Weekly Wrap-Up & April Outlook
The first quarter of 2008 was a disapointment, with the S&P 500 down about 10 percent, but the first week of the second quarter started with a strong 4 percent gain. It began with the market staging a tremendous rally on April 1, in which the S&P gained 47 points, or 3 ½ percent. I believe the second half of 2008 will be better, but we need to know where we’ve been, if we want to know where we’re going.
S&P 500
In the summer of 2007, we had the beginning of our subprime issues that started to hit the market. If you look at the chart below, this led the June S&P futures to fall almost 200 points to a low in August. In response to the subprime problems, the Federal Reserve cut the Fed Funds rate, which lead to a market rally in September. In October, the market fell sharply again and finding out that the subprime issues were more severe than originally thought.
By the end of January we were definitely in a full thrust downward spiral. This panic selling from January was spread by panic from continued subprime problems that eventually leaked into the overall credit markets with banks not wanting to lend to each other.
I think the stock market is currently in a consolidation phase and we’re starting to see the light at the end of the tunnel, even through it may be two years away. Now the market is going to have to do some bottoming.
My theme for April is that we are going to be in a trading affair, meaning, the market will stay within a trading range rather than trending up or down. I think the market is currently at the upper end of that trading band, so I would recommend selling S&P futures in the 1390-1400 range.
If the S&P 500 gets back down to the range of 1280-1310, I would be a buyer. When June or July rolls around, I would be leaning toward being more long than short.
Keep in mind that we are currently looking at the forest, and not the trees. If you want more detailed analysis such as support and resistance, entry and exits, where to place stops, how much money to risk, etc., please feel free to call me at 866-231-7811 to get my weekly or daily report.
Gold
If you look at the June gold futures below you can see a very strong correction that happened recently. June gold futures went from a high of $1,038 an ounce on March 17 to $876 an ounce by April 1. So within two weeks, gold lost $162 an ounce. Remember, each dollar move on one futures contract in gold is worth $100. Anyone long at the high would have lost $16,200 per contract. This is risky business we're talking here.
Despite this painful decline, I think the long term trend is still up for gold. For the month of April, I expect gold to be in a trading range of $850 and $950 an ounce.
Summary
The theme for April will be a trading affair. Various markets will continue to see consolidation into trading ranges. I think crude oil will be in a trading range between $97 and $108 a barrel for the month of April. Likewise, I expect the S&P 500 and gold to trade in a choppy consolidated range.
Keep your eye on the U.S. dollar as it directly impacts the price of other commodities. If the U.S. Dollar Index rallies to 75.00 or 76.00, it will put downward pressure on gold. I believe Europe is experiencing more of a slowdown than originally estimated, and that would support the dollar. There is speculation that the Bank of England may cut interest rates at next week’s April 10 meeting. That would also support the dollar.
The U.S. Dollar Index could rally to 75.25, but if you are trading it, I would recommend placing a stop at 7000. I think the dollar is closer to a bottom than many realize. Especially since Bernanke is almost done cutting interest rates.
Overall, virtually every market has seen increased volatility. The swings are getting bigger and to weather this you need to trade smaller because you need to absorb more noise in every trade that you make.
April will be largely a trading affair for many commodities. We will see consolidated trading ranges that present both opportunity and risk. On the economic front we are still shaky. Friday’s (April 4) employment data, issued by the Labor Department, showed a spike in the March unemployment rate with non-farm payrolls falling by 80,000. Meanwhile, manufacturing seems to have gone into a contraction and the housing market will most likely continue to spew negative news.
Currently, there isn’t much confidence out there in the stock market. Part of the rise in commodities over that last few years can be attributed to the lack of confidence present in the stock market. If people are not confident in the stock market they usually move into commodities; something tangible, something that they can touch.
Jeff Friedman is a Senior Market Strategist with Lind Plus. He can be reached at 866-231-7811 or via email at jfriedman@lind-waldock.com.
Past performance is not necessarily indicative of future results. The trading of commodity interests entails the risk of substantial loss. Prospective investors should carefully read the Disclosure Document where applicable before making an investment decision.
*No representation is being made regarding the actual or hypothetical performance of the systems at any other brokerage firm or prior to the dates reflected above. These numbers include commissions, but not fees. Contrary to most published results, please note that these monthly returns are calculated based on closed trade profit/loss and do not include changes in open trade equity. Futures trading involves the substantial risk of loss and may not be suitable for all investors. Past performance is not necessarily indicative of future results. All information, including performance and program description, has not been reviewed or verified by Lind-Waldock.
