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It was a wild week that began with panic selling and ended with panic buying.

On the Point and Figure Charts the Dow Jones went from a “sell” on Monday to a “buy” on Friday and all the major indexes have returned to a much overbought state as of close on Friday.

The overall markets still seem very much “ahead of themselves,” as demonstrated in the chart below.

 http://www.chartoftheday.com

You can see here how earnings don’t support current valuations, however, the old saw remains true, “the markets can remain irrational longer than you can stay solvent.”

All bubbles come to an end, and this one will, too, the only question being when.  Our task will be to try to profit from both the up and downside of these continuing violent moves.

 The View from 35,000 Feet

 On Friday, the yearly count of bank failures came to 81, including a Top 12 on the all time list with Guaranty Bank of Austin with $13 Billion in assets going under.  Oddly, this one was sold to an outifit in Spain which is the first time that has happened and can only make one wonder if no U.S. banks had the economic strength to pick up these assets.

 And many analysts forecast that up to 1,000 banks could fail over the next 3-5 years as the problems with commercial real estate continue to develop.

 But for this week the news was all good as Chairman Bernanke went to Jackson Hole and said, “prospects for a return to growth in the near term appear good,” but he added a qualifier that “difficult challenges still lie ahead.”

Consumer prices declined roughly -2% year over year, the largest drop since 1950, as inflation continues to be held in check anad existing homes sales rose an unexpected +7% to log four straight monthly gains and the highest level of activity since August, 2007, which you may remember was the beginning of our long slide down.

However prices are down over -15% year over year and distressed property made up roughly 1/3 of the sales activity in  July.  Also, 13% of U.S. mortgages are either in foreclosure or a month behind on their payments which would cast a shadow on this week’s positive numbers. 

And the labor market remains bleak with 15 states recording double digit employment levels.

The Week Ahead

Tuesday: June Case/Shiller Home Price Index, August Consumer Confidence

Wednesday: July Durable Goods, July New Home Sales

Thursday: Initial Jobless Claims, Q2 Preliminary GDP

Friday: July Personal Spending, August University of Michigan Consumer Sentiment Revision

Sector Spotlight

Leaders: Oil, Home Builders, Russell 2000

 Laggards: Silver, Taiwan, Agriculture

This week we spent a few quiet days camping next to a beautiful mountain lake in the High Cascades.  The fishing gods weren’t good to us, but my sons and I scaled a 10,000 foot mountain which was terrifying and hard on my 59+ year old body.

This week promises to be a little more civilized with a trip to Washington, D.C. for a little sightseeing and to visit the U.S. Naval Academy with my young son as we start the college search process with him.

With the miracle of the internet and wi-fi, I was able to monitor the markets from the lakeshore and will do the same this week as we watch this fascinating time unfold.

To get a Complimentary Special Report from Wall Street Sector Selector, click here:

All the best,

John

John Nyaradi

Publisher

Wall Street Sector Selector

All information presented herein is for general information only and deemed to be from reliable sources, but we cannot guarantee its accuracy. Readers are strongly advised to check with their investment counselors before making any investment. There is risk of loss in all investment activity.