Critical Support Levels

hp earnings reportThank you for your patience as I have been out this past week, due to the new baby to the family. Although the stock market has not been nearly as exciting as my personal life, we are at some pretty critical support levels, that if broken, could mean some more heart ache for markets.

Hewlett-Packard announced earnings today, which was favorable when compared to prior earnings reports. The computer company saw a 25% increase in profits for the last quarter. In addition to the increased profits, they also raised their earnings outlook for 2010, which is something analysts love seeing at this point. So far, the trend for most companies has been to cut annual estimates, as economic indicators continue to weaken.

HP's favorable report, as well as Wal-Mart's will most likely set the pace for tomorrow's trading trends. One important thing to note is tomorrow's PPI numbers which will be reported, as well as CPI numbers that will be reported on Friday. From a data stand point, deflationary indicators still remain all around us. The value of the dollar has been growing stronger, commodities are continuing to weaken, housing prices continue to fall, and discretionary income is still shrinking. Thus far, the mass government stimulus has helped disguise the deflationary spiral, for the time being, into what many feel is just a "blip" in downward trending prices. More and more as the prior trillions of spending continue to be dissolved in our economy, in my opinion, deflation will more and more show its ugly face.

Notes from last week's FOMC meeting were released today, which caused for some negative trading in the bond markets. It is clear that it is the Fed's near intention to raise the discount rate, which is something banks and the economy as a whole does not really want to see. We have almost forgotten that we have been borrowing money from the Fed for essentially 0% interest for over a year now, which could be a crutch now when those privileges are removed.

We are hovering around some very critical support levels. The recent 9% correction was quick and aggressive and in my opinion, was just a teaser. However, if markets can hold above a 1053 S&P, I think we could see a 4-5% rebound before the next leg. If we indeed see us head and stay below these levels, then I foresee another 7-10% drop before the next support levels. Whatever the case may be, the fact is that many funds are on the sidelines right now, as to not want to risk losing equity in a swift drop in markets. Things should be getting real interesting real soon. Happy Trading.

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    The computer business is not what it was years ago.

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