Yuan Effect..

Well, that pretty much lasted about an hour.   Even though market's reaction today is a contrast to Asian markets' reaction last night, we think it actually makes sense on a few fronts.  As pointed out yesterday, market has a short term memory and could've been already worrying about this week’s FOMC and more ’softer’ data coming.   Stocks that appreciated early actually held on to some partial gains at the end of today, they were the most beaten up (commodity/material ) group recently.    The strongest sector of the recent rally (notably last week), technology, pretty much went down the hill from the first tick ahead of a slew of earnings this week.    

Yesterday, “ ..To us, this duck lining up is the effect on commodities and commodities linked stocks it will have over the longer term as the significance is the probability of more China purchasing power..."  Remember, key words are ‘longer term”, it’s not a one day ‘soft landing' scenario.

We can see how the rise in Yuan might be hurting some technology stocks because pretty much all of the technology product we know these days are "Made in China"!   A rise in Yuan may hurt the cost side of things of American firms.    Of course,  it's really premature to even give any analysis to that aspect of the effect as on the other hand Semi’s should have had a better reaction as many semi’s are shipped into China to be included in these electronic parts.   Right now, nobody knows how far the Chinese Govt. would let the Yuan rise and the kind of time frame it is required to do so.    In all fairness, the move by China might just be a political stunt to please the G20 crowd a week ahead of their meeting.    In addition, the move in Yuan is not a huge surprise to many because the pressure has been onto China for many months to raise the Yuan.  The timing (expected later this year) was the surprise not the idea.   The rise of Yuan, may also ultimately benefit none other than China itself to combat its inflation.    It would surely benefit many commodity based names here, but it's really hard to tell its effect on rest of our sectors.

So what other message is there from this news?   It does give us a sense that China is doing what it can to stabilize its Economy and allow it to grow at a healthy pace.    No matter what, this news should be viewed as a really good thing for rest of the world.    Unfortunately, it's just not the sort of catalytic event people are looking for to break out further ahead of a busy news flow week..   Simply,  investors took the early strength to reduce the exposure and even more when the Euro weakened.

Ok, let's just move on!   This is actually a busy week on our home front.   There's the FOMC. meeting, a couple of Eco. reports and a few notable earning reports.    All these can be a catalyst or another to drive the market either way because the volume is still relatively thin out there.    In addition, we have this "end of quarter" trade going on here and a lot of the "good names" can be potentially pushed up to appear on portfolio managers' book.   To keep trend in tact,  we need to hold 1106SPX and 200MA.