Thursday, July 17, 2014

Good Morning America,

A good Thursday morning to you.  While each of us have our own challenges and I have mine, today is going to be a good day.

Small Business Outlook

Dr. Yellen provided little (if any) new information in testimony before Congress yesterday.  You and I know interest rates are going to rise at some point, but that point is unknown, not only by you and I but by the Federal Reserve. 

As a small business owner I will do the following.

1.   Eliminate debt as quickly as possible. 

2.   Any investments in stocks and bonds will be liquidated, and turn to cash or cash equivalents.  I suggest interest rates will rise much sooner than any main-stream media is going to suggest. 

3.   The dollar will appreciate against the Euro, but depreciate against our largest supplier - China.  The Fed appears to be ahead of the European Central bank in terms of how close it is to hiking rates.

4.   I'm not a believer in gold as a store of value for small business.  It is not liquid, and the cost of storage eats up any almost any appreciation in value except with gold's price hits irrational exuberance.  Gold goes up real fast, goes down even faster, and usually languishes for years before spurting up again.  You cannot run a small business on that kind of flux; at least yet.

Summary: 

·         Yesterday I said that price may move down (after the opening) to try to fill the gap and then become choppy.  Well, that was correct, although my trading account shows that I did not trade upon my own advice. The market was very choppy, although the news media is shouting hooray for our side as the DOW made new highs.

·         Small Cap stocks lagged the large cap as Dr. Yellen's testimony shook investor's confidence in Small Cap, BioTech and Social Media stocks.  However, the trend down in small cap was really a continuation of a trend that has been in effect since the start of July.  This is shown by the Russell 2000 being down 3.5% in July while the S&P 500 is up 1.1% for the month.  On the other hand (boy is Dr. Yellen a two-handed economists), the large Tech stocks drove the Nasdaq higher; led by Apple (APPL).  Ultimately, Apple lost its gains, but the tech sector built on its early strength.  Intel (INTC) soared after they reported better than expected earnings. Intel added $20 billion to its stock buy back plan.  Yahoo was crunched after missing revenue expectations.  Ouch...

·         Health Care sector as measured ty iShares Nasdaq Bitechnology ETF (IBB) lost 1.6% yesterday.  This was sparked by Dr. Yellen (as I mentioned) when she mentioned this sector as the sector where valuations are "stretched".

·         Treasuries started out higher, but then closed positively.  The 10-year note added 4 ticks sending yield to 2.53%. 

·         There was a lot of economic news yesterday, but most of the attention was on Dr. Yellen's testimony in Congress.  The news was across the board much better than you or I had reason to believe. Housing is weak. It means traders and investors are going to be waiting for Q2 GDP on pins and needles.  Remember, Dr. Yellen said that Q1 GDP was just a blip, and the Federal Reserve expects Q2 to be back on track.    

·         This morning, the DOW is much lower than yesterday's close.  Gold is up.  Europe and the USA imposed additional sanctions against Russia. 

·         A Chinese company is reported to be having troubles. They may default on their bond payments.   

·         Jobless claims fell unexpectedly.  This will be interpreted as bad news for traders.  As the labor market improves, we are getting nearer to a rise in interest rates.  Of course, housing starts were the weak point of the economic news.  As Dr. Yellen cautioned, the Fed could raise interest rates sooner and more rapidly than currently envisioned if the labor market continued to improve faster than anticipated by policymakers.

·         Today:

o   The USA stock market will open lower.  Look for prices to move up and fill the gap (or nearly fill it).  Then unless new market moving news enters, the day will move into choppy as summer trading doldrums take over.  At 7:00 AM PDT, the Philadelphia Fed's Business Outlook will be released.  It is expected to be down.  The trend is up, and so if the report exceeds expectations price may move up slightly. 

o   Bullish factors - S&P 500 above 50 MVA, 200 MVA.  The current Price in the futures market is above the Monthly opening.  Basically, price is bullish period. 

o   Bearish factors - short term news such as the threat of Israel invading Gaza, sanctions against Russia, China has troubles in some businesses.

o   Result?  Choppy.