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Market Bounce-Back Last Week Was Not Impressive

  • Written by Syndicated Publisher No Comments Comments
    July 21, 2014

    Markets most everywhere closed up this week. At first glance it looks great. But a look at the technical charts shows it was not impressive, particularly in the U.S. and Europe.

    For instance, the NYSE Composite and Nasdaq closed down 1.5% the previous week and bounced back only 0.4% this week. The Russell 2000 closed down 4.1% the previous week, and closed down another 0.7% this week.

    Germany and France closed down 3.4% the previous week, and bounced back only 0.6% this week.

    It didn’t change anything in the short-term risk picture.

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    But those are only short-term charts and the markets do remain within a few percentage points of their highs. A few short-term support levels at 50-day moving averages have been broken, but that has happened fairly often.

    So no worries – right?

    Short-term market patterns.

    The way the market continues to follow its short-term patterns is almost spooky.

    Most recently, an up-week in keeping with the ‘monthly strength period’. Then a down week in keeping with the tendency for the week before an options expirations to be negative. And now an up week this week in keeping with the tendency for the options expirations week to be positive.

    Is the economy really rebounding from the winter slowdown?

    We know the Federal Reserve has an ax to grind in always painting a positive picture of the economy. Imagine what would happen to consumer and business confidence, and markets, if the Fed came out with an assessment saying that “We have a number of problems that will have the economy in a continuing slowdown.”

    So we see the Federal Reserve, at least in their public statements, always behind the curve at turning points. For instance, then Fed Chairman Bernanke assured us after the housing bubble burst in 2006 that, “Our assessment is that this looks like an orderly and moderate kind of cooling off.” In 2008, with the ‘Great Recession’ already underway, that, “The Federal Reserve is not currently forecasting a recession.”

    We know Wall Street and its cheerleaders have a compelling reason to always paint a positive picture of the economy, in an effort to keep investors confidently buying, and bull markets going as long as possible.

    So we see Wall Street and its cheerleaders cherry-pick the economic reports, playing up those that are positive and pretty much ignoring those that are negative.

    But does not the important economic question of the last six months remain, whether the economy is rebounding from the pronounced winter slowdown?

    The slowdown began last fall when GDP growth fell from 4.1% in the third quarter to 2.4% in the fourth quarter, and plunged further to negative -2.9% in the first quarter of this year.

    The Fed and Wall Street assured us there would be a robust rebound in the spring. Pent-up demand from the winter months, when consumers couldn’t get out to spend due to the weather, would add to the normal strong spring buying season, especially for housing.

    Well, spring has come and gone, and we’re almost halfway through summer.

    In its FOMC statements, and Beige Book this week, the Fed says the economy has indeed bounced back, with moderate growth, strong jobs reports, with only perhaps a little disappointment in a somewhat slow recovery in housing.

    However, realizing the Fed and Wall Street have obviously self-serving motivations in painting a rosy picture for consumers and investors, let’s look at the negative reports they have been pretty much ignoring. What is the picture those reports are painting?

    Consumer spending accounts for 66% of the economy. Home purchases are their biggest expenditures. The housing industry is a major driving force of the economy in both directions.

    So how are those areas of the housing industry, retail sales, and consumer confidence looking?

    A month ago it was reported that new housing starts fell 6.5% in May. Permits for future starts fell 6.4%, to a four month low.

    This week it was reported that they plunged again in June, down 9.3%, to an annualized rate of 893,000, the slowest pace in 9 months. And already dismal housing starts for May were revised down from the originally reported 1.0 million to 985,000.

    Looking ahead, mortgage applications fell sharply in June, down double-digits for the month, and this week we learned they fell sharply again in the first week of July.

    U.S. retail sales were up almost 1.0% in February, almost 1.5% in March, but only 0.5% in April, and 0.5% in May.

    The consensus forecast was that they would be up 0.6% in June. But they didn’t come close to even that. June retail sales were up only 0.2%, the slowest pace in five months.

    Meanwhile, yesterday it was reported that consumer confidence (University of Michigan/ Thomson/Reuters Consumer Sentiment Index) fell from 82.5 in June to 81.3 in July, a four-month low.

    Those reports do not indicate a big bounce back from pent-up demand created by the winter weather, at least from housing and consumer spending.

    Recent reports also showed Factory Orders fell 0.5% in May, and Industrial Production rose at a slower than forecast 0.2% pace in June.

    It was also reported this week that the Producer Price Index jumped 0.4% in June, adding to the concerns from the Consumer Price Index that inflation may be picking up, lowering the spending power of the dollar, and making it more difficult for consumers to spend more even if they wanted to.

    The economy was no doubt back in positive territory in the 2nd quarter, but in a robust big recovery that has the economy in a significant recovery uptrend?

    The Fed and Wall Street say so. Therefore it must be so.

    To read my weekend newspaper column click here:  Will Investors Get Out On Time This Time-

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    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 

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