Even after the recent market turmoil it appears investors still have an appetite for risk. Whether the risk taking is misguided is debatable, but the reality is if investors are more informed about the inherent risk they may be more comfortable taking risk. Though there still seems to be more questions than answers for investors to earn above average returns, they may need to be willing to take above average risks. That is not to say the stock market alone, real estate, bonds, or even commodities should be your sole focus it just means that investors need to educate themselves on the unique risks for each asset class and really ask themselves what type of beta they can handle in their portfolio. My suggestion would be to consult a professional in the chosen asset class that interests you and align yourself with someone that has a comparable take on the markets.
Stocks: The million dollar question was asked in Barron’s over the weekend” How much of the recession’s passing is already priced into stocks?” The S&P was higher by 7.50 points last week to trade to a fresh high for 09′. We are still not ruling out a test of 1000 before prices back off but we will remain consistent and reiterate that we do expect a sell off very soon. That being said we were light buyers for clients in the ES September 925 puts for $800 last week as we expect in the next 2/4 weeks a trade down to 945/950. The Dow was higher by 75 points last week, gaining over 1000 points or 13% just in the last 3 weeks. With July now behind us the Dow put in its best monthly performance in more than 7 years, do things feel that good? Resistance is seen at 9200/9225 with support at 8990 followed by 8825. A trade back down to the 50 day moving average would only be a correction of 6%. We have suggested for clients to lighten up on those stocks in their portfolio that have gained over 50% since the March lows.
Bonds: September 30-yr bonds were higher by 2’25.5 points last week to trade to their highest level in 2 ½ weeks. Resistance comes in at 120’00 with support at 118’00 followed by the 40 day moving average at 117’00. September 10-yr notes were bid higher as well gaining 27.5 ticks last week. Support is seen between 116’11 and 116’17 and resistance between 117’28 and 118’00. We advised clients last week to exit their NOB spreads at a profit of roughly $1500 per spread as we reached our target. We also advised clients to lighten up on their Euro-dollar puts as we expect a trade higher in the near term. However we would sell into this rally and look to re-establish these positions in the coming weeks buying more June & September 10′ puts. The NFP # guess comes in at a loss of 375,000 jobs for the month of July and an unemployment rate of 9.6%.
The Euro was lower by 27 ticks last week just off the week’s high. Resistance comes in between 1.43/1.4325 while support is seen at 1.4150 followed by 1.4025. We have no opinion on direction and would advise playing the breakout above resistance or below support. The ECB is expected to do nothing with rates this week keeping them at 1.0%.
The Swissie gained 10 ticks last week on 2 sided trading. Resistance is at .9425 with support at the 20 day moving average at .9280 followed by .9200.
The Loonie was a winner again last week picking up 55 ticks. Last week’s high at .9306 should serve as resistance with support at .9150 followed by .9000. Follow metals and energies to determine the direction.
The Kiwi gained 4 ticks last week as prices appear tired. Resistance comes in at .6625 with support at .6490 followed by .6420. We are currently on the sidelines with clients.
The unemployment rate in Japan increased from 5.2% to 5.4% in June, the highest in 6 years. The yen was a loser last week by 11 ticks. Last week’s low at 1.0432 should support with resistance seen at the 20 day moving average at 1.0630. We advised clients to cut losses on the 110 call options recommended last week losing just over $200 per option. We’re currently on the sidelines though we have a bullish bias.
The September Australian dollar closed up 174 ticks last week after positive comments from a Reserve Bank Governor caused some to believe that there may be no more cuts in interest rates. Prices traded to their highest level since 8/8. Resistance is seen at .8400/.8450 and support is eyed at .8200.
The Cable gained 246 ticks last week but at this point we feel prices have gotten a bit ahead of themselves and have advised clients to buy September 160 puts, we paid between $550/600 and have a target of $1000. Resistance is at 1.6750 followed by 1.70000 while support is at the 20 day moving average at 1.6375. We expect no action to be taken on rates by the BoE this week though there may be more gibberish on the quantitative easing program.
The US Commerce Department reported GDP was down .2% in the second quarter and down 2.4% from a year ago, better than expected. Ironically, this good news was used to drive the September dollar down to a new contract low as investors relaxed their need for a safe haven. The dollar lost 36 ticks last week as prices failed to get through the 20 day moving average on 2 attempts. This should continue to act as resistance at 79.60 with support at 78.30. Though we still expect a bounce, on a massive exit from the dollar and lack of flight to quality lower pricing is possible, for now we remain cautiously optimistic.
September silver was higher by 5 cents last week but the reversal higher mid-week was nothing short of spectacular as prices closed 77 cents off the weekly lows. This pattern could signal higher prices are to come being we closed back over the 100 day moving average and are fast approaching the 50 day as well. Support comes in at 13.60 while resistance is seen at 14.20 followed by 14.60. We continue to buy December $3 call spreads for clients.
December gold gained just $1.30 last week, which does not seem like much but after further investigation, much like silver, gold experienced a dramatic reversal mid-week that carried prices back over the 100 day moving average and almost $30 off the weekly lows. Support is seen at 942/945 with resistance at 962/968 followed by 986. Friday, when gold was higher by $6, we advised clients to buy October 975/1025 call spreads for $800. Some are still waiting for a further pullback but meanwhile we traded higher by an additional $12 that day and those spreads settled up by almost $400. The moral is you never can outsmart a market and if you want to be long get long. Keep an eye on the dollar and the stock market to determine the immediate direction.
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Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Before trading MB Wealth recommends that you should carefully consider your financial position to determine if commodity trading is appropriate for you. All funds committed should be purely risk capital. Past performance is no guarantee of future trading results. There are no guarantees of market outcome stated, everything stated above are our opinions.