Market Outlook for week of May 4th

I keep saying I need a clear signal to tell market direction and the question on your mind is, Did I find any? Before I answer that here's a summary of how I look at the past week and where we find ourselves, going into the week of May 4th.

The Dow closed the week at 8,212 and this was a gain of 136 points, or 1.7% for the week. The Nasdaq closed the week at 1719 and that was a gain of 25 points, or 1.5% for the week. Those aren't big gains for the week by any measure. It felt like we were up a lot more given each day the indexes seemed to be up. Again, it feels like a smoke screen to me. The big question is how was the corresponding Volume of trading for the week. It was down again this week. So for the past 3 weeks Volume has declined steadily each week in the Dow stocks and the NYSE. However, the Tech sector Nasdaq maintained a bright spot with steady volume these past weeks with the index rising. This is the bright spot in the market to me and points to the Tech's going to lead us out of the recent big market decline from the Fall.

I have put several 6 month charts ahead of this post, worth clicking on. The first chart is of just the Dow to show the decline in Volume the past week. The second is a comparison of the Nasdaq Composite Index as compared to the Dow and the third is a comparison of the Nasdaq Composite Index as compared to the SP500. The gains of Technology seem to indicate this might be where to have been invested.

The signal I am looking for is Volume. If Volume spikes up, it won't matter what direction as direction will be clearer. Right now it is a rally lacking conviction. Now this can be a good thing as well. Many are skeptical, including yours truly, that the gains are real and many believe that we are not in a Bull Market Rally, but instead are in a Bear Market Rally. If the market can stay the course, as it has since the lows, it will eventually convert the Bears to cover their shorts and we will be on our way to a real Bull Market. But we are clearly not there yet.

The Put to Call ratio closed at 0.82, not low enough to give a sell signal but not high enough for a convincing Buy signal. To me the Put to Call would need to get over 1.05-1.20 to convince me to Buy. And it would have to get as low as 0.55-0.60 to Sell, or buy more Shorts. Some news will spark both this move and the Volume spike, but we still wait for clarity.

The news of this coming week regarding the Unemployment Rate for April has already been discounted. It will show a higher rate but a slowing of the decline over previous months. It is my opinion it will be reported at 9% or higher, getting ever closer to the 10% double digit rate most pessimistic scenarios had surmised. I do not expect this to tank the markets and do expect them to take the number in stride. More questionable will be the market's reaction to the Stress Test results expected to be released on May 7th, the day before the release of the Unemployment numbers.

If you look at the drop in Volume of the Dow index, and look at the Volume of Citigroup dropping this week, you can see a correlation. many banks had weaker Volume this week over the previous week. This can easily be seen by looking at a 6 month Chart of the volume of the Financial ETF, FAS. When they announced earlier this week that there are rebuttals by the Banks to the Treasury's Stress Test data, it quieted trading for both FAS and the short FAZ.

Add to the mix, Warren Buffet's latest comments on Real Estate and it provides an interesting back drop for the coming week. Here's what Buffet said, "There’s no signs of any real bounce at all in anything to do with housing, retailing, all that sort of thing,” said Buffett, 78, in a Bloomberg Television interview before the Omaha, Nebraska-based company’s annual shareholder meeting today. “You never know for sure, even if there’s a leveling off, which way the next move will be.”

So I leave you hopefully convinced that the market direction is still not clear, even while the Dow and S&P goes a bit higher. The only real good news is that Technology seems to be the bright spot and this is substantiated with good solid Volume. So if you believe this rally is for real, make sure you own some good tech companies in your portfolio or at least some dogs that show some life. But remember my overall advice, no matter what, preserve capital!

Bloomberg Survey

================================================================
Release Period Prior Median
Indicator Date Value Forecast
================================================================
Construct Spending MOM% 5/4 March -0.9% -1.6%
Pending Homes MOM% 5/4 March 2.1% 0.0%
ISM NonManu Index 5/5 April 40.8 42.0
Initial Claims ,000’s 5/7 2-May 631 635
Cont. Claims ,000’s 5/7 25-Apr 6271 6350
Productivity QOQ% 5/7 4Q -0.4% 0.8%
Labor Costs QOQ% 5/7 4Q P 5.7% 2.8%
Cons. Credit $ Blns 5/7 March -7.5 -4.5
Nonfarm Payrolls ,000’s 5/8 April -663 -600
Unemploy Rate % 5/8 April 8.5% 8.9%
Manu Payrolls ,000’s 5/8 April -161 -157
Hourly Earnings MOM% 5/8 April 0.2% 0.2%
Hourly Earnings YOY% 5/8 April 3.4% 3.3%
Avg Weekly Hours 5/8 April 33.2 33.2
Whlsale Inv. MOM% 5/8 March -1.5% -1.0%
================================================================

Where do we go from here in this market? You can guess, can't you?

Well the Dow rose 127 today and did get over 7.970 but not go over 8,000. Yesterday I said you would have a chance to buy TZA as it was not too late. So did you today? Or do you think the market is going up as the major direction going forward? Right now to me long term is only a couple of months at best. Too much uncertainty to predict with any authority. The best that can be done is short term "indicators" or as I like to call them, guesses.

Yes, you had a chance today to buy the Short ETF, TZA, or other short ETF's. I figure there is more downside risk right now than upside opportunity but we may just stay in a very narrow range and try everyone's patience. I was asked why the market has held up as it has.By the way, Volume was lower today than yesterday again.

The reason I see the market holding up, as it has, is the new money, which has gone into retirements most likely last week. It may be burning a whole in people's pockets and they want to invest it while there are still "bargains". That's what Warren Buffet thought when GE was $20/share. Now it's $11.70/share. You do what you think is best for you. If you Investment advisor has something to "sell" you on, ask a lot of questions before parting with your hard earned cash. Everyone is trying to use other people's money to make money, and that includes me. I'm doing it in the market itself and not trying to get something from my readers. So thanks for stopping by and please come again. Oh, and if you haven't taken that Mini poll on my right margin this month, please do. It will take less than 10 seconds. You have yourself a good day and remember what is really important in your life. Chances are you aren't spending as much time as you like on it. Maybe a readjustment is in order. All the best in correcting that situation.

Collective mindset (herd mentality) and the implications for the economy worldwide

I have been working as an Executive Coach for 35 years and for the past 22 years I have focused on the importance of our mindset in creating the results we want in our lives. For the first 10 years I focused on changing behaviors as a way to create a result, and while it worked short term, it didn't have staying power and was quite labor intensive. Then I learned the power of "mindset", or the power of ones mind.

Today we are facing a collective mindset which has a proclivity towards seeing doom and gloom in our future and is driving us towards that very future. In the 2004 election it was fear that drove our decisions because of the fear promoted by the Bush/Cheney Administration to scare us into voting for another 4 year term for them, as they were the only ones protecting us from another attack. As sheep, many voted their fear and we got another 4 years under their leadership.

We now face the fear of a financial institution collapse and subsequent economic meltdown. This has precipitated runs on banks to withdraw cash, major drops in the stock markets and credit availability nearly at zero probability of getting any.

The collective mindset of fear is at work. How will we collectively get out of this spiral mess and what can you do? And what got us into this mess in the first place? Greed got us here and it is the flip side of the coin of fear. In part that is the answer to get us out of this at an unconscious level. The place where to look for a reversal will be in the stock markets. As stock markets go down precipitously, there is a point where some decide there is a chance to really make some money and they jump in in the final stages of the drop in stock prices, often called "Capitulation". Our stock markets have gone down almost 20%. They are ripe to drop more but there will be a bottom where the first courageous ones jump in and take a risk and buy stock. If the drop is severe enough, there will be a rebound. As the rebound is reported in the media, it should get those who have moved from fear to greed to start buying with a vengeance. The same process happened in the markets after 9/11.

It takes a lot of self confidence and control of ones emotions, to manage to do this as an individual. It is easier to be caught in the actions of a crowd and to go along with the crowd. Most individuals don't believe they really make a difference if they take an action. But the truth is that every individual does make a difference. So the way out of this is NOT to panic, not to wonder what everyone else is doing and follow along. It is best to decide what is right for yourself, being mindful whether you are following a crowd or assessing the situation for yourself.

Here's an example to test yourself. Think back when you made your last purchase in the stock market. Did you make that purchase on a day when the stock you were purchasing was going up or going down? Think about 9/11 and ask yourself did you sell at the first chance you had when the markets were closed for a week or did you buy? Most people Buy when a stock is going up quickly and they sell when a stock is dropping quickly. A select few sell when everyone is buying and buy when everyone is selling. This was the case most recently with Warren Buffet, America's finest financial Guru, when he invested in Goldman Sachs and GE.

We have a chance to influence the future we want. Barack knows that when he says "the change we need comes from the bottom, not the top" or "you are the change you have been waiting for". How can you help immediately. First, decide that the Banking industry is now under control. If you have cash you have withdrawn from your banks, return it to the bank. If we all have faith and we believe our deposits are insured now up to $250,000 from the $100,000 limit in place before the Rescue Plan, then we can help the government help the banks start to lend money again by returning our cash. We can continue to frequent our local restaurants so they don't go out of business and we can plan for a wonderful Christmas. Remember it is the Consumer who controls 2/3rd's of the economy, while the other 1/3rd is controlled by Corporate buying.

Let's ensure that our collective mindset is focused on seeing the future we want, not the future we have inherited. You have the power, as do I. Let's use it collectively for the good of all.