Tuesday, July 01, 2008

Turnaround Tuesday?

Had I written this post a bit earlier, I would have started by saying how amazing it was that this market was so weak again, and unable to bounce. But since that early dip, things have turned around such that the major indexes are now all in positive territory. Maybe we can get another 'turnaround tuesday'.

Oil is back up again today, topping the $142 level again. Energy stocks are mixed, while most other materials stocks (steel, ag, copper, etc) are selling off hard. It looks like many of last quarter's biggest winners are the ones being sold today.

And the financials, which have been hit the hardest, are enjoying a small bounce. Morgan Stanley (MS) initated coverage of both Lehman (LEH) and Goldman (GS) at Overweight. Also, Bank of America (BAC) completed its purchase of Countrywide.

Fortune Brands (FO) is trading sharply lower after announcing it expect lower earnings. But for the most part, we have had very few earnings warnings. I'm not sure what that means for Q2 earnings season which starts next week. A lot will depend on the outlook of corp managements, who will likely be cautious given the environment.

The ISM Index for June came in at 50.2, higher than the 48.5 consensus estimate. The dollar is mixed today, with gold trading up a bit. The 10-year yield is lower at 3.97%. And the VIX topped 25 earlier today.

I have some graphs to post later about how oversold this market is.

long GS


At 10:13 AM, Blogger Tim said...

Just for reference, can you also include a graph to show how oversold the market was prior to the 1987 crash?

At 11:29 AM, Blogger J. Kahn said...

Thanks for the sarcasm. I am not sure 1987 is a good analogy here. In 1987, the market was up huge going into October. Today its quite the opposite.

Also, the Fed was raising rates in 1987. Today, they have cut rates by 325 bps and put huge lending facilities in place to ease the credit crunch.

The oversold rally is coming...

At 11:43 AM, Blogger Tim said...

Oversold rally may be coming, but from 10% lower than where you started predicting it. Weathermen have more accuracy predicting rain.

At 7:14 PM, Blogger Andrew said...

I think we will get a summer rally but it really depends on three large variables crude, financials, and the USD. Thursdays ECB meeting will be interesting to see the reactions of the decision. Crude looks very toppy to me here, the price action looks ridiculous to be honest. Nevertheless, could the manipulators bid it higher of course they can. The major banks have been washed out, nobody owns them everyone is short. Everyone is overly pessimisic with interest rates at historic lows, decent corporate earnings, lowered analyst earnings estimates. Thus the Dow could retrace to 12000-12500 area, S&P 1350-1400 area. Only time will tell but with the amount of short interest one thing is for sure we will have some exciting swings in the coming months. Get on your mountain climbing boots with the spikes to prevent being shaken out.


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