The markets opened up strong and remained fairly strong throughout the morning. It was led by the news over the weekend the Chinese will let the Yuan float and therefore strengthen against the US dollar. Theoretically, this should make our products, good, and services “cheaper” over in Asia and give a boost to our companies.
The DOW was in the triple digits at the open, but ended up down 8 points or flat. The NASDAQ was down 20 points, and the S&P down 4.
The weaker dollar was good for commodity prices, oil, and pushed interest rates higher, therefore sending Treasury prices lower. Materials and energy stocks were markedly higher.
The stronger Yuan will help reduce inflation in China and the Chinese government may not have to raise rates soon. However, the Yuan story couldn’t help allay fears about our own economy and the US consumer. Profit warnings sent retailers and restaurant chains negative. Watching the rates of growth will be important over the next few weeks. Also any Government “bailouts” regardless of what they call it will also be important.
Last week, I gave you 2 stocks, Clean Harbors (CLH) and Nalco Holding (NCL), to study. Both are environmental cleanup which should benefit from the Gulf Oil Spill. This last stock, The Shaw Group (SHAW) is also in the environmental cleanup space and has won contracts to take care of the Louisiana coastline.
I have attached a 2 charts to look at. The first is a longer term chart to get an idea where the stock has been, and where it could be headed. The second chart is a close up view of the stock. It has broken through resistance and is showing signs of strength. Even though it has already had a nice run, it really depends upon when you think they will cap this well. If it will be a while longer, they will have quite a bit more cleanup work.
Keep studying,
Dan Stewart CFA®
