Tuesday, October 26, 2010

Tuesday Morning Setup

We are off to an interesting start this morning. 

First of all it's important to note that today is another Fed POMO day.  Those auctions.  The funny money from the POMO effect usually hits the markets late in themorning around 11ish or so.

Market is off sharply at the start.  Down around 75 points.  Could POMO reverse this trend later this morning?  Time will tell.

What I found interesting this morning was the bond action.  The 10 year is down despite a selloff in stocks:

Ironically bonds were up on yesterday's rally.  This correlation between stocks and bonds is exactly the opposite from what we should be seeing.  The market continues to trade irrationally.  I guess we shouldn't be surprise at this point.

A few things contributed to this mornings selloff:

Case shiller came in weaker than expected and US Steel missed badly:

Futures slid further after a disappointing report on home prices. The Standard & Poor's/Case-Shiller home price index fell 0.2 percent in August. Fifteen of the 20 cities measured in the index saw price declines, indicating the housing market remains very weak.

US Steel actually lost money.  So much for the global recovery.  I had a friend in the steel biz and he always told me that he could tell how the economy was doing based on how his business was.

They also guided lower.

The Bottom Line:

Never underestimate the POMO effect.  Stocks have already cut their losses.  You just gotta love the Fed's "funny money".

How long can we depend on them to keep propping us up?  Money is running short unless they want to continue and pummel the currency and continue to print.

That being said, the dollar is actually up today which was another reason why stocks dropped at the open.

I wouldn't be suprised to see another green day given the POMO effect.

Go Fed go!  Keep distorting the markets!

1 comment:

Anonymous said...

"Fifteen of the 20 cities measured in the index saw price declines, indicating the housing market remains very weak."

Hey Jeffy - want to guess which market is one of the five that continued to see gains?