Trying to figure market direction these days is like trying to figure out which way a puddle will flow. A puff of wind or a pebble and the puddle moves one way, but without any volume behind the move, it simply flows back to where it was. Market volume is so low that any movement is suspect. Today, for example, something strongly energized the market to the downside. Certainly, it wasn’t the economic data that came out this morning because it signals more of the same – the US consumer is still alive and well.
Consumer spending got off to a firm start in the third quarter [July], rising by the most in five months, offering hope economic growth could pick up this quarter.
Obviously the July consumer spending numbers did little to move the market in the up direction, nor did the first round of retail sales reporting from August.
A range of retailers from discounter Target to club-operator Costco on Thursday reported August sales that beat Wall Street estimates. The results seem to show that what Americans say and do are two different things: The strong sales reports come two days after a private research firm said consumer confidence in August fell to its lowest level since November 2011.
August retails sales rise considerably and the market still cannot find a way up. So what is the pebble or puff of wind that is moving the market to the downside? Who knows why traders, and that is what we have now in the market, sell en masse. Maybe it is the herd mentality, or maybe it is a hedge against the unknown lurking off in the near distance.
Ben Bernanke speaks tomorrow from Jackson Hole, Wyoming and the words that come out of his mouth will move the market, one way or the other. Perhaps traders fear he will not signal QE-3 is imminent and coming soon, very soon, so they make an early bet the market will tank tomorrow. Maybe, but let’s see where we end up today, as those who think the opposite might make a play when they think the market selling of today is weakening.
The Fed and its quantitative easing is an unknown in the very near term, but the market also has an eye a little further out. That eye is focused on Europe. September 6 and September 12 are big dates for Europe. On the first of the two dates, the ECB will announce a serious plan to tackle the dangerously high bond yields of Spain and Italy, or it will not. Whichever way it goes, the market will follow strongly. On September 12, the German Constitutional Court will decide if the newly created European Stability Mechanism (ESM) has the overarching authority to loan money directly to sovereign banks. This too has the potential to send the market strongly flowing one way or the other.
Slightly further out are the US elections in November. No one knows how these will turn out, so these too present the possibility of a strong movement in either direction, depending on how investors perceive the results.
Beyond all of the above unknowns there is still the issue of the “fiscal cliff.” By the end of this year, December 31, the US Congress has to act on extending or not extending the Bush era tax cuts, and it has to allow or not allow the massive automatic spending cuts that go into effect from last year’s congressional agreement. Another big deal.
Today, the market might end up deeply in the red or it might end up in the green, or it might just end flat. I see no real conviction. Coming soon, however, the market will act with conviction. Starting tomorrow, gale force winds and boulders are coming this way.
Trade in the day; Invest in your life …
