Equity Clock

Stock Market Outlook for August 31, 2010

Upcoming Events for Today:

1. The Case-Shiller 20-City Index for June will be released at 9:00am.   Market expects an increase of 3.1% versus an increase of 4.61% previous.
2. The Chicago Purchasing Managers Index for August will be released at 9:45am.   Market expects 57.0 versus 62.3 previous.
3. The Conference Board will release the Consumer Confidence for August at 10:00am.   Market expects 50.0 versus 50.40 previous.
4. Minutes of the FOMC Meeting will be released at 2:00pm

The Markets

The last day of the month is upon us, putting an end to another tumultuous summer month in this volatile market.   The optimism surrounding Friday’s market upturn unfortunately did not carry over to this week as investors quickly hit the sell button due to concerns of the lack of catalysts that will right this market to the upside.   Friday’s employment report is certainly weighing heavy on the minds of many investors as economic news continues driving the tape.   Monday’s news surrounded personal income and consumption for the month of July.   For the most part the figures were in-line with expectations, aside from the slightly larger than expected increase in spending.   With incomes increasing by 0.2% and consumption reported at 0.4%, analysts are now turning to the possibility of incomes not keeping up with spending and inflation, a situation that could further burden the consumer with debt.   Taking the flip side of the view, this stat of slightly higher than expected spending gives first glimpses of commitment from the consumer as corporations and the public remain in a relative stalemate with regards to who will commit to the recovery first.  It is becoming clearer that corporations are becoming “money-hogs” and the consumer will have to act, and possibly take on the debt as corporations de-leverage, in order to bring sustainability and full resource utilization back to this economy.   There remains a long way to go before pre-recessionary levels return.

The market at present is struggling to shake off oversold levels and eventually further downward pressures will be resisted as highly liquid investments become obsolete, leaving only positions that are more fixed in nature that will only be sold upon technical levels being breached.   The correction of the oversold imbalance continues to be sought.   The fact that the market failed to carry any strength over from Friday, even with news being relatively neutral on the day, provides concern that market participants may continue to ignore these technical imbalances while the economic news continues being disseminated to investors.   Looking at the stock chart alone, ignoring the fundamentals of the economy, and a reasonable entry point should be clear to many investors.   Unfortunately this is not the case in this uncertain market.

The put/call ratio of 0.98 on Monday indicates that put trading was once again in fashion coming off of a bullish reading on Friday of 0.8.   However, the dominance of put activity did subside as the day progressed and the last two hours of trading brought session lows.   The put/call ratio on the day topped out at 1.17 and crossed over from overly bearish readings greater than one around the 2 o’clock hour, just as the market began to show increasing levels of weakness.   Monday’s put/call ratio exceeded that of the 10-day moving average of this ratio, and is indicative of an overly bearish market: a possible entry point for an upside move.   Wednesday’s reading above the 10-day moving average, which was hinted at as a possible “buy” signal, failed to produce a sustainable upside move.   Could this be the contrarian indicator that results in the change in market direction?   Again, a short-term bounce continues to be sought, but for now the trend in the intermediate-term appears down.

Sectors that Moved the Market

Financials were the weakest performer on the day as the Bank of Japan announced measures to cool its strengthening currency while giving boost to economic conditions.   In addition, reports showed today that interest in financial bellwether Bank of America waned in the second quarter and Citi became the beneficiary of an increased investor base.   Both companies declined by around 2.5% on the day.   Volumes were notably lower on the day as investors take the week before Labor day off to fulfill remaining summer vacation desires.

S&P 500 Index

Chart Courtesy of StockCharts.com

Total Returns

Yesterday: –1.47%  –  Trailing 5 days: –1.73%  –  Trailing 30 days: –4.78%

Averages for current day based on past 20 years of data

• Current Day: –0.19% with 57.14% of sessions gaining
• Next 7 days: –0.12% with 52.50% of sessions gaining (Max return: 0.86% by September 2 on Average)
• Next 30 days: –0.92% with 52.07% of sessions gaining (Max return: 2.45% by September 11 on Average)

TSE Composite

Chart Courtesy of StockCharts.com

Total Returns

Yesterday: 0.13%  –  Trailing 5 days: 1.51%  –  Trailing 30 days: 1.55%

Averages for current day based on past 20 years of data

• Current Day: 0.42% with 71.43% of sessions gaining
• Next 7 days: –0.27% with 51.00% of sessions gaining (Max return: 1.16% by September 2 on Average)
• Next 30 days: –2.70% with 46.68% of sessions gaining (Max return: 2.49% by September 14 on Average)