| |
| |
|
Investing Information |
|
|
|
Stocks, Oil, and Bonds
A barrel of oil bounced to over $60 Thu, which triggered a steep sell-off in the stock market Thu and Fri, although oil pulled-back to around $59 a barrel, and closed at $59.84 a barrel Fri. There are many reasons why oil prices are high, including a "price premium" for potentially negative geopolitical events, the start of the hurricane season Jun 1st (which may affect refineries in the Gulf), the 4th of July holiday (which is the start of the summer driving season), and end-of-the quarter window dressing (which may keep oil prices and oil stocks high). However, the most influencial factor is stronger than expected global economic growth. Both U.S. monetary and fiscal policies remain stimulative, and the global economy continues to expand at above trend growth. Moreover, financial markets have not slowed the global economy through negative "Wealth Effects." The price of oil has a weaker influence on U.S. producers, because the U.S. economy has become lighter (for example, the products Microsoft produces weigh little). Nonetheless, high oil prices will have some negative effect on earnings, particularly producers of heavy products (e.g. in China, which is moving from the Agricultural Revolution into the Industrial Revolution, while the U.S. is moving from the Information Revolution into the Biotech Revolution). Also, U.S. productivity growth is slowing, which is negative for earnings. On the consumption side, a higher oil price is a tax, because consumers substitute other products for higher priced oil products. So, demand or prices for other goods fall. Consequently, a higher oil price will slow output growth and lower living standards rather than cause inflation. The four charts below are same period daily charts of SPX (S&P 500), OEX (S&P 100), OIH (oil stocks index), and TLT (long bond ETF). SPX (the largest 500 stocks) has outperformed OEX (the largest 100 stocks) for several years. Currently, OEX is relatively undervalued compared to SPX. The four charts show the general stock market (i.e. SPX and OEX) OIH, and TLT generally rallied together recently. However, they may move in different directions over the next few weeks. The first chart shows SPX fell to the congestion area (circle), which is a major short-term support area. Also, SPX 1,192 has been a major (support and resistance) level, for several months, although SPX closed at 1,191 1/2. The Price-by-Volume bar (on left side of chart) shows additional support at 1,180 to 1,190. Both the 50 day MA, currently at 1,181 1/2 and the 200 day MA, currently at 1,174, are rising. Major resistance is in the low 1,200s (psychological resistance at 1,200, 10 and 20 day MAs, and top of congestion area). SPX has created a bearish head & shoulders pattern so far this year. There are open gaps at 1,174, 1,143, and 1,138, which may close this summer. End-of-the quarter window dressing by Thu, new quarter on Fri, and the 4th of Jul holiday Mon may be bullish for the stock market next week. The second chart shows OEX fell below major support levels over the two day sell-off, i.e. below the 10 20 50 and 200 day MAs, below the congestion area (circle), and below the Price-by-Volume bar in the mid 560s. Next major support is in the low 550s, which is the middle of a previous congestion area. Major resistance is at 564 to 567 (where there are several resistance points). Over the past five years, the OEX to SPX ratio fell from 57% to 47%, after rising from 46% to 57% over the previous five years. Moreover, OEX underperformed SPX over the past two months. So, OEX is relatively undervalued compared to SPX. The third chart shows OIH rallied from just over $84 to over $105 a share, while oil rallied from $47 to $60 a barrel. If oil is in a $50 to $60 range, then OIH may consolidate and fall to the mid-$90s a share. The fourth chart reflects falling long bond yields recently (since TLT and long bond yields move in opposite dirctions). Also, the flattening of the yield curve recently is predicting slower economic growth. Global economic growth is likely to slow over the next year or two, since the global economy cannot maintain above trend growth. Consequently, both the stock market and oil prices should fall (i.e. SPX OEX and OIH). However, slower disinflationary growth or slower inflationary growth (i.e. stagflation) will determine TLT. Economic reports next week are: Mon: None, Tue: Consumer Confidence, Wed: Final GDP and GDP Chain Price Deflator, Thu: Personal Income, Personal Spending, Unemployment Claims, Chicago PMI, and the FOMC announcement, Fri: Construction Spending, ISM Index, Auto Sales, and Michigan Consumer Sentiment. There are notable earnings reports only on Wed: ORCL RIMM GIS COMS MON TONS. There may be excellent option trading opportunities next week. If the price of oil pulls-back, OIH may fall, while SPX and OEX may bounce (although, longer-term SPX OEX and OIH may fall). TLT may fall after the FOMC announcement Thu, since it may maintain its balanced stance on growth and inflation. Perhaps, OIH will trade between 100 1/2 and 104 1/2, while OEX trades in the high 550s to high 560s. TLT may pullback one or two points, and major support is at 93 1/2. A heavy producer e.g. X (U.S. Steel), which is beaten down, may rise on a pullback in oil prices. SPX puts may be a buy at 1,200. The Dow Industrials fell from over 10,600 to below 10,300 Thu and Fri (The Dow bounced sharply off 10,000 two months ago). So, DIA calls may be a buy. There also may be an excellent opportunity to make gains on earnings, e.g. GIS calls. See http://www.peaktrader.com Forum Index Market Overview section for charts. Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998. Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time. This methodology has resulted in excellent returns with low risk over the past three years.
MORE RESOURCES:
Investing - Google News |
|
|
|
RELATED ARTICLES
Creating a Financial Future - Putting Your Plan Into Action Part 1 This column has previously discussed "picturing the future that we desire", and outlining a plan to achieve it. We mentioned that the plan must include goal-setting, measurement, and implementation. Planning Starts with the Basics When developing a plan for your finances, the toughest question often is: "Where do I begin?" Before investing in stocks and bonds or buying life insurance, before implementing any change or making any decisions, you first need to analyze and understand your entire financial picture. Two documents allow you to do just that. Should You Put Your Annuity in an IRA? Let me start by answering that question.. Critical Options Investing Tip When Trading Naked Calls and Puts An option is a derivative trading product that is best used by investors as a hedging tool providing investing profit protection and profit enhancement. Although it is a powerful risk management tool, it can also be used effectively as a stand-alone trading vehicle. It's Not the Size of Your Bank Account You might think that if you win the lottery or get a huge raise, all your problems will be solved. Sounds logical, right? Well, it might sound logical, but it isn't. Secret Stock Options Trading Strategies the Experts Don`t Want You to Know To understand stock options, we need to look at Webster’s Dictionary’s definition of the word strategy.Webster’s Dictionary defines the term strategy as1. Raising Capital Using a Public Company Going public in this manner is ideal for companies that may not be large enough to attract an underwriter for an IPO and those that don't need to raise capital immediately. They want to go public because of the many benefits that being a public company offers such as increased valuation, using public stock as currency to acquire other companies and assets, liquidity, prestige and to reduce the need for expensive venture capital and other financing sources. Eight Questions to Ask Your Financial Advisor You may like your financial advisor, but is he really looking out for you? All advisors are not created equal, and you have a right to know what makes them different! You also have a right to ask yours if he compares!(1) Do you use a holistic approach to financial planning by determining my values and goals?(2) Do you work on a fee-only basis, a commission basis, or both, and why?(3) Do you have company-established insurance requirements, or do you recommend insurance only when it is needed by your clients?(4) Do you attempt to 'beat' the market through timing and selection, or do you believe that attempts to do so are not worth the additional level of fees and risk? Are you aware that a vast majority of my returns will be based on asset allocation, rather than timing and selection?(5) Are you a Registered Investment Advisor, and therefore a fiduciary? In other words, must you legally and ethically put my interests above your own?(6) Do you meet with your clients at least three times a year to refine their portfolio and find out how events in their lives may have changed their financial goals?(7) Do you return phone calls the same day you receive them, and are you available to answer questions as they arise?(8) When you wake up each morning, do you ask yourself how you can best be of help to your clients that day?Adjust these questions as you see fit, and depending upon what your own objectives and needs are from an advisor. The best advice is to never be afraid to ask! 2004 Matthew S. Wit and Wisdom on Money, Wall Street and Success - Part #4 Can you concisely summarize your investment philosophy in a few sentences? My experience is that most people can't. The quotes that follow are diamonds that offer a real powerful education in the world of Risk Management. Effective Advice For A New Generation of Investors CATCHING A FALLING KNIFEOne of the most common mistakes made by inexperienced investors is trying to "catch a falling knife". This is a habit, common among new investors, of buying stocks that are in "freefall", and it's a bad idea for an investment strategy. Going Offshore For Asset Protection There are a number of key reasons why individuals and businesses consider going offshore for asset protection purposes.The asset protection advantages the offshore world offers extend from protecting a business from excessive taxation to opening doors to enable wealth and asset enrichment via the utilisation of offshore investment opportunities. Love The Thrill of Risk? Invest in an Annuity! With the stock market in steep decline, people are looking for safe places to invest their savings. Many banks and investment companies are pushing annuities. Economic Survival in the 21st Century - the Three Key Questions to Ask In this "special report", I want to pose a few important "philosophical questions" to my readers. Firstly -- our Federal Reserve Chairman, Alan Greenspan, addressed the effects and implications of our aging population on things such as Social Security again in a speech that he made last Friday. Gold and Silver Maple Leafs Get New Packaging Gold Maple Leafs and Silver Maple Leafs are receiving packaging makeovers, changes clearly mandated by investor disfavor with packaging that the Royal Canadian Mint has used since the coins were introduced. Gold Maple Leafs debuted in 1979, Silver Maple Leafs in 1988. Powerful Hidden Techniques Mystery Formula - The Covered Call Option Trading Buy-Write Strategy For better or worse, most option trading investors purchase stocks with the intent of holding their shares for an extended period of time.We do this mainly because the media and industry professionals have drilled into our heads, year after year, time after time, that it’s best to buy and hold. California Deparment of Corporations and Franchise Opportunities Law What CA Needs To Do To Address Issues in FranchisingWe should not allow anymore degradation of California through incessant over regulations in the franchising sector. No other sector of our economy provides as many jobs as franchising. Diversify! The best way to avoid being hit hard by a stock market crash or another Enron/Worldcom fiasco is to make sure you don't put all your eggs in one basket. Diversification helps ensure steady growth of your net worth as you accumulate more assets. Volatile Range The stock market fell sharply Thu and Fri before and after the employment reports Fri morning. The Nonfarm Payrolls report showed 207,000 net jobs were added in July, which were 27,000 more than the market expected. Oil and Gasoline Price Uncertainties The Light Crude Continuous Contract hit an all-time high at $70.85 a barrel, while Unleaded Gasoline Futures spiked 50% or $1 a gallon on Tuesday. Why the Rich Keep Getting Richer Rich people: fortunate, lucky, selfish, and arrogant? Or highly educated, caring, brilliant individuals? Becoming rich isn't hard, but it does require a bit of time and knowledge. Having time to get rich, educating oneself, and buying assets are the three key factors in attaining untold wealth.
|
| Good Credit Loans | home | site map | School Bus Clothing | Florida Pool Heating |
| © 2006 |
