US Dollar at resistance

US Dollar is hitting resistance here again...
So, how do we play this, if it fails at resistance. All the old plays:
Gold, Steel, Coal, Oil. I picked some Yamana Gold AUY as a gold play.

Also, picked ultra-short S&P 500 SDS. SDS bounced from support this morning. If it can hold that support, I will continue holding, otherwise I am out.

Second quarter GDP weaker than expected

All the headlines are stating that GDP of US economy accelerated in second quarter. Then why are we having a negative reaction in the markets. The reason being that the GDP was much lower than the expectations. Gross domestic product rose at a seasonally adjusted 1.9% annual rate April through June, the Commerce Department said Thursday in the first estimate of second-quarter GDP. The key price index for personal consumption expenditures rose by 4.2% after increasing 3.6% in the first quarter. For the second quarter of this year, economists surveyed by Dow Jones Newswires had forecast a 2.3% GDP growth rate during April through June. The PCE price gauge excluding food and energy grew 2.1%, after increasing 2.3% in the first quarter.

Also, it seems one of the main stimulus were the economic stimulus checks which amounted to $140 billion. But the main question is what will happen for the rest of the year as we won't have any more stimulus checks an this will eventually slow down the economy and GDP.

Another major negative is the revision of Q4 2007 GDP to a negative value.

First Solar Earnings and Chart

First Solar reported a 57% hike in earnings. With a net income of $69.7 million, up from $44. 4 million for second-quarter 2007. That translates to 87 cents per share for the past quarter compared with 61 cents a year ago. The revenue number beat estimates, which were set at about $216 million for revenue for the quarter, and earnings projections of about 58 cents per share. First Solar also raised its forecast for solar module output to between 470 and 485 megawatts, Meyerhoff said on a conference call with analysts. The company in April had forecast output of 420 MW to 460 MW.

Attached is chart with reistance and support lines. The spillover effect to other solars will also happen. Be careful in chasing early strength. The commodities got an early boost with a huge swing in oil. I covered my short in JRCC and flipped to the long side. We need to see the second-day run in commodities.

Trading updates-July 29

Short JRCC at 38.85 with stop at high of day at 40.17. Target is near 35-36

US Steel X has made a massive move today with great earnings. Short-term very overbought and 170s is 61.8% FIB retracement from the high to low. No action taken yet. On watchlist

Chart of Intrepid Potash -IPI

Intrepid Potash Inc -IPI, one of the recent Agriculture IPOS. The stock bounced from the lower trendline marked with dotted red lines. We need to see if it can afford to hold this level.
If it does, it will be a good long.
If it breaks, the dotted red line, it heads to low 40s.

Elliott wave counts for US markets-S&P 500

Back from my vacation and in a much better mindset to play the markets. Click on adjoining chart for sharper image. I have enlisted the various Elliott waves from the October 2007 top. We finished the B-wave at 1440 and probably completed the C-wave at 1200, if you consider the trendlines. But, if you look at it from the perspective of the length of the C-wave, then, we have still not got the final confirmation for C-wave completion(check the calculations in red on the chart). Once, the C-wave confirmation is complete, watch out as the US markets will bound very strongly to the upside. The Down trendline that has been in place since Oct 2007 will be broken. At this time, it is better to give the benefit of doubt for C-wave completion at 1200 unless that level is broken. Trade wisely and be flexible.
Good Luck !!

Bailout for Fannie and Freddie- Markets didn't like it

I was checking news over vacation and came across this Fannie/Freddie bailout news.
Another month and another major bailout. When will the FED stop doing these bailouts ? Who is going to pay for these bailouts? The US taxpayer ?
After the bailout news, we had a gapup on Monday morning and then we closed in red. This is not good. So, the bailout didn't even help the markets.
They had announced the Bear Sterns bailout on a Sunday night before the Asian markets opened. But then, the bailout made some sense for the market and we printed a good reversal candle and rallied for a couple months. This bailout only reaffirmed the break of March lows.

Excerpts from Paulson's text on the bailout:

Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction.

GSE debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore we must take steps to address the current situation as we move to a stronger regulatory structure. In recent days, I have consulted with the Federal Reserve, OFHEO, the SEC, Congressional leaders of both parties and with the two companies to develop a three-part plan for immediate action. The President has asked me to work with Congress to act on this plan immediately.

First, as a liquidity backstop, the plan includes a temporary increase in the line of credit the GSEs have with Treasury. Treasury would determine the terms and conditions for accessing the line of credit and the amount to be drawn.

Second, to ensure the GSEs have access to sufficient capital to continue to serve their mission, the plan includes temporary authority for Treasury to purchase equity in either of the two GSEs if needed.

Now, this bailout didn't help much, what's next ? Is this just a trick to trap in more bears? Well we have to got to wait and see. We are deeply oversold.

On vacation

I am on vacation for a couple of weeks. So, posts will be far and between. Can't stay away from the market for too long though.
In the meantime, enjoy some of the reader's favorite posts:

US Dollar prediction & Fed rate pause
Chart of S&P 500 with Elliott wave counts- Now we are in Wave-C
Fibonacci Gann Cycles and Stock market bottoms
Indian Rupee's sizeable recent depreciation
Positive comments from Charles Nenner

Good Luck with the market and remember strict money management is key.

Volatility Index VIX chart

Click on chart for sharper image.
The VIX chart shows a rising wedge formation. Everyone is talking how the market has not bottomed because VIX has not gone to January and March highs. The important point here is if the VIX breaks down from this steep rising wedge, we would head back to 15s.
If that happens, market is heading back to May/June highs with S&P back to 1400s.

KB Home founder thinks US economy in worst slump since WWII

KB Home founder Eli Broad believes US economy is facing the worst slump since World War II in an interview with Bloomberg. ``This is worse than any recession we've had since World War II,'' Broad, 75, said in an interview yesterday. Broad, the founder of homebuilder KB Home, said the U.S. should avoid a depression on the scale of the 1930s because the country now has sufficient ``safety nets.''
With home sales and prices declining and consumer confidence at a 28-year low, ``I don't see it turning around very quickly,''
``This is the worst period of my adult lifetime,'' Broad said, speaking about the U.S. economy. ``I do not think things are going to get any better'' before the next president takes office in January. Selling off vacant, unsold homes could take ``several years,'' he said.

Full article at Bloomberg.
---

It is always good to hear from founder and CEOs of companies. You get a more unbiased version than what is touted in the media.

Effect of Oil on Global emerging markets-India, China, Turkey

Today oil rose above $142 on concerns that Israel would attack Iran by the end of this year. This was followed by a report from International Energy Agency citing that supply will not be able to keep with demand.

With the second half over now, the global indexes paint an awfully bad picture. Just look at the performances of Turkey, China, India. These three countries are leading the world market on the downside. China, India and Turkey are net Huge importers of oil. As oil prices skyrocketed, these countries immediately felt the pain.

In India, oil imports account for 5% of GDP. The Indian market has been riled with upsurge in oil prices. Also, check the value of rupee, it contains to deteriorate to extreme levels. Today the rupee broke the important psychological exchange rate level of Rs 43 for 1 US dollar. If it can sustain above the Rs43 level, the rupee can easily depreciate to Rs46 level.

But look at the stock markets in Brazil, Russia. Check the performance of the Brazilian ETF EWZ. Brazil is a huge exporter of commodities, helping the local economy.

Australian dollar is another example of commodity net exporter, it broke through to a new 25-year high.

I believe the oil prices will continue to surge into the $150-170 level. As long as oil prices continue to urge to this level, focus your trading/investments only in oil related companies.
Completely avoid the financials and anything that is remotely connected to the consumer. Higher oil prices translate to higher cost of goods which translates to lesser demand.

Good Luck !!