Dec 13, 2004

Thoughts on Tomorrow

Friday was a good day to be a bit detached from the markets.

The market has remained quite buoyant in the face of a various negative stories and in particular the semiconductor news last week. The banks which underperformed in the November rally have not broken down and seem to be getting some of the money that is flowing away from tech. GM, a defacto financial, that also has not participated in the rally also appears to be putting in a near-term bottom. Churning while pulling up the laggards seems pretty positive. Also in this category is the biotech sector which has not made new highs with the NASDAQ but now appears to be attracting some positive attention. The action in the housing stocks is certainly bullish too. It is hard to see where the housing demand is coming from as retail and durable goods numbers are disappointing but TOL is sure selling to somebody.

That said the breakdown in commodity prices (silver) and their related stocks could be interpreted as anticipating slowing Chinese growth. There have also been several negative fundamental data points out of Japan since the November rally began. None of this has shaken the U.S. equity markets but if this rally isn't based on global growth being strong, what is it based on? A bullish scenario here would be if the metals stocks based near last weeks lows and then resumed uptrends. The rise was steep and this pullback has not done real damage yet but it can not go much deeper. The breadth has remained negative even through rallies.

I can really see the market going either way here but on the whole it is convincing me it wants to go higher. Maybe speculation on the Fed will make for some interesting moves tomorrow but it is probably best to wait until Tuesday to make any judgments. My best guess is the Fed issues exactly the same statement after this meeting as they did after the last.

Lastly, in the recent dollar rally the Canadian $ and Aussie $ topped early. With the pound not moving with them I am not quite certain it means anything but I can't help wondering if it is a sign that the market is beginning to figure out which countries will be lowering rates. If the dollar has found a bottom here perhaps those currencies will be the weakest. If the dollar has not found a bottom I would still watch to see what the do near highs to see if the dollar weakness will finally transfer to Asia rather than anything that floats freely.

No comments:

Post a Comment