August is Finally Done

Thankfully, August is now behind us and we couldn’t be happier from a market perspective.  Oh yes, we like summer but the last two weeks have been made of some of the dullest days we can remember.  Take for example, Thursday, August 31, 2006.  On this day, the Dow dropped 1.76 and the NASDAQ Comp dropped 1.98 with the SP 500 down 45 cents.  For those of you writing covered calls, the market is quietly pulling out the premium in your options so you actually might be happy with the dullness.  We, on the other hand, are not.  We note that markets don’t stay quiet like this for very long, but at this time of year, there is a definite bias towards this type of quiet trading.  August is over, YES.

The first day of September could start out with something other than dullness due to the jobs’ report that is coming out just before the opening bell.  We normally see the jobs’ report as the end of the month end bullishness witnessing a little spike in the early morning trading which doesn’t seem to sustain itself.  This week being as dull as it has been could leave the market yawning at the news of jobs, weak or strong.  

The current estimate for new jobs is 125K with 113K being created last month.  Sometimes the market pays attention to the revised number to get an idea how the total new jobs were created.  It’s not a science; it’s more of an art.  The Fed has entered into this equation and at the same time the weakening housing market has created a little uneasiness.  If job growth is weak, the market may not like the number this time even though it would be aligned with the “Fed is done” trade we have seen so often in the last, what, year and a half???  

An article we read suggested that the job growth had to be in sort of a goldilocks situation, our interpretation.  The article said that if growth was a little too much, there would be cause for market to think the Fed could raise rates.  Not enough growth would mean there was weakness in the economy in general and that would also cause a bearish reaction.  Therefore, our interpretation of goldilocks, it’s got to be “just right”.  That thinking extends to the wage growth as well.  This report has to have just the right ingredients for the bulls to stay happy.

Another article mentioned that INTC, one of our favorite shorts, might be planning a mass layoff of between 10% and 20% of its workforce.  We always wonder what that means.  If we are truly coming into the so called “strong second half” why are companies like INTC laying off people?  Could it be that business really isn’t that good?  The announcement is supposed to be coming sometime next week.  What would normally happen, in this “expense reduction” mode, is a stock rally but INTC has already rallied from about 17 to a 20 in Wednesday’s trading.  If a rally comes out of that announcement, we would be very much inclined to short it or sell it or buy puts against it.  

As you might know, we are also very interested in the pending home sales for July that will be announced shortly after the market opens on Friday.  July had some of the highest interest rates for mortgages in a long time so the number could be dismissed if it is bad.  The assumption would be that the rates have come down a bit now so sales could have picked up some after July.

We wish all of you a happy and safe long holiday weekend.  The Labor Day weekend has always reminded me that a new year is beginning so we also would say, “Happy New Year” to you and yours.  May this year be a good year for you.

Dow Industrials:  11,381.15  -1.76
QQQQ:  38.87
RYVNX:   21.50
RYAIX:  24.02
RYCWX:  41.50
TLT:  88.08
BEGBX:  13.76