April 29, 2008

Market Comments for April 29, 2008

1) Fears of a strong dollar have triggered a broad sell off across all commodity classes. The Saudi oil minister said that if the dollar rises 10%, as I believe, it will trigger a $40 sell off in the price of crude. He may be right.

2) There can be little doubt where the earnings came from in Q1, 2008. Companies that receive 50% or more of their business from overseas saw earnings rise 21%. Companies that get less than 10% of their business from abroad saw earning fall 25%.

3) The S&P-Shiller Case home price index fell -12.7% in March. This is an average of residential home prices in the 20 largest US metropolitan areas. San Francisco fell -17.2%. Foreclosures are up 112% YOY. Expect things to get a lot worse before they get better.

4) Two year Treasury notes are yielding more than Fed funds for the first time since June, 2006.

5) 'Grand Theft Auto IV', a parent’s worst nightmare, was released yesterday, and $400 million in sales are expected this week. When your kids get older you will become a slave to this game, an upgrade hostage.

6) Fact of the day: The annual return of the S&P 500 since 1980 has been 9.3%. If you take out the 20 best performing days it is only 5.7%. If you take out the 30 best performing days it is only 4.4%. Proof that short term market timing doesn't work.

7) Hong Kong's Hang Seng hit 26,000 last night. You may recall that I recommended this market in February at 21,000.

THOUGHT OF THE DAY

The S&P 500 has had a virtually non stop run from the March 17 low of 1,250. As you recall, it respected my low for the year of 1,225. As a result it is now overbought on a short term basis, bumping up against the 200 day moving average of 1440. It's now time for a major pull back and retest of the lows. The Fed meeting is providing a great pivot point for this to happen. This will take the market back to 1,330 from yesterday's high of 1,408.