On Monday, August 30, 2010, the stock market did exactly what I mentioned last weekend, it rolled over and headed down. Definitely, Monday was an unsightly day even when a key report indicated that consumer spending rose at its best rate in 4 months in July. Not even merger and acquisition reports could get institutional traders on the long side. Intel announced another buy in under a month, agreeing to pay $1.4 billion for a business of German firm Infineon which makes products for cellular telephones. Shares of Intel, which is also acquiring McAfee for over $7 billion, fell 2%. 3M announced that it will fork out $943 million for Cogent, which makes computerized systems that read finger and palm prints. Exciting news came out of the health care sector, where French pharmaceutical firm Sanofi Aventis saw its $18.5 billion bid for Genzyme refused by the biotech company's board. U.S. stocks picked up declines on Monday after comments from U.S. President Barack Obama did little to relieve traders worry over the slowing pace of the recovery. Obama said he and his economic team talked about extra steps to encourage economic growth, which includes thinking about tax cuts for corporations. SPY fell for the whole day striking the major support area in the 104.40s. This is actually the same level it hit two times in the earlier week. There is a key bull camp at this level where the bears appear to have been struggling to overrun during the last 15 days. On Tuesday, August 31, 2010, stock-index futures pointed to another day of losses on Wall Street as a distinct sell off in Tokyo and recurring economic problems soured sentiment before the release of U.S. housing and consumer-confidence reports. The psychology underlying recent price action on SPY indicates investors are feeling the pressure of uncertainty with economic data in days ahead providing possibilities for disappointment. World stocks fell dominated by concerns the U.S. economy is sliding back into a recession, motivated further flows into safe-haven assets. The yen, chosen for carry trades at times of economic stress, hovered back near a 15-year high against the dollar after investors ignored Japan's attempt to weaken the currency, the Swiss franc jumped against the euro and dollar, and yields on benchmark German government bonds hit record lows. Mounting U.S. economic concerns will probably draw investors faraway from riskier assets and push up the yen, keeping pressure on Japan to get involved directly in currency markets for the first time in more than six years. Crude prices, seen as a proxy for world economic growth, also came under pressure, extending losses to date in August to 6.5% and staying on course for their largest monthly drop since May. However, a large bombshell of news hit. Consumer confidence rose modestly in August. Airline stocks reversed earlier losses easing concerns among investors over a softer economy that could lead to less flying. The financial sector came roaring back on news pending home sales increased by 5.2%. Economists were forecasting a 0.1% increase. Consumer discretionary stocks also erupted upward after this report. Keep in mind, home equity lines finance purchases in the retail sector. A reduction in overall confidence is depressing markets, which is not surprising considering that the most visible aspects of economic growth, jobs growth and the unemployment rate, have stayed disappointing. Moreover, the housing market remains a major source of weakness. Stocks ended their most unfortunate August since 2001, battered by a influx of discouraging data that cast skepticism about the faltering economic recovery. Investors now enter September, a month that is historically challenging for the stock market. September declines have a tendency to come as companies begin issuing warnings in front of third-quarter results and mutual-fund managers get back to work following the typically light volume during the summer time. On Wednesday, September 1, 2010, the stock market soared higher on the better-than-expected manufacturing report. The manufacturing sector posted strong gains after the Institute for Supply Management released its manufacturing index, which said manufacturing activity unexpectedly rose to a reading of 56.3 in August. Economists have been looking for the ISM index to decrease to a reading of 52.9. It was the first time this index has rose in four months. The buying was massive as more and more institutional traders went long at higher and higher levels suggesting a crucial short term reversal of psychology by market participants. This manufacturing report suggests that even though the manufacturing sector recovery has slowed somewhat within the last month or two, the recovery is continuing at a healthy pace. Then more big news hit. Chinese manufacturing increased in August for the first time in four months and also the Australian economy saw its best development in three years. Wall Street tallied up its best day in eight weeks on strong manufacturing data in the United States and China. By the end of the day, it was clear, economic data to include June house prices to August manufacturing conditions points to ongoing but slow growth in the U.S. economy, casting considerable doubt that you will have a double-dip recession. This psychological reversal to the bullish side was so profound that SPY broke above its 55 hour moving average line. On Thursday, September 2, 2010, the a 34 hour moving average crossed above the 55 hour. Data established that first-time claims for jobless benefits declined slightly last week. First-time filings for unemployment benefits fell by 6,000 to 472,000 in the latest week, the Labor Department said Thursday. Investors are closely watching employment data for signs of improvement in the job market. Factory orders also climbed, rising 0.1 percent in July. The increase in orders backs up a report Wednesday showing the manufacturing sector continues to expand. Major indexes jumped more than 2 percent Wednesday following a surprising rise in manufacturing activity. As I discussed a week ago, merger and acquisition activity will continue. The Burger King hamburger chain agreed to be acquired by private equity firm 3G Capital. On Friday, September 3, 2010, U.S. stock index futures rose on Friday after data showed the decline in employment was far less than expected in August. This week's burst of buying has largely been sparked by new data on jobs, manufacturing and home sales that, while still weak, suggest fears of a double-dip recession could have been overblown. The news hit that the unemployment rate rose to 9.6%. Nonfarm payrolls fell by 54,000 in August, under the 90,000 drop economists had forecast. Retail stocks exploded upward on the news as investors reacted bullishly to data showing the U.S. economy shed fewer jobs than expected in August while private-sector payrolls expanded more than economists anticipated. Airline stocks edged higher Friday as August traffic reports and economic data directed market anxiety away from the threat of a second recession. Sectors that are considered sensitive to economic growth including technology and commodities were the very best gainers among mid-cap stocks. Volume should start to pick up beginning next week as institutional traders and money managers look to put new money in for the new quarter. My overall opinion of SPY and the market in general is that you ought to be on the sidelines in cash at this time. In other words that you should book profits in your shorts and move to the safety of cash. SPY, after 3 tests of the 104.30 support during the last 2 weeks, has stopped being in a downtrend. We're in a sideways trading range and until a clear trend develops, you need to be on the sidelines or playing the long side with very rigid and tight stop losses set up.
Article Source: http://www.articlecontentprovider.com/articlesubmit
Sectors that are considered responsive to economic growth including technology and commodities were the top gainers among mid-cap stocks. Volume should start to pick up starting next week as institutional traders and money managers look to put new money in for the new quarter. My overall opinion of SPY and the market as a whole is that you must be on the sidelines in cash right now. In other words that you need to book profits in your shorts and move to the safety of cash. SPY, after 3 ...
There's a lot of money sitting there for every stock trader --- and the guys too intelligent to not know fundamental analysis. Learn more at stock investing
Please Rate this Article
5 out of 5 4 out of 5 3 out of 5 2 out of 5 1 out of 5
