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"The
Stock Market Pulse" $49.95/month value Weekly review of
the markets Last week, we expected a violent reversal but we also knew that to be sustainable we need good news on the economic front and good results from corporate earnings combined with good forward statements. Monday, the expected “violent” reversal occurred: The S&P gained 11.6%! Its biggest one day gain in 69 years! The Dow gained 7.2%, its biggest one day gain ever. The rebound was worldwide. The spark that lit this fuse was the confirmation that American and European central banks were going to back the financial sector as much as necessary. Commercial banks and the bond market were closed Monday preventing the markets from knowing how this news would be taken on the credit markets where interest rates are negotiated. Tuesday the
credit markets all agreed it was good news so the rates was significantly
lowered, especially on the LIBOR front ( intra bank
rates) but they are still considered expensive, reflecting a high risk
premium. The FED also announced other
aspects of the rescue plan explaining it would take on preferred shares of
banks if needed. The Federal Deposit Insurance Corporation (FDIC) will
guarantee banks’ debts until 2012. Deposits of up to 250Kwill be guaranteed until the end of 2009. Oil price is now
under 80$ (79.35). Markets open higher but profit taking took
the wind out of the continued rally to close practically unchanged. Wednesday
some important economic data was expected including the retail sales which was
expected to come in around -0.7% but it came out lower at -1.2%. The third consecutive
drop. On the PPI front, results were much better with a 0.4% drop mostly
caused by the energy prices going down too. The markets continued to take
back Monday’s gain and in the afternoon the bottom fell off with the Beige
book results which painted a pretty
bleak picture of the short term outlook. When the dust settled, the
S&P500 lost 9.0%; with the 11.2% gain of Monday we find ourselves close
to being back to square one… Thursday industrial production fell 2.8% which constituted the worst result since 1974 while the Philly Fed dropped another 3.8 at 37.5. These results confirm we are in a recession. Oil prices, “fueled” by recession fears, continues to falter touching the sixties during the day. Thus the day started very badly reaching Friday’s levels but rebounded from there creating a bullish figure in technical analysis called a double bottom. This means that there is a chance we could go up from here. But will Friday agree? Friday the day started with a 6% decrease in housing starts and President Bush finally agreed to say the current financial crisis would take some time to stabilize. Consumer Sentiment went from 70.3 all the way down to 57.5… With a lower open the market closed the gap in the morning took a break before starting its hike back up but finally it lost its footing and gave back all of its gains by the end of the day. Statistically we ended up with a second consecutive up day on the S&P500 and the Nasdaq but the Dow finished slightly lower. Nevertheless, our double bottom figure is theoretically confirmed with to consecutive positive days in terms of the closing price but filled with negative economic news. This indicates that actual levels already account for a lot of negative news. A good sign… This Week, technical
analysis would lead us to believe we have a foundation for a trend reversal:
A double bottom. The problem is that this formation can also be the beginning
of another significant formation: The symmetrical triangle. It’s at the upper
level of this figure that our rebound will take its first test. In the mean
time, the rebound of oil price on Friday could be a sign that the effects of
a recession are all accounted for in the markets at this time. This is a must
if we want the reversal to hold. The
most important news this week is the “leading indicator” of economic growth
on Monday at Check the graphs a little lower to see what mean. Expect several important earnings report too this week so stay sharp. Last week we didn’t get any bad news per se since expectations were already very depressed… Probability is that if results continue to come out even only “OK”, it will add to the theory that the recession is already fully anticipated. We’ll see. BTW, if you would like me to include the main earning announcement in this report let me know by sending a message to support@investorrules.com. By the way I know you would obviously like it to be included but if nobody takes the time to ask for it after I won’t bother… Technically, odds are we will test the high of the triangle and its important to note that this type of triangle is a trend continuation figure and, need I remind you the trend is down? So, expect a continuation of the reversal early this week * all the way to the high of the triangle (*if leading indicators Monday morning don’t throw us a curve ball…) at which point we could see a return to the down trend if we don’t have enough to go on… Check out the S&P500 chart:
Now the Dow:
And the Nasdaq:
Finally check the VIX. The
volatility index. You probaly know the volatility of the markets lately was
as high as ever but now we are seeing a slight reduction which hopefully will
continue down because at this time we are still very high, thus very volatile…
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 20th Leading Indicators Definition A composite index of ten
economic indicators that should lead overall economic activity. This
indicator was initially compiled by the Commerce Department but is now compiled
and produced by The Conference Board. It has been revised many times in the
past 30 years - particularly when it has not done a good job of predicting
turning points. Why Do Investors Care? Investors need to keep their
fingers on the pulse of the economy because it dictates how various types of
investments will perform. By tracking economic data such as the index of
leading indicators, investors will know what the economic backdrop is for the
various markets. The stock market likes to see healthy economic growth
because that translates to higher corporate profits. The bond market prefers
less rapid growth and is extremely sensitive to whether the economy is
growing too quickly-and causing potential inflationary pressures. The index of leading indicators
is designed to predict turning points in the economy -- such as recessions
and recoveries. More specifically, it was designed to lead the index of
coincident indicators, also now published by The Conference Board. Investors
like to see composite indexes because they tell an easy story, although they
are not always as useful as they promise. The majority of the components
of the leading indicators have been reported earlier in the month so that the
composite index doesn't necessarily reveal new information about the economy.
Bond investors tend to be less interested in this index than equity
investors. Also, the non-financial media tends to give this index more press
than it deserves. Tuesday
October 21st ICSC-Goldman Store Sales 7:45ET W/W change Consensus 0.7% Y/Y Consensus 1.0% 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. Bank of Definition
Why Do Investors Care? The Bank of Canada Governing Council determines interest
rate policy for State
Street Investor Confidence Index Definition The State Street Investor Confidence Index measures confidence by looking at actual levels of risk in investment portfolios. This is not an attitude survey. This index is current since it uses data collected at the close of the previous Wednesday and is reported on the second to last Tuesday of each month Why Do Investors Care? Conventional wisdom suggests investors are confident when stocks
are rising and pessimistic when falling. But in fact, the For more information on this index, go to the Wednesday October 22nd
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. 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 23rd 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. EIA Natural Gas Report
Definition Why Do Investors Care? Friday October 24th Existing
Home Sales 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 home resales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Even though home resales don't always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items 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, home resales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies. 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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