Some Good, Some Bad

consumer sentiment reportAfter four consecutive days of down trading, the Dow flew out of the gates to open up this short trading week. Much of the spurt was fueled by the new consumer sentiment report that was released today, showing the biggest number in the past 8 months at 54.9. The market was expecting a depressing 42, so the actual result created quite a buzz at the opening bell and set the pace for the rest of the day, having the Dow close up 196 points. Though the number on the outside looks to be very strong, there are some things to consider when evaluating it.

First off, remember that the consumer sentiment report is, in a sense, an opinionated survey. 5,000 households are given a survey of their opinion of the current market conditions as well as future expectations. 60% of the weight of the number is expectations, where 40% is current conditions. Even though it is relevant to know the opinions and sentiment of consumers out there, I do not place much fundamental weight on the outcome. The number itself is very volatile, especially when the market itself is volatile. The results do not represent any actual, existing fundamental data, just people's personal opinion. Also, I find it hard to allow a 5000 sample pool represent the entire country. That's considered a small population in statistics. I would not expect a negative number in the midst of such an aggressive rally. So, although the number came to some by surprise, I was expecting a rather positive number and am not wavered by such a positive sentiment report.

In the midst of such optimism that investors found in a strong sentiment report, not much response came from a horrible housing report. The Case-Shiller Home Price Index was announced today for the first quarter and came in worse than expectations. Home prices fell a record 19.1% from the previous year's first quarter. That now makes home prices down about 32% from the latest peak, which has got to eat into consumer sentiment. The Chairman of the index says that he sees no evidence that recovery in home prices have begun. Well, according to CNBC, not only has the recovery begun, but they are pretty much advising that you better get in the next 3 months or you risk missing the bottom. I usually take an economic professional's opinion more seriously than corrupt, greedy fund managers.

This is now the second week straight we've seen a strong buying first day of the week. However, you will remember that after last week's strong opening, it was followed by four consecutive days of selling. I assume that investors will not leave profits in very long on this bounce, especially with the upcoming GM bankruptcy being more inevitable than ever. People are taking profits quicker and quicker now, which is why I began taking my profits much earlier than usual a couple weeks ago...and it's paid off.

crashmarketstocks podcastGlobal turmoil with North Korea nuclear launches caused for some strong gains in the US dollar today. As a result, gold was punished after the strong week last week. This could not have come any sooner for the US, considering they are planning in releasing $101 billion worth of bonds and notes just this week. Such mass selling of bonds would have, in normal circumstances, given a good beating to the dollar and most likely cause for more strides in gold. I do still expect to see some good trading in gold, especially as things calm down with North Korea.

The $101 billion of new government debt being issued brings more red flags to my already very red flagged economic perspective. It is estimated that 10-year US government paper may reach 6% by 2011! Can you imagine what interest rates will be at if that's the case? What people don't understand is that massive inflation is almost guaranteed in our future. As a result, interest rates for homes could very well reach the teens again. What kind of demand would exist in the housing market if financing was available at 9 or 10%? Indeed, prices may be even more lower than they are now, but the means to fund the house will, most likely, be much different than it is currently.

As is always the case, I usually look for buying opportunities on big moving days like today. Of course, all of the shorts were crushed, with both SRS and FAZ being down more than 10%. Most everything was up today, which gives me a lot of things to consider when looking at what to buy on the short side. Many things stood out to me today. As always, my June expiring SRS option looked very tempting for me, as it did very well for me last week. Today, it was down over 100% at one point. I went in and put in buy orders for several contracts before I left, but unfortunately, none of them hit. I may be regretting this tomorrow, but hopefully I have another opportunity in the morning.

LVS and MGM have to be put back on my radar as subjects of a short. I just returned from Las Vegas last week, and in the midst of a large international conference, it was still dead. Here we are, going into the Las Vegas off season, so I would expect some very dreary numbers from the casino builders.

Oil I think has reached its temporary peak. Although I feel equilibrium lies around $70-80 per barrel, I have to think going into summer months, especially with big deflation worries, we should see a re-tracement. I will be looking at DUG for some good, strong, short-term gains.

This week should be a wild week of economic data following last week's bore. GDP will be reported towards the end of the week, so I am sure all eyes are on that. Like I've always said, I remain very skeptical of our current quarter's numbers, considering that much of current producing results have been largely influenced by massive government spending. June should be a very telling month of real market conditions, only if we don't see a TARP 2 or TARP 3 by then.

So tomorrow should have some fireworks, and I would expect some rather sound profit taking either tomorrow or Thursday. Join The Investing Social Network for free. They've got some good voices on there and provide some good data. I will be on chat tomorrow giving my real time thoughts on market trading. Also, I will be giving a more in depth portfolio look to all you premium podcast subscribers (subscribe here) this week. Happy Trading.


  1. Anonymous Says:

    FF -
    I time for you to seriously consider changing your website to "bullmarketstocks." As each day, week and month passes it's becoming more and more clear that stocks will continue to trend up. Your belief in a deflation downspiral is well gone. Inflation will drive stock prices up, up and away. Don't let your pride keep you from changing your outlook.

  2. Anonymous Says:

    I am not going to believe this guy any more. I did not buy any thing waiting for crash.I think now it is time to buy.

  3. Finance Fanatic Says:

    If you feel that it's a bull market now, then by all means buy away. Sure, looking back, I cashed out early in profits for this bull rally, but I have done well to preserve my capital. If you are a "daytrader", than yes, my strategy is probably not for you, however, just because of a rally yesterday does not refute my belief of much lower markets, both of you should go and study historical charts. As I always say, trade your own strategy. We'll compare portfolios at the end of the year.

  4. Finance Fanatic Says:

    And by the way, obviously you haven't been reading my daily posts, or else you would see that I've continued to make money, despite the ups and downs. The past two weeks have been very profitable.