Stock Market Outlook for September 3, 2010
Upcoming Events for Today:
- The Employment Report for August will be released at 8:30am. Market expects the Unemployment Rate to increase to 9.6% from 9.5% previous. Non-farm payrolls are expected to show a drop of 120K versus a decline of 131K previous. Private payrolls are expected to show an increase of 44K versus an increase of 71K previous.
- ISM Services for August will be released at 10:00am. Market expects 53.0 versus 54.3 previous.
The Markets
| Market | Close | % Change | Expected ST Low | Expected ST High |
| Dow Jones Industrial Average (^DJI) | 10,320.10 | 0.49% | 10,069.38 | 10,637.52 |
| Dow Jones Transportation Average (^DJT) | 4,342.03 | 1.37% | 4,120.60 | 4,475.35 |
| Dow Jones Utility Average (^DJU) | 396.87 | -0.12% | 379.39 | 394.33 |
| S&P 500 (^GSPC) | 1,090.10 | 0.91% | 1,055.45 | 1,121.55 |
| S&P/TSE Composite (^GSPTSE) | 12,111.09 | 0.89% | 11,577.51 | 11,923.69 |
| NASDAQ Composite (^IXIC) | 2,200.01 | 1.06% | 2,134.24 | 2,291.08 |
| Austrian Traded Index (^ATX) | 2,465.42 | 0.17% | 2,405.14 | 2,526.58 |
| French CAC 40 (^FCHI) | 3,631.43 | 0.21% | 3,488.42 | 3,743.03 |
| German DAX (^GDAXI) | 6,083.85 | 0.00% | 5,935.12 | 6,303.99 |
| UK FTSE 100 (^FTSE) | 5,371.00 | 0.09% | 5,176.69 | 5,376.34 |
| Swiss Market Index (^SSMI) | 6,333.60 | 0.02% | 6,149.25 | 6,359.65 |
| Brazilian IBOVESPA (^BVSP) | 66,808.00 | -0.40% | 64,954.51 | 68,035.31 |
| Mexico’s IPC (^MXX) | 32,417.33 | 0.24% | 31,528.74 | 32,849.05 |
| Amsterdam Exchange Index (^AEX) | 326.57 | 0.32% | 314.77 | 337.88 |
| China HANG SENG INDEX (^HSI) | 20,868.92 | 1.19% | 20,635.05 | 21,555.52 |
| Korea KOSPI Composite Index (^KS11) | 1,775.73 | 0.63% | 1,736.55 | 1,784.27 |
| Tokyo NIKKEI 225 (^N225) | 9,062.84 | 1.52% | 8,931.62 | 9,652.87 |
Markets continued their rally from the session previous as Thursday brought about further reasons to be optimistic of the economic prospects going into September. A report showed that Pending Home Sales unexpectedly jumped in July. Other reports pertaining to jobless claims, factory orders and productivity came in fairly close to expectations. The resulting impact was that major indices extended gains initiated two sessions prior. Optimism is flourishing at present, even with the employment report due out on Friday that has left many investors a little on edge.
The similarities of the activity on Wednesday and Thursday is rather similar to the activity observed at the beginning of June of this year, also leading into a crucial jobs report. The market put in a strong two day rally in the days prior to the key employment report as optimism was apparent. The rally was spurred by better than expected construction spending at a 2.7% increase over the month prior, a strong ISM Index at 59.7 and a better than expected pending home sales at a 6.0% increase over the month prior. A 3% move to the upside as the month of June began was quickly deteriorated on the day of the employment report release. The move resulted in a short-term low being put in place within the days following before bouncing back into the middle of the month. Further comparisons to the reports disseminated at the beginning of June and the reports over the last few days are highlighted below.
| June Release | September Release | |||||||
| Report | Actual | Expected | Previous | Actual | Expected | Previous | ||
| Construction Spending | 2.70% | 0.10% | 0.40% | -1.00% | -0.70% | -0.80% | ||
| ISM Index | 59.7 | 59.4 | 60.4 | 56.3 | 52.9 | 55.5 | ||
| Pending Home Sales | 6.00% | 4.30% | 7.10% | 5.20% | 0.00% | -2.80% | ||
| ADP Employment Change | 55K | 60K | 65K | -10K | 13K | 37K | ||
| Productivity-Rev. | 2.80% | 3.30% | 3.60% | -1.80% | -1.70% | -0.90% | ||
| Initial Claims | 453K | 455K | 463K | 472K | 475K | 478K | ||
| Factory Orders | 1.20% | 1.70% | 1.70% | 0.10% | 0.30% | -0.60% | ||
| Nonfarm Payrolls | 431K | 500K | 290K | ??? | -120K | -131K | ||
Clearly in September we are in a worse position than what we were back in June when the market was falling. Perhaps that means a bottom has been put in, or perhaps it is a warning sign of things to come. Only time will tell. Both periods had seasonal profiles that showed an expected decline following the employment report. With markets presently sitting approximately at the same levels as the start of June, it will be interesting to see if history repeats.
For about a week now a bounce has been anticipated with oversold levels plaguing key indices and technical indicators lining up for a “buy” signal. A bounce has certainly been achieved, so the question is will the bounce turn into a trend, or is it just another short-term correction. Key indices have once again gravitated to extremes, coming off of oversold levels indicated just a few days ago to sit presently on the precipice of overbought levels according to some technical indicators. A correction of this imbalance may soon be realized.
The market will have a few things to battle with on Friday as the employment report is released. First is the overbought indications that may keep a further rally at bay. The second is lower volumes and early departures of many traders anxious to begin the last official weekend of the summer. And finally, seasonal tendencies moving into mid-term elections as markets find their lows for the year over the next five weeks.
Market sentiment on Thursday had a slight bearish undertone as the put/call ratio increased from 0.82 in the session prior to 0.90. Although traders were buying, they were also hedging by way of puts prior to Friday’s report.
Sectors That Moved the Market
| Sector | % Price Change | % Volume Change |
| Energy Sector (XLE) | 0.83% | -48.62% |
| Basic Materials Sector (XLB) | 1.19% | -48.84% |
| Financial Sector (XLF) | 0.99% | -49.55% |
| Health Care Sector (XLV) | 0.52% | -41.97% |
| Consumer Discretionary Sector (XLY) | 1.86% | 16.85% |
| Industrials Sector (XLI) | 1.26% | -55.85% |
| Technology Sector (XLK) | 0.90% | -37.11% |
| Utilities Sector (XLU) | 0.00% | -27.25% |
| Consumer Staples Sector (XLP) | 0.63% | -37.45% |
Consumer Discretionary stocks showed the greatest gains on the day following better than expected same-store retail numbers. The risk trade was put back on, leading to an increase in volume for this sector. Utilities continue to show overbought indications and a shift of assets away from this defensive play may become apparent should the market strength continue.
S&P 500 Index
Chart Courtesy of StockCharts.com
| Support 2 | Support 1 | Pivot Point | Resistance 1 | Resistance 2 |
| 1077.15 | 1083.63 | 1086.86 | 1093.34 | 1096.57 |
Total Returns
Yesterday: 0.91% – Trailing 5 days: 4.09% – Trailing 30 days: –2.71%
Averages for current day based on past 20 years of data
- Current Day: –0.15% with 50.00% of sessions gaining
- Next 7 days: –0.17% with 52.25% of sessions gaining (Max return: 0.85% by September 5 on Average)
- Next 30 days: –0.99% with 51.75% of sessions gaining (Max return: 2.29% by September 15 on Average)
TSE Composite
Chart Courtesy of StockCharts.com
| Support 2 | Support 1 | Pivot Point | Resistance 1 | Resistance 2 |
| 11967.34 | 12039.21 | 12075.58 | 12147.45 | 12183.82 |
Total Returns
Yesterday: 0.89% – Trailing 5 days: 3.93% – Trailing 30 days: 2.79%
Averages for current day based on past 10 years of data
- Current Day: –0.32% with 33.33% of sessions gaining
- Next 7 days: –1.34% with 42.50% of sessions gaining (Max return: 0.56% by September 6 on Average)
- Next 30 days: –3.24% with 46.46% of sessions gaining (Max return: 2.04% by September 16 on Average)
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