Todd Market Forecast for 6pm Wednesday October 28, 2009
DOW – 119 on 2400 net declines
NASDAQ COMP. – 56 on 1800 net declines
SHORT TERM TREND Bearish
INTERMEDIATE TERM TREND Bullish
In the early going, the giant German software firm SAP had some lowered guidance going forward. That got the European markets off to a poor start and it got worse from there.
In this country, new home sales were worse than expected and the dollar again rallied. The latter was probably the main driver behind the decline on Wednesday.
The path of least resistance appears to be down, but we could be close to a bounce. The CBOE put call ratio has been a bit too low during this drop, indicating that option buyers were looking for a buying opportunity, but that seems to have changed today. The put call ratio moved up sharply indicating that fear is finally taking hold among traders.
In the recent past, when this ratio has spiked above 1.0, there has been a tendency to bottom. That happened today. A related indicator, the VIX also had a sharp one day spike.
The rising dollar pushed gold, silver, copper and crude oil down again today. Bonds managed a rally.
Our intermediate term systems are on a buy signal.
NEWS AND FUNDAMENTALS:
New home sales came in at 402,000 annualized. This was worse than the expected 440,000. Crude oil inventories increased by 800,000 barrels, less than last week’s 1.3 million. Durable goods orders rose 1.0%, better than the drop of 2.4% reported previously. On Thursday we get employment claims and GDP for the third quarter.
We’re on a sell for bonds as of October 8.
We’re on a buy for the dollar and a sell for the Euro as of October 26.
We’re on a sell for gold as of October 26.
We’re on a sell for silver as of October 26.
We’re on a sell for copper as of October 26.
We’ll move to a sell for Crude oil as of today October 28.
We are long term bullish for all major world markets, including those of the U.S., Britain, Canada, Germany, France and Japan.
The stock market is a lot like a teenage girl. It follows fads. In the 1960s, a primary focus was auto sales. In the 1980s, the money supply was of great concern, but now it is almost never mentioned. Currently the dollar is a significant influence.
Part of this is logical. For a number of years, there was something called the yen carry trade. Hedge funds and others would take advantage of the extremely low rates in Japan to finance higher yielding investments elsewhere.
That has now been largely replaced by the dollar carry trade since rates in the U.S. are extremely low. If the dollar rallies, it puts pressure on speculators to pay it back, thus liquidating their investments. A dollar decline increases the profits and encourages more borrowing and investment. Once the Fed starts raising rates, this will end or at least be greatly diminished.
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Stephen Todd – A Short Biography
Since 1984, the editor and publisher of the Todd Market Forecast, a monthly newsletter with emphasis on the stock market, but also with sections about gold, oil, currencies and bonds.
Steve spent a number of years as an engineer in a steel mill before becoming a stock broker with a number of Firms, including E.F. Hutton, Bache and Paine Webber.
He has published articles on the economy and the stock market in the following publications: Barron’s, Stock Market Magazine, Futures Magazine, The National Educator and others.
His stock market commentary is heard on CNBC, Bloomberg, Associated Press Radio, Business Radio Network, CKNW in Vancouver, British Columbia, KFWB, Los Angeles and ROBTV in Toronto, Ontario.