Market commentary for Oct. 4th, 2011

Tuesday's charts are of a longer period than previous charts for a while. I have put together charts of the Dow, S&P and Russell 2000 each for 3 year periods. I have drawn a number of red lines showing where support is and where you can see we may be headed. First the charts and then some commentary:



The Dow broke below recent previous lows and while it barely is below those lows, the trend looks like we are going lower. The bottom of the Dow's range is 10,000, which is 655 points lower from where it closed today. We could just as easily climb above today's lows, but we should be going lower, as the news in Europe has not solved the Greek Debt crisis and Greece today said they did not reach their goals around there promised austerity targets they had committed to the EU. That was a major reason the markets ignored good news today regarding the ISM number which came in at a 51.6 reading against an expectation of only 50.0.

The S&P500 shows a larger drop against the previous lows and the Russell 2000 shows an even greater drop. By the way, Germany's DAX Index is also going lower as is the CAC40 and FTSE, but I didn't put up those charts today. News isn't mattering these days. Lowering ones risk is what is driving the world markets now!

Stock market direction? Nothing has really changed!

Since the beginning of August, when the stock market had its big drop based upon the announcement of the Fed that they were going to keep Interest rates low until 2013, nothing much has really changed. We have been in a tight range that does't feel so tight because of the high volatility. One week we are just below 11,000, wondering if we are going to hold support here or go lower and the next we are back up to 11,500 wondering if we can break much above this apparent resistance level. It has been worrisome for most investors but not for day traders. The best day traders are making some money, but the rest of us watch in disbelief.

I have compiled some 1 year charts below to reiterate and reenforce previous posts where I said we are in a tight range but now we are closer to a breakout, one direction or another. I have stated many times I believe this direction is lower, so no sense repeating much more than that.

This week Germany's Lower House of Parliament approved increasing the proposed EFSF (European Financial Stability Facility) expanding the euro-area rescue fund's fire power to stem the region's debt crisis. To read more about this Fund and the politics in Germany over this issue, click here. This seemed to move their stock market higher but as the week progressed you can see in the charts below, it pulled back.




You can see I have drawn red lines showing support levels and Blue lines showing resistance levels. You will also note that since the drop in August we have stayed below the 50 day moving average consistently. This line might be a good indicator to track market direction so that you are not fooled as we many during the Bear Trap so noted on a number of charts by the blue circle covering their mistaken purchases. Use these charts as a reminder of where we are and above all remember the Fed doesn't think we are going to get better until at least 2013!

This coming week on Friday, we will get the Unemployment rate for September. This could move markets. Also on Monday be watching for the ISM Index at 10:am EST or 7:00am PST. Expectations are for a reading of 50.5 and the previous month the number was 50.6. I expect the number to come in at 50.0 or less, given the lack of business activity there was in September. Earnings also will be front and center now for the next 4 weeks. You will be hearing about "beating expectations" by companies. Remember, these predictions were lowered last time so that beating these expectations should not be difficult.

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.

Market comments for Nov. 1st

Data released this morning on economic indicators were as follows. Personal Income came in at -0.1%, while Personal Spending came in at +0.2%. The ISM Index for october came in at 56.9, which is up from September's reading of 54.4 and Construction Spending surprisingly came in at +0.5% from an August revised reading of -0.2%. The ISM Index measures Manufacturing activity.

So overall these numbers were mixed. The most negative ones were the Personal Spending numbers, as expectations were for a reading of +0.4%. The most positive was the Construction Spending data as they had expected a negative -0.7% and instead the number came in at +0.5%.

The question, as always, is whether we can really believe these numbers. I will leave that up to you.

I thought I might also summarize my Mini Poll survey to date. Here are the results to date:

- I'm Optimistic and think things will get better. 18%
- I'm Pessimistic and think things will get worse. 61%
- I'm neutral and think things will stay about the same. 21%

I will set the results back to zero and see how it changes going forward so please vote again next visit.

In the mean time, the Dow rose this morning to close to its 52 week high. The 52 week high is 11,258 and today so far we hit 11,244. The S&P 500 came very close to 1200 and hit a high of 1195. Tomorrow will be a more neutral day, as we will not know the election results until Wednesday. There is no economic data being released tomorrow because it is election day.

Remember to Vote! Otherwise, don't complain about the country. This is your chance to register your objection or your support.

Market comments for Oct. 1st (UPDATE)

Personal Income data and Personal Spending data have been released this morning. For Personal Income the data came in at +0.5% while expectations were for +0.3%. For Personal Spending, the data came in at +0.4%, while expectations were for +0.3%. Both of these data are backwards looking as they are for August, not September.

Univ. of Michigan Consumer Sentiment for September comes out after the market is open at 6:55am PST. Also at that time to be released is Construction Spending, ISM Index. Auto Sales and Truck Sales data will be released at 11:00am PST. All this data will be updated later today as they become available.

So far that's a nice jump in Personal Income and Spending. Futures are pointed up with the Dow up 55 points and the S&P up 6 points.

UPDATE: 7:05am PST

The ISM index came in at 54.4, which was lower than the expected 55.0 number. This is a September number. Construction Spending was up +0.4%, which is much more than the -0.7% expected number. The University of Michigan Consumer Sentiment Final number for Sept. came in better than expected at 68.2 vs. an expected 67.0 reading. The ISM index is more optimistic than what people are feeling. The growth is not showing real growth enough to have a recovery but may not be as bad to cause a double dip.