Equity Clock

Stock Market Outlook for September 8, 2010

Upcoming Events for Today:

1. Crude Inventories will be released at 10:30am
2. The Fed’s Beige Book for September will be released at 2:00pm
3. Consumer Credit for July will be released at 3:00pm.   Market expects -$5.25B versus -$1.3B previous.

The Markets

Welcome to the unpredictable September that analysts and investors widely fear.   Major indices gave back much of the gains achieved on Friday as concerns over European debt have once again resurfaced.   With better than expected news of the state of the domestic economy released last week, the attention has once again shifted to foreign economies that impact the Worldwide recovery.   As a result, volumes were notably lighter on the day as investors restrained from taking a position for a bet to the upside or downside.

The move on Tuesday gave the first hint that the rebound achieved in the last half of last week was nothing more than a bounce in the overall downward trend of the market.   Seasonal tendencies at this time of year are hard to not take notice of as the present month all too commonly finds the worst month of performance and a bottom for equities as the third quarter comes to a conclusion.   However, the charts detail that we are stuck in a trading range with support at 1040 on the S&P 500 and resistance around 1130.   A catalyst, whether it be negative or positive, appears to be required to break us out of this range.   In the interim, a defensive stance is prudent.

After the final tick was recorded amongst key indices, technical indicators remained close to or at overbought levels.   A pullback continues to be sought to correct this imbalance.   Day-to-day gyrations are becoming harder to predict at present, but the pressures that persist in the market appear to be to the downside.

The market sentiment was overly bearish on Tuesday as the put/call ratio almost jumped off the charts at 1.33.   Investors are overwhelmingly flocking to the safety of put options in order to guard newly found gains obtained from last week’s events.   A similar spike was observed in the put/call ratio in mid-August when the S&P 500 index topped out at 1100, just before plummeting to its ultimate lows at 1040.   The answer to the riddle posed yesterday of whether the market was too complacent or merely optimistic seems to be confirmed as the spike provides indication that investors were caught off guard, reiterated further by the jump in the VIX that returned to levels it held prior to the news released last Thursday and Friday.   Investors are on edge, and in this situation a bad trading environment is created for all as unpredictable moves become the expectation.

Sectors that Moved the Market

Financial stocks took the biggest beating on the day as European financial concerns allowed stocks in this space to falter after the respectable gains achieved last week.   Also of note pertaining to this space was a report released by Meredith Whitney indicating Wall Street firms would cut 10% of their workforce in the next 18 months as “structural declines” will force the financial industry to cutback.   A giant question mark has loomed over this sector for quite some time and these new predictions will no doubt leave investors less confident in the future growth that this industry may provide.   Defensive sectors dodged the bulk of the declines on the day with Consumer Staple stocks being the only sector to see volumes increase over the day previous.

S&P 500 Index

Chart Courtesy of StockCharts.com

Total Returns

Yesterday: –1.15%  –  Trailing 5 days: 4.05%  –  Trailing 30 days: –2.66%

Averages for current day based on past 20 years of data

• Current Day: 0.55% with 57.14% of sessions gaining
• Next 7 days: 0.74% with 63.00% of sessions gaining (Max return: 1.44% by September 10 on Average)
• Next 30 days: –1.23% with 50.91% of sessions gaining (Max return: 2.71% by September 19 on Average)

TSE Composite

Chart Courtesy of StockCharts.com

Total Returns

Yesterday: –0.35%  –  Trailing 5 days: 1.87%  –  Trailing 30 days: 2.78%

Averages for current day based on past 10 years of data

• Current Day: –0.46% with 28.57% of sessions gaining
• Next 7 days: –0.21% with 50.00% of sessions gaining (Max return: 0.92% by September 11 on Average)
• Next 30 days: –3.68% with 46.49% of sessions gaining (Max return: 2.12% by September 20 on Average)