Prague Twin

Monday, July 31, 2006

Turtle Market

It really looks like a turtle market developing on the DJIA. The downward resistance treadline has been broken again, but the 11,300 barrier has now been tested 3 times in 2 months without any follow through.

The bottom has been tested at 10,650 twice. Technicians would say that a return to the 10,650 level is very likely. The one thing that could change that is the slew of data being released this week culminating with non-farm payrolls and unemployment on Friday.

This, the last day of trading in July, was a very quiet one. A perfect environment for conservative traders averse to risk. That will not be the case later in the week.

If non-farm payrolls disappoint on Friday, the big run on the dollar will kick in, but Wall Street will get a boost.

It is all about interest rates right now. There are so many questions and so few clear signals.

This week be a signal week for the overall direction of markets this month.







8 Comments:

  • It could be a case of cad news being good news. I'd rather my bavkbook took a direct hit than my body.
    If that's what it takes to change the majority it is a small cost in the long term.

    By Blogger Cartledge, at 12:33 AM  

  • That is exactly the case for equities. Bad news means a greater possiblity that the Fed will pause in their rate hike cycle. Just the opposite is true for the dollar: bad news is bad news for dollar bears. They are talking game, set, match on the dollar if NFP dissapoints.

    It is time for some kind of run of some kind, according to the charts. It could still go either way though.

    By Blogger Praguetwin, at 12:37 AM  

  • Oops, I meant dollar bulls. Bad news is bad news for the dollar, period.

    By Blogger Praguetwin, at 12:37 AM  

  • I feel like every month we play the "Is the Fed going to raise rates again?" game and every month the answer is inevitably yes even though some traders seem to fool themselves into thinking a pause is coming. Two weeks ago, Wall Street thought a hike was coming. Then last week Wall Street celebrated the slowing of the economy with a huge rally. Now it looks like the inflation data this week is coming in above the Fed's "comfort zone" and a rate increase is coming in the future.

    Geez, my head is spinning. It seems to me that so much of what happens on Wall Street involves "magical thinking" that has nothing to do with reality. I'm no trader, I'm no expert, but just watching Wall Street pretty closely the last two years, I have to say that if there's a rhyme or reason to why they do what they do on the street, it's a mystery to the uneducated viewer like myself. Perhaps that's the point.

    Nice work on the high/low. 11,300 and 10,700 really seem to be the range these days. If the payroll numbers come in on the high end, will the Dow crash through the bottom end of the range, seeing as the market seemed to have priced in no increase after last week's rally?

    By Blogger reality-based educator, at 4:16 PM  

  • I think the focus on rate hikes is accellerated since we have had 17 strait hikes and many analysts thought from the beginning of this hike cycle that it would end at 5% or where it is now at 5.25%. So the focus on inflation and growth data as a signal to what the Fed will do is at a fever pitch.

    Poole's comments this week underpinned the ambiguity as to the next fed move by calling it a "50-50 chance."

    As you know, I am from the camp that believed the move to 5.25% was inevitable and I am in the camp that thinks 5.5% is on the way and that may not be the end of it.

    What you say about the market being moved by these things is very true. Don't forget that the rally to 11,700 was based on the principle that the Fed was ready to pause, which of course they were not.

    Slowly the market is understanding that inflation is persistent, and the economy is robust (as evidenced by today's CPE and ISM numbers respectively). Therefore, any talk of a Fed pause is misguided in my view.

    NFP remains the wild card. If we get a really good number, yes, you will see a crash, but the market has about a 50-50 chance of a hike priced in now. The crash would come as a result of the disillusionment, but it would not represent a full turnaround in thinking.

    Therefore, I think that 10,650 is a pretty strong support. I doubt we will see it broken this month in any case.

    By Blogger Praguetwin, at 5:28 PM  

  • Thanks for the analysis, praguetwin. I read on the WSJ website that analysts are expecting 145,000 jobs added for July, a "soft" month but some other analysts are afraid the report will be stronger because the four-week average of jobless claims has been moving downward.

    BTW, did you see the article in the NY Times about all the older men (45+) who have dropped out of the job market permanently because they can't get jobs similar in pay to what they had previously? Most were blue collar workers, but not all. Apparently a lot of Internet guys from the 90's are still unemployed and living off their savings or home equity loans.

    By Blogger reality-based educator, at 12:23 AM  

  • Didn't see it, but I know some guys like that. Hey, when you sell your business for 40 million, what do you need to work for?

    all the older men (45+) who have dropped out of the job market permanently because they can't get jobs similar in pay to what they had previously?

    And they do not show up in the unemployment figure, which is why the U.S. has such a low number (currently 4.7%).

    This fact is mentioned and overlooked repeatedly.

    Concensous is in fact 145K for NFP which is pretty strong. The currency traders are looking for 155K and Briefing.com is looking for 135K so there is some discrepancy.

    I predice it will come in closer to Briefing.com's number. This will be good for equities, but just watch the dollar get it's butt kicked.

    By Blogger Praguetwin, at 1:06 PM  

  • Here's the link on the men not working story from the NY Times. The stat I found unbelievable is that the 13% of men between the ages of 30 and 55 are "not working," compared to 5% in that age range back in the 1960's. And as you say, these guys aren't being counted in the unemployment rate so that's why it seems so low. Makes you wonder what the real unemployment rate in the country is (not the bullshit one created by the gov't to make everything look appear wonderful.)

    By Blogger reality-based educator, at 4:03 PM  

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