Sunday, April 25, 2010

Preparing for this week

I will post periodically some doubts and apparent incoherences in the market.

The S & P 500 has reached the maximum levels since September 2008, before Lehman's collapse. The Nasdaq is at the May 2008 levels.
Like always happen, we have opposite signals. Regarding the bond market, the situation has not change since it is anticipating no inflation, as we can see in the spread between the TIPS and treasury. I have read something interesting in bloomberg:

Demand for U.S. government bonds is increasing. On average, the Treasury received $3.21 in bids for each dollar sold at 10- year auctions this year, compared with $2.63 in 2009 and $2.41 from 2004 through 2008, according to data compiled by Bloomberg.

But, when I look at the gold market (considered like a hedge against inflation), we see that the cost of this hedge goes up.

Why investors are buying treasurys and why they are buying Gold at the same time? Why this apparent contradiction?. I think we are talking about different investors. I have read that Soros is buying GLD. Is he buying treasurys too?  I do not know, but I do not think so. The Greece debt crisis could be the reason, as investor are hedging against money emission in the Greece bail-out and also making a little fly to quality? I have to make more research on this matter.

The TNX is moving within a channel and the trend is moderately UP, although the astronomic numbers of the debt in relationship to GDP (looking at the debt clock, you can see the debt growing 1.000.000 while in the same term the GDP grows only 85.000). Despite this situation (how long can the government keep this level of debt growth?),  I would go long at the current levels.

Regarding economic information of this week, these are the most important announcements:

- Tuesday:  Consumer confidence
- Wednesday: FOMC interest rate announcement
- Friday: GDP / University of Michigan concumer sentiment

One sector to keep an eye on is the energy sector (XLE), which have made new maxs. Sector rotation could choose this sector to keep the bull rally in the market, since this one of the sector lagging the market (the other is healthcare) and the balance sheets of the most important companies (XOM, CVX) are better than most of the other sectors.

Finally, most important earnings announcements:

Tuesday: MMM, F
Wednesday: DOW, V
Thursday: BMY, XOM

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