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...
No comments:
Post a Comment