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...