Stocks rallied this week. In North American markets it was enough to erase what had been negative gains year to date as at the end of August. Now the S&P 500 is basically back at its longer-term resistance levels (again) around 1100. Coming into the fall, we had some significant bearish sentiment amass in August and negative returns for the first 8 months of the year. This could favour some better than expected price action in September.
That said the art here is to weigh the probable range of price action over the next couple of months. On the upside we have the possibility of a bear market rally retracing the S&P back to the 1150 area. On the downside we still have the possibility of a re-test of the 950 and then 800 level if (as) we get further disappointment on the economic front in the next few weeks. In other words, if we buy or hold here, we better have a clearly defined sell rule laid out in advance. At this point the risk/reward ratios still favour safety over risk. Anyone who is talking about holding stocks for the long-term is still a danger to financial health.
Barry Ritholtz reminds us of the forest over the trees in this Tech Ticker clip yesterday:
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I don't believe the market has any relationship to underlying economic fundamentals or reality anymore. The ups and downs are merely the flows of cheap capital making profits on short term trading.
The End of the Equity cult
http://www.zerohedge.com/article/why-end-equity-cult-means-trillions-upcoming-outflows-stocks
Kabul Bank: Moral Hazard Personified
http://blogs.wsj.com/deals/2010/09/03/kabul-bank-moral-hazard-personified/
Friday funnies
http://theburningplatform.com/blog/2010/09/03/friday-funnies-14/
Wall Street Journal: “China Set on Forcing Drop In Property Prices. A series of official comments in recent days have shown that the Chinese government remains committed to forcing down housing prices, despite worries about a weak global economy and complaints from property developers. The government’s determination to keep cracking down on its frothy real-estate market may be a political necessity but risks hurting growth at a time when much of the world economy is weak, and contrasts sharply with efforts in the U.S. and Japan to add fuel to their fading recoveries.”
Barron’s (Alan Abelson): “Let’s Hear It For Bad Estimates. Graham and Dodd had it all wrong. . . . As last week’s stock market action made incontestably clear, such standbys as value investing and technical analysis are nothing but quaint relics. What really counts in today’s rapid-fire, sophisticated, computerized market are bum estimates. And the wider the miss of the prognosticators, the more powerful the impact. What occasioned this marvelous epiphany was the market’s bounce back culminating in a robust rally following Friday’s release of August employment. Wall Street’s collective crystal ball anticipated something in the neighborhood of 40,000 new hires by the private sector. Instead the actual number came in at 67,000. Eureka! That 27,000 miss was worth 127 points on the Dow. . . . . . You’d never know it by the joyous reaction of investors, but everything on the job front in August didn’t come up roses. All told 54,000 jobs disappeared last month, owing to the loss of 114,000 Census slots.”
The Pragmatic Capitalist: “Seven Weak Spots in the Employment Report. 1. Aggregate hours worked were flat. 2. All the employment gains were part-time. Full-time employment in the Household Survey plunged by 254,000. 3. Those working part-time for ‘economic reasons’ surged 331,000, the biggest increase in six months. 4. While private payrolls were better than expected, 10,000 of that +67,000 tally reflected returning construction workers who had been on strike. 5. Manufacturing employment was down 27,000 and total goods producing jobs were flat – hardly signs of a robust economic backdrop. 6. The diffusion index for private payrolls actually fell to 53.0 from 56.7 in July – a seven-month low. It was at 68.0 at the April high, which is consistent with an economy slowing down to stall-speed. 7. The labor market gap widened with the all-inclusive [unemployed and under-employed] U6 unemployment rate rising to a four-month high of 16.7% from 16.5% in July. (Souce: Gluskin Sheff).”
Dazzo,
That's a very nice piece of article you presented again.
I think, even if things you buy cost a same over time, but services will cost a lot more because of the aging population. Workers from Asia won't come here to fix your toalet.
Even in China people want more money for their work, and elsewhere in Asia there is not much infrastructure.
I have seen how the Indian economy operates: literally on the streets, everywhere. Even a dentist too. Give me a break.
Governments everywhere printing money on top of this.
I don't buy a sustained deflation story.
Looking at the ECRI USFIG, it just turned up this week.
Cheers!
According to ECRI on Sept 3., and I think D. Rosenberg is going to like this assessment.
Looking ahead 6 months:
Decelerating jobs growth in coming months.
For jobs and the economy as a whole, there is no acceleration in sight.
Double dip risk running reasonably high, more than 50%. The jury is still out there to determine if this will be a hard or soft landing.
Stocks can't ignore this!
Dutch pension woes…..a heads up for everyone else?
http://www.zerohedge.com/article/recent-problems-dutch-pension-sector