October 3, 2011 HOME EDUCATIONAL PRODUCTS CONTACT TONI An online version of this newsletter is available at http://www.tonihansen.com/Newsletters/current.html.
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Daily Commentary
Will the Market Continue to Disappoint? (Note: Unless otherwise stated, the index action described below relates to the EMini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.) FRIDAY’S MARKET WRAP-UP Market Snapshot for September 30, 2011: Closing Prices: DOW 10,913.38 (-240.60, -2.16%),SandP 500 1,131.42 (-28.98, -2.5%), NASDAQ 2,415.40 (-65.36, -2.63%), Nikkei 225 8,700.29 (-0.94, -0.01), DAX 5,502.02 (-137.56, -2.44%), FTSE 5,128.48 (-68.36, -1.32%) OIL 79.20, GOLD 1,622.30, SILVER 30.083 EURO 1.3384, YEN 77.04, BRITISH POUND 1.5582, U.S. DOLLAR INDEX 79.075 The End of a Disappointing Quarter It was a nasty summer for the markets with the indices posting their worst quarterly losses in nearly three years. The Dow Jones Industrial Average ($DJI) shed 6.03%, the SandP 500 fell 7.18%, and the Nasdaq Composite ($COMPX) ended the quarter lower by 6.36%. With the exception of the final quarter of 2008, the last time the SandP 500 had seen such a drop was nine years ago. What will the Future Bring? Back in 2008 I was asked by one individual a question seeped in hope: When will this market recover? My response was not quite what they wanted to hear: It will likely take a good ten years or so before we see the Dow able to have a chance at truly breaking ‘last’ year’s highs. It’s been just over three years and about a third of the way to that point and we haven’t seen anything yet to change that outlook.
Dow Jones Industrial Average (Figure 1) Figure 1 displays a weekly chart of the DIA (Dow tracking stock), which shows the price action in the Dow over the past six years. In 2008 a modest correction in the Dow (and market as a whole) intensified after striking strong monthly resistance levels. The magnitude of the selloff was so extreme that it made it quite difficult for the index to mount a comparable reversal in terms of momentum or pace. Instead, the market has pulled higher, but the pace of that upside was almost half of that seen in the selloff. This type of recovery tends to have an exceptionally difficult time breaking through prior highs without at least one more selloff on the same time frame that lasts as long as the previous wave of buying. When an attempt is made prior to that time, it generally serves as a bull trap and the prior high will break only briefly, but without conviction, before selling off sharply once again. This was seen on a smaller scale back in 2007 with the July and October highs whereby the October high was slightly greater than July’s. It is common for each wave of buying and selling past the initial high in this type of pattern to have two to three smaller waves within them. Two is the most common when in a trading range, however, and the Dow just completed its second wave off 2009 lows heading into summer of this year. Since the pace of the selloff from July into August was once again stronger-than-average, we should again expect the market to have a difficult time recovering and pushing through the 2011 highs, making it even more unlikely for the 2007 highs to be breeched over the next several years.
Dow Jones Industrial Average (Figure 2) It typically takes two larger waves of buying and two waves of selling for the market to break free of the type of trading range we are experiencing now on a monthly time frame in the Dow. When I first offered my 10-year prediction it was based upon the assumption that this would be the case for a best case scenario and that the subsequent moves after a selloff such as in 2007-2008 will usually be more gradual than the first selloff itself was. As a result, I wanted to take into account the approximate time it would take to accomplish this type of pattern development. There is still a lot of time left for the market to continue on its path of recovery and there is still a lot of time for the current price action to change. This includes change to a more pessimistic view point. While it is certainly probable that it can take another 6+ years for this action to develop to a point where the market can safely break to new highs without failure, it may still not do so at that time. Instead, the momentum of each of the subsequent moves on the upside can continue to slow, leaving the market stuck in a much longer term period of correction off that 2007 level. This is what happened on the daily scale after pulling off those same 2007 highs. This failure is more common if the market does attempt a new high on a second test of highs, which is one very good reason to go against wishful thinking of a break higher into next year in favor of the market holding this larger monthly range for now if you are a longer term bull. For the time being, however, the market is at strong weekly support and is currently favoring the shorter-term traders over the position traders or investors. In fact, if you have been focusing almost purely on day trades for the time being, this type of volatility has been ideal. The intraday ranges have been wide compared to several months ago and for the most part we’ve seen smooth trend moves on the 15 minute time frame with smaller positioning moves on the 5 minute.
SandP 500 (Figure 3) Index Results The Dow Jones Industrial Average ($DJI) ended the day on Friday with a loss of 240.60 points, or 2.16%, and closed at 10,913.38. Twenty-nine of the Dow’s thirty index components posted a loss as the market once again reversed course into the weekend. The only gainers was Merck (MRK) with a fractional gain of only 0.12%. The top decliners were Hewlett Packard (HPQ) (-5.59%), Alcoa (AA) (-4.87%), JP Morgan Chase (JPM) (-4.05%), and General Electric (GE) (-4.04%). The Dow ended the week higher by 1.32% despite the selloff in the second half of the week thanks to a strong start on Monday and into mid-day Tuesday. Nevertheless, it ended the week lower by 6.03% and had its weakest quarter in nearly three years with a loss of 12.09%. It is down 5.74% year-to-date. The SandP 500 ($SPX) finished the session with a loss of 28.98 points, or 2.5%, and closed at 1,131.42. Only twenty-seven of the index components in the SandP 500 managed to end the day in the black. The top percentage performers on Friday were Dr Pepper Snapple Group (DPS) (+1.62%), Tyson Foods (TSN) (+1.46%), and Altera Group (MO) (+1.40%). The weakest performer was Micron Technology (MU) (-14.14%) after reporting a quarterly loss when analysts had anticipated a profit. Other top decliners included CF Inds. Holdings (CF) (-12.45%), Ingersoll-Rand (IR) (-12.11%), and Morgan Stanley (MS) (-10.47%). The index finished the week lower by 0.44%, while it ended the month lower by 7.18% and the quarter lower by 14.33%. It is lower by 10.04% year-to-date. The Nasdaq Composite ($COMPX) ended the session lower by 65.36 points, or 2.63%, on Friday and it closed at 2,415.40. The strongest performers in the Nasdaq-100 ($NDX) were Sirius XM Radio (SIRI) (+1.34%) and Teva Pharmaceuticals (TEVA) (+0.76%). Only six of the 100 index components managed a gain. The top decliners were Micron Technology (MU) (-14.14%), NII Holdings (NIHD) (-8.64%), Wynn Resorts (WYNN) (-8.33%), and Priceline.com (PCLN) (-5.97%). The Nasdaq Composite ($COMPX) ended the week lower by 2.73%. It ended the month lower by 6.36%, the quarter lower by 12.91%, and is down 8.95% year-to-date. Nasdaq Composite (Figure 4) DATA WRAP One of the areas that market participants have failed to draw hope from over this past quarter has been the very mixed economic data.
The data from this past week has been disappointment focusing upon the state of the housingmarket. A recent survey even shows approximately half of the bank risk managers that responded expect housing prices to reach 2007 levels by the end of the decade. Only 27% thought they actually would. Despite widespread pessimism on the state of the economy, consumer sentiment actually improved last month despite the first decline in personal income last month since October 2009. Friday’s Thomson Reuters/University of Michigan’s final September reading on consumer sentiment came in at 59.4 on the index compared to 57.8 earlier in the month. Analysts were expecting that number to remain unchanged. It was at 55.7 at the end of August. News over this past week has centered strongly upon President Obama’s bill focusing upon job creation and this could have helped provide that added push in sentiment, although many argue that the bill is quite limited and will do little to stir longer term growth. Jobs growth will remain on center stage in the week ahead. On Friday the government will release September’s nonfarm payrolls data, along with the most recent unemployment rate, hourly earnings, and the average work week. The unemployment rate is expected to remain unchanged at 9.1% with very little net gain in the real employment data. Although earnings season won’t really kick off until next week with the release of Alcoa’s quarterly earnings, a few names to keep an eye on this week will include Yum Brands (YUM) on Tuesday, Costo (COST), Marriott Intl. (MAR), and Monsanto (MON) on Wednesday, and Constellation Brands (STZ) on Thursday.
ECONOMIC REPORTS AND EVENTS THIS WEEK
U.S. Domestic: Eastern Time Zone (GMT -5:00) (New York, Toronto)
Sep 29 8:30 AM Initial Claims 09/24 Sep 29 8:30 AM Continuing Claims 09/17 Sep 29 8:30 AM GDP – Third Estimate Q2 Sep 29 8:30 AM GDP Deflator – Third Estimate Q2 Sep 29 10:00 AM Pending Home Sales Jul Sep 30 8:30 AM Personal Income Aug Sep 30 8:30 AM Personal Spending Aug Sep 30 8:30 AM PCE Prices – Core Aug Sep 30 9:45 AM Chicago PMI Sep Sep 30 9:55 AM Michigan Sentiment – Final Sep International: Eastern Time Zone (GMT -4:00) (New York, Toronto) Sep 29 EUR German Consumer Price Index (SEP P)
Sep 29 JPY Nomura/JMMA Manufacturing Purchasing Manager Index (SEP) Sep 29 04:30 GBP Net Consumer Credit (AUG) Sep 29 04:30 GBP Net Lending Sec. on Dwellings (AUG) Sep 29 04:30 GBP Mortgage Approvals (AUG) Sep 29 05:00 EUR Euro-Zone Business Climate Indicator (SEP) Sep 29 05:00 EUR Euro-Zone Consumer Confidence (SEP F) Sep 29 05:00 EUR Euro-Zone Economic Confidence (SEP) Sep 29 05:00 EUR Euro-Zone Industrial Confidence (SEP) Sep 29 05:00 EUR Euro-Zone Services Confidence (SEP) Sep 29 08:30 USD Gross Domestic Product (Annualized) (2Q T)***
Sep 29 08:30 USD Personal Consumption (2Q T)
Sep 29 08:30 USD Gross Domestic Product Price Index (2Q T)
Sep 29 08:30 USD Core Personal Consumption Expenditure (2Q T) Sep 29 10:00 USD Pending Home Sales (AUG) Sep 29 17:45 NZD Building Permits (AUG) Sep 29 19:01 GBP GfK Consumer Confidence Survey (SEP) Sep 29 19:30 JPY Household Spending (AUG) Sep 29 19:30 JPY Jobless Rate (AUG) Sep 29 19:30 JPY National Consumer Price Index (AUG) Sep 29 19:30 JPY National Consumer Price Index Ex-Fresh Food (AUG) Sep 29 19:30 JPY National Consumer Price Index Ex Food, Energy (AUG) Sep 29 19:50 JPY Industrial Production (AUG P) Sep 29 21:00 NZD NBNZ Activity Outlook (SEP) Sep 29 21:00 NZD NBNZ Business Confidence (SEP) Sep 29 21:30 AUD Private Sector Credit (AUG) Sep 30 01:00 JPY Annualized Housing Starts (AUG) Sep 30 01:00 JPY Housing Starts (AUG) Sep 30 05:00 EUR Euro-Zone Consumer Price Index Estimate (SEP) Sep 30 05:00 EUR Euro-Zone Unemployment Rate (AUG) Sep 30 05:30 CHF KOF Swiss Leading Indicator (SEP) Sep 30 08:30 USD Personal Income (AUG) Sep 30 08:30 CAD Gross Domestic Product (JUL) (JUL)*** Sep 30 08:30 USD Personal Spending (AUG) Sep 30 08:30 CAD Gross Domestic Product (JUL)
Sep 30 08:30 USD Personal Consumption Expenditure Core (AUG) Sep 30 09:55 USD U. of Michigan Confidence (SEP F)
Sep 30 21:00 CNY PMI Manufacturing (SEP)
Highly influential Notice: The Bastiat Group, Inc. has attempted to verify the information contained in this calendar, however, any aspect of such info may change without notice. Foreign economic reports included in this list are only those deemed medium to high impact. KEY EARNINGS ANNOUNCEMENTS THIS WEEK Thursday, Sep 29, 2011 Before: – During: – After: CAMP, MU Friday, Sep 30, 2011 Before: – During: – After: – Note: Alleconomic numbers and earnings reports are in line with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column and some companies have not confirmed their time, so always double check when taking positions overnight during earnings season! (?) = Not yet confirmed at the time the list was compiled. DISCLAIMER There is a very high degree of risk involved in trading securities. Past results are not indicative of future returns. Prior to the execution of any securities trade, you should always consult with your broker or other financial advisor. The positions given and described by the Bastiat Group, Inc. and its employees and affiliates are for educational purposes only. The Bastiat Group, Inc. and its members, employees, agents, consultants, analysts, representatives, content and/or service providers, affiliates, subsidiaries, successors and assigns (hereinafter collectively, The Bastiat Indemnities) assume no responsibility or liability for your trading and investment results. Go to http://www.tonihansen.com/disclaimer.html for a complete disclaimer. © 1998-2011 All information presented is property of TradingFromMainStreet.com and Bastiat Group, Inc. PO Box 330 Roland, IA 50236 , USA To unsubscribe or change subscriber options visit: http://www.aweber.com/z/r/?LEwsrOzMtCxMnBwcTCzstEa0jIwMjAyMzJw=
