morbius glass

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A scary ride up – Dow Jones nearly touches 400 points.

Posted by Adrian on April 2, 2008

To me that is hysteria buying, the most dangerous kind, if you are a speculator and rode this ride good for you. But I still believe the US stock market is currently fueled by pure speculation on the back of a zombified financial corpse.

dow jones – with the 391.47 point rise

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The mountain of bad news that has poured out of the global economy has been staggering and it hasn’t finished. UBS bank reported a massive 12 billion Franc write down in the 1st quarter of 2008, now UBS had desperately issue stock rights to shore up capital, in which it was reported that UBS succeeded shoring up 15 billion of capital, Lehman followed suit with a capital plug of 4 billion US. This is still evident of banking sector straining with losses, other European banks such as Deutsch bank have reported a 4 billion loss.

The commodity markets have had a slight correction and are still being sold off, namely gold and oil. It has been suggested that there has been a commodity bubble, I don’t see that at all. You have scarce commodities within the commodity market; risk aversion usual moves buyers into the commodity market; and this has happened, pushing prices further up.

Gold bugs, and silver investors have cried foul at Fed and central bank manipulation of the physical metals market. A conspiracy aspect of trying to suppress the gold price. After clearing major portions of my portfolio of stocks and shifting over to metals, namely Gold Warrants. I haven’t seen a substantial suppression of the gold price per se, but what does appear is flow of funds back and forth from commodities into stock and bonds and back out again (when there is trouble in the market).

As far as gold (which I have tracked in ‘Is gold correcting update 3?’ , update 2), I currently see support at 833.00, on a OHLC graph, the low indicator set at 873.00 range is touching the outer Bollinger Band. It’s looking steady, but potential oversold. It would be feasible (depending on some more bad news) for gold to break out into the 900’s and settle into a trading range of (935.00 and 965.00). Gold is appearing as a ‘buy now, and sit it out’. Remember it hit 1033.00 on the March 16 2008, this was an early expectation of the 1000.00 mark (some analyst speculated gold would hit 1000.00 middle year). The substantial correction or sell off hasn’t happed as yet.

If the IMF and Treasury flood the market with gold, which is highly unlikely. Then we may see a drop in price. But the credit crisis is slowly unwinding (yes slowly) and the unwinding of derivatives market is fear personified, namely the credit default swap market. It is a no brainier (as far as what in store for the markets, not the CDS process which is complex) to what is coming – a major meltdown in the CDS market.

Oil

A commodity that is becoming more and more scarce, hence the price. Has there been a real correction with Oil? The answer is no, as discussed numerous times on morbius glass, I mentioned that oil will bounce of the 100.00 and trade above the 100.00. You could be technical and draw a barrier from 99.00.

With China stockpiling, along with other emerging countries, not to forget the energy crisis that south America will face, namely natural gas supply problems and disputes – oil is heading upward.

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