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"The
Stock Market Pulse" $49.95/month value Weekly review of
the markets Last week, With the bullish day we had on Friday the week before, we were wondering if somebody knew something we didn’t since nothing had been announced regarding the rescue plan approval… Monday we
had our answer: I was about speculation. The market believed the plan would
be approved post market, during the weekend and would provoke a bullish open on
Monday. We did have a big impact at the open but it sure wasn’t bullish! At
the open we gave away all the gains from Friday and then some… During the day
we were hoping we’d have good news but we didn’t and to top it off, we
learned the crisis wasn’t only a “ Tuesday consumer
confidence came out stronger than expectations. The bargain hunters had a field
day and their ferocious appetite managed to erase half of the losses from the
day before. Wednesday
the first part of the day was influenced by the ISM manufacturing index report
which came out much worst than anticipated at 43,5 vs. 49,5 confirming a
contraction in the manufacturing sector. In the afternoon the world most
respected bargain hunter, Warren Buffet, announced, through Berkshire Hathaway, a 3 Billion dollars participation in General
Electric. This announcement gave the market a little break which allowed the
market to creep back to the opening levels. We were expecting a Senat vote on the rescue plan around Thursday more bad news were on store for an already crippled market. Factory orders come down 4% instead of the expected 2.5% which clearly reflected the credit crunch while the jobless claims were at a low never seen since the period that followed the 911 attacks. The acceptation of the rescue plan by the Senat ad no effect what so ever since it still needs to be approved by Congress who’s responsible for turning it down originally. Will two simple amendments suffice? Friday is the day we’ll know once and for all… The SEC also added to the already long list on companies that couldn’t be “shorted”. After all that, the markets ended the day much lower but managed to stay higher then Monday’s low. Friday the employment situation report was expected to show a 100K decrease in jobs but it came out at -159K! It was the ninth month in a row that the economy showed the number of job decrease. The Unemployment Rate remained unchanged. We chose to ignore the employment data in the hope that Congress would finally approve the $700B rescue plan later in the afternoon so the market crept back up slowly until the news came out that it had been ratified, at which point the markets, crashed! I guess we now realize that we are not of the woods yet and that the plan is only one small step in the right direction. It reminds me of a quote most investors heard before: “Buy on rumors and sell on news”… This Week, we need to keep in mind that the past weeks have shown us that people don’t know what to think and do making the volatility has high as its been in many years… We had strong moves down followed by strong moves down. The general economy outlook is very weak; jobs are lost at a scary rate, factory orders are in free fall and the manufacturing sector, as shown by the ISM mng index, is contracting. The rescue plan can’t, on its own, prevent the economy state from getting worst. We need good economic data for that. Earning season is fast approaching, the FOMC reunion is occurring next week and the treasury budget could have a significant impact Friday considering the $700B plan just announced and the promises made by both candidates to lower taxes in an environment of enormous budget deficits. How will it be financed? A increase in the deficit could have very detrimental effect on the dollar. It will be very interesting to hear what the Fed has to say after the FOMC reunion… The other news (see below) shouldn’t impact the market significantly. Expect a rough month of October… Technically, the weekly chart is the one that gives the best picture of the trend we are in. The S&P500 saw two big bearish weeks in a row and is now even lower than its lowest point since 2005! We can only hope the 1100 support level holds…
The Dow Jones is still over its
2005 low level and could act as support and it lookslike its going to test it
seriously. At thattimeit will be very important because we will have reached the
10000 level, a very important psychological level…
The Nasdaq just like the Dow, is
still higher than its 2005 low level and could aslo act as support but it
alreadycrossed itsvery important psychological levelof 2000. Next stop,
another whole number at 1900… (the 2005 low)
Now that the rescue plan has
been apporved, the key is tostrat
getting good news on the economic front, see the interest rate banks charge
eaxch other come down to more reasonable levels as wellas a reduction in the interest
rate’s spread between Corporate bonds and Federal Bonds.Expectvsomemore
volatilityover the coming weeks ( month?). Check out the indicator thatcharts
voliatility. It’s insane!
Economic calendar ( Soon to be a section for Investor Rules members only ) Not a member yet? Just go to http://www.InvestorRules.com/gold-membership.html Monday
October 06th Nothing
worth mentioning Tuesday
October 07th ICSC-Goldman Store Sales 7:45ET Definition Why Do Investors Care? Redbook Definition A weekly measure of sales at chain stores, discounters, and department stores.
It is a less consistent indicator of retail sales than the weekly ICSC index.
It is also calculated differently than other indicators. For instance,
figures for the first week of the month are compared with the average for the
entire previous month. When two weeks are available, then these are compared
with the average for the previous month, and so on. It might be more useful
to compare year-over-year figures since these are indeed compared to the
comparable week a year ago. This index is correlated with the general
merchandise portion of retail sales covering only about 10 percent of total
retail sales. Why Do Investors Care? Consumer spending accounts for two-thirds of the economy,
so if you know what consumers are up to, you'll have a pretty good handle on
where the economy is headed. Needless to say, that's a big advantage for
investors. FOMC minutes Definition
Why Do Investors
Care?
In today's environment, where disclosure is more pronounced, reading the minutes of the previous month's meeting is not always as enlightening as it used to be. However, the minutes do include the complete economic analysis compiled by Fed officials and whether or not any FOMC members have voiced opinions at odds with the rest of the group. Investors who want a more detailed description of Fed opinions will generally read the minutes closely. However, the Fed discloses its official view at the end of each FOMC meeting with a public statement. Fed officials make numerous speeches, which freely give their views to the public at large. The FOMC has changed dramatically in the transparency of its operations. It now discloses policy changes at the end of each meeting. Historically, the Fed used to keep investors guessing about policy changes. Historically, Fed officials did not appear on the speaking circuit as frequently as they do now. In today's environment, where disclosure is more pronounced, reading the minutes of the previous month's meeting is not always as enlightening as it used to be. However, the minutes do include the complete economic analysis compiled by Fed officials and whether or not any FOMC members have voiced opinions at odds with the rest of the group. Investors who want a more detailed description of Fed opinions will generally read the minutes closely. However, the Fed discloses its official view at the end of each FOMC meeting with a public statement. Fed officials make numerous speeches, which freely give their views to the public at large. Consumer Credit 15:00 ET Definition
Why Do Investors
Care? The demand for credit also has a direct bearing on interest rates. If the demand to borrow money exceeds the supply of willing lenders, interest rates rise. If credit demand falls and many willing lenders are fighting for customers, they may offer lower interest rates to attract business. Financial market players focus less attention on this indicator because it is reported with a long lag relative to other consumer information. Long term investors who do pay attention to this report will have a greater understanding of consumer spending ability. This will give them a lead on investment alternatives. Wednesday October 08th
Definition The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction. Why Do Investors Care? This provides a gauge of not only the demand for housing, but economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the Mortgage Bankers Association purchase applications, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once a home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month. Since the economic backdrop is the most pervasive influence on financial markets, housing construction has a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the MBA purchase applications index carries valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies. Pending Home Sales Index Definition Why Do Investors Care? This provides a gauge of not
only the demand for housing, but the economic momentum. People have to be
feeling pretty comfortable and confident in their own financial position to
buy a house. Furthermore, this narrow piece of data has a powerful multiplier
effect through the economy, and therefore across the markets and your
investments. By tracking economic data such as the pending home sales index
which measures home resales, investors can gain
specific investment ideas as well as broad guidance for managing a portfolio.
EIA
Petroleum Status Report Definition The Energy Information
Administration (EIA) provides weekly information on petroleum inventories in
the U.S., whether produced here or abroad. The level of inventories helps
determine prices for petroleum products. Why Do Investors Care? Petroleum product prices are
determined by supply and demand - just like any other good and service.
During periods of strong economic growth, one would expect demand to be
robust. If inventories are low, this will lead to increases in crude oil
prices - or price increases for a wide variety of petroleum products such as gasoline
or heating oil. If inventories are high and rising in a period of strong
demand, prices may not need to increase at all, or as much. During a period
of sluggish economic activity, demand for crude oil may not be as strong. If
inventories are rising, this may push down oil prices. Thursday October 09th Chain Store Sales Definition Why Do Investors
Care? BOE Announcement 07:00ET Definition Why Do Investors
Care? Jobless
Claims Definition New unemployment claims are
compiled weekly to show the number of individuals who filed for unemployment
insurance for the first time. An increasing (decreasing) trend suggests a
deteriorating (improving) labor market. The four-week moving average of new
claims smoothes out weekly volatility. Why Do Investors Care? Jobless claims are an easy way
to gauge the strength of the job market. The fewer people filing for
unemployment benefits, the more have jobs, and that tells investors a great
deal about the economy. Nearly every job comes with an income that gives a
household spending power. Spending greases the wheels of the economy and
keeps it growing, so a stronger job market generates a healthier economy. There's a downside to it,
though. Unemployment claims, and therefore the number of job seekers, can
fall to such a low level that businesses have a tough time finding new
workers. They might have to pay overtime wages to current staff, use higher
wages to lure people from other jobs, and in general spend more on labor
costs because of a shortage of workers. This leads to wage inflation, which
is bad news for the stock and bond markets. Federal Reserve officials are
always on the look out for inflationary pressures. By tracking the number of
jobless claims, investors can gain a sense of how tight, or how loose, the
job market is. If wage inflation threatens, it's a good bet that interest
rates will rise, bond and stock prices will fall, and the only investors in a
good mood will be the ones who tracked jobless claims and adjusted their
portfolios to anticipate these events. Just remember, the lower the
number of unemployment claims, the stronger the job market, and vice versa. RBC CASH Index 9:00 ET
Why Do Investors Care? Wholesale Trade Definition Why Do Investors
Care? Wholesale sales and inventory data give investors a chance to look below
the surface of the visible consumer economy. Activity at the wholesale level
can be a precursor for consumer trends. In particular, by looking at the
ratio of inventories to sales, investors can see how fast production will
grow in coming months. For example, if inventory growth lags sales growth,
then manufacturers will need to boost production lest product shortages
occur. On the other hand, if unintended inventory accumulation occurs (i.e.
sales did not meet expectations), then production will probably have to slow
while those inventories are worked down. In this manner, the inventory data
provide a valuable forward-looking tool for tracking the economy. EIA Natural Gas Report
Definition Why Do Investors
Care? Friday October 10th Import and Export Prices 08:30ET Import Prices Consensus : -2.5% Export Prices Consensus : N/A Definition Why Do Investors
Care? Inflation leads to higher interest rates and that's bad news for stocks,
as well. By monitoring inflation gauges such as import prices, investors can
keep an eye on this menace to their portfolios. International Trade Definition The international trade balance
measures the difference between imports and exports of both tangible goods
and services. Imports may act as a drag on domestic growth and they may also
increase competitive pressures on domestic producers. Exports boost domestic
production. Why Do Investors Care? Changes in the level of imports
and exports, along with the difference between the two (the trade balance)
are a valuable gauge of economic trends here and abroad. While these trade
figures can directly impact all financial markets, they primarily affect the
value of the dollar in the foreign exchange market. Treasury Budget Definition The U.S. Treasury releases a
monthly account of the surplus or deficit of the federal government. Changes
in the budget balance of the annual fiscal year (which begins in October) are
followed as an indicator of budgetary trends and the thrust of fiscal policy. Why Do Investors Care? The budget data have several
direct and indirect meanings for the financial markets. The most direct
relationship lies between the size of the budget deficit and the supply of
Treasury securities. The higher the deficit, the more Treasury notes and
bonds the government must sell to finance its operation. From there it's
simple supply and demand -- if demand is constant but the supply of bonds
goes up, the price goes down. The same is true if the deficit falls or is
eliminated altogether -- the government needs to sell fewer Treasury bonds,
so the supply drops and the price of T-bonds rises. In the past few years,
the budget deficit has increased dramatically, and this has put more Treasury
securities into the market place. The Federal government borrows
money through the issuance of Treasury securities; so higher deficits mean a
larger supply of securities and (again, assuming constant demand) lower
prices. With notes and bonds, lower prices are equated with higher yields, so
in this example, the government borrows money at higher interest rates. That
impact ripples across all other interest rate-bearing securities and creates
a higher interest-rate environment for stocks, which is bearish. In addition to
following the trend in the budget deficit or surplus, investors can gain
valuable insight to the state of the economy by looking at the government's
tax receipts. Higher tax receipts lead to an improved deficit situation when
economic conditions That's it for the economic calendar this week and for this outlook on what we can expect in the markets this week so use it wisely, and prosper… :-) Yours truly,
http://www.InvestorRules.com
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