Investing Adventures

CPI report came out a few minutes ago showing core inflation, ex-food and energy I believe, remained unchanged in February. This allows the Fed to cut interest rates further next week if they deem it necessary. Everything I said about doom-and-gloom a couple of days ago can be tossed out the window. Forget the fact that we’re seeing record prices in oil and gold and the dollar’s weakness against everything (including the Peso I bet!). With CPI unchanged, expect the markets to be expecting their anticipated 75 bp cut.

If the current levels hold, expect the markets to move higher. For how long, I couldn’t say. Frankly, I’d rather ride The Hulk at Universal Studios’ Islands of Adventure. At least on that roller coaster, you know what’s coming when.

Here’s the DJIA chart from yesterday’s close. Notice how we retraced Wednesday’s losses and bumped up against resistance again almost perfectly this time. If we can close above resistance today, coupled with the Fed’s imminent rate cut next week and Visa’s IPO (largest IPO in history I believe at $16b), expect the markets to go higher.

Here’s a chart of the Dow Futures, known as the YMs. This chart is of the June futures contracts so volume’s a bit light since the rollover from March to June just occurred yesterday. Notice anything? Although volume’s lacking on the first half of the chart since these are the June contracts (the March contracts show the same graph with strong volume), doesn’t it look like an inverted head and shoulders with the neckline right around 12,200? So now the question is, was last week’s action the market bottom? Normally, inverted H&S patterns are a reversal signal, right? Then again the markets are so news driven technical patterns have been blown out recently. I still think we’re in need of going lower but for the short time, it looks as if we may be headed higher if this inverted H&S holds and the markets get their beloved rate cuts next week.

Edit:  Here’s a graph of the March Dow Futures.  The inverted H&S shows up quite a bit better since volume’s a bit heavier.

Over the past week, Fed governors and other officials involved with the FOMC have stated they have very little confidence that the US can avoid a recession.  The official definition of a recession requires two quarters of negative growth.  If the Fed isn’t certain about the US avoiding a recession, why the heavy rate cuts with the possibility of inflation increasing?

Most mortgages taken out during the housing boom were executed in or around 2005.  Why is that important?  From what I can tell, most folks around that time took out what’s known as a 3/1 ARM, or adjustable rate mortgage.  In other words, after 3 years, every year after the initial 3 year period, mortgage rate for that contract will adjust.  By the Fed cutting interest rates dramatically, I think they’re essentially bailing out those who jumped into the 3/1 ARM for whatever reason.  Granted, some hard working folks may have just gotten in over their heads and could use the extra year to either relocate or refinance.  But my guess is the majority of those benefiting are the real estate speculators.  Why is it that people which took a chance on an investment are being bailed out?  You don’t see that happening with investors on Wall Street or any other investment vehicles.

In any event, futures are down this morning from more comments from Fed officials about the potential for a recession.  I’ll probably sit the rest of the week out since the markets have been extremely choppy as of late but it’s hard to resist taking at least one trade.