Options expiration is over and now we can focus on the readjustment period that normally follows. The final day of the week showed the Lowest volume of the week at the NYSE. Looking at the week, the Dow made a monster move of nearly 300 points, ok maybe a baby monster move, but on modest volume of less than 1.5 billion shares a day. For perspective, the average daily volume for 2006 has been 1.668 billion shares and that counts some of those half days of trading that are sometimes less then 1 billion shares.
Our observation is that a lot of bullish enthusiasm built up during last week and that increases complacency. We have watching the news and the prices and the volume and there isn’t a good story that ties them together except Bull Trap. We will reserve judgment until we get trading underway for the week in the morning. But, we did use some of our dry powder on Friday to add to our short positions.
One of the big stories last week was the follow up to MSFT’s stock buyback program. It seems when MSFT sent out the tender letter to solicit current owner’s stock, they didn’t get a very good response, only about $4 billion worth of stock was tendered back to them. The report was that most MSFT owners didn’t think 24.75 was enough for their stock. This report was enough to pop the stock about 4.5% on Friday to help the Dow to a fifth straight up close.
The WSJ, at so the online version reports, is set have a page one story titled “Consumers Curb Upscale Buying As Gasoline Prices, Housing Bite”. The article says that many retailers are feeling the pinch of higher gas prices with several reporting disappointing sales figures. The article cites Starbucks, Whole Foods Market and William-Sonoma, as well as Brunswick (boat maker) and Panera Bread.
The article continues with how you need to go back to 1991 to find a similar time when consumers were pulling back. At that time we had entered Desert Storm and there was a lot of interest in CNN’s coverage of the war efforts. The 1991 era was a deep recession. Right now, there are anecdotal instances of recessionary trends but the GDP keeps growing. We will probably hear a lot more about 1991 as we go deeper into the fall, with all of the similarities of a recessionary period today.
Of course our favorite part of the article is the reference to the housing market. Early in the article, they point to the price of gas as the culprit for the consumer pulling in their horns but later in the article there is a paragraph blaming the slowdown in the housing market as another reason consumers are being hit. In the paragraph it mentions the index of home builder sentiment plunging to its lowest level since…1991. There it is again.
We do not expect the upcoming week to be as generous to the bulls as last week was. In fact we need to get this little “head fake” behind us and get to the real work of the bear market. We will return tomorrow…
Dow Industrials: 11,381.47 +46.51
QQQQ: 38.79
RYVNX: 21.52
RYAIX: 24.03
RYCWX: 41.42
TLT: 86.77
BEGBX: 13.65
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