Some traders took hope yesterday in the Bank of America (BAC) purchase of a $2 billion convertible preferred in Countrywide Financial (CFC +0.92) and others began to fear that the Fed will not likely cut the fed funds rate as the federal deficit is anticipated to fall from $248 billion to $158 billion this year. But, the truth is that traders are scratching their heads as to market direction.

The USD lifted vs the Yen as the Bank of Japan decided to keep its key interest rate unchanged. The BOJ reiterated its intention to narrow the gap between Japan's very low interest rates compared to all other nations. In doing so, the USD will come under pressure, and the Carry Trade will start to unwind again, causing more damage to global equity index levels. So, traders have their eye on the USD:Yen trade.

On the earnings front, Toronto-Dominion Bank (TD) reported a +39-pct increase in Q3 earnings to C$1.1 billion, citing improvements across the board, domestically and internationally. HB&B that had no exposure to the sub-prime market today continue to have solid earnings growth.

Smithfield Foods (SFD) Q1 net income more than doubled on net income of $54.5 million, but Hormel Foods (HRL) Q3 net income fell -3.7-pct to $57.4 million.

As to the major deals, Home Depot (HD $34.02) is willing to take a $1.3 billion haircut on the sale of a business unit because they want the capital to buy back shares. Their bankers are not so sure they like the deal. If Home Depot waited until a full-blown Bear phase set in, that haircut might not look so bad, but if they don’t wait to buy at least in the high 20’s, it’s lose-lose.

HD is likely to pay $0.93 in dividends in the current year. If you were to buy the stock in a Bear market pullback at say $30 with a two-year price target of $60 and probably a total of $2.20 in dividends over that period, your Total Return would be close to +50 pct p.a. With a new CEO, Frank Blake, an inventory clean-out, a return to Return On equity (ROE) in the 20+ pct range, Home Depot will definitely be a consideration to move from the Cara US 100 to the Global 100 where it used to be.

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Home Depot [GICS 25, Dow 30]
(HD: Yahoo Finance file)
(HD: StockChart chart)
(HD: Billcara2 chart)
(HD: ADVFN Financial Data)
(HD: Value Line Report Jul. 6: next one is due Oct. 6)

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Asian markets rallied yesterday while European stocks gave back nearly all their gains to close marginally higher, eg, DAX +0.15-pct and FTSE +0.01-pct. Today, Asia-Pacific was broadly weaker except for China and India.

The USD is a little weaker this morning, and Gold a little stronger.

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International Economics Review

US July Durable Goods was reported (8:30am ET today) to increase +5.9 pct, which is far in excess of expectations. The healthy US manufacturing number is a reflection of continued economic growth, but will lead to talk that the Fed funds rate is not likely to be cut in Sept.

US Economic Calendar

Another excellent Economic Calendar is provided by BMONesbittBurns.

Econoday Weekly International Report

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The Cara Global 100 Stockwatch

Here are the Thursday session Cara 100 gainers.

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Here are Cara 100 losers from Thursday.

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There were no Cara 100 stocks that hit 52-week intra-day highs or lows in the Thursday session.

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Here are the Cara 100 stocks that had extreme volume changes.

It pays to watch the price and volume extremes, ie, Money Flow, especially when markets start trending.

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Key Stocks plus Cara 100 In Focus

I am appreciative to the folks at KNOBIAS, Inc for providing the Cara 100 summaries.

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Relative Strength Index (RSI) analysis of the Cara 100 company stocks .

RSI > 70 (2)

RSI < 30 (2)

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Here are the Cara 100 stocks trading with the highest and lowest RSI-7, sorted by (i) daily and (ii) monthly values, for Monday:

“Chris,” used BillCara2.com data that is unsmoothed, unlike the data from Worden used by “David”.

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US Equity Markets Review

DJIA (interactive) chart

The DJIA dropped -0.25 pct to 13236.

For short-term oriented traders. I still believe the US equity market is good for a further rally of 250 to 750 points on the DJIA. But, the market is at a pivotal point, so this is a time where we have to stick to our plan, and watch the RSI-7 and MACD indicators of the price data.

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NASDAQ Composite (interactive) chart

The Nasdaq Composite was off -0.44 pct to close at 2541.7.

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International Equity Markets Review

Asia-Pacific

The indexes across Asia-Pacific equity markets were mixed.

Here is the latest session data for the Asia-Pacific stock exchanges.

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Here is the latest chart for the Japanese Nikkei 225 index.

The Nikkei Dow was down -0.41 pct at 16249. Thursday’s strong gap open needs to be consolidated.

Today, traders should continue to watch (i) the Dollar: Yen trade; (ii) the EWJ (Japan ETF that trades in USD in NY); and (iii) the key Japanese stocks and ADRs that trade on the NYSE to determine how the Nikkei 225 is likely to open Monday.

Yen strength has hurt Japanese exporters, including the auto manufacturers. As I wrote a week ago, I would be bottom-fishing the top quality auto makers, but only if, as, and when the Yen weakens, which it has now with the Bank Of Japan liquidity injections, and a return (for now at least) of the Carry Trade.

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Here is the latest chart for the Singapore index .

Today, Singapore was flat at 3369.5, which needed to consolidate yesterday’s strong gap open.

Indonesia lifted again +1.20 pct to 2143.

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Here is the latest chart for the Shanghai Composite index .

The Shanghai Composite gained +1.49 pct today to 5107.7, which is another fresh all-time closing record high. The People’s Bank of China raised rates again earlier this week. Inflation is a problem there, but the equity market is being driven by investor confidence in the economy.

The Shanghai Composite has rocketed from 1000 to 5000 in just over 24 months. Pegging the Yuan to the declining USD has really helped.

Ultimately, the end of the Carry Trade and the strengthening of the Yen will hurt China because imports from Japan (and from other neighboring countries) will be more costly. At some point, either raised interest rates or a too weak Yuan will force the Chinese authorities to release the peg to the USD – at least much faster than they have been.

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Here is the latest chart for the Hong Kong Heng Seng index .

The Hong Kong market dropped a bit (-0.20 pct) to close at 22922. I still believe that a new high will be set in the near future.

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Here is the latest chart for the India BSE 30 index .

Today, the Bombay Stock Exchange BSE 30 Sensex index gained +1.84 pct to 14425. I believe the recovery from the sharp pull-back this summer is going to proceed to new high levels for the index.

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Here is the latest chart for the Australian All Ordinaries index .

The All Ordinaries index of Australia dropped -1.02 pct today to close at 6087. I continue to believe that a new rally will take the Aussie bourse to a return to July highs. For that to happen, however, the Basic Materials sector will have to take the lead.

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Europe>

Here is the latest session data for the bourses of Europe.

There is a broad pullback of modest proportions today (8:08am ET) across Europe.

Here is the latest chart for the UK FTSE 100 index.

The FTSE is flat at 6197.6 today in mid session. I do not think that the FTSE will return quite to the former high of 6754 before the start of the next downwave in global equity markets.

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US Dollar Review

Here is the chart of the recent trading.

The trade-weighted USD is down again this morning at 80.868. A USD in the 70’s is an almost certainty based on Bank Of Japan plans to raise rates in this or the next quarter.

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Oil Review

Interactive Chart of Weekly Crude Oil:

Here is the e-miNY Oct-07 Crude Oil chart.

It is presently (about 7:50am) at 69.825.

The response to the Hurricane Dean miss of the US oil infrastructure in the Gulf o Mexico and the simultaneous broad market sell-off recently combined to cause Energy to sell down to over-sold levels. There will be more hurricanes to come, and market prices will rebound as credit becomes available due to the action of the Fed and other G-20 central banks.

I think there will be a recovery in Crude Oil over the next month, to put the price into the low to mid 70’s. There may be a spike to the high 70’s, but I believe a 65-75 trading range is most likely. An economic recession in the US, should it occur, would pull the oil price down to 55-65, but the prospects of that are modest at best for this year. In 2008, with the China Summer Games and the pre-election spending, I think that a US recession is unlikely.

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Gold & Precious Metals Review

Here is the Recent Spot Gold chart.

Spot gold is presently (about 8:20am) at 661.70, a little higher than yesterday.

As I say, “Soon to rally”. I don’t see how there could be a continuation of higher broad equity market prices without higher prices for the gold metal and the goldminer stocks. I am short-term bullish.

The gold picture for the next several years is looking extremely positive since G-20 monetary authorities are not stopping inflation as fast as they’d like because of credit market problems.

The short-term picture for gold and goldminer shares is quite different to the silver and silver company Silver Wheaton.

The following chart shows an over-sold condition of goldminer stocks relative to gold bullion. At this point I believe that it would be appropriate to sell gold and buy goldminer shares.

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Here is the Recent Spot Silver chart.

Spot silver is stronger today (8:23am ET), presently at 11.70, which is the same as at this time yesterday.

“Room to grow. Time to buy the silver stocks.” But the short-term picture shows me that some of the silver stocks made a premature move.

The following chart shows an over-sold condition of silver bullion relative to silverminer stocks. At this point, the chart indicates that, for a paired trade, it would be appropriate to sell Silver Wheaton (SLW) and buy silver. However, this trade would make me nervous. If there is to be a rally in the metals, the preferred trade is to go long the stock.

I also believe that base metals like copper and nickel are over-sold, and I believe there will soon be a rally. Should that be the case, the miners will out-perform on the upside because of the leverage involved, ie, many of the miners need gold prices of over $600 just to break even.

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Wrap-up

I think we are all getting the feeling this week that after the Fed and the other G-20 central banks got heavily involved in capital markets a couple weeks ago the pricing mechanism of the so-called free market seems to be under the control of “somebody”.

The close today will likely give an indication of how “they” want the direction of the equity market to move. Yes, playing against what looks like a stacked deck is an uncomfortable feeling.

But, that is the challenge of the capital markets. It is what it is.

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