August Starts Down

The stock market fell across the board on Tuesday morning as the data for the news items we mentioned in yesterday’s post started coming in a little too “good” for the market to like.  The media was all abuzz today, all day, about the inflation number (PCE deflator—personal consumption expenditures, and in this case the “core” PCE deflator) being more than the Fed can tolerate.  Meanwhile, the bonds were not reacting much at all to the data, suggesting that the media may be just a little off in their assessment of the reason the stock market was falling.  

At any rate, a half hour into the trading day, the ISM announced the manufacturing index was slightly better than expected and the market dropped more.  Save for a decent rally near the end of the day, the action was down and ugly.  About the only thing positive was that the selling was done on an average volume day.

Tuesday was the first day of the month and the market put up some very red numbers, not the best way to begin a month.  Maybe the bulls can make Wednesday look a little better but the damage on Tuesday was noticeable.  We have mentioned the Dow Transportation average in the last week, not because we follow it much, but because it has dropped so much in the past few weeks, about 15%.  The Dow Jones Industrials are masking the weakness in the broader market.  Looking at Tuesday’s trading the Dow was down about a half a percent while the NASDAQ Comp was down almost 1.5% (NASDAQ 100 was down 1.62%) and the Dow Transports down nearly 2%.  We are trying to think of a way the bulls could ignore Tuesday’s trading—nothing comes to mind.

Our main thought process for the stock market is for it to drop consistently into the middle to late part of September with a possibility of going into October.  Some analysts we read are looking to the January period for a low point.  We would say that if the market plays out the way we are expecting the broader market may put in a good tradable low in late September with the Dow putting in a low in January and scaring the general public.  We would be watching for non-confirmations of the Dow’s low in the broader markets and our various indicators.  

With our forecast of a low approaching sometime in the fall, we are heavily short the market via the Rydex inverse funds, both the OTC (RYVNX) and the Dow (RYCWX), and we have some exposure to the Treasury bond market in the TLT’s.  We do not endorse the short position for you, the reader, but we would suggest a cash position in your 401(k) just to sit out the decline.  This blog is not trying to give you ideas, just our view of the various markets we trade and/or follow.  You need to make up your own mind by reading as much as you can.  This site has no stake in your portfolio, only you do.  You need to make a good decision how to manage it.  Good fortune to all of you as we start the month of August, on a down day in the stock market.

Cash is king.

Dow Industrials:  11,125.73  -59.95
QQQQ:  36.48
RYVNX:   24.24
RYAIX:  25.44
RYCWX:  43.26
TLT:  85.46
BEGBX:  13.62