Next week the markets will get a heavy dose of economic data, a FOMC rate announcement and earnings from tech, consumer, energy and pharma sectors. Barring any new rogue traders surfacing or hedge fun implosions, the markets could see a rally on the back of strong Fed action. It will be a high-wire act all week and markets could go either way (data dependent). Most likely the expected 50bp cut and positive data will spark a market rally. Bottomline: THIS WILL BE AN OPPORTUNE TIME TO GET SHORT.
Major Major Indexes:
The Fed is expected to cut rates by 50bp on Wednesday. This will act as a catalyst to bank shares. This should be positive for the DOW and S&P 500. Earnings from Google, Amazon and Yahoo! will weigh on the Nasdaq. If Google reports strong numbers and says positive things about the future, I expect the Nazz to rally. Unfortunately Amazon will probably offer a weak 2008 forecast, as well as Yahoo! Last week the Nazz was the only major index to drop, so perhaps its due for a bounce this week with a Google and Fed catalyst. My call: DIA, SPY, IWM, QQQQ will end the week in positive territory, with the S&P 500 gaining the most due to bank's rallying strong off the Fed decision. If the Fed fails to cut by 50 bp, then all indexes will get clobbered hard.
| YTD % | 1W % | ||
| Dow 30 | DIA | -7.8% | 1.3% |
| S&P 500 | SPY | -9.0% | 0.7% |
| Russell 2000 | IWM | -9.8% | 1.9% |
| Nasdaq 100 | QQQQ | -14.1% | -3.0% |
Market Sectors:
Banks and housing popped on the 75 basis point rate cut last week. I expect the same to happen this week, but to a lesser extent since everyone is expecting the 50bp cut.
My call: Buy XLF, UYG, KRE, KBE, XHB. All will gain this week on Fed's rate cut. This area of the market remains highly speculative and could easily swing negative with another "shoe dropping". Be prepared to go short with SKF.
| Sector | YTD % | 1W % | |
| Gold Miners | GDX | 9.5% | 4.3% |
| Transportation | IYT | -1.4% | 7.1% |
| Home Builders | XHB | -2.4% | 15.2% |
| REITs | IYR | -2.9% | 8.1% |
| Retail | RTH | -3.4% | 2.8% |
| Regional Banks | KRE | -3.9% | 12.0% |
| Large Banks | KBE | -2.3% | 11.3% |
| Biotech | IBB | -5.1% | -5.1% |
| Consumer Cyclicals | XLY | -5.6% | 4.5% |
| Financials | XLF | -6.0% | 6.6% |
| HealthCare | XLV | -6.6% | -4.8% |
| Consumer Staples | XLP | -7.3% | -1.7% |
| Pharmaceutical | PPH | -7.7% | -5.6% |
| Basic Materials | XLB | -7.8% | 2.9% |
| Agribusiness | MOO | -8.1% | 5.6% |
| Metals & Mining | XME | -8.6% | 7.4% |
| Industrials | XLI | -8.6% | 3.2% |
| Utilities | XLU | -9.8% | -4.6% |
| Energy | XLE | -13.4% | -0.3% |
| Oil Services | OIH | -13.5% | 1.2% |
| Steel | SLX | -13.6% | 1.7% |
| Semiconductor | SMH | -13.7% | 0.4% |
| Technology | XLK | -14.3% | -1.1% |
Commodities and Metals
Gold continues to be strong, ending the week over $900/oz. GLD was up 3.3% on the week. Gold will likely continue its ascent to $1,000 albeit on a rocky path. Oil dipped briefly to $86.99 last week before ending up at $90. 52% of traders expect oil to continue to fall into the mid $80's before rallying later in the spring. My call: buy DUG on falling oil prices.
| YTD % | 1W % | ||
| Silver | SLV | 10.9% | 1.7% |
| Agriculture | DBA | 10.3% | -0.5% |
| Gold | GLD | 9.5% | 3.3% |
| Natural Gas | UNG | 6.7% | 0.7% |
| Oil | USO | -5.1% | 0.5% |
Global and Emerging Markets
With the "decoupling" theory going out the window, most emerging markets took a dump last week. People are reducing risk and exposure to these highly speculative markets. If the U.S. catches a cold, these will catch the FLU! My call: Short FXI via FXP.
| YTD % | 1W % | ||
| Mexico | EWW | -7.0% | 2.8% |
| Canada | EWC | -7.7% | 3.9% |
| Taiwan | EWT | -8.5% | -4.4% |
| Hong Kong | EWH | -8.6% | 0.5% |
| Brazil | EWZ | -8.7% | 4.0% |
| Singapore | EWS | -9.1% | 2.6% |
| Europe, Asia, Far East | EFA | -9.9% | -1.4% |
| Russia | RSX | -11.2% | -5.0% |
| Emerging Markets | EEM | -11.3% | -1.5% |
| China | FXI | -12.7% | -5.2% |
| India | INP | -15.4% | -5.1% |
| Australia | EWA | -7.0% | 2.7% |
UltraShort/Long
Without a doubt the best play of the year so far has been shorting everything and anything! The general consensus now for trading in a bear market is to SELL ALL RALLIES. If you want to get long on these bounces be prepared to exit quickly and do not hold overnight. Real Estate and Financials will get big bounces on Fed moves...but will also surrender to the "other shoe dropping". My sense is that we have not seen a bottom yet, there is still way too much risk in the system with CDS exposure to the banks.
| YTD % | 1W % | ||
| Nasdaq 100 Ultrashort | QID | 34.6% | 6.2% |
| Oil Services Ultrashort | DUG | 29.7% | 1.3% |
| Russell 2000 Ultrashort | TWM | 22.6% | -4.4% |
| S&P 500 Midcap | MZZ | 22.2% | -4.8% |
| China FTSE 25 Ultrashort | FXP | 20.6% | 6.6% |
| S&P 500 Ultrashort | SDS | 20.2% | -1.6% |
| DOW 30 Ultrashort | DXD | 16.9% | -2.6% |
| Financials Ultrashort | SKF | 10.1% | -13.4% |
| Real Estate Ultrashort | SRS | 0.8% | -19.5% |
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