CIA Extremely Pissed Off

Charts: The S&P 500 closed at 1133, up 1.6%; blowing past resistance of 1120 in big volume with good leadership. 1120 is not just another resistance level. The 50% retracement of the bear market’s losses means that the broad index is at the halfway point of the last bull market, where a huge number of investors are breakeven. They could dump shares, feel no pain, and abandon the stock market for something else. Chartists call this “overhead supply,” which triggers a Fibonacci resistance level, bread and butter to chart technicians. Furthermore, the first few trading days in January generally set the tone for the entire year, probably more so in 2010 because there are no big surprises (like Lehman’s collapse) around the corner.

Fundamentals: China, America, S. Korea, Britain, and the Euro-zone reported better than expected manufacturing data. These 5 represent about 80% of global industrial activity. Chinese data was the best in 5 years. Global chip sales increased 8.5% in November. In late December, US auto sales jumped. US RV sales are ramping up. Americans only buy RVs when they are happy.

Geopolitics: In Yemen, Saudi airstrikes killed 16 Houthi rebels. The Yemeni Army continues attacking AQAP. The White House confirmed that America is now using cruise missiles against AQAP and will take other direct military action if necessary (super-hawkish). Britain and America are convening a Yemen summit that all major allies are being forced to attend. In Pakistan, CIA drones killed 5 more bad guys in N. Waziristan Sunday night. The attacks occurred over a specific village, Hurja. Locals are reporting that there have been four drones permanently circling this town over the past few days. When one of the drones runs low on fuel it is replaced by another. Locals are complaining bitterly that if they so much as twitch, the drones start firing missiles, even humanitarian efforts to help the injured draw missile strikes (utterly heartless). The CIA has never used drones in this fashion before. The CIA is extremely pissed at this town and everybody in it.
Since we are starting a new decade in the Long War, let’s step back and take the long view. The Economist magazine forecasts that Iraq’s GDP will expand by 6.2% in 2010, #10 in the world. America’s most resolute military ally in Africa, Ethiopia, will grow at 7% this year, #5 in the world. America’s archenemy Venezuela has a 2010 GDP forecast of -3.4%, among the worst in the world. Data out of Iran is patchy, but its economy is a basket case. When violence was low in Afghanistan in 2004 its economy grew by a scorching 29%, probably #1 in the world. In 2009 Afghan GDP grew by a respectable 3.4%, despite escalating violence. There is no Afghan forecast but if the war goes well the economy will boom. Progress in the Long War is highly dependent on economic performance in the various economies of the combatant countries. Progress has been good so far.

Specific Stocks: Goldman Sachs upgraded Dow Chemical (DOW) today. Chemical companies like DOW that rely on natural gas for a feedstock have a price advantage over the ones reliant on oil. Increased industrial activity is good for all chemical outfits.