result on Tuesday that left the NASDAQ indexes down about 0.50% and the Dow up 10 points. The Dow put on an indifference show as the NASDAQ tech world dropped. The Dow traded in a narrow 30 point range while the NASDAQ Comp traded in a 20 point range, much more volatility than the Dow.

So, tomorrow the Fed will make its decision on interest rates. Drum roll please… Actually, no drum roll is necessary. The Fed will remain in a holding pattern on interest rates and they will warn that inflation could be a problem going forward but that they stand ready to fight it…blah blah blah. We expect very little reaction to their announcement. There could be some big action if they raised rates but the market has dictated that they will not raise rates so they won’t. This news almost doesn’t deserve reporting anymore.

In any event we will see how the market reacts to the "big" news out of the Fed. In the meantime we will be watching for the other news, that being the MBA refinancing index in the morning and the existing home sales for September in mid-morning. Thursday brings us the durable goods orders and new home sales both of which are important to us. Friday morning we get to see the advance 3rd quarter GDP. This could be an interesting number.

We wanted to mention that the True Contrarian has finally published another post in case you are interested in what he has to say about the gold market. We noticed that the gold market started off quite soft this morning and rallied all day. Not only that, the HUI, our gold mining index of choice, has been strong for the past few days. We are getting more interested all the time.

Dow Industrials: 12,127.88 +10.97
VIX: 10.78
QQQQ: 42.13
RYVNX: 18.48
RYAIX: 22.36
RYCWX: 37.02
TLT: 87.20
BEGBX: 13.49

1 comment:

Anonymous said...

Here Fleckenstein's weekly article on Moneycentral.

Makes some interesting observations regarding the gap between a 'proprietary stock to bond indicator. It is currently 3 standard deviations away from norm. Knowing a little about deviations (haha) this appears to be significant.

"Along those lines, it turns out that a proprietary stock-to-bond indicator from Jason Goepfert at the subscription Web site sentimenTrader is stretched to a level that is three standard deviations away from the norm, an event that should only happen about 0.1% of the time.

In any case, what's remarkable about the indicator is its accuracy in catching major turning points in the past (though in the past couple of years, it has not been quite as timely). This indicator caught turns on March 23, 2000, the day before the peak, based on the S&P 500 ($INX); on July 17, 1998, the day before the start of a big plunge; and on Aug. 11, 1987, a couple weeks before the market topped. (There are other examples as well.) I don't put much stock in mechanical indicators, but the potency of this one struck me as something worth sharing."