Opening Position

October 2006


AS I placed my fingers on the keyboard to write this "Opening Position," the existing home sales numbers were released. I had to look. They were, as expected, disappointing, and have been so since June. When we have enjoyed two and a half years of a real estate boom, it's difficult to swallow the reality that home sales are slowing, which can have broad implications. The strength of the housing sector is strongly correlated with the US economy. This is due mainly to the sector's sensitivity to interest rates, which, as we all know, has a strong effect on the financial markets. It affects the purchasing power of the consumer and the value of the US dollar. Most businesses rely on the housing market, and a slowdown will naturally lead to a decline in the value of equities. So today, as soon as the existing home sales numbers were released, guess which direction the equity markets headed?

A continuation of this trend could lead to lower interest rates, uncertainty in the equity markets, and ultimately a weak demand for the US dollar. But in time, things would level off. In time, interest rates would reach a level that would encourage consumers to apply for home loans. This would start a rally in the housing market, which would act as a catalyst to a booming economy once again. These peaks and troughs, or cycles, are the reason why you need to do more than keep an eye on your portfolio.

IN this issue's Technical Analysis of STOCKS & COMMODITIES interview with Jerry Toepke of the Moore Research Center, starting on page 58, you'll get an idea of just how many variables you have to be aware of to gain a good sense of the overall performance of the markets. This is important for all traders where seasonal or cyclical movement is critical. In the futures markets, you have the various seasonals, and in the equity markets, there are the ups and downs in various sectors. Being aware of these movements will alert you to follow the leaders or, if you are a futures trader, the commercials. How do you do that? In Sam Bhugaloo's article "Watch The Commercials," starting on page 25, futures traders will find out how to identify where the commercials are and use that information to their advantage. Equity traders need to identify the turning points of the various sectors. Wouldn't you rather wait for the next move and get in early than jump into a market that has already started its move?
 

Jayanthi Gopalakrishnan,
Editor


Originally published in the October 2006 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved.
© Copyright 2006, Technical Analysis, Inc.



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