Wednesday, February 13, 2008

Surprise From Retail Sales

Top Line: The stock market spurted ahead on Wednesday indicating that bullishness is alive and well. Here at the Update, we think the bullishness is misplaced because the market is in a bearish condition with more to come; and, bullishness means more downside because in order for the market to make a good intermediate term low, people should be bearish. Make sense?

Well, since there may be a few extra readers here after the last few days of baby pictures, we thought it might be good to review what we are all about here at the Update. The primary reason for this blog is to provide market commentary, and that happens every evening before a market trading day, usually by midnight Central Time. So, normally there is no post on Friday or Saturday evening. Next Monday the market is not open so there will not be a post on Sunday evening this weekend either. Got it? Good.

We are willing to give opinions on the direction of the market which should Not be used as trading advice, just to give us a chance to try our hand at predictions. No one knows for sure what the future holds. Our opinion is that the stock market leads the news and therefore looking at the news needs to done carefully if you are trading stocks. We like to say that the news helps us make the trades that we want to make, as in if we think there is a good chance for an up move, then we would try to buy any early morning weakness. Likewise, if we're bearish (yes, we are bearish now) then we like to have the market up on news in order to position for selling.

At the Top of each post, we have the Top Line which is our assessment of the near term market direction or other pertinent stock Price action. It is our way of giving you a brief synopsis of what we think, as opposed to the rest of the post where we normally report on news or price movement during the day. In particularly obvious (???) points, we think there are opportunities based on our view of the pond and we make statements to that effect--these are Not things you should do, they are things that we see that may make sense for us.

At the end of our post, we have the FSI which is our stock "index" that is based on the four horsemen that Jim Cramer annointed. These stocks are AAPL (Apple), AMZN (Amazon), RIMM (Research in Motion, the makers of the Blackberry), and last, but not least, GOOG (Google). We have been keeping track of the price of these stocks together in order to see how much speculation there is in the market. That's how FSI got its name. FSI stands for Fo(u)r Speculation Index. The index was normalized at 100 back on October 22, 2007.

Our favorite topics are the stock market and specifically tech and financial stocks. We do mention other stocks at times but those two broad sectors are our area of most concentration. We mention other investments like gold and silver, as well as the mining stocks. We write about the bond market and the dollar and what the Fed may or may not be doing, basically anything that may affect the markets we follow. We don't spend any time on politics unless it directly relates to the market. That usually means that the Government has done something which may give the market a lift, not election results.

One of our main tenets has been that the housing market would bring the economy into a recession. The posts are all out in the archives. Here is what we said back on August 24th, 2005:

"And, more real estate news as yesterday we heard that the existing home sales dropped unexpectedly and that inventory of existing homes [is] at 4.6 months. These inventory levels are starting to show some signs of the real estate market getting tired, especially taking the inventory build of new homes in today's report. We want to keep a close watch on these developments as the next few months go by. Some whiff of weakening in the real estate market will have a dramatic effect on the stock market. We will see." Oh, in case you're wondering inventory of existing homes is over 10 months now.

So, what about today? Well...

As we mentioned, the market spurted ahead on Wednesday morning. The news for this was the retail sales figures which showed a 0.3% rise compared to a 0.3% drop that was expected. This data seems inconsistent with all of the recent noise about the economy but maybe it's right??? If it is, why is the president signing a $170 billion rebate program into effect on the same day? Or, better yet, why has the Fed been dropping interest rates so much recently along with all of the other cash enhancements it's doing?

Thursday, both Fed chairman Bernanke and Treasury Sec'y Paulson will be doing there best dance in front of the Senate Banking Committee. This should prove to be a deliberate avoidance of the obvious. The CNN article talks about the five questions that should be asked of the twin towers. (that's a nice hyperlink that you can use to read the article, just click your back button to come back here when you're finished)

More tomorrow...come on back.

FSI: 81.43 (up nearly 4%, speculation is alive and well)

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