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We had a difficult week as our inverse positions were squeezed by the market moving higher towards the top band of its trading range and then stalling right below the June 11th highs.
Several of our macro market signals have reversed back into bullish modes and so we’re fractions from reversing to a “Green Flag Flying Mode.” This week we switch from “Red” to “Yellow” indicating choppy prices ahead and an uncertain direction.
This extremely rapid reversal in market tone was primarily due to the super spike on Wednesday which came on less than normal volume and so it’s difficult to know if this is a valid turn or not. The fact that the upside momentum stalled just below the June highs is suspicious, as is the lack of volume and muted response to better than expected earnings news.
The View from 35,000 Feet
This week the news was all earnings reports as first Goldman and then Intel powered the two big up days. But then GE wasn’t able to follow through with a 47% drop in quarterly profits and a lower profit forecast along with google anad IBM citing weak revenue growth.
As I reported in the mid-week commentary, “Dr. Doom,” Nouriel Roubini was quoted as saying his outlook had improved which sparked a late day rally on Thursday and after he issued a correction, that in fact his opinions hadn’t improved, the “Roubini Rally” was not sustainable.
Bank of America didn’t light up the boards with its declining profits and worries about higher credit card and home loan losses going forward and CIT continued struggling to avoid bankruptcy with the discussion on Friday turning to “debtor in possession” financing which is a nice way of saying that they’re heading towards bankruptcy court.
Railroad giant CSX reports declining shipping activity on its routes and Marriott had a 74% drop in revenue along with the deadly hotel bombing in Malaysia to make for a very bad week.
Retail sales excluding gas, cars and basic materials were down for the 4th month in a row (core sales) and industrial production declined -0.4%, the 17th such decline but at a less serious angle than in June.
The July Philly Fed survey of economic activity fell -7.5% versus June’s -2.2% with 0 being the demarcation between expansion and contraction. Known as the “diffusion index,” this index has been negative for 19 out of the last 20 months, however, looking out ahead, respondents expect the business climate and employment to improve over the next six months.
But on the positive front, initial jobless claims on Thursday were down which was certainly good news on the employment front and housing starts were up in Friday’s report. Unemployment stood at 6.8% when President Obama took office and now as it approaches 10% the pressure is on to see some results in this critical area.
And on Friday after market close, we had our weekly Fed seizure of the 54th and 55th U.S. banks to fail this year.
The Week Ahead
Next week is light on economic data but heavy on earnings as almost a third of the S&P 500 report quarterly earnings. Big names include Apple, Microsoft, Yahoo, Caterpillar, Coca Cola, Boeing, Morgan Stanley, Wells Fargo and American Express.
Also, Ben Bernanke heads for Capitol Hill to face Congress and that should be an interesting meeting as more and more discussion about the need for a second stimulus takes center stage.
Monday: June Leading Economic Indicators
Thursday: Initial Jobless Claims, June Existing Home Sales
Friday: June Michigan Consumer Sentiment Revision
Leaders: Home Builders, Mexico, Brazil
Laggards: Treasury Bonds, Japanese Yen
Have a great weekend because I’m certain that next week will be exciting. I’m looking forward to calmer days but suspect that we won’t be finding those any time soon.
All the best, To get a Complimentary Special Report from Wall Street Sector Selector, click here:
Wall Street Sector Selector
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07-18-2009 9:53 AM