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Wednesday, May 25, 2005
Market Recap
The eight day winning steak for the NASDAQ has come to an end. It could not finish higher for the ninth day in a row. An unexpected drop in crude oil inventories drove oil prices back up above $51 today and some used this excuse to take a little profit off the table in stocks. The DOW was down 45 points, the NASDAQ lost 11 points, and the S&P gave back 4 points. The good news is that there was no sign of any large scale selling as the volume today was the lightest volume seen in a long time. It seems that there are really no sellers to be found. These are the kind of down days you want to see if you are a bull. We do not like to see down days but if they have to come, we want to see them on light volume as it was today. The market was due for a rest and we knew it had to pullback at some point. I do not mind pullbacks of this nature at all. It is constructive for the markets to do this so that they do not get ahead of themselves. With this light volume selling, this could be just a pause before the next advance.
What to Believe?
Who do we believe on inflation numbers? The core CPI numbers were released approximately a week ago. They showed an up tick, but not as much as had been expected. That news sparked a rally on Wall Street, as inflation fears seemed to be subsiding. But hold on a second, yesterday the Fed released their minutes from the last FOMC meeting and they stating that they noticed a "discernible up creep" in prices. This statement leaves little doubt that the Fed is going to continue with increases in interest rates. Even today, the Atlanta Fed released a statement that said that interest rates increases are still needed. So what are we to believe, the Fed or the cold hard facts? The CPI numbers do not lie, yet the Fed seems firm in their stance to keep tightening. In my opinion, a slight up tick in the CPI, although not as much as expected, is not enough to keep raising rates.
What I found interesting was the Fed's comments on energy prices. The Fed noted that higher energy costs were putting pressure on confidence and may be starting to crimp corporate profits. If prices are rising, the Fed's natural reaction is to raise interest rates to stave off inflation. The thinking is that higher borrowing costs will lead to less borrowing. Consumers and businesses will be more cautious in their purchasing habits. This will lead to businesses needing to keep prices in check, or even reduce them, in order to draw in buyers. This, of course, will have a negative impact on earnings and ultimately stock prices of those companies affected by the slow down.
Fortunately it has not gotten so bad that we need to take out a loan to buy a tank of gas, but the impact of higher fuel costs are being transferred to nearly all segments of the economy. Fuel surcharges are being added to the costs of items, in order to recover some of the costs associated with transportation of goods. So this "up creep" that the Fed has noted can be attributed partly to the rising costs of fuel. However, I do not think that the raising rates will bring oil prices down.
What is really going on?
You have got to wonder what is really going on here. If the Fed announces to the world that they are going to keep raising rates, then why on earth do stocks seem to defy logic and keep going up? I do not have the answer but my best guess would be that the market is pricing in the rate hikes already. Six months from now, when the Fed say's that they are done raising rates, do not be surprised if the market sells the news. Everyone is expecting a big rally in stocks when rates stop rising and that is when the market will fool everyone again.
STHQ Chart Index
If you go to the chart index in the left side menu, you can review and study charts that we have annotated for each stock listed in the past.
For New Members
For all of the new members with us, please make sure to read the link “How to use Bulletin” at the bottom of the Bulletin page on the website. It is critical that you know how to use this trading tool before trying to trade the stocks mentioned. The effectiveness of your trades will diminish if you do not completely understand how the information is presented.
Earnings Calendar
We have added the earnings link for each stock on the bulletin. To access the link for earnings, you can either use the link below or click the link on the bulletin for the corresponding ticker. Click the online bulletin in the left side menu for access to the earning calendar for each stock listed. It is not recommended to hold a position through earnings. You can always buy the stock back after the dust settles.
http://www.earnings.com
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