Friday, July 17, 2009

Chart of the Day: Copper Still Looking Strong

The market is mixed right now, with the S&P down slightly while the Nasdaq is up slightly. The Nasdaq has posted 7 straight positive days, so I would expect a rest to be in order.

Of the 4 big earnings reports out last night and this morning, 3 of the stocks are lower today. Google (GOOG) posted solid results, although EPS was aided by a lower tax rate. The stock is -3% lower today. GE and BAC also posted better than expected results, but their stocks are lower today also. Only IBM, which really posted a strong number and also raised guidance, is higher today (breaking out to new highs).

There are a lot of naysayers about the sustainability of the nascent economic recovery, a topic I wrote about in my most recent monthly newsletter to clients. Below is a chart of copper, which is often viewed as a good indicator of the economy. Many thought that copper had rolled over recently, and was poised to head lower. But the big bounce this week puts the industrial metal in good shape to breakout to new highs in the near-future.

Another indicator than many global economic commentators follow is the Baltic Dry Index, which is viewed as a gauge for shipping activity and thus a barometer for global economic activity. This one was also dropping fast recently, but this week you can see it has turned higher. I want to also keep an eye on this indicator to see if it can continue to climb the wall of worry out there.

Here in the U.S., both housing starts and building permits came in better than expected this morning. This is another positive datapoint, as stabilization in the housing sector would benefit both real estate assets on the books of banks, as well as boosting consumer sentiment for homeowners worried that the value of their homes is still falling.
Trading comment: The market has had a huge week, and today is options expiration. We often see an expiration hangover early in the week following, so I am hedging my portfolios with the inverse NDX etf (QID). I have also taken some short-term profits on SNDA, NFLX, and STAR.
long GOOG, IBM, STAR, and QID