Greek's Week Ahead - Another Wild Ride

By Markos N. Kaminis - Economy & Markets

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The market turned in another wild ride last week, chalking up days, even hours, within which the value of the Dow Jones Industrials Index varied dramatically. From top to bottom on Thursday, the Dow varied by 950 points, and closed on an enthusing rally. On Friday, the Dow swung wildly again, taking an afternoon rally of roughly 450 points and reversing it completely out in the last hour of trade, closing the day down 338 points. The volatility has been simply insane, and the CBOE Volatility Index reflects it trading at $66, as it approaches its 52-week high of 89.53.

Historically, significant market corrections have occurred during periods of great volatility. This leaves your Wall Street insider worried, because I see a dangerous catalyst on the horizon. I realize the market is already off sharply, in fact exactly 40% from its October 9, 2007 peak on the Dow. Also, between now and Christmas, the government will likely authorize aid to the auto sector (estimated $25 to $50 billion); the Fed will likely reduce rates by another 50 basis points; and tax loss selling will be exchanged for replacement purchases of other beaten down shares. These are all positive catalysts for stocks.

On the down side, economic data should continue to supply bad news. A Russian fiscal crisis looms as well, because the price of oil is below the point where Russia and also Iran need it to be to make money. Between now and Christmas, we would not expect to see the catalyst that concerns us, for the simple reason that the global importance of uninterrupted holiday shopping cannot be overstated. However, sometime soon, and most likely after January 1st but before Barack Obama is sworn in as President of the United States, I have concern that Israel, with or without the assistance of the U.S., might bomb Iran. The nightmare that follows could be chaos unlike the world has seen since World War II, or at least that possibility looms. So while the market may rally Santa Claus style, it could be short-lived and offer false profit.

Last week’s action had underlying catalysts of an Obama Cabinet coming together, with late rumors Friday of one Madam Clinton for Secretary of State. The market is more concerned about Obama’s choice for Treasury Secretary. We think Sheila Bair is perfect for the role, and would bring a calm to the financial scene. Bair, currently chief of the FDIC, should offer better leadership and more proactive decision making than her predecessor, one Hank Paulson.

The week will also be remembered for the political jockeying between so-called lame duck President Bush and Congress. President-Elect Obama would like to see aid provided to the auto sector as soon as possible, and Bush knows it. As a result, he’s holding out his Colombia free-trade pact as carrot for signing on to an aid package for Detroit.

The week will remain infamous for a couple economic reports as well. Thursday’s Weekly Jobless Claims data came in above that fear threshold we’ve been warning of here, at 516K. Then on Friday, October Retail Sales were reported drastically lower, down 2.8% from September.

The Week Ahead

The week ahead will offer results from the meeting of the G-20. On the economic report schedule, look for troubling news from the New York and Philadelphia regional manufacturing surveys. Inflation data from the Producer and Consumer Price Indexes should be greatly influenced by collapsed energy prices. The Federal Open Market Committee meeting minutes are to be released on Wednesday afternoon and may reflect a flustered Fed. Investors will also be hopeful for stabilized housing data on Tuesday and Wednesday. Finally, Thursday’s Leading Indicators Index might surprise some if it points toward a very hard landing for Q4.

On the earnings front, look for news from: Monday – Lowe’s (NYSE: LOW), Target (NYSE: TGT); Tuesday – Home Depot (NYSE: HD), Saks (NYSE: SKS); Wednesday – BJ’s Wholesale Club (NYSE: BJ), Trina Solar (NYSE: TSL), Tween Brands (NYSE: TWB); Thursday – Dell (Nasdaq: DELL), Limited Brands (NYSE: LTD), The Pantry (Nasdaq: PTRY); Friday – AnnTaylor (NYSE: ANN), H.J. Heinz (NYSE: HNZ) and J.M. Smucker (NYSE: SJM).

Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK. Please see our disclosures at the Wall Street Greek website and author bio pages found there.