The Noise Around the Market is Getting Louder

Today’s webinar, “Managing the In-Between – Risk Management” (part 4 of the “Back to Basics” series) was a lot of fun. I hope that those who attended enjoyed and benefited from the information. If you missed the presentation you can purchase the series on the home page for a small amount of college money for my daughter who is graduating from High School this year. If you have any questions send an email to Don@JimsNotes.com.

The major indexes added a fourth day of consolidation or test off the boost from the Fed last Wednesday. However, it did so in interesting fashion today. The day started with some early selling, then the buyers stepped in only to see the sellers comeback to close the day flat or slightly negative. The speculation in the headlines is all about the debt ceiling, the budget, stimulus cuts, the Fed and economic data was just the cherry on top. One of the greatest challenges we face is calming or dealing with our emotions as this news hits the headlines. All the negative news today was from outside market events. They rattle investors short term or until something better comes along. For now we have to watch how this plays out, then follow the trend of the markets. That will require patience and forethought versus emotions and reactions.

Stock of the Day: Facebook
Every since earnings in July the stock has continue to move higher and up nearly 100%. Today it added 2.7% on an upgrade by Citigroup. Of course that begs the question of how much higher can it go near term? We will know shortly when earnings are announced on October 21st. The continued growth in the mobile ad sales will be a key barometer for the stock. For now hang on for the ride and follow the trend on the upside.

A close second on the day came from Applied Material (AMAT) which rose 9% on the announced merger with Tokyo Electron. It stated it would see a $10 billion boost from the deal. This is a big deal and could impact Intel and Samsung going forward. Everyone seemed to like the deal, but the proof is always in the outcome.

Move of Interest: Long Term Treasury Bonds (TLT)
The yield continues to drop on the long bond and the price of the bond rises. The change in momentum is purely due to the Fed’s decision not to cut stimulus. The fact they will continue to buy Treasury and mortgage backed bonds pushed the yields lower as the Fed doesn’t worry about the interest paid versus the general market. Two different views of risk. The chart of TLT shows a double bottom pattern which broke higher today clearing the $106.50 level of resistance as the yield on the long bond fell to 3.67%. The ten year bond yield is not at 2.65% with some analyst calling for a yield of 2.1% rate by year end. Trading opportunity? Absolutely, if you are willing to accept the risk of the unpredictable risk of the Federal Reserve.

Economic Data: 
Plenty to chew on today with the consumer confidence index falling to 79.5 from 81.5 in August. Home prices rose 1.8% in July and the smallest gain since March. Tomorrow is the new home sales data, durable goods, and household debt. The data continues to be in line with expectations for the most part. The issue over stimulus and the debt ceiling remain in play short term and will hang over the data as well.

Don’t Out Smart Yourself on This One: Government
The use or abuse of government powers to sue private companies is at the very least absurd! JP Morgan was in the news again today as the Justice Department is looking at suits over sales of mortgage-backed securities. They just settled one suit relative to that with the government and now they want more. Throw in a suit relative to trading and it just gets better. The stock fell 2.2% on the day. Maybe the public should sue the government for lack of regulatory oversight over the banks prior to the financial crisis. After all, the people who were hurt the most are not seeing a dime from these suits and the government is doing it to keep or save face with the voting population. Nothing more, nothing less. The downside trade in financials is starting to gain some traction from my view and worthy of some research going forward.

Trend Change? Dow Jones Industrial Average
The Dow spent two weeks playing catch up on the upside and the last week selling lower. Looking for support to catch at the 15,330 level or we head to the 15,120 mark. The index has not been for the faint of heart as it has been volatile in moves up and down since the May high. This is a microtrend change and one to watch short term for insight into the broader markets overall direction.

As always there is plenty to watch and trends to follow. Keep you eyes open, your ears tuned and your stops in place.