The Financials Pit Review:By PitGuru Kalvin O’Brian
U.S. Economy
The S&P 500 continues to look strong. This strength has come from about 2/3 of its companies posting first-quarter profits that beat estimates. However, with the new buzz signaling stagnation in the world’s largest economy unfortunately there could be a two step forward one step back situation. Protect any long positions with close stops as enthusiasm can quickly turn when nervousness sets in as people realize we have not seen these prices since January.
The U.S. Census Bureau reported that housing starts were much stronger than anticipated up 8.2% from March’s pace. This is really the first and only good news coming out of the housing industry in while but it is a little deceiving. The higher housing starts were in mutli-family homes rather than the single family homes, which are at their lowest level in years. The economy is continuing to be plagued by high fuel costs and even higher food costs. According to the University of Michigan its consumer sentiment index fell from 62.6 to 59.5n May, which was weaker than expected. The retailers will be looking to make up ground this Memorial Day weekend. Heavy discounts are expected more so than in previous years. With some stimulus checks still on the way it will be interesting to see how much Americans will spend and if it will be enough to chase away investor fears.
Currencies
Statistics Canada reported that retail sales among large retailers totaled C$8.33 billion in March, up 9.4%. The Canadian has cracked the 1.00 mark and with crude prices continuing higher there could be more room to go. However, with the volatility crude oil has seen there is a definite possibility any day it could sell off hard and if that’s the case the Canadian will be right behind it. Keep close stops.
The Australian dollar reached a new contract high of 95.02, supported by a 7.25% interest rate compared to our 2.00%. Inflation remains a concern for most developed nations and traders need to be watchful for any economic policy changes. Japans Cabinet Office reported that real GDP was stronger than expected up .8% in the January to March quarter. Real GDP for the 2007 – 2008 fiscal year, which ends on March 31st, increased by 1.5% and that left people believing that even if there is a slowdown in the US, Japanese exports will not suffer too badly and should remain resilient which will bring much needed support to the yen.
The Energies Pit Review: By PitGuru Joe Marshall
The trend for July crude oil is up with Friday’s action looking strong. After last Thursday’s reversal down into the 120 area, it would not surprise me if this market struggled in the mid 120's for one or two days. A powerful comeback off of that 120 number. Let’s look at last Thursday’s price action. Opened up two dollars, dropped five dollars, and bounced three dollars. That’s ten dollars of movement in one day - wow. But the fact that it dropped that far may leave us with some residual negativity. Look for support in the 123.50-124 area and holding a close at that level should give you a run at 130 this week. Order flow was mixed last week, with heavy volume on both sides.
The trend for June natural gas is neutral to higher, but with very recent action looking weak. The failure to hold above the 11.500 mark has put this market right back down against minor support at 11 dollars. Not a bad place to step in and get long risking 10-15 cents and looking for a 25-30 cent pop. Order flow was mixed last week
The trend for June RBOB gasoline remains up. With a week that saw this market test both 310 and 325, when the dust settled we were up a very modest two cents on the week at 322.35. That is significant because it battled back from a sharp sell off last Thursday to keep the trend in place for a run to 330. One or two days of sideways action between 318 and 323 should build for that run.
Friday’s close of 370.28 in heating oil right above Thursdays high of 369.27 is bullish. Tough to call for an upside target in this market, but holding last Thursday’s low of 35515 should keep things looking up.
