Wednesday, July 14, 2010

Market outlook for July 14th (UPDATE)

So yesterday the market fooled me and went over the 10,300 level I thought would hold. We actually hit a high of 10,407 for the day. We went above the 50 Day Moving average, which now is at about 10,250, but seemed to stay below the 200 day Moving average which is now at 10,385. The Dow closed yesterday at 10,363. Earnings for Intel seemed to please folks after the closing bell yesterday, but today is another day and right now the Futures are pointing down before the expected economic data is released in an hour.

Today, Retail Sales will be reported along with Business Inventories, Import and Export Prices, the Minutes of the FOMC meeting from the Fed and Oil inventories. Any one of these will be food for Bulls and Bears alike. Retail sales are expected to be down -0.2%. Anything lower will mean fuel for the Bears and anything better will be a case for the Bulls. However, remember this, these are lagging indicators and for June. Here we are in July. The real question is, WHAT WILL THE 3RD AND 4TH QUARTER LOOK LIKE? IT will affect our Debt/GDP ratio and the cost of borrowing going forward as well as whether the government will get necessary taxes from increased growth to help pay for the debt. The answer to this also has political ramifications for Democrats and Republicans alike. So these numbers on the economy get more and more important as we approach the 4th quarter.

It was painful yesterday to watch the TZA Call Options drop 20% and the underlying stock price to drop 10% or $3.57/share. It ate away at my profits made on earlier transactions, but I held and did not sell any. I expect some recovery today and in the days ahead and still am very bearish going into the rest of the year.

For today, keep an eye on the 200 Day MA of 10,385 and also the 50 day MA of 10,250. I would like to see us stay below the 200 day and to go below the 50 day by the closing bell so that this temporary rally ends, but that's only because I am on the Short side of the market right now because I do not believe that the economy is healthy nor do I believe we are out of serious danger. Rallies to me give a false sense of confidence to people and that is not the reality of this world crisis.

UPDATE: 8:40am EST.
Retail Sales came in at -0.5% which was significantly worse than the -0.2% expected. So that's one big one for the Bears. But Retail Sales ex auto sales were down only -0.1% versus an expectation of only -0.2%. This makes the case for the Bulls. So pick you side and your poison as to what you believe. :) I believe the -0.5% because it is the pure overall number. Now tell me the economy is really doing better. Ha!

Also, Elizabeth Warren in charge of monitoring TARP funds said this morning on Bloomberg TV that 76% of large Banks on Wall Street have paid back their TARP loans. However, only 10% of the smaller Banks have been able to pay back TARP loans. She added that 15% of the smaller banks which borrowed TARP money have missed at least one dividend payment to the government for the use of these funds and that it is going to get worse for these smaller banks. Another piece of data for the Bears.

UPDATE 9:00am EST.
More bad news for the Bulls. Import prices dropped to a -0.6% compared to the previous month at +0.5%. There is No Inflation folks. There is Deflation as I have been saying now for a while. Export prices were down also to -0.2%. That's Deflationary as well! Let's see the market's reaction together today.

UPDATE: 5:00pm EST
The FOMC released their minutes today. If I had to boil it down this is what they said:

Six Years

Most FOMC policy makers expected that the U.S. may not return to its long-term rates of economic growth, unemployment and inflation for as long as six years, the minutes said.

“Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation,” the minutes said. “Most expected the convergence process to take no more than five to six years.”

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