The Fed had their annual meeting in Jackson Hole, Wyoming last week. On Friday Fed Chairman Bernanke announced that the Fed was ready to dig deeper and take bold actions if the economy continued to weaken. On cue, Intel announced lowered guidance and the Dow Jones Industrial Average was trading under its 10,000 level.
However, traders say that it's not the news that matters, but rather it's the reaction to the news that matters. In case you didn't see it, the reaction was consistent buying for the rest of the day. Not only did the Dow get back above 10,000, but the markets also erased much of their losses for the week.
Here is a daily chart of the Russell 2000 Small-Cap Index showing the downtrend it has been in since April. The good news is that support held at the July lows. That level is marked by the green highlight. Any move beneath that would be decidedly bearish. On the other hand, it is unlikely the Bulls would feel safe until price clears the resistance level marked by the pink highlight.
Another thing to note in this chart is how dramatically the Russell 2000 Small-Cap Index had under-performed the broader S&P 500 Index since May. It is usually a bearish sign for the market when small caps and technology stocks are under-performing -- which is what they are doing presently.
What is Happening with the Volatility Index?
While the markets retreated back near July lows, the Volatility Index (or VIX) did not show a spike of fear. Many traders view the VIX as a contrary indicator, which means the lack of fear could be bearish.
How Has the Government Spent the Stimulus So Far?
Counting through the beginning of August, Congress has now approved over $1 trillion in spending and tax measures to stimulate the economy. Here is a chart, put together by the Washington Post, which breaks down the spending.
I wonder what that will look like next year?
Business Posts Moving the Markets that I Found Interesting This Week:
- Bear Market Math - Are the July Lows in Danger? (YFinance)
- Does M&A Activity Predict Broad Stock Market Performance or Just Bank Profits? (SmartMoney)
- Amazon Web Services About to Be a Billion Dollar Business On Its Own. (BusinessInsider)
- Commitment or Folly: Microsoft's Online Efforts Lost $6 Billion in 8 Years. (ZDNet)
- Is China's Economy Worse than it Seems? (Stratfor)
Lighter Ideas and Fun Links that I Found Interesting This Week
- How Sitting on the Toilet Messes With Your Health. (Slate)
- The End of Management - Why Managers Should Act Like VCs. (WSJ)
- Kids Text Every 10 Minutes When They're Awake - What About the Rest of Us? (BusinessInsider)
- Google Adds Calls to Gmail - Big Warning Bells for Land-Lines and Skype. (WSJ)
- China Has a Massive Traffic Jam Could Last For Weeks. (AsianCorrespondent)
Capitalogix Commentary for the Week of 09/06/10
The "invisible hand" is becoming replaced with a much more easily seen and felt version, and I suspect people are not only noticing ... but adjusting.
At this point, I'm not sure if people (or the "market") want more or less intervention. For example, The Financial Times reports that the Fed minutes released last week fueled recovery fears because the meeting notes raise questions about whether the Fed has ruled out large-scale asset purchases. (FT)
Apparently, the powers-that-be still have some things in their bag-of-tricks. Early last week I posted a Tweet saying that big market drops on low volume have been the trigger for Plunge Protection activity. Not to disappoint, we got the requisite ramp-up. The question is whether we'll get real follow-on buying?
Market Commentary.
Last week was technically stronger than I originally thought. Why? Because both the S&P 500 and Nasdaq indices moved above their 20-, 50- and 200-day exponential moving averages. That isn't a common technical happening. Getting through a single moving average often proves difficult; so getting through all three major moving averages at once is something worth noting. Now let's see the reaction.
The short-term average is below the mid-term average, which is still below the long-term average. In English, that means we are probably still in a down-trend. Consequently, I'll be watching the resistance zone market by the pink highlight. If bears mount a challenge to the recent push higher, that would be a likely spot for the reversal. Otherwise, a break above that level could easily test the May highs.
How Does Employment Effect the Outlook?
It is a little ironic to talk about this on Labor Day weekend; nonetheless, we got more bad employment data last week. The best I can say about it is that it wasn't met with selling.
First, we'll look at the percent of job losses during various recession. The following chart shows that our current job situation stands out and speaks for itself. This chart also highlights the effects of census hiring as well as the extremely weak hiring in this recovery.
The dotted lines tell the real story about how pathetic the jobs recovery has been so far. Bear in mind it has taken $$ Trillions in stimulus to produce this.
Second, the chart below shows the unemployment rates during recessions and recoveries. Notice that there has not been any recovery in the labor market. Unemployment has actually deteriorated when compared to the end of past recessions.
According to the Pragmatic Capitalist, without a recovery in the labor markets, it’s impossible to say that the economy is rebounding. As of now, the outlook remains negative.
However, without sellers, that increasingly visible hand can continue to push the markets higher. As summer (and slow trading) comes to an end, it will be interesting to see what happens next.
Business Posts Moving the Markets that I Found Interesting This Week:
Lighter Ideas and Fun Links that I Found Interesting This Week
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