Yesterday, stocks rose on what the Wall Street Journal said was a “growing faith that the economy is slowing, but not headed for a recession.” And on Wednesday, when stocks fell, the Wall Street Journal said it was because investors were still concerned over the possibility of a “double-dip recession.” Then, yesterday afternoon, CNBC host Larry Kudlow said that there was a growing concern of Carter-style “stagflation.”
In truth, no one knows where the economy is headed, and that’s why the stock market has been mired in a narrow trading range for over four months. But yesterday’s economic reports did a little to encourage investors to put some of the trillions of dollars to work that now reside in cash equivalents.
There was mildly good news from the Labor Department: Initial unemployment claims declined by 3,000 to 450,000, which is the lowest in two months, and continuing claims fell by 84,000 week-over-week to 4.49 million. And the August producer price index increased by 0.4% from an increase of 0.2% in July.
FedEx Corporation (NYSE: FDX) missed their earnings estimate and issued a mixed outlook for the remainder of the year. That report kept buyers at bay in the morning, but late in the day, Research In Motion Limited (NASDAQ: RIMM), up 2.07%, led the technology group in anticipation of its quarterly earnings due after the close. RIMM reported earnings of $1.46, which beat forecasts by 11 cents, with revenue growing at 31%. Technology stocks ended the day with a gain of 0.7%.
Ford Motor Company (NYSE: F) spiked 4.8% following an upgrade by Barclays Capital to “overweight” from “equal weight.” And Pier 1 Imports, Inc. (NYSE: PIR) jumped 6.5% after reporting its first Q2 operating profit in six years.
The greenback weakened against the euro and fell 0.3% against a basket of six other currencies. The 10-year Treasury note fell in price bringing the yield up to 2.76%.
At the close, the Dow Jones Industrial Average rose 22 points to 10,595, the S&P 500 fell fractionally to 1,125, and the Nasdaq rose 2 points to 2,303.
The NYSE traded 905 million shares with decliners over advancers by 1.4-to-1. The Nasdaq exchanged 525 million shares, and decliners there were ahead by 1.7-to-1.
October crude Oil fell $1.45 to $74.57 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) fell 25 cents to $54.41.
December gold rose $5.50 to a new record high close at $1,273.80 per ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) gained 2.57 points to 192.83.
What the Markets Are Saying
Yesterday’s trading, with a mere spread from high to low of just 6.56 points on the S&P 500, did little to reveal which direction the index will finally break. Volume was of little help as it again traded less than 1 billion shares, which is considerably lower than the average volume this year of around 1.5 billion shares per day.
But, as noted on Thursday, the guidance that we get from our internal and sentiment indicators tells us that the chances of another pullback are growing. And that conclusion was fortified by last night’s AAII Sentiment Survey. Changes are versus the Sept. 9 report: bullish 50.9%, up 7 percentage points, neutral 24.9%, up 0.3 percentage points, bearish 24.3%, down 7.4 percentage points. This is the third week in a row that the bullish sentiment has increased, and is the highest level of optimism since Aug. 13, 2009. The historical average is 39%.
Like the Investors Intelligence report of Advisor Bullish Sentiment, the AAII survey is a “contra-indicator,” meaning that the more bullish it is, the less the chances of a market breakout to higher levels. This is, in my opinion, the final bit of evidence that we need to conclude that the chances are very high that the market will fail to penetrate the massive overhead now in place.
Investors should sell all non-performers and protect current position by selling calls. Traders should embark on a bearish strategy, selling stocks short in downtrends, buying puts, buying inverse ETFs, etc.
The initial support is at the 200-day moving average of the S&P 500 at 1,115, and then the psychological support at 1,100. Below that is the 50-day moving average at 1,092, and finally the zone that has marked the bottom of the summer’s support at 1,040 to 1,055.
Today, September options expire, which could result in a quick but doomed rally. Use all rallies as an opportunity to sell.
Get one inverse ETF to buy now.
Today’s Trading Landscape
There are no significant earnings to be reported today.
Economic reports due: consumer price index (the consensus expects 0.3%, and 0.1% ex-food and energy) and consumer sentiment (the consensus expects 70).
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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