October 4, 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

New Lows on the Horizon (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.) MONDAY’S MARKET WRAP-UP Market Snapshot for October 3, 2011: Closing Prices: DOW 10,655.30 (-258.08, -2.36%),SandP 500 1,099.23 (-32.19, -2.85%), NASDAQ 2,335.83 (-79.57, -3.29%), Nikkei 225 8,545.48 (-, -), DAX 5,376.70 (-125.32, -2.28%), FTSE 5,075.50 (-52.98, -1.03%) OIL 76.16, GOLD 1,670.00, SILVER 30.90 EURO 1.3189, YEN 76.68, BRITISH POUND 1.5429, U.S. DOLLAR INDEX 79.935

Market Logs New 52-Week Closing Lows The top headlines in recent months have focused upon several core topics: dire state of the U.S. economy (particularly housing and unemployment), the European sovereign debt crisis (focusing currently on news that Greece is expected to fall short of deficit targets for this year and next), and the potential slowdown of the Chinese economy. By the end of the quarter, the Dow Jones Industrial Average ($DJI), SandP 500 ($SPX), and Nasdaq Composite ($COMPX) all posted quarterly losses over 12%. The third quarter of 2011 did not get off to a much better start. In fact, both the Dow and SandP 500 ended the session on Monday at new 52-week closing lows. The Dow Jones Industrial Average ($DJI) ended the day on Monday with a loss of 258.08 points, or 2.36%, and closed at 10,655.30. Wal-Mart (WMT) (+0.12%) was the only gainer in the index. The weakest performers were Bank of America (BAC) (-9.64%), Alcoa (AA) (-7.00%), JP Morgan Chase (JPM) (-4.88%), and Caterpillar (CAT) (-4.46%). The SandP 500 ($SPX) finished the session with a loss of 32.19 points, or 2.85%, and closed at 1,099.23 with a minor breech of the 1,100 price point. Only twelve of the components in the index posted a gain. Yahoo (YHOO) (+2.73%) and Lorillard Inc. (LO) (+2.03%) were the only ones to post a gain over 1%. Out of the SandP 500’s 10 industry groups, none posted a gain. The top declining sectors were financials (-4.5%), energy (-3.3%), and health care (-3.2%). The weakest individual percentage performers in the index were Micron Technology (MU) (-14.09%), Tenet Healthcare Corp. (THC) (-12.65%), AK Steel Holding (AKS) (-11.77%), and Advanced Micro Devices (AMD) (-10.83%). The Nasdaq Composite ($COMPX) ended the session lower by 79.57 points, or 3.29%, on Monday and it closed at 2,335.83. The strongest performers in the Nasdaq-100 ($NDX) were Yahoo (YHOO) (+2.73%) and Research In Motion (RIMM) (+0.99%). Only 4 of the 100 posted a gain. The top percentage decliners were Micron Technology (MU) (-14.09%), Vertex Pharmaceuticals (VRTX) (-8.93%), Autodesk (ADSK) (-8.42%), and First Solar (FSLR) (-8.40%).

Dow Jones Industrial Average (Figure 1) Keep Your Eyes Open This week is a busy one on the economic front. The European finance ministers meet Monday and Tuesday, while the European Central Bank will hold its rates meeting on Thursday. Recent speculation suggested that the bank could cut rates once again, but sentiment has once again shifted in favor of them holding steady. In the U.S. on Tuesday morning, Fed Chairman Ben Bernanke will appear before theCongressional Joint Economic Committee to discuss the economy and recent monetary policy. 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 doesn’t really kick off until next week with the release of Alcoa’s quarterly earnings, there are still a few names to keep an eye on this week. They include Yum Brands (YUM) on Tuesday; Costo (COST), Marriott Intl. (MAR), and Monsanto (MON) on Wednesday; and Constellation Brands (STZ) on Thursday.

SandP 500 (Figure 2) Data Wrap Although the day ended with the markets sharply lower, Monday’s data offered a glimmer of hope that pushed prices higher intraday with a strong, albeit short-lived, burst of buying. The index futures had sold off ahead of Monday and the market opened trade with a gap to the downside in the three major indices. This gap closed, however, following the release of September’s manufacturing reading by the Institute for Supply Management. The index rose from 50.6 in August to 51.6, whereas economists had been expecting it to edge lower. Any reading above 50 indicates expansion and September marks the 26th straight month that it has managed to hold above that level. At the same time, the latest data for construction spending in the U.S. rose unexpectedly in August after falling in July. It was up 1.4% to hit an annual rate of $799.15 billion, but most of those gains were in public construction on the state and local level. Federal construction spending fell 0.5%, while private construction spending was up only 0.4%. Nasdaq Composite (Figure 3) Getting Technical It tends to take the market about 15 minutes to digest data coming out at 10:00 a.m. ET. This leaves 10:15 a.m. ET as one of the morning’s strongest correction periods. Morning highs or lows often take place at this point on 5-15 minute charts. On Monday it marked a high that ended up holding throughout the remainder of the session. At first, however, the indices did try to hold onto those gains and tried to keep from breaking morning lows. The market corrected gradually off the 10:15 highs and held support at the morning lows going into the 11:00 ET correction period. The pace of the selling off the 10:15 high was slower than the rally into it, taking about three times as long. This suggested another reversal to the upside into noon, but the pace of the buying shifted the second time around and volume dropped as the market made an attempt at the prior highs. The pace also slowed on the upside between 11:00 and 12:00 ET. By the time the 12:00 ET correction period had hit, the market had taken four times as long as the 10:00-10:15 rally and not even tagged the earlier highs. This made it easy for the sellers to return with confidence in the afternoon (or rather for the bulls to give up theirs). The pace of the afternoon selloff was steady without taking a break to even test 5 minute 20 sma resistance between 12:00-14:00 ET. This limited opportunities for lower risk continuation strategies once the trend was underway for daytraders and the final two hours were also more difficult due to strong overlap within the trading channel on the 15 minute time frame into the closing bell. It was the fourth day that the market has held the resistance zone of the 15 minute 20 sma. This rarely happens past day three, although in this case there were some minor breaks in that resistance. Nevertheless, we should see this trend channel break as we head into mid-week to offer a bit of a reprieve from the selling pressure. Due to the mounting momentum of the selloff though, another flush to the downside is still possible on Tuesday and the upside pace of recovery moves will be more gradual than Monday’s decline.

ECONOMIC REPORTS AND EVENTS THIS WEEK

U.S. Domestic: Eastern Time Zone (GMT -5:00) (New York, Toronto) Oct 4 10:00 AM Factory Orders Aug Oct 5 7:00 AM MBA Mortgage Index 10/01 Oct 5 7:30 AM Challenger Job Cuts Sep Oct 5 8:15 AM ADP Employment Change Sep Oct 5 10:00 AM ISM Services Sep Oct 5 10:30 AM Crude Inventories 10/01 Oct 6 8:30 AM Initial Claims 10/01 Oct 6 8:30 AM Continuing Claims 09/24 Oct 7 8:30 AM Nonfarm Payrolls Sep Oct 7 8:30 AM Nonfarm Private Payrolls Sep Oct 7 8:30 AM Unemployment Rate Sep Oct 7 8:30 AM Hourly Earnings Sep Oct 7 8:30 AM Average Workweek Sep Oct 7 10:00 AM Wholesale Inventories Aug Oct 7 3:00 PM Consumer Credit Aug International: Eastern Time Zone (GMT -4:00) (New York, Toronto) Oct 4 04:30 GBP Purchasing Manager Index Construction (SEP) Oct 4 05:00 EUR Euro-Zone Producer Price Index (AUG)

Oct 4 10:00 USD Fed Chairman Bernanke to Testify Before JEC

Oct 4 10:00 USD Factory Orders (AUG) Oct 4 18:30 AUD AiG Performance of Service Index (SEP) Oct 4 20:30 AUD Retail Sales s.a. (AUG) Oct 5 03:55 EUR German Purchasing Manager Index Services (SEP F) Oct 5 04:00 EUR Euro-Zone Purchasing Manager Index Composite (SEP F) Oct 5 04:00 EUR Euro-Zone Purchasing Manager Index Services (SEP F) Oct 5 04:30 GBP Purchasing Manager Index Services (SEP) Oct 5 04:30 GBP Gross Domestic Product (2Q F)

Oct 5 04:30 GBP Current Account (2Q) Oct 5 04:30 GBP Total Business Investment (2Q F) Oct 5 05:00 EUR Euro-Zone Retail Sales (AUG)

Oct 5 08:15 USD ADP Employment Change (SEP) Oct 5 10:00 USD ISM Non-Manufacturing Composite (SEP) Oct 6 03:15 CHF Consumer Price Index (SEP) Oct 6 03:15 CHF CPI – EU Harmonised (SEP) Oct 6 06:00 EUR German Factory Orders s.a. (AUG) Oct 6 07:00 GBP BOE Asset Purchase Target (OCT)

Oct 6 07:00 GBP Bank of England Rate Decision (OCT 6)

Oct 6 07:45 EUR European Central Bank Rate Decision (OCT 6)

Oct 6 10:00 CAD Ivey Purchasing Managers Index s.a. (SEP) Oct 6 18:30 AUD AiG Performance of Construction Index (SEP) Oct 7 USD ICSC Chain Store Sales (SEP) Oct 7 JPY Bank of Japan Rate Decision (OCT 7)

Oct 7 01:00 JPY Leading Index (AUG P) Oct 7 01:45 CHF Unemployment Rate s.a. (SEP) Oct 7 04:30 GBP Producer Price Index Output n.s.a. (SEP) Oct 7 04:30 GBP Producer Price Index Output Core n.s.a. (SEP) Oct 7 06:00 EUR German Industrial Production s.a. (AUG) Oct 7 07:00 CAD Unemployment Rate (SEP)

Oct 7 07:00 CAD Net Change in Employment (SEP)

Oct 7 07:00 CAD Full Time Employment Change (SEP) Oct 7 07:00 CAD Part Time Employment Change (SEP) Oct 7 07:00 CAD Participation Rate (SEP) Oct 7 08:30 USD Change in Non-farm Payrolls (SEP)

Oct 7 08:30 USD Change in Private Payrolls (SEP) Oct 7 08:30 USD Change in Manufacturing Payrolls (SEP) Oct 7 08:30 USD Unemployment Rate (SEP)

Oct 7 08:30 Average Hourly Earning (SEP) Oct 7 15:00 USD Consumer Credit (AUG)

Highly influentialNotice: 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 Tuesday, Oct 4, 2011 Before: – During: – After: GPN, LNDC, RECN, YUM Wednesday, Oct 5, 2011 Before: AYI During: – After: ESIC, NAUH, OCZ Thursday, Oct 6, 2011 Before: RBN During: – After: DRWI, IDT Friday, Oct 7, 2011 Before: – During: – 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.

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