Where is the Dow & others heading in 2005?

[Morris]

Thin vol is just when you'd expect wild swings.


No Santa rally according to CNN:

http://money.cnn.com/2005/12/29/markets/stockswatch/index.htm

 

[dc2000]

100 points aint decent, today we is greedy we want our cake with icing and a cherry on top and a nice Domaine de Montpeyron 1865 cognac

 

[macbonzo]

Thin vol is just when you'd expect wild swings.


No Santa rally according to CNN:

http://money.cnn.com/2005/12/29/markets/stockswatch/index.htm

Absolutely.

Wild swings go both ways. The problem for intraday traders is that you have to take into account the increased volatility when setting stops. I am quite sure we would not have seen a 105 point decline on Tuesday if we had traded normal volume.

 

[macbonzo]

Another thing that is going to make today more than a little tricky is fragmented timing of market data:

initial jobless 1.30
Existing Home Sales 3.00
PMI 3.00
EIA 3.30
2Yr Treasury Auction 7.00

So unless you are going to wait until after 7.00pm, you could have a bit of a bumpy ride.

I have almost convinced myself to walk the dog in the direction of the pub.

 

[counter_violent]

F W I W i'm still bias down, can see nothing to persuade me that a hit on original target of 725 will not be seen. Clearly no interest in any recovery of price yesterday , as the index could'nt even re-trace back to daily pivot @ 830. A break of 725 can not be ruled out, more probable than a year high me thinks.

Happy new year

C V

 

[Morris]

1260 like a brick wall at the moment.

 

[dc2000]

A nice move off the inner

 

[Morris]

"A nice move off the inner"

Huh ?

 

[macbonzo]

Nasdaq can't seem to get positive and now the S&P has gone negative too. This volume is making my screen look like a video game.

 

[counter_violent]

Back inside isometric triangle , failed break ? failed signals are better signals

U decide



Pub is becoming a better option !

 

[china white]

Classic congestion

Classic congestion on SPX (see price chart and 1 month. 3 months and 1 yr volarility charts of SPX) happening exactly round 1262 level which the market is watching like a hawk as many people attach loads of importance to this 61.8% Fib retracement of the whole bear market that set in back in 2000.

It is tempting to interprete this congestion (see white rectangle on price chart) as a bull flag. Looks very similar to what happened in June 2005 when a similar congestion (reg rectangle), duely accompanied by a drop in 1 month front-end volatility, resultrf in another leg up.

This is what I think is gonna happen early in 2006.

Pay attention to 1 year volatility (252 trading sessions). Throughout 2005 it just stayed tacked within 10.5 - 11% range. Tells a story innit?

I wish everyone on these forums a top dog year for prosperity in 2006!

 

[kriesau]

Will the 'housing bubble' puncture the market in 2006

Bubble, Bubble -- Then Trouble
Is the chill in once-red-hot Loudoun County, Va., a portent of what's ahead?

Psssssfffffft. That's the sound of the air finally leaking from the real estate bubble in Loudoun County, Va. Since 2000 it's been the nation's fastest-growing county, where eager homebuyers always seemed to outnumber happy sellers. Until now.

Bob Semmens, a 60-year-old retired pressman, has heard that sound. After he offered up his 3,000-square-foot colonial, with three acres and a swimming pool, in early July for $759,000, he sat back to wait for the frenzied offers. A year before, houses had remained on the market for just 20 days and were snapped up in bidding wars. But "very few people were even coming out to look," Semmens recalls. After four months, he was about to take the house off the market until next spring. But then he struck a deal -- for $620,000, an 18% price cut. Semmens rues his bad timing: "Just at the time I was getting the house on the market, everything really started to slow down."

By October, agents had 2,908 existing Loudoun houses on the market, an increase of 127% over a year earlier. The average time on the market had climbed 62%, to 42 days, since the fall of '04. And in just two months, from August to October, the median sales price for houses dropped from $506,100 to $480,000. The real estate agent who gets 10 to 15 e-mails a day from developers now offering price cuts of $10,000 or more to move new houses. The sign installer who's putting up three "For Sale" signs for every two that he takes down.

What's happening in Loudoun is a rapid shift in psychology -- a classic sign of a market turn. The buoyant optimism that fueled speculation and expectations of ever-rising prices is now succumbing to the fear of being left standing when the music stops. Real estate, the hottest play of the century in Loudoun, is rapidly cooling. The same signs of a slowing market can be seen in hot spots across the country, from Boston and Miami to Phoenix, Las Vegas, and San Diego. Nationwide, a leading indicator for housing -- sales that are pending but not completed -- declined 3.2% in October from September, the National Association of Realtors reported on Dec. 6. Mortgage rates, while still low, have edged up almost half a percentage point from a year ago, to 6.26%, according to Freddie Mac's weekly survey.

Many other overheated areas could suffer even larger price drops than Loudoun County. Some, like Boston, lack the rapid growth in jobs to support rising prices. In Phoenix, high prices and cheap land have sparked a construction boom that's beginning to deflate the bubble. Other areas, such as Las Vegas and Florida cities like Miami, have seen rampant speculation. Such buying not only drives demand but "feeds the expectations of households that are not speculating," says David Stiff, chief economist of Fiserv CSW Inc., a housing data company. "If a significant portion of demand is speculative, that can evaporate very quickly."

Speculation is swinging the market in Loudoun as well. Underlying demand is strong, with families flocking in for jobs and well-regarded schools. But the recent froth was churned up by investors convinced that housing supply can't keep up with demand. Easy financing fueled the buying boom: County officials say up to 40% of new mortgages this year were interest-only loans, with low payments enabling borrowers to finance higher bids.

Jim Williams, executive vice-president of the Northern Virginia Building Industry Assn., knew the "feeding frenzy" had gotten out of hand when a waiter in a restaurant he frequents confided that he had bought four houses on spec. "I'm sitting looking at him and thinking even with tips...he must be dying on the vine." Now, investors' scramble for the exits is creating problems for owners like Omar Singh, 29, owner of a trucking company in Herndon. His townhouse in Sterling has been on the market for $525,000 since October. He's hoping to hold out without cutting his asking price until April. That Loudoun could continue to balloon through the 2001 stock collapse, September 11, and 12 Fed rate hikes is a testament to its resilience. Located in the shadow of the Blue Ridge Mountains some 50 miles from Washington, Loudoun has accommodated tract houses and mansions alike without turning into a crowded suburban grid. Now, the stock of houses on the market is at a four-year high. At Metropolitan Title Insurance Agency in Leesburg, closings dropped from 30 in October, 2004, to just 10 in the corresponding month in 2005.

Letty Mallery decided to put her historic four-bedroom house in quaint downtown Leesburg on the market in June for $1 million after a nearby home drew a megaprice in April. "The market was very hot," she says. But by the time she and her husband, John, had spruced up the home for sale, "things had cooled off," she said. They dropped the price to $950,000, then to $895,000. Whatever price the stately 104-year-old house fetches, the couple can console themselves that they bought it for just $76,000 in 1976 as a fixer-upper.

Loudoun homeowners who arrived later can take comfort in the area's economic fundamentals. The county is pinning high hopes on the Howard Hughes Medical Institute, which next year will open a research facility that could attract other bioscience organizations. New hotels and transportation services tied to nearby Dulles International Airport will let more Loudoun residents live near their work. With 10% of the county's workers employed in construction -- vs. 5.3% nationally -- local officials say Loudoun must develop jobs that aren't dependent on homebuilding. Loudoun's real estate community insists the market is merely reverting to a more normal state. "We're coming back to more of a balance," says Karen Overheu, a Long & Foster Realtor with listings in Loudoun County. "You don't have to make up your mind [about buying a house] in an hour or risk losing it to someone else. It's a little insane to have it the other way."

There's another explanation, says insurance agent Joe Kelly over lunch downtown at the Leesburg Restaurant. "They ran out of stupid people."

Business Week: Dec 19th 2005


Ben Bernanke's Heavy Burden

By Nick Godt
Markets Reporter
12/27/2005




Since 1970, every new Fed chairman has had to deal with a crisis shortly after taking the helm. Ben Bernanke, the former Princeton University economics professor and chairman of the President's Council of Economic Advisers, also faces the unenviable task of replacing the legendary Alan Greenspan, who replaced the equally legendary Paul Volcker and famously faced the 1987 crash shortly after beginning his tenure. Replacing Greenspan seems even more difficult because the current tightening cycle appears poised to end; over the past 35 years, every tightening cycle has been punctuated by some kind of financial disaster. Furthermore, Bernanke faces double the jeopardy of his predecessors -- maybe even triple -- given the imbalances in the global economy, highlighted by the yawning U.S. current account deficit.

Obvious question: What's likely to be Bernanke's crisis? The obvious answer? Upheaval in the U.S. residential real estate market, which some refer to as a bubble, and some see as a boom. The Herculean challenge for the Bernanke-led Fed will be to engineer a further slowdown of the housing market without tripping the economy into recession. Conversely, the Fed risks reigniting the housing bubble, and its accompanying inflationary implications, if it stops tightening too soon.

On Dec. 13, the Fed delivered its 13th consecutive rate hike, continuing to undo the extraordinarily loose monetary policy that followed the Sept. 11, 2001, terrorist attacks and the bursting of the tech bubble. The extremely low interest rates that resulted fueled tremendous demand for homes and home-price appreciation. Along with massive home-equity extraction, these conditions are credited with fueling and sustaining consumption since the tech bubble burst in 2000. At the end of the third quarter, homeowners were on track to extract more than $200 billion in cash from refinancing activity in 2005, according to Frank Nothaft, chief economist at Freddie Mac. Earlier this year, Greenspan estimated that home-equity extraction via home sales reached $300 billion in the first quarter alone. The real estate market has shown some signs of cooling since the summer. Following several months of slower growth in sales along with rising inventories, the National Association of Home Builders said Dec. 19 that its sentiment index fell to its lowest level in two and a half years in December. This confirmed the bearish 2006 outlooks issued by homebuilders Toll Brothers and Hovnanian earlier this month.

Notably, long-dated Treasury yields, which are used to set mortgage rates, have been falling since the Fed's Dec. 13 statement. In recent action, the yield of the benchmark 10-year Treasury was at 4.48%, well below the 4.61% level when the Fed began raising rates in June 2004. Freddie Mac reported that a 30-year fixed rate mortgage fell to 6.3% from 6.32% last week.

Meanwhile, housing starts were surprisingly strong in November. This increases the supply of new homes on the market, while demand appears to have stalled, putting further pressure on home prices. But nothing suggests that demand won't, at least, stay strong, especially if bond yields remain low. Another problem facing Bernanke is that the U.S. mortgage markets offer long-term variable rates, fixed rates and many complex refinancing options. In the U.K., by comparison, most mortgages are linked to short-term rates and are therefore more susceptible to short-term rate hikes. According to the Mortgage Banking Association, adjustable-rate mortgages, or ARMs, averaged roughly 30% of all first mortgage originations in 2005. Homebuyers who've purchased ARMs over the past three years will eventually feel the pinch of higher monthly payments due to the Fed's tightening efforts, but the bulk of that pinch will be in 2007. The MBA estimates that $330 billion worth of ARMs will adjust in 2006 and $1 trillion worth will reset in 2007.
Refueling the housing bubble, which remains a distinct possibility as long as long-term yields remain low, could force the Fed to tighten for longer than the market currently expects. This housing conundrum is complicated by a view that Bernanke needs to establish his credibility as an inflation-fighter. In 2005, foreign investors continued to invest in U.S. assets at a solid pace, keeping the current account deficit well funded. But with the deficit expected to reach 6% of GDP in 2005 and to worsen next year, the dollar is widely expected to weaken.


Bernanke has explained his belief that a "global savings glut" has kept foreign investors invested in U.S. assets. But a weaker dollar invariably would push those investors to diversify their assets. China, the world's second-largest holder of Treasuries, has signaled it may do so next year; similar rumblings have been heard from South Korea and Russia, among others. Depending on the scale and the speed at which this diversification occurs, long-term rates could spike higher, bringing down housing and the economy with a bang. This may be just a worst-case scenario. But Stephen Roach, chief economist at Morgan Stanley, believes it will be Bernanke's greatest challenge. America "has gotten away with [its] imbalances because of the kindness of strangers, the willingness and confidence of foreigners to keep piling into dollar-based assets," Roach recently wrote, revisiting a favorite theme. "But now, America is going to be asking a lot more of the foreign investor at precisely the moment when the Fed is transitioning from Greenspan to Bernanke." The differential in interest rates that still exists between the U.S. and other major economies, namely the eurozone and Japan, may alleviate this problem. Central banks in Japan and Europe have both indicated that rates likely will be moving higher while the Fed is presumably close to ending its tightening campaign. But that remains a 2007 story for Japan, while the European Central Bank is proceeding very slowly; its key rate is currently at 2.25% vs. the 4.25% Fed funds rate. Still, the falling yield of the 10-year Treasury is a potential warning sign for the incoming Fed chief, at least as it pertains to containing housing speculation. At the very least, it's a signal that the Fed should maintain its tightening course for the foreseeable future. But that, of course, would not be welcomed by most stock market investors.

Given the myriad challenges facing the incoming Fed chief, here's hoping Bernanke's dream job doesn't become a nightmare for the rest of us.

 

[kriesau]

Google nearly 1% down today and 2% off since markets reopened this week.
Could this be a bellwether for the markets !

 

[Pat494]

Should have had a long on the Nikkei !!
Is it too late now ? I have never used the Nikkei but Japan seems to have got over her woes at long last.

 

[dc2000]

courage of conviction, this thing better have a zebedee at the bottom!!!

 

[Morris]

... they really don't want to see a rally into New Year it would seem....

 

[purplekiwi]

chaps quick comment.

i do not know (and do not care as a day trader ) where the mrkt is gonna go next year but I am sure there will be a 200+ SPX points difference btwn Jan 1st 2005 and Dec 31 2005. Bets accepted, say 50 quid per point?

I wonder if anyone took China up on this!

(Post taken from first page of this thread)

 

[kriesau]

Fact is often stranger than fiction !

We currently have the Dow being held up by GM, up 2.3%, best performing stock of the day !
They were reportedly on the verge of bankruptcy very recently or maybe that was just an ugly rumour :cheesy:

 

[dc2000]

Im in at 64 with 40 point stop see ya all in the new year

 

[Racer]

Yield-curve inversion not seen in years
Inverted spread typically signals an economic slowdown



"This time, they say, things are different"