Friday, June 20, 2008

Market Moving News & Developments?

Market Watch: While the economy is very weak, better times may be ahead, an economist with the Conference Board said Thursday on a report that the index of leading economic indicators rose slightly in May for a second straight month. The index, which attempts to forecast turning points in the economy, rose 0.1% in May, matching April's gain. "Latest data suggest the economy has not fallen into a contraction and may not undergo one in the second half of the year," said Ken Goldstein, labor economist at the Conference Board. "In fact, the economy might even begin to turn a corner early next year."

Market Watch: Weekly U.S. initial jobless claims dropped by 5,000 to 381,000 in the week ending June 14, a two-week low, the Labor Department reported Thursday. The four-week average of initial claims rose by 3,250 to 375,250. Continuing jobless claims fell to 3.06 million, the lowest since April, but still well above the year-ago level of 2.52 million.

Market Watch: Oil prices fell sharply Thursday following media reports that China will increase retail gasoline and diesel prices by 1,000 yuan a ton starting Friday. Dow Jones Newswires reported the news citing a Reuters story. Crude oil for July delivery dropped $2.27 to $134.40 a barrel on the New York Mercantile Exchange.

The above news items are all positive but the equity markets seem to be still finding its feet. Largely, I am not a chart-person, but followers of technicals still think the Dow and Nasdaq are having a downtrend even though the strength behind Nasdaq is appreciably stronger.

The weaker oil price was a boost but on long term charts oil has been registering higher highs and higher lows for the last 3 years. Technically speaking, if left on its own, the uptrend would not be broken until a significant support level has been broken. That level, viewed by many chartists, currently stands at US$120. If it breaks that, then we are looking for the US$100 as the next significant support level.

Hence current oil price weakness, while welcomed, may not be sufficient to be a strong rallying point for equities.
Why am I not more into technicals, I could write a small book if given the chance. Take oil for example, its important information to know that the price is still on the uptrend channel. However, as I have explained, I see oil having a lot more "fiscal enemies" at current US$140 level. Its a bubble no doubt, the high price is there to generate interest to seek out more difficult and expensive oils. The shortage is not immediate but is projected 4-5 years out.

What the charts will not tell you is when "fiscal measures" or "when regulators decide to intervene" to move the goalposts. I have not been commenting on oil being a big problem for the longest time. When it short squeezed twice within a week jumping a few dollars each time, it triggered alarm bells. Its too easy to jump on the oil bubble bandwagon. There are certain trigger points which you sense will cause certain people to act. Left alone, oil will merrily go ahead upwards. But people will act, by cutting subsidies, the promotion of demand destruction factors, and the implementation of strict position limits. Even OPEC does not welcome the current situation.

Funnily enough, I don't seem to have a snappy conclusion to what I have just written...

p/s: Nook


Tony said...

Dali said:
Funnily enough, I don't seem to have a snappy conclusion to what I have just written.
Maybe you could quote Isaac Newton:
“I can calculate the motion of heavenly bodies, but not the
madness of people.”
He was referring to the South sea bubble of 1720.

John said...

Is it true that historically, intervention into commodity rallies, have often proved fruitless?

Opine said...

Speaking of bubbles :-


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