Fundamental Trading Diary

Fundamental analysis of the capital markets

The Upcoming Week

This week has many major and relavent economic announcements:

  • Exisiting home sales at 10:00am today
  • New home sales tomorrow at 10:00am tomorrow
  • Core durable goods Wednesday at 8:30am
  • GDP q/q on Thursday at Thursday

The market has reacted to last week’s news by rallying to a short-term peak.  The VIX is at a 1 month – nearly 50% lower than it was one month ago while the Dow bounced off lows at 11,000.  This week will ultimately prove that the appropriate valuation is much closer to those lows than it is attempting to go higher.  The backdrop of overly leveraged banks, consumers, governments and corporations in contrast with value destructive fuel prices and stifling debt servicing payments  serves up an economic picture which is far more aligned with Dow 10,000 than Dow 12,000 at this point.

I remain short two NQ (1921.00 and 1938.00) which are currently in a modest profit of $180.00.  I am holding this position steady on my expectations for home sales, durable goods and GDP numbers to be fairly bad.

Timing the Turn-Around

This all boils down to the health of the American consumer, and ability of banks to lend to them, and the economic latitude American corporations are given to fail.  Engineering a recovery will require practising economic darwinism so that the inferior actors will be replaced by more efficient and competitive ones.  Since this isn’t even conceivable at this stage, we can’t think about a recovery.

Update: Aug 25, 1:34 PM:  I took some profit and covered one of my shorts at 1895.00.

Update: Aug 25, 4:45 PM:  When you’re right, you’re right… 🙂


August 25, 2008 - Posted by | Uncategorized

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