Thursday, September 21, 2006

Bearish Data

The futures contracts were up strongly before the open but the early rally only lasted about five minutes before selling came in and wiped out those gains. Then the market staged another rally that also failed due to some pesky little news items. The first was the often ignored LEI, leading economic indicators, which were down for the second time in two months and the fourth time in five months. That index seems to be pointing in the Southerly direction, after all, it is a Leading indicator report.

Then the Philly Fed report (was that Silly or Philly?) said that its business conditions index, a gauge of the regions manufacturing sector, fell to -0.4 in September. This is the first time since April 2003 that this indicator has been negative. The August number was 18.5 and economists predicted the index to drop to about 15. This knocked the socks off the rally attempt and the market (Dow) dropped about 85 points over the next hour.

Another bearish event was the continuing HPQ (Hewlett Packard) story that has now engulfed another player, CEO Mark Hurd. Apparently, he has been identified as one of the possible players in the scandal involving the Board. The SEC has requested some information and Mr. Hurd is probably going to testify before a House committee on the subject. Our interest is that this news hit the stock again today, this time to the tune of about 5%. HPQ is a Dow component so it affected the Dow on Thursday.

Looking at the market, we were particularly interested in the glass ceiling that we have been talking about for the past few posts. The main one we have focused on is the SP 500 level of 1325. Today the index did manage to push up to 1328 area but could not hold it and finished down on the day at 1318. We find this significant because there are many who were/are looking for a good breakout in this index this week. So far, the market has not managed to break resistance at that 1325 range.

Friday should give us more information as to the near term direction of the market. We didn’t think Thursday’s market was strongly down but our portfolio finally had a fairly good day. One day does not a trend make but that 1325 barrier has held again lending credibility to our notion that we are done going up for now. Since we are very late in September, we are somewhat concerned about the actual timing of a market decline. We will probably have to revise our dates for a market low but we don’t really think dates are all that important. What is now important is that we get a decline started.

Have a great weekend and we’ll see you back here next week.

Dow Industrials: 11,533.23 -79.96
QQQQ: 40.18
RYVNX: 20.16
RYAIX: 23.30
RYCWX: 40.58
TLT: 89.24
BEGBX: 13.78

No comments: