Top Line: Thursday's trading showed us that the market has not decided what to do just yet. Our position is that we are getting close to the top of this rally but we want to give it some room just because we haven't stopped hearing bearish analysis. We have thought the 13,000 level would contain this rally and, so far at least, it has.
Next week the market hears from the Fed again and the question on the minds of market participants is "Do they dare lower rates one more time?" Well, maybe that's not what they're asking but we thought it was kind of funny, at least. There is a firm belief that the Fed will lower the fed funds rate 25 bps to 2% and they will say that there won't be any more rate cuts until they can see what their prior moves have done for the world.
The world realizes that the Fed has done some dangerous things. The Fed is now trying to put on the brakes just a little, because of the government's "Economic Stimulus" package that is starting to mail out checks next week. Ok, seriously, they really don't know how to put the brakes on but they want to make the world think that they're exercising some restraint. And, actually, the market has taken note of this.
The response has been to kick gold down and, believe it or not, give the dollar a boost. We're not sure that the dollar can go straight up from here but we do think the dollar can rally from here. We mentioned the commodities, especially gold, have been coming back in from their large moves and that is in combination with the dollar's nascent rally. Yes, we know that a two day up move isn't a trend so maybe "rally" is a little strong, but the situation is enticing at the moment.
Back to the market action, out of the gate, the market headed down due to some earnings news as well as a few other news items. The announcement that new home sales took a dive was followed by the market going down. But, that was followed by a run up that took the Dow from being down about 60 around the 12,700 range, then and rallying almost 250 points, to being up around 180 near the 12,950 range. Then it sold off about 100 points into the close. Quite the wild ride indeed.
We found out what caused some of the concern on Wednesday night, that being the announcement from SBUX (Starbucks), in case you didn't hear. We have mentioned that SBUX should be a very good estimate of the consumer, why not stop drinking that expensive cup of coffee to cut down on expenses? At the moment we don't really need to mention the details of their poor news, we just have seen SBUX drop from 40 to today's 15 over the past 18 months or so. The afterhours market on Wednesday didn't like the news very much but on Thursday the news was deemed to be "company" specific and not really something for us to worry about.
After hours tonight we heard from MSFT and the market was a bit disappointed in their news. MSFT has had a good run up this past several weeks in anticipation of Great news, like Tony the Tiger, but the stock was hit for about 5% in after hours trading. What can we say? Not much...
FSI: 88.69 (GOOG is down but the others hold up the FSI today)