Economics

   This Week’s Data

    The International Council of Shopping Centers reported weekly sales of major retailers rose 0.1% versus the prior week and 0.9% on a year over year basis;  Redbook Research reported month to date retail chain store sales fell 2.2% versus the comparable period in 2008.

    The July Case Shiller home price index rose 1.7%;  it was the third increase in a row and prices rose across the country.
    http://mjperry.blogspot.com/2009/09/us-home-prices-increase-for-third-month.html

    The Conference Board reported its September index of consumer confidence at 53.1 versus expectations of 57.0 and 54.1 recorded in August.

    The August Chicago purchasing managers index came in at 50.0, unchanged from July and below estimates of 52.0

    Weekly mortgage applications fell 6.2%.

   Other

    The president of the World Bank sees the role of the dollar as a reserve currency diminishing (medium):
    http://www.nytimes.com/2009/09/29/business/economy/29dollar.html?_r=1

    The International Monetary Fund raises its estimate of world growth (short):
    http://www.reuters.com/article/ousivMolt/idUSTRE58T0XQ20090930

    A look at oil production/demand/reserves (long):
    http://www.aspousa.org/index.php/2009/09/interview-with-sadad-al-husseini/
   
    Good news from Japan (short):
    http://econompicdata.blogspot.com/2009/09/japanese-industrial-production.html

Politics

  Domestic

Late Tuesday two votes were defeated in the Senate Finance Committee on the public option.  Numerous democrats voted against it..

Curbing free trade to save it (short):
http://www.cato-at-liberty.org/2009/09/28/curbing-free-trade-to-save-it/

  International War Against Radical Islam

The Market
    
    Technical

    The Averages (DJIA 9742, S&P 1060) remain within their up trends off the March low (9343-11184, 1038-1268).  Volume continues at a very low level, the VIX barely moved.  Breadth was much better than prices indicated.

    I expressed some concern about the Market’s technical strength because of last Wednesday’s ‘outside reversal’ but clearly nothing has come of it.  Nothing to date has been sufficient cause to push prices down beyond a mild couple of day correction.

    Along those lines, there is a graph in this link of past recoveries (click on it to enlarge it).  Note that the first serious correction (slowdown), excluding the Great Depression, in the other recoveries didn’t occur till 170-200 days off the bottom.  Currently we are circa 145 days depending on how you mark the March bottom.
    http://www.calculatedriskblog.com/2009/09/market-update.html

    Here is a history of the largest single day declines and advances in stock prices.  Note that four of the five largest declines occurred in October (short):
    http://bespokeinvest.typepad.com/bespoke/2009/09/92908-the-day-sevens-werent-lucky.html

    Gauging Market strength from the advance/decline data (short):
    http://traderfeed.blogspot.com/2009/09/gauging-trend-status-with-intraday.html

    Thoughts from Trader Mike (short):
    http://tradermike.net/2009/09/september_29_2009_stock_market_recap

   Fundamental
   
    Five things that could spook the Market in October (long):
    http://www.cnbc.com/id/33072415//

       Headlines

    The economic data dominated early trading.  The Case Shiller home price index lifted investor optimism; but that was quickly squelched by the poor consumer confidence index (see above).  As an aside, notwithstanding yesterday morning’s sell off following the release of the confidence index,  historically the sentiment indices tend to have very little impact on stock price direction. 

    There were three earnings reports of large companies yesterday.  I stated in last week’s Closing Bell:

‘The first sign that ‘earnings are returning to a more normal........growth’ will most probably be looked for in the upcoming third quarter financial reports, which are not that far away; and the key stat will be revenue growth.  Recall that the big knock from the bears during the surprise second quarter earnings season was that business had done a great job cost cutting but the real test of a sustained recovery was revenue growth of which there was little.  I suspect if we see sales growth in these coming reports, stocks can continue their up trend; if not, then we may get that larger pull back in stock prices for which the bears have been panting.’

So naturally I was focused as much on their revenue comparisons as I was with the earnings.  Walgreen’s revenues were up and in line with expectations; profits were better than estimates--the stock was up big.  Nike’s revenues were down; but it was against comparisons with the quarter that the Olympics occurred.  Earnings were much better than forecast, the stock was up big.  Darden Restaurants sales were less than expected even though earnings were much better than anticipated--the stock was down big, 

If we only had to deal with the Walgreen and Darden reports, it would be easy to conclude that the hypothesis regarding revenue was right on.  Nike’s release makes it messier.  Is the thesis correct and investors are just forgiving of Nike because the comparable period was an unrealistic comparison?  Or was the Walgreen/Darden juxtaposition a coincidence? We need more data--actually even if NKE had fit the hypothesis to a T, we would need more data. Nevertheless, my point is that there is a hint that revenues in this quarter’s reports will be a major factor and a determinant of whether the next move up in stocks is up or down.  Keep your eyes on the revenue numbers at least until we see if a pattern develops.