Week of March 2nd, 2008, Dow & Gold
CLICK to enlarge I am back !! It has been more than slightly a year since my last blog and I'm now settled in my new home Perth, Australia and I intend to make it regular again from now...hope you'll enjoy it.....cheers.
Stock Index Corner: Dow Jones
The Weekly Dow has shown very possible down move from this coming week..for the last 4-5 weeks has been quite even bulls and bear actions and "bulls seem to have lost the battle" !! Last Friday's action make the weekly bar a "shooting star" formation, that spells bearish for the overall market. The Jan low of 11640 is likely to be tested and broken. The Nasdaq composite more bearish actions add to the conviction.
Possible Target for the Dow's down move: 11435
S&P500:
Big Picture: (monthly): Bearish..
Medium term (weekly): Sideway to Bearish
Short term (daily): Bearish
Fundamental:
The S&P 500 index exceeded the highs set in 2000, but there are some serious problems to consider. On February 19, 2008, Standard & Poors said that they expect the operating earnings for the S&P 500 companies to have dropped 4.2% in 2007, but be up 17.7% in 2008. Given the problems with subprime mortgages and the slow housing sector, Iraq, Iran, high energy prices, the weak dollar, and big increases in federal spending, the earnings growth estimate for 2008 sounds too good to be true.
The S&P 500 index exceeded the highs set in 2000, but there are some serious problems to consider. On February 19, 2008, Standard & Poors said that they expect the operating earnings for the S&P 500 companies to have dropped 4.2% in 2007, but be up 17.7% in 2008. Given the problems with subprime mortgages and the slow housing sector, Iraq, Iran, high energy prices, the weak dollar, and big increases in federal spending, the earnings growth estimate for 2008 sounds too good to be true.
U.S. stocks prospered in the 1980's and 1990's, thanks to three major reasons. Number one is that the U.S. consistently ranked among the top nations of the world in terms of economic freedom (for more about this, read "The Most Important Thing"). Freedom has proven itself to be the crucial ingredient for creating wealth, the source of increased productivity and innovation. Reason number two is the incredible restraint that U.S. federal spending showed in the 1990's. Total federal spending doubled in the 1960's and the 1980's. It even tripled in the 1970's, but in the 1990's, total federal spending only increased by 43%. This belt-tightening in the public sector made more capital available to the private sector, allowing interest rates to fall and equity values to rise. Reason number three was that in the 1990's, the Clinton administration did not fall for the arguments of protectionism and did not see a weak dollar as the key to prosperity.
Major World Indexes
Medium term trend: UK FTSE (Down), Nikkei (Down,), Australian ASX (Down), Shanghai FXI (down)
Commodity Corner: Gold
Technical:The technical picture is stil very positive for Gold. The bull run has accelerated since Sep last year. The medium target is 1080 (Apr futures)
Fundamental:
In 2001, prices were roughly $270 per ounce with a production cost of roughly $160 per ounce. Now in 2007, the production cost is nearly $400 an ounce and the price is over $800. Just as the outlook for gold was too gloomy in 2001, it is now probably too rosy. Much of the credit for gold's rise in the past six years can go to the consolidation that has taken place in the mining industry. In early 2002, Newmont Mining won the right to buy Normandy Mining of Australia for $4.56 billion in cash and stock, becoming the world's largest gold producer. On August 5, 2003, the world's second largest producer, AngloGold Ltd., bought Ashanti Goldfields for $1.09 billion. In 2001, Barrick Gold bought Homestake Mining to become the world's third largest gold mining company and then on October 31, 2005, announced its bid for Placer Dome, the world's fifth largest gold producer. This activity led to more disciplined production decisions at a time when the U.S. economy and the dollar stumbled.
Fundamental:
In 2001, prices were roughly $270 per ounce with a production cost of roughly $160 per ounce. Now in 2007, the production cost is nearly $400 an ounce and the price is over $800. Just as the outlook for gold was too gloomy in 2001, it is now probably too rosy. Much of the credit for gold's rise in the past six years can go to the consolidation that has taken place in the mining industry. In early 2002, Newmont Mining won the right to buy Normandy Mining of Australia for $4.56 billion in cash and stock, becoming the world's largest gold producer. On August 5, 2003, the world's second largest producer, AngloGold Ltd., bought Ashanti Goldfields for $1.09 billion. In 2001, Barrick Gold bought Homestake Mining to become the world's third largest gold mining company and then on October 31, 2005, announced its bid for Placer Dome, the world's fifth largest gold producer. This activity led to more disciplined production decisions at a time when the U.S. economy and the dollar stumbled.
The heaviest burden on gold in the past few years has come from central bank sales. In September of 2004, a new five-year agreement limited sales to 500 tons per year. Potential sellers are Germany, France, Switzerland, Spain, and possibly Italy. On June 14, 2007, the Swiss National Bank said that it will sell 250 tons of gold over the next two years. There is also talk occasionally that the International Monetary Fund may sell gold to provide relief to the creditors of some of the world's poorest countries.
Note: the above fundamentals are exerpts of dailyfutures.com
Trading ideas : (please do your own research and apply your profit/ risk management rules in all trades, please note except options writing, all the other trades may last just several days)
Writing Options: Emini S&P 500 OTM Calls, Treasury Bond OTM puts
Futures: Short Feeder Cattle
Stock Options: Long PCP Puts, Long FXI Puts, Long CF Puts (use ATM options)
posted by "Frank" at Sunday, March 02, 2008
|
54 comments
