Thursday, September 29, 2011

Market comments for Sept. 29, 2011: Still in a tight range!

Initial Jobless Claims dropped this week to 391K, which was lower than expected. This data gave the market a boost in premarket. Also reported this morning was a revised GDP number for Q2. The final number reported GDP grew at 1.3%. Both pieces of data were better news than expected and traders are hoping to time the bottom of the market as many are venturing in the past few days. This stems form "hope" the EU has a plan for solving the sovereign debt problem for Greece and that their strategy will be a template for Italy should it be necessary. It's the same action Bernanke is taking, print more money.

A good friend of mine dropped me an email early this morning with an article from ZeroHedge worth reading. Here is the link. The article discusses Fed Chairman Bernanke's speech last night and his concerns about stemming deflation it seems at all costs. This is worth the read. The article is titled, "Goodbye Operation Twist, Hello QE X+1" and was written by Tyler Durden very early this morning.

Now that we recently retested Dow 11,000 and it held, even tough we went below 11,000 for a couple of days, it looks as though we are going to retest Dow 11,500 again for the 3rd time in several months. We seem to be more volatile lately, but we are still holding this tight range of between 11,000 and 11,500. Traders love the daily volatility, but long term investors don't and are looking for a guide to market direction.

UPDATE: 6:00am PST
Germany's lower House of Parliament has approved the expansion of the bailout fund needed for the sovereign debt crisis. Read the news by clicking here.

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Monday, September 26, 2011

Crude Oil versus Gasoline prices

An Anonymous reader asked in my last post on Gold and Silver, why does there appear to be such a lag in the drop in price of Crude Oil versus the cost of gasoline at the pump? I said I would check it out and report back if I found anything relevant. So this morning I have posted 2 charts. One is on Crude Oil prices over the past 2 years and the other tracks Gasoline prices over the same period. Here are the charts:

There does appear to be a longer lag time most recently as gasoline prices should be lower. I can't explain it so as my reader suggested, maybe the Oil companies are trying to gut us to improve their profits as he suggested. Another possibility is that because demand has dropped significantly with the slowdown in world GDP, the Gasoline available today was produced using higher priced Oil and that it will take more time to use this Oil up, hence the lag in Gasoline prices. You wouldn't lower the prices of something you paid higher for until you sold it and then might drop your price of that product. The same is most likely true for Gasoline as well. The real gouging may take place on the front end when Oil prices rise rapidly. They most likely feel justified to raise prices then as everyone knows Oil prices were going up, hence the rise in the cost of Gasoline. It's a psychological game played with Consumers the losers. You can bet on that.

Thanks Anonymous for the question.

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Saturday, September 24, 2011

Gold and Silver correction: Where are we headed and is there a historical basis for the prediction?

Due to the volatility of both Gold and Silver this week I thought I would share some charts on both precious metals. I looked at the 5 year charts of both and then a chart as to what Silver did from 1912 to 1950, which covers the Stock market crashes of 1929 and 1938/1939. These were the Great Depression years and there may be clues to tell us what we might expect now.

First the current 5 year charts on Gold and Silver:

You can see the gains both had over the past 5 years as well as the recent loss from the highs recently achieved. Silver is much more volatile than Gold and with the gains that make one thrilled to own Silver, there is the extra pain of experiencing more dramatic loses as the chart shows.

Looking at the chart below on Silver from 1912 to 1950, you can see where each stock market crash precipitated a drop in Silver prices. So when the stock market drops so do Silver prices. Looking at the Gold prices during this period will not show anything because Gold prices were managed by the Gov't as to not fluctuate and many say that is the reason why we had the Great Depression because the Federal Reserve could not print money as we were tied to the Gold Standard during those years, unlike today where the Fed can just keep printing money which resulted in the price of Gold rising dramatically and pulling Silver with it.

If the past is any indication of the future, you can expect these metals to drop as long as the stock market in turn drops. If you believe we are going down much further in the stock market, expect more losses in these metals with more of a loss from Silver than Gold. If you think we are headed back up shortly in the stock market, buy Silver more than Gold and you will gain a higher percentage on your Silver holdings, if the market does indeed go up as you expect. I am still convinced the stock market will head lower over the coming weeks and months.

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Friday, September 23, 2011

Market comments for Sept. 23, 2011: Another down day

The stock market is going to open in 1/2 hour. The Dow Futures are down another 110 points pointing to a lower open. As a reminder of where we are now, I have included 2 charts today. One is of the Dow and the other is for Germany's DAX index. I have placed an "X" on the Dax chart to where the market is currently as its market is open. The DAX is very close to the 5000 level. The German DAX is trending clearly down from the red lines I have drawn. Our Dow chart matched the recent low and I fully expect all our Indexes will go lower. We are in the second inning of a 9 inning game and more is to come to the downside. As I have stated before, this drop will not be straight down as there will be days up. So it will look more like a zig-zag pattern. I am pretty confident the market will close down today because no one wants to buy stocks today going into an uncertain weekend. Also, yesterday's volume was heavy at 300 Million traded on the Dow.

Here are the charts:

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Thursday, September 22, 2011

Market comments for Sept. 22, 2011: The Battle lines are drawn

With Initial Jobless Claims again high at 423K as reported this morning and the Fed action to sell short term Treasuries and buying long term Treasuries, called the Twist, and European markets still unresolved on Greece's bailout, the perfect storm has gathered.

Today there is a fight to hold above the previous lows made in August for the Dow, which was 10,719. The initial drop this morning so far has dropped over 320 points to a low of 10,803 and while we are closer to that level of 10,719, the Bulls are going to try and hold her or move up for a cushion. Inevitably the markets new low will kick in. It may not be today, but we are going lower. There is no good news out there today and none expected. YOU MAY BE SORRY YOU DIDN'T SELL TODAY WHEN YOU LOOK BACK IN HINDSIGHT!

The DAX is down over 4% today as is the CAC. In a previous post yesterday, I showed the trend of both of these indexes before today's additional drop. The path is clear for where we are headed. We are all locked into a Global dance and when the music stops, will you find a chair to sit on or will you be eliminated?

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Tuesday, September 20, 2011

Market comments for Sept. 20, 2011

Today I have a series of 3 charts to show you, but before I do a little explanation and commentary. Over the past several months now our US market has been in a relatively tight range of between 11,500 and 11,000. It has been a stated fact by many analysts that the US market is following the European markets due to the concern of a default of Greece. Even as recently as this past weekend, there was news that the governments bailing out Greece wanted to extract some guarantees that Greece was serious and they wanted to see Greece promise to layoff about 100,000 government workers. So that is the backdrop story.

I have put together a chart of Germany's DAX Index, France's CAC 40 Index and the Dow. All are 1 year in duration as of the close yesterday. First the charts and then the commentary.

As you can see from the charts above, Germany and France's Indexes are still apparently going lower and the Dow and other US Indexes seem to be not following the most recent trend as show by my red lines. To me I interpret this to mean that 2 scenarios are possible, First and to me the most likely scenario is that any more of a drop by these European markets may result in a sharper drop by the Dow. The other scenario is that we will disconnect from these European markets and stay within our tight range until our own economic results determine our separate direction. Much depends right now on the politics of the negotiations by Congress over the next few months and to whether the joint committee will be able to agree on spending cuts and revenue increases. However, be forewarned that Europe is really driving our markets and we could be setting up an alarming drop as many are not prepared for the market to go lower. I was at a party on Sunday afternoon where someone who was talking about the market stated that all indicators he has been watching have flashed a Bull market rally is about to begin. I told him I didn't know what he was watching but I think we are firmly in a Bear market and we are going much lower.

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Monday, September 19, 2011

Market comments for Sept. 19, 2011

We are technically still in that tight range of between 11,000 and 11,500 and not emphatically broken out of the range on either side of it. Europe is still in crisis and the group of European Finance Ministers did not listen to Treasury Secretary Tim Geithner this weekend in his plea for them to stand together and do whatever is necessary to bail out Greece, even if it means to print more Euros. This has caused our Futures markets to be down before the open. The Dow for example is down about 185 points. The European markets are down today about 3% or more and this will come here as well. Oil is down over $2/barrel. So we now make a reverse turn after Friday's Sept. Options Expiration and head back towards Dow 11,000 and retest once again.

This week the Fed plays a big role in market impact. Stay tuned to see what they have decided.

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Thursday, September 15, 2011

Market comments for Sept. 15th, 2011

Initial Jobless Claims for the week ending 9/10 came in at 428K. Expectations were for only 410K. This number is a 2 month high. The previous week's data was also revised upward from 414K to 417K. Also released this morning was the Empire Manufacturing number. It came in at -8.8 compared to an expectation of a -4.0 reading for September. August's data was a -7.7 reading.

Industrial production came in at 0.2% for August against an expectation of 0.0% and a reading in July of 0.9%. CPI for August was reported at 0.4%, while the expectation was for 0.2%.

These bits of data do not show an economy in recovery, but quite the opposite. In spite of this, the stock market rallied at the open and the Dow was up about 100 points at 7:00am PST. So much for bad news affecting the markets.

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Monday, September 12, 2011

The Stimulus plan. Did it really work to help unemployment?

Much of the argument regarding the Unemployment rate and whether the stimulus plan President Obama passed after his election, boils down to how many are interpreting the data. My readers know I do technical analysis of charts for the stock market. This skill can also be used to analyze any data as most engineers know. I learned much about charting as an engineer for IBM. So let me show you how I interpret the Unemployment rate chart below. First the chart and then the discussion.

In the chart above, I have an arrow showing when President Obama actually started his job as president. It was in late January 2009. It took a few months to pass the Stimulus plan and then additional months before the effect would be felt in the economy. You can see the trajectory before President Obama took office. The steep climb in the unemployment rate was astounding. It had built up momentum and this momentum was going to continue for an additional 6 months before even a passed stimulus package could be start to be spent. Then was the lag, as the plan got implemented which then we were at the peak unemployment rate. The argument that the stimulus did not work are just ludicrous.

The only way out of the problems we have with the debt and with unemployment is to get the economy growing again so more people can pay taxes and that government plays a role in doing that, along with the private sector. The private sector is uncertain about the near term future and frozen like a deer at night looking into the headlights of an oncoming car or truck. The Jobs Stimulus Plan President Obama offered up last week is the only game out there currently that can help. If Republicans, and specifically the Tea Party, can stimulate the economy another way, have at it. Propose something, but don't just say NO! I know your number one priority is to see that President Obama doesn't get re-elected. But you own the economy now too and you haven't passed anything to help. So get on the train or get out of the way!

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Sunday, September 11, 2011

Remembering 9/11, then and now at the stock market.

As we stop and pause and consider the events of 9/11, on this 10th anniversary, there isn't much I can say as I find myself as speechless as I was on that day, having watched it live on TV that morning. The world stops and remembers those who lost their lives, but the world does moves on, thank God.

I remembered the aftermath and the fact the stock market was closed for about a week and when it opened we took a big hit. The Dow had been as high then as 11,500, but it dropped sharply and over days and weeks went as low as 7,000.

This morning I have put together a 2 year chart of the Dow which will show the the tightening range we have been within the past month. The red lines on the chart below show this range tightening. The triangle is pointing to a further downward trend. The top red line shows that we had a trend headed down and that even though we broke to the upside, we resumed this trend over the past month as the red line was drawn to touch those peaks.

Where are we headed? Well I have drawn the blue arrow indicating where I think it's going and that is down. Could we go down as low as Dow 7,000 ? Yes and unfortunately we can go lower. Not a positive picture of things to come, but the world has changed since 9/11 and it's not been for the better.

The chart below covers June1, 2001 through Dec. 31, 2001 and shows the decline of the markets in the aftermath of 9/11.

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Saturday, September 10, 2011

Stock market summary and look ahead.

As predicted in yesterday's post, the markets sold off. The Dow closed down 303 points to 10,992, again breaking below the 11,000 level. Looking at the 3 month chart of the Dow, it has been easier for the Dow to go below 11,000 than it has to go over 11,500. The pressure is to the down side. And all the news is to the downside as well. You can see from the chart below that the blue line of the 400 day MA is proving to be resistance as well.

A big test for the Dow is soon coming. The 52 week low is at 10,458 and this will be tested and new lows will be set, in my opinion.

I was at a Berkeley Art Gallery (ACCI) opening show for some of my wife's art and her friends last night. It was a good show. One of the artist husbands and I were discussing the big drop in the market yesterday and he suggested that the drop was because of President Obama's speech. I suggested that this was not the reason for the drop and that it was the European Central Bank's Chief Economist quitting over disagreement with the purchasing of Eurobonds by the ECB. (read yesterday's post). European turmoil will continue to lead our markets direction and I fully expect it to get worse with all markets eventually returning to test the lows of 2009. This level corresponds to 6,400 on the Dow, 675 on the S&P 500 and 1300 on the Nasdaq.

Caution is the word going forward. If you are in cash, you have no worries about the market. If you are long this market I would be protecting my assets by either selling some stocks and taking some money out of the market, or I would hedge my longs with some shorts or even buying some ETF's which go in the opposite direction of their underlying stock Index. This is no time to be taking big risks. The Put to Call ratio has been over 1.00 for the past 29 out of 31 trading days. That is extraordinary!

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Friday, September 09, 2011

Market comments for Sept. 9th, 2011

Many aren't sure about whether the market will close down or rally later today. You can bet that because of what's happening in Europe on the debt crisis and because it it the 9/11 10th anniversary, it will close down. Add the fact that there is a terrorist warning and you have a recipe for many to dump stocks today. The ECB has confirmed the resignation of its Chief Economist J. Stark over issues on Eurobonds. This caused markets in Europe to drop sharply. Mr. Stark, one of the ECB's most outspoken anti-inflation "hawks" had opposed the ECB's decision last month to reactivate its government bond purchase program, as did the head of Germany's central bank, Jens Weidmann. To read more on this from the Wall St. Journal Europe, click here.

In Financial news, Consumer credit increased in July according to data released yesterday. For a context, June's data showed Consumer Credit at $11.3 Billion. Expectations were for this to be down to $5.0 Billion for July. Instead July's number came in at $12.0 Billion.

Today's release of Wholesale Inventories showed an increase of 0.8%, Expectations were for a 0.7% number for July. June's data came in at 0.6%.

Fed Chairman Bernanke did not reassure markets yesterday. Many are looking for the Fed to announce a QE3, but so far they haven't.

President Obama gave his fiery job's speech last night to Congress. It was one of his best speeches on this topic of his Presidency. The real question is whether any real action will come out of the speech and get approved by this Republican controlled Congress.

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Thursday, September 08, 2011

Market comments and some political commentary for Sept. 8th

Initial Jobless Claims released today showed an increase, as there were 414K for the week ending 9/3. The previous week's data was also revised upwards from 409K to 412K.

Yesterday the Dow climbed back above the 400 day Moving average to 11,414. The 400 day MA crosses the axis today at 11,300. We continue to play the range of between resistance at 11,500 and support at the 11,000 level. The volatility is like a yoyo, one day very high and then next day very low. Until we get a breakout from these levels we may experience this tight range continuing for a while. The 200 day MA crosses the axis at just slightly under 12,000. I do not see us going up to this level anytime soon, but I do see us going below the 11,000 level. It won't take much to do it either.

The President's much anticipate speech tonight, but preliminary reports suggest it is more of the same and little big ideas, as was hoped by many. And last night was the 1st of several Republican Presidential debates joined by the newest Republican to throw his hat in the ring, Rick Perry, Gov. of Texas. I thought Mitt Romney did a good job in the debate and I thought so did Rick Perry. I don't like Perry's ideas and I question his record in Texas as something to be proud of, but nonetheless, he did well as a candidate in presenting himself. I thought Huntsman also did a better job than he had done before and I thought Rep. Michelle Bachmann lost ground.

The Futures are down this morning. The Dow is down about 65 at 6:00am PST.

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Monday, September 05, 2011

Germany in the news: Market drops over 5% (UPDATES)

Big news in Europe starts off this post this Labor Day. German Chancellor Angela Merkel’s party lost weekend elections in her home state, stoking concern opposition is growing to bailouts for debt-saddled European nations. This in turn has caused the German DAX Index to tumble over 5% with only a few hours to go in trading. I will update this post after their market closes. But I do have a chart of the DAX Index for the past few years and you will clearly see that they have broken below the current lows and the implication is that our stock market will follow suit tomorrow. This would accelerate the drop and almost assure a drop below 11,000 again. Here's the chart of the DAX Index:

You can see that todays last data point is lower than the previous recent lows, implying a drop below the red line. Looking back over the years you can see this is an important level not to go below. Their lows correspond to our low of the timeframe when the Dow went to 6,400.

Again I repeat, this week is very important not just here in the US, but also in Germany as on Wednesday there is a vote as to whether they will support the bailout of the debtor nations in Europe like Greece and Italy and Spain. Then add to that news, we have the President's Jobs speech on Thursday and the markets will have a reaction to these events. Stay tuned!

UPDATE: 8:45am PST
From Reuters: "Italian economic growth is likely to fall short of the government's official forecast of 1.1 percent in 2011 and 1.3 percent in 2012, probably coming in under 1 percent, a senior government source said on Monday. "It will be very difficult for Italy to reach 1.1 percent growth this year and next," the official, who spoke on condition of anonymity, told Reuters."

Italy's stock benchmark FTSE MIB Index was down 4 percent, with UniCredit SpA (UCG) and Intesa Sanpaolo SpA (ISP), Italy’s biggest banks, dropping 5.8 and 6.2 percent, respectively. Markets are getting very rattled in Europe.

Another Update will be given when the German market and European markets close.

UPDATE: 11:05am PST
Germany's DAX Index closed at 5,246 today, down 5.3% at the close. Following Germany's lead were other European Indexes such as France's CAC Index, down 4.7%, Britain's FTSE Index down 3.6% and Italy's FTSE MIB Index which was down 4.8%. This should send ripples in Asian markets tonight and our US markets tomorrow.

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Saturday, September 03, 2011

Market comments for the week ahead: Germany in focus

The market ended the week down. Many did not want to go into the weekend holding stocks, because any news in Europe can quickly devastate stocks here. So caution is the rule, especially in September and October, the 2 most volatile months for the stock market. This morning's charts have a new discovery for me. I have the usual 200 day Moving Average lines drawn on the chart but also have included a 400 day Moving Average line, as well. As you can see from the 4 major Indexes below, it looks like the 400 day MA is the resistance line for the market and can give someone a better gauge as to whether to believe market moves or not. The last move up proves now to be a false Bear trap as anyone now knows after buying stocks when they appeared to be breaking above the downtrend line drawn in previous posts of a week ago. Here are today's charts.

This last chart below clearly shows that the last move up was a Bear trap for those unsuspecting traders. They would be wise to stay on the sidelines and watch rather than lose their money. This zig zag pattern downtrend will continue as there is no good news coming in the world as it pertains to their economies and this coming Wednesday all eyes will be not on the Republican debate but on Germany's vote as to whether they will be bailing out other countries. Watch this news as it will move our markets more than any other news.

Germany's Merkel is vulnerable to losing control. This analysis from Berlin:
"Merkel's coalition has a comfortable 20-seat majority in the lower house of parliament. But if she is hit with dissent in her own ranks, and is forced to rely on opposition parties to pass legislation to expand the single currency bloc's rescue mechanism -- the European Financial Stability Facility (EFSF) -- then her coalition could collapse, sparking early elections.

'The euro crisis entered a new phase over the past week,' influential German weekly Der Spiegel said on Sunday.

'Before the main question had been how the common currency could be saved. Now it is also about saving Merkel's chancellorship. If her coalition does not deliver a majority for the enhanced euro rescue mechanism in the autumn, people close to the chancellor say, the coalition is all but finished."

So this is what to watch on Wednesday. Good luck in the market next week and don't forget to watch President Obama's speech to Congress on Thursday evening on his Jobs program proposal.

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Friday, September 02, 2011

Ending the gridlock: Market comments for Sept. 2nd

It looks like a very bad day for the markets worldwide. The August Unemployment rate was unchanged at 9.1%, but the US Non-Farm Payroll number came in at 0 (zero). That was the lowest number seen since 1945. Also troubling was a decrease in Hourly earnings for workers from +0.5% in July to -0.1% for August.

The issue we have in our economy is that there is no demand for Goods and Services. Therefore the Unemployment rate has no hope of recovering until there is more demand. Cost cutting does not increase demand. Debt reduction does not create demand. Giving more money to banks does not create demand. Giving incentives to business to hire will not necessarily create demand. Decreasing taxes for the wealthiest Americans doesn't create demand.

What creates demand? Why haven't the Bush Tax cuts for the wealthiest Americans created demand, as many have argued it would? It's real simple, people who are wealthy already have pretty much what they want and desire, so there is no need. Middle Class Americans and the poor have many needs and the more disposable income they have, the more their needs would be satisfied by purchasing goods and services. We have more of a political problem right now because the Republicans and Democrats are at a logger jam and it seems the Republicans are saying no to any compromises.

How do we get them to work together for the good of the country? They seem to only be interested in serving there Corporate donors, who donate to their political campaigns and own these folks lock, stock and barrel! There doesn't appear to be any way to get them to come to agreements for the common good. But I believe the reason for this is that they are complacent to the plight of average Americans and until they have skin in the game, they won't work together. "The real question we should be asking is, "How do we get them to get skin in the game?" I have an idea that I think would work and I want you to think about this seriously for a minute.

What if there were a sudden significant drop in the Dow, say 1000 points in a day, followed by a second day of another 750 points? Do you think it would get their attention? I can tell you this, it would get the attention of the wealthiest Americans who own most of the stock anyway. They would be demanding action, just like when the banks collapsed. It would get the President to sit with Congressional leaders and get them to take some actions for the good of the country. We need a real crisis that gets us to all come together.

This could be created by all of us selling some of our stocks and as it builds up steam others would add more in panic selling. This could do it. The Fed has tried to protect the market when it should have allowed the market to fall as it should and by now these problems would have been addressed. Instead, our problems are still ahead of us. I really believe this will happen anyway down the line, but we could help it along by selling stocks en masse. Anyone can help this along by selling their stocks, either today or early next week, especially just before the President speaks on Thursday night. Remember, if you sell your stocks, you can eventually buy them back cheaper if what I am saying will happen does happen. You can help your country right now. And tell your friends to do the same! ACT in honor of Labor Day!!

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Thursday, September 01, 2011

Market comments for Sept. 1st. 2011 (UPDATE)

IInitial Jobless claims data released this morning showed that for the the period of 8/27 the number was 409K new claims, The previous week's number was revised from 417K to 421K. Expectations for the week of 8/27 were for 405K, so that the 409K was more than expected. These numbers have stubbornly held over 400K now for quite a long time and it shows how difficult it is to go and stay below 400K. Unless we do, the unemployed will remain unemployed, causing continued hardship for these families and our economy.

Also reported this morning was Q2 Productivity. It was revised downward from a previous reading of -0.3% to -0.7% and Unit Labor costs for Q2 was revised from 2.2% to 3.2%. Putting this data together with the Productivity data, U.S. Corporations might have run out of easy ways to make money as the costs of labor has gone up at the same time their workers productivity has gone down. This may require corporations to hire more people, which is good for the unemployed, but bad for future earnings and profitability. This should be a negative for the U.S. stock market, but we shall see. The market has not been following what I think should happen and has ignored economic data the past 6 months.

Later this morning the all important ISM Index will be reported. Expectations are for the data to come in at 48.5. Any number lower than 50.0 shows negative growth if it does. I will UPDATE this blog post when the data is released, so come back after 10:00am EST.

August Unemployment data will be released tomorrow.

The stock market chart for the Dow and S&P and other indexes has shown a rise above those resistance lines I drew on previous posted charts. Is this a true breakout or a Bear trap seems to be the question on many minds these past few trading days. I think it is another Bear trap but we won't know until after it takes palce and is evident. Sorry, I am not a crystal ball reader.

UPDATE: 7:05am PST

The ISM Manufacturing data came in at 50.6%, not below 50 which would have signified we are in a recession, but we managed to survive. Now the ISM number is lower than the previous month which came in at 50.9%. So clearly while above the magic number of 50, it is going in the wrong direction and whether we go lower next month or the following month, it is not a good number to show demand in the economy.

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