Yesterday all the major stock market indexes surged higher as the Government Motors IPO was released and Ireland apparently accepted a European bailout. In other words the sky was clear and risk taking was on once again. However, today there is a new spin and twist on the global soap opera.
This morning the People's Bank of China which is the Chinese central bank announced that they would raise bank requirements by 50 basis points to help try and curb the current inflation problem that is emerging in China. Meanwhile, most economist's had expected the Chinese central bank to actually raise interest rates which would have strengthened the Chinese Yuan. This did not happen and once again the Chinese tell the world that they will do what they feel is good for China and not what Tim Geithner or the U.S. government tell them to do. This action by the Chinese is putting pressure on most commodities stocks this morning. Leading commodity stocks such as Souther Copper Corp.(NYSE:SCCO), and Cliffs Natural Resources Inc.(NYSE:CLF) are trading slightly lower this morning on the news.
The Federal Reserve Bank Chairman Ben Bernanke also made a speech this morning in Germany criticizing the current Chinese currency policy. The Federal Reserve Chairman said, that China's decision to undervalue its currency has hurt the global economic recovery. He also defended his quantitative easing plan which ironically also devalues the U.S Dollar. It looks as if a war of words and policy is brewing. We can only guess why the Federal Reserve Chairman thinks that his policy is so right for the world and everyone else's is wrong or not good for the world?
Next we have the General Motors Co.(NYSE:GM) stock that is now trading near its IPO price. This stock seems to be the biggest pump and dump that I have ever seen with the government being the pumper. If I'm not mistaking, doesn't the U.S. taxpayer already own the automaker. Why on earth would he continue to want to throw good money at a bad and losing investment. The same goes for all of these bank stocks that should have failed and were also bailed out.
Oh, stay tuned and be nimble in this market as it is likely to trade in a yo-yo fashion for years to come. As for today, it is a Friday and rarely do the markets close down much on a Friday.
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While it is highly likely the markets will float neutral to higher next week, the European mess may throw a curve ball into the mix. Ireland is still a mess and it is likely a bailout is the only way to remedy the situation. In addition, the problems in Ireland are starting to spread to other countries. This is much like what happened with Greece when the panic spread to Spain and Portugal. Today, the SPDR S&P 500 ETF (NYSE:SPY) is trading at $119.81, -0.15 (-0.12%). After the monster rally yesterday, the markets seem to be consolidating, awaiting the weekend and nervous as to what news may break out of Europe.
Ben Bernanke has started a rigorous defense of his monetary policy to critics all over the world. The Federal Reserve policy of pumping trillions into the U.S. economy continues to fuel fears of major asset bubbles and runaway inflation.
If the weekend remains quiet, watch for a neutral to upside bias next week. POMO and a weak Dollar handled by the Federal Reserve will attempt to keep the markets up into the biggest shopping day of the year, Black Friday. The PowerShares DB US Dollar Index Bullish (NYSE:UUP) is trading at $22.75, +0.01 (+0.04%). To gain more insight, swing trades, analysis and education, join the Research Center.
Gareth Soloway
Chief Market Strategist
www.InTheMoneystocks.com
#1 Rated
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In all the years of my trading career I have never seen an initial public offering as hyped up as the Government Motors Co.(NYSE:GM) IPO. The U.S. Dollar Index declined for the first time in a week and miraculously Ireland is now going to accept a bailout from the European Union and the International Monetary Fund. What great timing they have to do this on the day of the GM initial public offering.
In any case the other major auto makers are looking toppy here on the charts. Ford Motor Co.(NYSE:F) has possibly topped out in the near term over the past three days on massive volume. Today the stock is trading lower by 0.43 cents to $16.22 on extremely heavy volume. This stock would look attractive again around the $14.00 dollar area. However, today's decline in Ford is clear institutional selling.
Toyota Motor Corp.(NYSE:TM) is another leading auto maker that is now looking very extended on the charts and may be ready for a pullback. This stock is actually trading at a new three month high, however, it is now into important weekly resistance. Therefore, look for a pullback in this name very soon. Should the stock trade higher from today's level watch the $78.00 level for resistance.
Honda Motor Ltd.(NYSE:HMC) is actually the one automaker that looks to have more upside in the near term. This stock is trading above all of it's important daily moving averages which is an indication of strength. The uptrend is still very solid and the stock has not yet become extended. However, Honda will have resistance on the daily chart around the $39.25 - $39.75 level. Once that area is reached a pullback or correction would be expected.
Often a major event in the stock market such as today's GM IPO can often mark a top or bottom in a sector or index. In this case it looks as if it could signal a short term top for the automakers. All of the major automakers are now at or near important resistance. Once this General Motors IPO euphoria fades away watch for that stock to trade lower as well.
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The markets are rocking higher today as the SPDR S&P 500 ETF (NYSE:SPY) is trading at $120.26, +2.04 (+1.73%). Today, the biggest IPO ever debuted. General Motors Co (NYSE:GM) opened higher today and has continued to hold gains. There should be no one out there surprised that the markets are substantially higher today. Ben Bernanke and friends allowed the institutions to hold off propping the markets early in the week to clear the massive number of calls out into options expiration. Remember, the institutions make billions on selling options and have a vested interest in making them expire worthless. A worthless option means they maximize their profit on the premium paid to them. With a little wink, wink, the Federal Reserve seems to have allowed the institutions to do their dirty business while making sure that on the day an American icon debuted, the markets would soar. This is known as a little give and take amongst the big boys. There was no way the government and the Federal Reserve were going to allow a market tumble on the day GM became public.
In addition to the above mentioned reasons, the institutions now need to whip the puts out of the money in the opposite direction. This is another solid reason why the markets could and most likely would be up going into Thursday and Friday. The Dollar is lower today, yet even as it moves off its lows, the markets do not drop. This is a sure fire signal POMO money is being used to prop the markets up on this important day.
Next week takes us into the important Black Friday biggest shopping day of the year. Knowing the Federal Reserve, the markets will most likely stay neutral to positive. The stronger the markets, the more people will buy. The more people buy, the more it helps the economy as the average American runs their credit card bills sky high. Right now the Federal Reserve does not care how much debt is created, whether it is U.S. debt or the average American. They just want the economy to recover in the short term and claim victory. They are not looking at the next bubble on the horizon that they are causing. Be aware, learn and live well. To gain more insight, join the Research Center and get market analysis, swing trades and education.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com
#1 Rated
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