09/13/10 - 09/17/10

   Last week lived up to expectations giving us the second lightest volume of the entire year, and a grand total of sixteen positive points on the Dow.  With most of the trading world back at work, and a quadruple witching closing out the week ahead, the long slow summer will finally be behind us, and I expect it to go out with a bang. We have a veritable smorgasbord of economic data for returning volume to feast on, which may be what prevents a major move downward, since it is only reasonable to assume there will be enough conflicting reports to keep the market guessing.  Of course, this means we should see a fair share of choppy trading.  In fact, I will be shocked if we don't see at least one daily or day to day swing of  around two hundred points on the Dow.
   The Basel III agreement over the weekend is giving banks more time to meet capital requirements, which has futures sky rocketing.  Call me crazy but this sounds like a fire chief telling the mayor of a burning city that he can take his time getting water.  However, the market seems to think the more lenient time frames and requirements are good for banking stocks, and thus a bank rally is induced.  The first two weeks of September have erased the losses taken over the entire month of August, and no one else seems to think this is dangerous.  It is.  History tells us that, like a plane, it takes much longer to climb up to altitude than it does to crash back to earth.  A steep rise, in a short amount of time, on frighteningly low volume, screams to me that the market will come back down very quickly.  Monday may simply be climbing the last few rungs of the ladder before jumping off.
   Tuesday brings tidings of retail sales for August, and business inventories for July, which should give us a pretty good idea of what business inventories for August will look like.  The market is expecting a smaller increase in sales than we got in July, and a larger increase in inventories.  I don't like that combination.  If inventories are rising and sales are dropping, that doesn't say to me, "business is good."  What I hear is, "my business has nowhere to go with this stuff," and that doesn't give me confidence in the economic outlook.  However, the market will probably look at rising inventories as a sign businesses are stocking up for impending sales, and will rise if the numbers come in above the .8% increase expected.
   On Wednesday we get bombarded with manufacturing data.  Beginning with the Empire State Manufacturing survey, and ending with industrial production and capacity utilization.  By 9:15 the market will have its snapshot of what the country is producing.  The New York manufacturing survey will more than likely come in lower than last month, but forecasts have set the bar low enough to not rattle the market.  Industrial production is also expected to have slowed, and capacity utilization is expected to come in well under the threshold that signals inflation is becoming a problem.  (That last part hurt to write.  Of course we aren't worrying about inflation right now)  All in all, a good set of data on Wednesday will give the market plenty of fodder to run higher.
   Thursday is going to be a very interesting day.  The most important releases come from the Philadelphia Fed, which stunned the market with a far more negative reading than expected last month; the Producer Price Index, which will give us very little information on whether or not deflation is gaining traction; and my personal favorite, the initial jobless claims for the week.  The Philly Fed's number last month was so bad that I can't see any way for the number to get worse (famous last words).  PPI is expected to have declined slightly, but given the slight increase we got last month, no one is going to jump to the conclusion that deflation is a problem.  As if interest rates of zero and the printing press running 24 hours a day aren't big enough clues.  The jobless numbers make my head throb.  Last weeks shocking "beat" was accompanied by news that due to the Labor Day holiday, the government "estimated" the numbers for nine states, including California (only the WORLD'S FOURTH LARGEST ECONOMY).  So I am pretty anxious to see what the revised numbers for last week are, and I will be utterly blown away if this week's numbers come anywhere close to the estimates of 440K economists have given.  Secretly I'm just waiting to see if Rick Santelli's head explodes on live TV when the report comes out.
   We close out the week with CPI and the Michigan sentiment numbers.  I don't trust the Michigan sentiment numbers, and certainly don't trust the estimates that say it went up last month.  Maybe with the world on vacation in August people drank their two pina coladas and truly left their worries behind, and that just might be enough to raise their "sentiment."  But reality, and school, and bills, and no new jobs are waiting for them this week, and those things scare me.
   Overall, I am keeping a keen eye on volume this week.  For all the talk of how the flash crash has scared half the market away for good, volume this week becomes a major headline to me.  If the volume returns, like I believe it will, then the market is in for a very bumpy ride.  Some of the data that comes out will be good, and some of it will be really bad.  Considering the fact that the market is near, or at, the top of the range I am expecting us to see a fair drop by the end of the week.  Of course that is assuming we don't break through resistance around 10,700 on the Dow.  My prediction for the week is a loss of 2-300 points, but that is laced with hope, as I still fear a much steeper decline in the near future.  If we break through 10,700 with any real volume though, we could end up around 11,000 by Friday, but I still say we go the other way.

09/07/10 - 09/10/10

   Clearly I couldn't have been more wrong about last week's market, as the rally I thought would begin in earnest this week came early.  We dipped again near the bottom of our summer long trading range with a weekly low of 9942, and then bounced, moronically at first, and then with conviction at the end of the week when the jobs numbers came in so much stronger than expected.  The major problem that I have with last week's rally is that it happened on some of the lightest volume of the year, and from a technical standpoint, has created the first part of a right shoulder on that low volume.  The timing of all of this is a little frightening to me for a number of reasons.
   We have a shortened trading week, which will likely not see any great expansion of volume as traders returning from vacation get their bearings.  We have a light data week as far as the number of indicators being released, but some of the data coming out is important enough to move the market.  And, we now have a Presidential address on the economy where we are expecting to hear new spending proposals and business tax incentives to try and jump start the economy before November.  Couple all of that with the news over the weekend that the European bank stress tests didn't accomplish what was originally thought, and we have a potential cliff's edge rising in front of us.
   Tomorrow we get the release of the Fed's Beige Book, which is a compilation of economic readings from the 12 regional Fed banks.  Given the language we have heard from the last two Fed meetings, I expect the report to say, "the economy is growing, but slowly."  Which seems to be the only phrase Bernanke will allow out of the Fed.  The last report showed a slow down in "the pace of economic activity" reported by the Atlanta and Chicago Fed, and this gave rise to more fears of a double dip.  My guess is that this beige book will be mixed like the last one, and the markets reaction will hinge on which regions report the worst news.
   Weekly jobless claims come out on Thursday,   but will be overshadowed by the trade balance numbers released at the same time.  China is expected to announce on Friday that their exports outpaced their imports, which more than likely means our imports grew more than our exports.  Expanding import numbers are not a good signal for the economy, and this number could definitely disappoint.
   The scariest event of the week for me is the Presidential address scheduled for Wednesday.  Obama is expected to unveil a $50B infrastructure spending plan to create short term jobs, as well as a $200B tax incentive plan for companies to spend on capital investment (computers, bulldozers, etc) and research and development.  My question is, is the administration afraid of the election in November, or are they afraid of the economy?  It is clear that the White House and Congress believe that more cash injections will buoy the market until November, but that may not be the case this time.  It's hard to believe a government that is telling me the economy is growing and that we are headed in the right direction, while they desperately spend money to try to fix the economy...
   I'm looking for the market to pause a little today, with perhaps a small pull back coming off of last week's run.  Continued stress over the European banks will also weigh on the market.  Tomorrow's Beige Book reading and Obama's address will be the market catalysts for the week, and given the utter lunacy this market has displayed over the last several weeks, my guess is that the market will like the President wanting to give businesses tax cuts.  Technically speaking we have some wiggle room here near the top of our trading range, so I believe we will have a day or two of gains, and then a down day to close out the week as we begin to fulfill this right shoulder.  By the end of the week I expect us to be right around where we are, give or take 75 points...

08/30/10 - 09/03/10

   The past week gave us the predictably bad news everyone BUT the "Economists Surveyed" expected, and this no volume August market reacted in what has become its predictable fashion, which is to say, stupidly.  Existing home sales were so far outside the realm of the forecasts given that the briefing forecasters should have jumped out of a very high window, and the market only lost 1.2%.  Durable goods orders missed by 2.9% on the down side, and the market was FLAT.  Initial claims came in at consensus, and the market started to take a hint, though only to the tune of 1%.  Then, for the grand finale, GDP was revised downward by .8%, which was better than expected, and the market Rallied a full 1.7%.  The easy argument is to say that the market had already priced in a majority of this news, and with word from the fed that they will do "whatever is necessary" to prevent a double dip, including "conventional and unconventional" methods, the only possible reaction for the market was a rally.  Hopefully I am not the only person that gets nervous when I hear Bernanke say he will use "unconventional" tools to stem this crisis.  Hopefully I am not the only one who thinks this sounds a lot like a guy trying to rob a bank with his finger pointing in his coat pocket hoping everyone will believe it's a gun.
   Let's look at quarterly GDP growth over the last 4 years:






   Does this look like GDP is leveling out or bottoming?  Has unemployment suddenly dropped back to 5% so that we can actually start producing again?  The fact of the matter is that until the jobs picture drastically improves, GDP will continue to get worse, and the market has NOT priced in what will inevitably be the dreaded Double Dip (although, I personally hate the term "Double Dip," because it presumes that we actually made a full recovery, which is debatable).  But this is a long term problem, and only has a minor impact on what will be happening over the next five days.
   We have a bevy of data coming out this week, which means we will probably get a little gridlock from conflicting reports.  I actually expect decent numbers on Monday with regards to personal income for July, but personal spending could disappoint as people continue to pay down debt.  Neither of these should be market moving numbers though, and I expect to see a flat to slightly up day to start the week.  Consumer confidence for August is the number I'm most interested in on Tuesday.  If we see a number below 48, look out.  Chicago PMI will likely miss on the downside, but is doubtful to be below 50, which would signal a contracting manufacturing sector, and therefore won't garner too much knee jerk reaction.
   On Wednesday we get Construction Spending, Auto and Truck sales, and none of these really matter beyond giving the talking heads something to talk about in the middle of the week.  The meat and potatoes for the week get plated on Thursday and Friday.  Thursday we get weekly job numbers followed by Q2 productivity, and July Factory orders.  Usually these wouldn't be significant reports, but given the GDP revision we saw last week, I am expecting to see much worse numbers than are expected.  The market will be a little tense as it waits for the final August Unemployment numbers due out Friday, so we may get a flat day regardless of the numbers we see.
   I seriously doubt Friday will be as tame if we see any major surprises in the jobs picture.  We've seen an upward revision every week for the last month in unemployment numbers, and I expect an ugly number, as most of the market certainly does.  If Non farm payrolls come in below July's -131K, it could be a very ugly day indeed.  In the private sector, the market is expecting to have added 10K jobs, which shouldn't be a hard number to meet, and might even get beaten on the upside, but unless it comes in with a huge upside surprise, even a slightly more positive number will be a confirmation of gloomy sentiment that will weigh heavily on the market.
   The rally on Friday crushed an otherwise sound market prediction for the week past, but plays happily into my predictions for this week.  It sets up nicely as a correction in this prevailing downtrend, and I am expecting that trend to continue beginning Tuesday.  We have not found the bottom of the range yet, and with only macro economic news in the spotlight for the week, I believe we will find it.  August and its obnoxiously low volumes will close out with a final sagging, and lead us into September with downward momentum.  I can see a bullish move within the range beginning next week and lasting two to three weeks, but only after we tickle the bottom of this summer range.  9800 here we come, but perhaps not for long.  I expect us to close down 300 or so points for the week come 4 o'clock Friday.

08/23/10-08/27/10

   We get an interesting week of Economic reports as we limp toward the end of the month, leading off with Existing home sales on Tuesday.  This isn't going to be a good number.  The market expects an 11% drop from the previous month to 4.75M, and the briefing forecast is for a 14% drop to 4.6M... If the actual number comes in, say, around 4.3M, pop goes the weasel.  I don't expect it to miss by that much, but it certainly can't be ruled out considering jobless claims for the week prior have been revised higher each of the last 4 weeks AND initial claims have risen each of the last 4 weeks. (News Flash: I don't think this week's jobless numbers are going to be any better!)  No jobs = No money = Deteriorating Credit.  Take in to account the sharp rise in the number of people drawing from, or borrowing against their 401K plans in order to survive, Fidelity marked a 2% rise last month, and it is hard to envision a number north of 4.6M.  At some point, the biggest real estate players will begin to start snapping up properties en masse at these ridiculous relative discounts, but I don't see that starting to happen with any effect until early spring of next year, if then.
   Durable Goods and New Home Sales are Wednesday, and since the easy bet is for New Home Sales to come in under expectations (it will) the more interesting number will be Durable Goods.  The Philly Fed came out with a "shocking" negative number last week that marked a 12 point reversal from the previous month's reading of 5.1... That means manufacturing in the region declined by 12% in one month, and there is no reason to believe this won't have a significant correlation to Durable Goods orders this week.
   The slow down in manufacturing is also telling of the jobs picture we are looking forward to.  We saw fairly significant declines in weekly initial jobless claims through the spring as companies that cut back too much during the height of the collapse brought workers back on the payroll, and as the vacation/travelling season got underway.  Since the end of July we have seen weekly rises in initial claims that the Government wants to blame on the gradual laying off of census workers.  Let's be clear on this point: Almost every job the stimulus has paid for has been temporary, some only lasting hours, and we have gone beyond the scope and range of the stimulus... School has started again, and the service industry will go through its seasonal swing.  Pairing that with a slow down in manufacturing, and a pick up in Mergers and Acquisitions gives us predictably higher unemployment rates.
   On Friday we get the revised GDP numbers for Q2.  Given a rather drastic decline in productivity last month, I'm expecting a downward revision, with very little hope of an upside surprise.  So the economic data this week, instead of shining like that green beacon of hope and prosperity on the far shore of the lake, is swinging above us like the hangman's noose.  The two wild cards for the week are the Jackson hole conference for the Fed, and whatever M&A deals get announced this week.
   Jackson Hole is usually not a significant fed meeting, but clearly will be this week.  No one is expecting any solid policy decisions from Bernanke this week either, but depending on how much darker the jobs picture gets, I think we can reasonably harbor expectations for continuingly progressive language regarding Quantitative Easing 2.  The market has not received the Fed warmly over the last few weeks though, so there is no real way of predicting what kind of reaction we will see this week.
   M&A started to pick up last week, and the consensus from the "hopers" is that this week will be better.  It's hard to predict if we'll see any blockbuster deals though.  We know there is an inordinate amount of cash on the books for a lot of companies, but that hasn't been helping me sleep at night.  These companies are holding that cash for a reason.  With the big wigs coming back from vacation, and the promise of legitimate market volume returning over the next few weeks, my guess is that some of that cash will start to get tossed around, but will there be enough THIS week to buoy the market if the economic data is as gloomy as I expect?  I don't think so.
   There will certainly be deals this week, and I hope I get lucky enough to have some naked calls on one of them, which is a sentiment that may prop up a number of stock prices through speculation, but I also believe this market is seeking the bottom end of the range around 9800-9900 on the Dow, and 1030-1040 on the S&P.  My guess is that we get there this week through some very choppy trading.  The volume still isn't back, and that will cause some big daily swings, but when the dust settles on Friday, I'm saying we are 2-400 points lower.