Wednesday, May 02, 2007

Subprime Downgraded?

Market Action:
The stock market jumped at the opening based on nothing that we could find???, as Fleck says, just because the market was open. Here again the Dow jumped to a new closing high and a new trading high during the day but the NASDAQ Comp and the SP 500 struggled to eke out just a bit higher close.

Opinion/ Analysis:
We’re not going to bore you tonight with details on how the market will trade over the next few days because we stand in amazement of the tenacity of this rally. We do think there is a chance that the jobs’ report can provide some structure to the top of this rally. For this info, though, we must wait.

The trading pattern of the past couple of days could indicate that a top is now in at today’s highs but we need to see some confirmation of this by having the Dow actually go down and break some of the support it has generated. We believe, but we have No official info on this, the bulls that are buying at the moment are mostly over leveraged hedge funds that can turn on a dime and go the other way and/or short sellers who are in need of covering. So, there is buying going on but are these long term stock holders???

So, we leave you this evening with our fingers crossed that the market has finally made a lasting high or will in the next couple of days going into the jobs’ report. The momentum has waned but the bullish sentiment continues and, to us, this is a recipe for an about face.

Real Estate:
We notice this evening that the WSJ has an article on the Subprime mortgage market. If you can find the article in Thursday’s paper, it is good reading for those of us that still feel that the real estate market will ultimately tip over the stock market. Anyway, the article, written by Serena Ng, talks about how in the last two weeks Moody’s has cut credit ratings on 30 bonds issued in 2006 that are backed by subprime mortgages.

The article says that more than half of the original ratings on the bonds were investment grade but have now been cut to junk status. When a bond is rated investment grade there is minimal expected risk The article says this:

"It's embarrassing for a ratings company to downgrade bonds so quickly" after the bonds were issued, said Paul Ullman, chief executive of HFH Group, a New York hedge fund active in the mortgage market. "It reflects poorly on all parties in the underwriting process and their judgment of the credit-worthiness of the bonds." May 3, 2007

We say, this real estate problem is Not over.

Dow Industrials: 13,211.88 +75.74 (yes, a new record)
VIX: 13.08
HUI: 341.76
QQQQ: 46.42
QQQRS: 0.47 bid
QQQRT: 0.73 bid
RYVNX: 15.23
RYAIX: 20.46
RYCWX: 32.18
TLT: 88.44
BEGBX: 13.99

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