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"The
Stock Market Pulse" $49.95/month value Weekly review of
the markets Last week, it looked like we were seeing some positives breakouts from negative trends but weren’t sure since these breaks occurred late in the figures, on low volumes. Turns out we were wrong… Monday although the markets were closed was important since we learned Gustav wasn’t has bad as anticipated which was a good omen for the market open the next day. Tuesday opened higher, as expected but it was short-lived has, once
again, the market proved its
unpredictability and managed to finish lower continuing the never ending down
trend… Oil price dropped 8.7% while
the CRB which reflects the prices of goods and raw materials dropped 3.4%
dragging down the shares in this sector bringing the whole market with them.
Plus, the ISM Mfg Index came lower at 49. Anything under 50 indicates a
contraction thus even though its not
dramatically lower than 50 it still wasn’t enough to slow down the drop on this Tuesday Wednesday factory orders came in stronger than expected with a rise of 1.3% especially since yesterday the ISM Mfg index came out weaker… The Beige Book painted a slow down of the economy in all sectors. In light of these contradictions, the market acted as such with the Dow Jones finishing higher while the S&P and Nasdaq finished lower Thursday the ISM Non-Mfg Survey beat expectations
going from 49,2 last month to way over 50,0 at 50,6! But, yes another but,
the Jobless claims rose to 15000 and the Chain Store Sales disappointed given
the back to school period; so mixed results. In a “glass half full” state of
mind we would have focused on the ISM Non-Mfg Survey results but since it is more a “glass
half empty” kind of period, the market focused on the bad news. Friday, the employment situation confirmed the jobless claim report we had yesterday and the result were lower then expected: We lost 84000 jobs instead of the expected 75000 and we lowered last month’s results from -51000 to -60000. The unemployment rate went from 5,6 to 6,1 Last week’s economical data led us to expect a positive change of the economic state but now it seems we are in fact seeing a prolonged slow down… Since we were expecting these results because of the jobless claims result from Thursday, most of the drop already occurred and even if we did drop a little in the morning, a late day rally helped us close higher. On the good side , these latest numbers should pressure the price of oil even lower , diminishing the risk of inflation further. This Week, we
are faced with the fact that last weeks optimism was overrated and that our
doubts about the validity of the positive breaks we were observing were
founded. Actually, the situation completely reversed. This week we won’t see much on the economic
news front until the very last day when we’ll need to digest the Producer Price Index, the Retail
Sales, the Business Inventories and the Consumer Sentiment. It truly is anybody’s guess right now… Technically the situation degraded badly last week and we are now approaching a very important support level which represents the low of the year so to cross it we’ll need very bad news but the good news is that the odds of such a bad news before Friday are very low, although three new hurricane alerts are in effect… Let’s look at the charts: First the S&P 500: You can clearly see it’s getting closer to its year low and the formatin of a double bottom
Secondly look at the Dow Jones chart and notice that it too is nearing its year low plus a very important support level at 11000 point
Finally. Look at the Nasdaq chart: It’s similar to the Dow Jones in the fact that it is also approaching a very important level at 2200 which would represent a triple bottom. ON a side note you should know double bottoms are strong levels but triple bottoms are even more solid and often represent a good foundation to bounce on so look out for a solid bounce, soon maybe?
Now let's take a closer look at the upcoming weeks in terms of economic news and how each one can impact the market: ( Soon to be for Investor Rules members only ) Not a member yet? Just go to http://www.trading-and-investing-for-beginners.com/gold-membership.html Economic calendar Monday
September 8th Consumer Credit 15:00 ET Definition
Why Do Investors
Care? The demand for credit also has a direct bearing on interest rates. If the
demand to borrow money exceeds the supply of willing lenders, interest rates
rise. If credit demand falls and many willing lenders are fighting for
customers, they may offer lower interest rates to attract business. Financial market players focus less attention on this indicator because it
is reported with a long lag relative to other consumer information. Long term
investors who do pay attention to this report will have a greater
understanding of consumer spending ability. This will give them a lead on
investment alternatives. Tuesday
September 9th ICSC-UBS
Store Sales This weekly measure of comparable store sales at major retail chains, published by the International Council of Shopping Centers, is related to the general merchandise portion of retail sales. It accounts for roughly 10 percent of total retail sales.. Why Do Investors Care? Consumer spending accounts for more than 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. 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. Pending Home Sales Index 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 the pending home sales index
which measures home resales, investors can gain
specific investment ideas as well as broad guidance for managing a portfolio.
Wholesale Trade
Definition Why Do Investors
Care? Wholesale sales and inventory data give investors a chance to look below
the surface of the visible consumer economy. Activity at the wholesale level
can be a precursor for consumer trends. In particular, by looking at the
ratio of inventories to sales, investors can see how fast production will
grow in coming months. For example, if inventory growth lags sales growth,
then manufacturers will need to boost production lest product shortages
occur. On the other hand, if unintended inventory accumulation occurs (i.e.
sales did not meet expectations), then production will probably have to slow
while those inventories are worked down. In this manner, the inventory data
provide a valuable forward-looking tool for tracking the economy. Wednesday September 10th MBA
Purchase Applications 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 September 11th Import and Export Prices 08:30ET Import Prices Consensus : -1.7% Export Prices Consensus : N/A Definition Why Do Investors
Care? Inflation leads to higher interest rates and that's bad news for stocks,
as well. By monitoring inflation gauges such as import prices, investors can
keep an eye on this menace to their portfolios. International Trade Consensus : -58.0B Definition The international trade balance
measures the difference between imports and exports of both tangible goods
and services. Imports may act as a drag on domestic growth and they may also
increase competitive pressures on domestic producers. Exports boost domestic
production. Why Do Investors Care? Changes in the level of imports
and exports, along with the difference between the two (the trade balance)
are a valuable gauge of economic trends here and abroad. While these trade
figures can directly impact all financial markets, they primarily affect the
value of the dollar in the foreign exchange market. 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. RBC CASH Index 9:00 ET
Why Do Investors Care? EIA Natural
Gas Report 10:35 ET Definition Why Do Investors
Care? Friday September12 Producer Price Index Definition Why Do Investors Care? The PPI measures prices at the
producer level before they are passed along to consumers. Since the producer
price index measures prices of consumer goods and capital equipment, a
portion of the inflation at the producer level gets passed through to the
consumer price index (CPI). By tracking price pressures in the pipeline,
investors can anticipate inflationary consequences in coming months. While the CPI is the price
index with the most impact in setting interest rates, the PPI provides
significant information earlier in the production process. As a starting
point, interest rates have an "inflation premium" and components
for risk factors. A lender will want the money paid back from a loan to at
least have the same purchasing power as when loaned. The interest rate at a
minimum equals the inflation rate to maintain purchasing power and this
generally is based on the CPI. Changes in inflation lead to changes in
interest rates and, in turn, in equity prices. The PPI comes in three
versions: finished goods; intermediate supplies, materials & components;
and crude materials that need further processing. The finished goods PPI is
most often cited in the media. This index covers final products bought from
producers by businesses to sell to consumers or to use for capital equipment. The PPI is considered a
precursor of both consumer price inflation and profits. If the prices paid to
manufacturers increase, businesses are faced with either charging higher
prices or they taking a cut in profits. The ability to pass along price
increases depends on the strength and competitiveness of the marketplace. Producer prices are more
volatile than consumer prices. The CPI includes services components - which
are more stable than goods - and the PPI does not. Wages are a bigger share
of the costs at the retail level than at the producer level. Commodity prices
react more quickly to supply and demand. Volatility is higher earlier in the
production chain. Food and energy prices are major sources of volatility,
hence, the greater focus on the "core PPI" which excludes these two
components. The bond market rallies when
the PPI decreases or posts only small increases, but bond prices fall when
the PPI posts larger-than-expected gains. The equity market rallies with the
bond market because low inflation promises low interest rates and is good for
profits. Retail Sales Consensus retail
sales is 0.5% Consensus retail
sales less autos is -0.2 Definition
Why Do Investors
Care?
Business Inventories Consensus 0.5% Definition Why Do Investors
Care? Rising inventories can be an indication of business optimism that sales
will be growing in the coming months. By looking at the ratio of inventories
to sales, investors can see whether production demands will expand or
contract in the near future. For example, if inventory growth lags sales
growth, then manufacturers will have to boost production lest commodity
shortages occur. On the other hand, if unintended inventory accumulation
occurs (that is, sales do not meet expectations), then production will
probably have to slow while those inventories are worked down. In this
manner, the business inventory data provide a valuable forward-looking tool
for tracking the economy. Consumer Sentiment Definition The University of Michigan
consumer surveyquestions 500 households each month on their financial
conditions and attitudes about the economy. Consumer sentiment is directly
related to the strength of consumer spending. Consumer confidence and
consumer sentiment are two ways of talking about consumer attitudes. Among
economic reports, consumer sentiment refers to the Michigan survey while
consumer confidence refers to The Conference Board's survey. Why Do Investors Care? The pattern in consumer
attitudes and spending is often the foremost influence on stock and bond
markets. For stocks, strong economic growth translates to healthy corporate
profits and higher stock prices. For bonds, the focus is whether economic
growth goes overboard and leads to inflation. Ideally, the economy walks that
fine line between strong growth and excessive (inflationary) growth. This
balance was achieved through much of the nineties. For this reason alone,
investors in the stock and bond markets enjoyed huge gains during the bull
market of the 1990s. Consumer confidence did shift down in tandem with the
equity market between 2000 and 2002 and then recovered in 2003 and 2004.
Consumers became more pessimistic in 2005 when gasoline prices surged. 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,
Eric LeRiche www.InvestorRules.com
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