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The Hindenburg Omen, Sowood Capital Selling Out...


Some are contributing Monday's rally to end of month mark up while others feel this is buy the break mentality.

The Hindenburg Omen

Dr. Marc Faber, writer of the Doom Gloom and Boom Report is in the FT today talking about the Hindenburg Omen. This is a situation where a substantial number of stocks establish new annual highs or a large number set new lows - but not both. Large new highs and large new lows simultaneously indicate a period of extreme divergence in the stock market. Such divergence is not usually conducive to future rising prices. Faber reports "investors seem more concerned about missing the next rally than avoiding the train wreck."

In addition to divergence we have the brokers breaking on greater volume with Goldman Sachs (GS) the leader. Low volume on the rally as compared to the volume rise on Friday's break is not bullish behavior.

Prime Shunning Subprime

Most headlines today are carrying stories concerning the rising cost of insurance against credit defaults. They hit record levels on both sides of the Atlantic and troubles in the German banking sector mentioned yesterday are still front page news.

Prime brokers are trimming credit lines to groups with heavy exposure to subprime mortgages. American Home Mortgage (AHM) is delaying paying dividends and may delay late payments. This news had the stock almost halved in value yesterday.

For Sale

In further buyout news, Sowood Capital is selling the funds' portfolio to Citadel, the Chicago based hedge fund run by billionaire Kenneth Griffin. Verizon Wireless (VZ) and Britain's Vodafone (VOD), is to acquire Rural Cellular in a deal valued at $2.67 bln that will expand its US wireless service coverage in rural markets and add about 700,000 subscribers

News From the East

Doosan Infracore on Monday announced the largest overseas acquisition by a South Korean company, buying three units from Ingersoll-Rand, the US conglomerate, for $4.9 bln. The deal will make South Korea's largest construction equipment maker a significant global player,

Chinese shares continue to rally even with the discount being raised again yesterday. One of the problems facing Chinese investors is that they are not free to go and invest anywhere but must keep their funds in China so Chinese equities are the only viable investment.

We have Treasury Secretary Paulson in China today trying to enroll the Chinese into strengthening the Remnimbi sooner rather than later. This always causes a bit of concern as protectionist measures could come to the forefront.

Commodity prices are higher led to the upside by nat-gas, which rose 4.7%, and livestock prices. China is a large consumer of pork and prices now are up 12% for the month while live cattle prices are up 4.5%. For the month the DJ-AIG commodity index is up 1.05%.
No positions in stocks mentioned.

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