Will Work for Stock
Liquidity is still the driving factor behind this move. I continue to hear the comments in my head from Fed Chairman Bernanke concerning inflation and interest rates on Wednesday. He isn’t concerned about the long end of the yield curve rising, nor does he see the Fed hiking short term rates anytime soon in response to the steepening yield curve. The concern of growth over inflation was very eloquently stated by him. Thus, money supply is here to stay for awhile and that money is being put to work in the markets. One thing is certain about money - it will always find a home, good or bad.
So, the liquidty move remains and over the last couple of weeks I am seeing the inflation trade creeping up in momentum. The commodities (see chart of the day) are in play and the money flow is increasing. Like the balance of the sectors the fundamentals don’t support price, but the money is pushing the sector higher. The perfect example was on Wednesday with crude and gasoline supply data showing an unexpected increase. The price of crude fell 3% and commodities in general fell 4%. Yesterday the weekly jobless claims fell 4,000 to 621k and the continuing claims dropped a fraction and the markets rallied on the news. Crude was up 4% along with the other commodities. Money is looking for a home and finding it on every dip, regardless of how small.
Retail sales data was out as well yesterday and they were bad again for the second month. I find it interesting that the consumer is contracting in spending again, yet the markets are moving higher. Maybe there will be growth in the fall? But, you have to ask your if we have already priced this growth in? Something to consider as we invest our money. This is one sector I am avoiding for now.
Financials were upgraded, or should I say Goldman Sachs (GS) was upgraded. The ripple effect in the sector was positive. Banks moved up, but all still remain in a consolidation pattern near term. The momentum to the upside is still lagging. Most of that is due to the capital raising to cover the TARP repayments and shore up balance sheets near term to appease the Treasury Dept.
Today is all about the jobs report, or is it? That will be the headline and it will have a short term impact, but the bulls are in the mood to buy and if the news is perceived as bad it will become a buying opportunity for the liquidity in the markets. If it is good look for the run higher to continue from the open. If you have positions adjust your stops accordingly. Be patient and use the momentum short term to your advantage.
The trend is your friend. The trend is up and fighting it will only cost you money. Follow the trend, be cautious, use stops to account for risk and enjoy the ride as long as it runs.
