|
It finally feels as though the bulls have the momentum as we start a new week. That hasn't happened a lot lately as the bulls have spent most of their time trying to limit the carnage of the bears' onslaught during August. One piece of good news is that there are very few earnings reports due out this week and none that really carry much weight. Technically, the bulls are not without their problems. Those problems are likely to limit the amount of upside we'll see. Fortunately, however, we will start the week off with the last two trading days of August. Generally speaking, the end of a calendar month and the first few days of the subsequent calendar month produce gains. At least historically, that's been the case. The close on the 27th through the close on the 6th of every calendar month since 1950 has produced ALL of the gains on the S&P 500 in the last 6 decades. That's a pretty amazing stat and one that bears repeating every month. Even though September is historically the worst month of the year, the beginning of September usually produces solid gains. That was not the case in 2009, however, as selling intensified in early September. We wouldn't expect that type of behavior this year, especially not after the way the week ended last week. Economically, there'll be plenty for traders to chew on. The economic calendar this week is packed, but there's no doubt that the emphasis will be on Friday's Nonfarm Payroll report. Is the job market improving or not? There's been much debate and we're sure that debate will continue for the next several weeks to months, at a minimum. In the near-term, however, traders are searching for clues. Has the recent selling been overdone? Or has it just begun with a double dip recession around the corner? Thus far, few would argue that our recovery since late 2008 and early 2009 has been a jobless one. That almost definitely will not continue. But questions remain. If the job market remains weak, will equity prices suffer OR, as many would argue, has the anemic recovery already been priced into our equity market? We have mixed feelings here. The intermediate-term downtrend that we're still mired in suggests that we remain cautious. And, for now, it's the overriding signal. There are subtle hints though that indicate we may be at or very near a significant bottom. The overwhelmingly positive response in housing stocks after the worst economic reports the group has ever seen is one such indication. The XHB rose 7% from Tuesday's 10am EST low. Think back for a moment to 2005. There were few folks that felt housing was topping. We didn't even need regulation back then, remember? If you wanted to buy a house, just tell us how much you make and how much money you need. It was that simple. No one could fathom that a top was near, THINGS WERE SIMPLY TOO GOOD. Now fast forward to 2010. The worst reports on record are surfacing every time anyone utters the word "homebuilders". Consumer confidence has been in steady decline. Why would anyone even think about buying a house, right? Yet the XHB rose last week in the face of horrible news. This is what bottoms are made of. Buying homebuilders right now still seems a bit premature. After all, we have to get through September. But a few things will be worth watching. First, has the 10 year treasury yield bottomed with its 2.42% reading last week? If so, the S&P 500 is at a bottom or quickly approaching one. Has the relative strength of banks finally hit rock bottom? Check out this chart:  Relative price support was touched late last week before rallying. Since the market bottomed in early 2009, banks have been printing higher relative lows. It's very important technically that banks not lose the relative support level from early January. Should the .040 level be lost, an extremely important test down near .038 would be next. If banks, on a relative basis, have bottomed, then so too has the S&P 500. We're definitely getting a bit ahead of ourselves here, but the positive reaction in homebuilders given the abysmal reports is a sign that should not be taken lightly. We always maintain that the reaction to reports is much more meaningful than the reports themselves. These reports shouldn't be viewed any differently. Technically, a lot of wounds must heal. This usually takes time, so perhaps a dose of September will do the trick. Price/volume trends overall are very weak. The daily MACDs generally don't look much more bearish than they look right now, as they all are well beneath the centerline and pointing lower. Normally, with daily MACDs so weak, any test of the 20 day EMA fails. We'll see if that's the case this time. Beware any intraday move above the 20 day EMA with a close beneath, especially if increasing volume is part of the mix. That could signal the next short-term top. From a long-term perspective, one more intermediate-term move lower -- perhaps 10% or so -- likely would set up things beautifully for an end of year rally. It could even mark a MAJOR long-term bottom. For now, let's take it one day at a time and let the message of the market come through loud and clear. Happy trading! |
marketSNAPSHOT
