Consumer Confidence and Investor Sentiment Waver

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Time to Take Profits

A duo of reports this week indicated that confidence has wavered in both the consumer and investor segments. For this reason and more, we think now is a good time to take some capital off the table, and reduce risk in portfolios away from equities for the near-term.

Consumer Confidence & Investor Sentiment Waver

Two key metrics measuring consumer confidence and investor sentiment both offered the same sobering news on Tuesday. Confidence has wavered from the careless spendthrift days of late (those being in August!). While consumers have been spending slightly more than dead people, investors have been enjoying a folly-filled ride from the panic-level pit of March 9. The S&P 500 Index was recently up over 50% from that day's pitiful low, but that was just the right amount of profit to raise the question in the collective mind of investors, "How much higher can this market go anyhow?"

Investor Sentiment, as measured by State Street (NYSE: STT), fell globally to 118.1 in September, from 221.9 in August. The North American segment of this measure dropped 4.6 points, to 113.7. That still marks an expansion of risk taking. Also, considering the metric is up from a 52-week low of 82.1, and that it fell from its five-year high set in August, the news does not ring scary. Still, just as Rome was not built in a day, it was neither dismantled in one. And we remind you, inflection points matter. Change in direction is a critical market-moving factor, and this decrease in sentiment marks the first decline post eight consecutive increases.

What we find most unnerving about this data is that it coincides with other red flags. Last week's Housing Sales slippage, for instance, offered solid reason for doubt in a sound real estate recovery. Federal economic caretakers have also reminded us of late that the end of recession does not necessarily mean the beginning of recovery is on tap. Nor does it signify that recovery will be as equally robust as contraction was terrifying. Meanwhile, stocks have already tallied big profits ahead of year-end closure. State Street's measure takes account of institutional investor sentiment, and many professionally run funds close their books in the fall. Thus, it's a fine time for performance minded portfolio managers to lock in those relative gains, which in turn pressures your stocks.

History also tells us that a string of monthly gains this long wears thin soon enough. September marked the seventh straight monthly rise for the S&P 500 Index, marking only the 16th time in history since 1928 that this has occurred. Needless to say, the odds of October following suit are slim to none. Also, as some funds have close their books for the quarter, they have likely also added market winners to their holdings (we call this window dressing). After September's end comes to pass though, all bets are off.

Consumer Confidence Still Lacking

Despite the Reuters/University of Michigan data posted last week showing a gain, consumer confidence is still lacking. The Conference Board reported Consumer Confidence fell in September, to 53.1, down from 54.5 (54.1 initially reported) in August. The fading figure also fell short of economists view for a reading of 57.0, based on Bloomberg's survey.

The Present Situation Index, the portion of the composite measure that represents the general view of the current situation, showed surveyed households are not holding up well. This index dropped to 22.7, from 25.4 in August. Much of the "Present Situation" concern seen in September can be attributed to the general impression of a poor job market. Some 47% of those surveyed now view jobs "hard to get," compared against the 44.3% that thought so last month. The Expectations Index shows that folks do not generally expect the labor market to improve much over the next six months. That has a way of weighing on spending my friends.

Conclusion

Between the change in investor sentiment and the unemployment burdened consumer segment, we think the winded market is going to find setback in October. Thus, now seems a good time to reconsider portfolio allocations, and to move some capital into less risky assets and out of equities temporarily.

The coming days will offer more insight into labor market conditions, with Monster Worldwide's (NYSE: MWW) Employment Index, Challenger, Gray & Christmas' Job-Cuts Report, and the Labor Department's tally of the unemployed on deck. Positive change in the Employment Situation Report seems the only potential savior for investors, but economists are generally looking for an uptick in the unemployment rate to 9.8%, from the 9.7% mark reported in August.


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Second Quarter GDP Revision Illusory

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Economic Report

This morning's market should get an initial lift from a better than expected revision to second quarter GDP. The sustainability of any early stock market boost is in question though, as Q3 comes to an end, and market gurus look toward a dull recovery. Also, the day offers an otherwise busy schedule, with the first of the monthly employment reports on tap as well as important manufacturing data from the Institute for Supply Management (ISM).

Second Quarter GDP Revision

The Commerce Department revised second quarter GDP today to -0.7%, from -1.0% when initially reported (and after the first revision offered no change). The improved result also matched importantly well against economists consensus view for a -1.2% contraction in the economy. This final revision comes on the last day of the third fiscal quarter though, and so market expert commentary should focus on Q3 forecasts. Since the contraction, however better it may be, is not much different than that initially reported, its market moving impact will likely not hold.

The Commerce Department reports that the main contributors to economic contraction included lower inventory investment, residential and nonresidential fixed investment, personal consumption expenditures (PCE), and exports. On the positive side of the drivers, federal government spending helped to support growth.

Making the difference in the improvement from first reporting to the final revision of second quarter GDP, real estate!. Nonresidential fixed investment and residential fixed investment both offered smaller decreases upon revision, coinciding with other data. Still, the drivers of economic improvement, or rather less bad contraction, should worry you, so take note here.

Why You Should Worry

Federal government spending programs are being slowly eased out. These sometimes questionable actions may have staved off economic depression, and certainly helped to ease the pain of the Great Recession, but the weening off of programs seems near certain to play a role in a prolonged recovery. The government has been careful in reassuring that it would not take away stimulus unless economic and market conditions warranted it. Stock market investors, however, have been betting on the Feds' help, and as the programs come to conclusion, some confidence is backing away from investment securities. This was clearly seen in State Street's (NYSE: STT) Investor Confidence Index dip in September, to 118.1, from 122.9 in August. We will have another indicator of the importance of government help when September's Motor Vehicle Sales are reported later this week. Moreover, when Ford (NYSE: F), General Motors (NYSE: GM), Honda (NYSE: HMC) and Toyota (NYSE: TM) report results later next month, corporate executives should provide an important view ahead.

Another troubling issue is the temporary nature of economic improvement related to inventory building. While inventory provided a negative contribution to Q2 GDP, in Q3 it is expected to help. This regular "inventory building" occurs after recessions as businesses prepare for economic recovery and growth. What's also standard to economic cycles is a following quarter softening of inventory build and economic activity, and so economists are already talking about a Q4 or Q1 dip back into economic contraction, especially since unemployment at current harrowing heights burdens recovery.

Finally, while the real estate market has stabilized, recent data has shown that the slope of forward home sales might not be beautifully illustrated in a mountainous like ascension. Rather, a series of plateaus and valleys seem certain to ensue. We are taking your two cents on this subject in our latest "Topic of Debate" entitled "Real Estate Recovery Debate," found at the blog.

In conclusion, while today's reported second quarter GDP economic contraction offers surface level good news, economists and market gurus (of any worth) should take away your treat soon enough in the days to come. Therefore, be careful where you place your bets and for how long.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.

Real Estate Recovery Debate Forum

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Real Estate Recovery Debate

Wall Street Greek, Barron's and other popular media have had a lot to say lately in the real estate recovery debate. Recent interest was of course spawned by the weak existing and new home sales reports published for the month of August, and the coinciding stock market dip. Opinions have varied widely though... Barron's Alan Abelson noted a report by Amherst Securities Group in his article "Shadow Over Housing," published for the week of September 28. Abelson noted Amhersts forecast of an approximate 7 million "delinquency pipeline" that threatens to undermine recovery. Our own Michael Douville also discussed this "Phantom Inventory" in his article "Housing Challenges for 2009," but still views now an opportune time for the purchase of a home. The Greek was neither silent on the subject, when he analyzed the August reports in his article, "Existing Home Sales Puts Skids to Market."

This column, however, is for you to share your wise and valued opinion on the subject. So please let us know what you think about the timing and fervor of real estate recovery, if you see it at all. Do you agree with Mr. Douville, or do you fall in Amherst's camp, and why. Please tell us, and let's open the debate!


Please see our disclosures at the Wall Street Greek website and author bio pages found there.

Housing Challenges for 2009

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Housing Challenges

Housing across America is healing. National Builders such as KB Homes (NYSE: KBH) and Toll Brothers (NYSE: TOL) are experiencing stronger traffic throughout their developments, and an increase in new sales was particularly evident in the June and July time frames. Sales of existing homes are gradually improving, and as Sandy Young, managing Broker for Realty Executives in Phoenix, Arizona states "it is not unusual to generate 5-8 offers on almost all REO inventory."

The supply of Foreclosures has dropped from a high of 6-months inventory to less than 30 days. There is a widespread perception that lenders are managing the supply of foreclosures and limiting the availability of discounted properties. The markets of Phoenix and Las Vegas are normalizing with the supplies of homes available at less than 4 months. The Phoenix MSA has closed over 80,000 properties through the end of July, compared to a total of 59,000 closed for all of 2008. With a current 12,732 homes pending closing, projections are for over 110,000 sales.

Vacant condos in Miami are experiencing the same scenario; sales are brisk. There were estimates of as many as 25,000 vacant condo units at the beginning of the year, but that heavy stock has moved to as little as 9,000 condos currently. Aggressive pricing, with discounts of up to 50% is being credited for buyers returning to the market. The basics of supply and demand are at work. It is still a historic buying opportunity.

Although housing appears to be recovering, many problems still remain. The greatest factor affecting the housing market is supply. In the lower price ranges, which qualify for government financing, particularly FHA financing, the supply has dwindled to the point where it is becoming a seller's market, with multiple offers and rising prices. Unknown to all is the "Phantom Inventory" held off the market by lenders. Should the lenders flood the housing market with foreclosed homes, prices may soften. Should the stream of homes released by lenders remain at current levels, prices will rise and may rise dramatically as many homes are being sold at or below replacement pricing.

Bidding wars reminiscent of 2005-2006 are becoming common with some prices settling 15-20% over asking, although asking prices are severely discounted. The price action suggests a potential jump in values. In price ranges above Fannie Mae (NYSE: FNM) or Freddie Mac (NYSE: FRE) lending limits, prices continue to soften, but at a lower rate. The luxury market is still declining, but again at a lower rate, suggesting a bottoming process. The housing market viewed in total suggests a recovery is starting, though should REO's flood the economy, it could be a "false start." My indicators are pointing to a genuine upturn however, and I believe the fourth quarter of 2010 will mark the end of the Housing Crisis.

Value investors and first time buyers have entered the housing market en masse, and are affecting rental rates. Vacancy rates have increased as tenants vacate their rental units to become homeowners, and investor purchases add to the supply. Although construction of apartments has been severely curtailed, the supply of rental homes has increased here in Phoenix from the March 2008 low of 7800 units, to over 9300 current units available. This has had the unwanted affect of lowering per unit rental rates by 10-15%. I expect these extra units will be absorbed within 12- 18 months as population growth and job growth return to normal. Unemployment always expands vacancy rates, as children leave their apartments and return to their parents' homes. Thus, some households expand to include more people per unit, also lowering housing demand.

I expect the demographic growth of the US will shortly absorb available housing, and there exists a scenario for a future housing shortage. Some economists are concerned that the recovery could be aborted or develop into a double-dip recession. If this plays out, household compression would accelerate and rental rates would decline further. Most economists currently are not forecasting a return to recession; some, including myself, believe the US will rapidly enter a new business cycle, and recovery will be swift.

As economic activity strengthens, interest rates could rise and slow the recovery; rising rates would be a normal characteristic of recovery, however. The Federal Reserve has indicated a willingness to pursue a policy of low interest rates, pursuant to the Fed's target of price stability and asset appreciation. This policy of extended low rates should effectively abort the negative impact of "Option Arm Loans" scheduled to reset in the next 12-15 months. The affect of lower rates should thus substantially increase the strength of the recovery.

In conclusion, there are several issues that may negatively impact housing; some have the potential to severely retard the growth of the new business cycle. However, it is very typical in the beginning of an upturn for unease and concern regarding future growth. This cycle is just beginning, and will likely grow immensely in the next 36-48 months. The trillions of dollars earmarked for the recovery have just begun to trickle into the economy; most agree only 15-20% of the funds are in the system. Let me say it clearly: the recovery has started and there are trillions of dollars of government funds coming. There are estimates of $3.6 trillion in US money markets alone. When the system is full, this money will begin to move, velocity will increase, and activity will soar.

I believe that anyone with investment capital should look hard at their local housing markets and encourage their children to buy; in a few short years, the historic housing affordability enjoyed now may be vastly different. I suggest you buy your second home; buy a home near your child's university; buy a home for your grandchildren; or treat yourself well and buy a luxury home. But buy your properties soon!


Please see our disclosures at the Wall Street Greek website and author bio pages found there.

Existing Home Sales Puts Skids to Market

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The stock market hit the skids today, thanks mostly to a bummer of an Existing Home Sales Report for August.

Existing Home Sales Skid

After four consecutive months of improvement, sales of existing homes slipped in August. The annual pace of sales was reported at 5.10 million through the summer month, short of economists' consensus for a rate of 5.35 million and down from July's 5.24 million. In the preceding four months, sales gains had accumulated 15.2%, but with unemployment still rising, something had to give. Even so, August's disappointing pace still marks improvement over the prior year figure of 4.93 million.

Get this!

The National Association of Realtors attributed some of the decline to an increasing flow of contracts entering the system, overloading it and thus driving longer closing times. If you are buying that story, I have a wonderful old historic bridge in old New York town that I would like to sell you. If you think the system cannot handle sales growth from this meek base, well then consider how well it managed just a few years ago. I know! I know! There has been major consolidation and buku bankruptcy, but this still sounds like a lame lie to me. Especially while the real under-employment rate nears 20%.

The good news is that, just yesterday, the Fed reiterated its interest in keeping housing financing affordable. Freddie Mac (NYSE: FRE) data agrees, indicating the national average fixed rate mortgage was locked in at 5.19% in August, versus 6.48% a year prior. AND we still can't get this motor running!?!

Much of the last few months' growth has rightly been attributed to first time home buyer tax credits and the foreclosure flood. First time home buyers accounted for roughly 30% of sales in August, while distressed property sales marked 31% of the total. Both sales segments were relatively unchanged from July, so it's hard to attribute this month's tiring to a change in either. The tax credit expires at the end of November, and so industry participants are pleading for its renewal. We think they will get it.

There was, however, good news to report in housing inventory, where August's 8.5 month supply marked improvement over July's 9.3 month tally. With the sales pace slipping, it's even more impressive to see inventory improve. This means the flood of foreclosures and other distressed sales must be trickling down, though "trickling" is the wrong choice of words. Let's say, we're not drowning in them, but still lost to sight in the white water. Distressed sales continue to impact the average sales price of a home, with the median price slipping by $4,500 to $177,700 in August.

Regionally speaking, sales dipped across the board against July's plumped production, but were generally flat to higher when compared against prior year totals. Basically, the market has gotten past rejoicing in the fact that the world has not ended, and is now asking for more. It's a "show me" stock market now my friends. That, and the economy, might pose a problem for your portfolio over the next month or two.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.

FOMC Statement 9-23-09

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The Federal Reserve released its Federal Open Market Committee (FOMC) Policy Statement this afternoon. The Fed's note offered no surprise, and massaged any and all market concern. Thus, the broader indexes moved slightly higher on the release, but still closed the day decidedly lower.

The Dow Jones Industrials Index dropped 0.83% on the day. In fact, stocks marked their worst day since the first of the month. We suspect some noteworthy sector strategist somewhere must have weighed in with some sort of concerning note...

FOMC Statement

The FOMC offered its opinion for a generally stabilizing economy, but one still weighed by high unemployment and light demand for financing. While indicating housing demand was improving, the Fed also declared it would continue to support low mortgage rates through its low rate policy, including the purchase of $1.25 trillion more of agency mortgage-backed securities through the end of Q1 2010. The action maintains liquidity in the housing market by allowing financial institutions to lend more freely. It also supports the balance sheets of financial institutions by helping to preserve the value of financial derivatives via synthetic demand. The Fed will also purchase $200 billion of other agency debt. Still, the economic caretakers were careful to note that these programs are winding down, and that they will come to an eventual and certain end. The FOMC reassures that the conclusion of financial aid programs are only possible thanks to a "pick up" in economic activity since the severe downturn.

The Fed also quelled inflation concerns, noting that "resource slack" is likely to continue to "dampen cost pressures." Where the Fed and its harshest critics differ though is on longer term inflation forecasts, where the Fed sees little trouble ahead... sort of like how it saw little risk of trouble spreading from the housing market to the broader economy before the economic demise that set in last year.


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The World is a Stage

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The World Stage

The world is a stage, and she takes the to the center this week. A complement of global galas will force the leaders of the world to think big in the days ahead. The 64th gathering of the United Nations General Assembly promises to be heated, as national representatives focus on global warming. The water may come to a fierce boil though, when disputed Iranian President Mahmoud Ahmadinejad finds the microphone. After all, it was only last April that his labeling of Israel as the "most racist and cruel regime" drew a mass walk out by UN representatives at its racism conference. Further, it was just last week that President Obama labeled Iran as one of the most dangerous nuclear threats to the United States. This year, Ahmadinejad's presence will be smartly contrasted against the UN debut of Libya's seemingly reformed (perhaps even near civilized now) leader Moammar Gadhafi.

A few hundred miles westward, in an old steel town (with scores of bridges to prove it), Pittsburgh hosts the world's most important economic players. The 20-nation group, including the EU, is responsible for 85% of the global economy. The G-20, replacing past less inclusive/often protested G-8 groupings will also consider global warming, looking at the economic aspects as well as the environmental necessities of going green. Once smoky Pittsburgh, thus presents the perfect vista after undergoing environmental metamorphosis. Still, ensuring global economic recovery remains top priority for the economic majesty, and will get top billing. The meeting will be held on September 24 and 25, and will be chaired by President Obama.

This meeting follows up on the September 2008 gathering in Washington, and more recent London grouping. It will include central bank governors and finance ministers from Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the U.K. and the U.S., as well as the European Union, represented by the rotating council presidency and the European Central Bank. The global representation also welcomes the Secretary-General of the United Nations, the President of the World Bank, the Managing Director of the International Monetary Fund, and the Chairperson of the Financial Stability Board.

The UN General Assembly debate runs from September 23-26 and 28-30. This open forum for member state leaders has drawn as many as 190 individual addresses. You will recall recent notables including Venezuelan President Hugo Chavez's reference to then President Bush as "the devil." In our own review of the classic address, we found the cartoon like Chavez as funny as ever. In fact, he might take a stroll toward Times Square to take a stab at stand up comedy... Chavez may have a more stable future in Midtown than back home anyway, since he seems sure to lose the nascent Latin American arms race, despite Russia's financing billions more weapons for the Fiefdom last week.

What would a global discussion be without mention of last week's reversal by President Obama, undoing his predecessor's attempt to put missiles on Russia's border. When Russian Mob Bosses (read Prime Minister Putin) would not digest the idea of supposed defensive missiles so close to home, at least not at the same time as NATO's outreach to the Ukraine and Georgia, Obama's America had to backtrack. The reason why seems simple enough, with an impending Israeli confrontation looming with the Iranian wing of the family. Thus, there's plenty fodder for UN cartoonists and cartoon characters to work with this week. Enjoy the show!


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Terror Risk Burden

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Last week we solemnly remembered the tragic day of September 11, 2001, and for New York area residents, the pain still runs deep. However, as we reopen ourselves to those haunting memories, we cannot help but feel more than just comfort from the fact that no significant terrorist act has occurred on American soil since.

As time has passed, the wound has healed, and completely so for our securities markets. Still, we were not always so calm and comfortable, as you will recall. 9/11 served as a wake up call to Wall Street, as well as to Main Street. After years of enjoying safe days and restful nights with our blue jeans and apple pie, the events of 9/11 brought terrorism, and the fear of it, home. Where previously our only concern was getting to work on time, it was replaced with serious worry about just making through the workday.

Make no mistake about it, with the hit against us striking so close to the stock exchange at Wall and Broad, investment professionals took special note, and the securities they traded took a deeper hit than seen in securities prices in the days that followed. A new reality was engineered, and included the threat of serious economic impact born from terrorism. A "terror risk burden" was built into stocks, and as Homeland Security warning codes turned from green to orange to yellow and red, so also did stocks bear the cost of a new risk factor.

Greeks are also now getting to know the economic cost of unrest and terrorism intimately. When street riots broke out last year in Athens after a policeman killed a teenager, it did not go any less unnoticed by the Athens Stock Exchange than it did by the general populace. And last week, when a car bomb blew up outside the Athens bourse, the Athens Composite Share Price Index reflected the impact. Still, the damage caused by that specific attack was relatively light, and stocks recovered minor losses swiftly.

Back here in the states, the market has all but forgotten what it was like on September 12, 13, 14...etc. We arrived only as close as a mile to our offices in Downtown Manhattan via public transit, and had to walk the rest of the distance. At our door, instead of the usual tobacco addicted gang to greet us, we found machine gun toting, armor clad National Reserve men (later replaced by policemen). While they were stationed there for our protection, believe you me, they did not make us feel safe at all. Our vulnerability seemed only more brightly highlighted by their presence, not to mention the stare downs.

But eight years later, things have changed somewhat. People are forgetting what evil is possible within our midst, and complacency is creeping its way back into individual behavior and stocks as well. Still the return of that risk burden or penalty is as inevitable as the risk of another terrorist act. It is going to happen again someday, in some manner; and when it does, stocks will once again raise the red flag of fear and retrench until that war is over as well. When that time comes, investors will be well served to consider the long-term significance of it, rather than to react only in panic. We must evaluate with level heads whether or not another new paradigm has been presented us, and how we should properly incorporate it into the forecast for our economy and the value of our portfolios. May that day never come, but may God protect us when it does.


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Head and Shoulders

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Head and Shoulders Pattern

As we celebrate Labor Day with an official 9.7% unemployment rate, our Nation indeed appears to be headed for what some are cleverly calling a "jobless recovery." Politicians and economists glibly predict that the rebound will feature high industrial productivity with commensurate corporate profits but may also leave an increasing number of Americans out of work.

Besides being incensed by the insensitivity of these commentators' remarks, when I hear the phrase "jobless recovery" being bandied about ever more frequently, I have to wonder whether those "employing" it really fathom how profoundly foolish their notion is. It's just about as inane as hope for an economic recovery without the participation of the American consumer.

Since the consumer must first produce in order to later consume, and since any such production would naturally require that he or she have a job, any hope of sustained recovery in our economy seems fleeting at best. We should note by exception that the arduous task of making money out of thin air (or from other peoples' pockets) is best left to investment bankers and politicians.

In light of this hollow economic backdrop, fueled by ill-conceived bailouts, stimulus packages and cash-for-clunker programs, one might expect that we could be in the final stages of an extraordinary bear market rally. But even as we look for a technical target, which may already have arrived, many point to a peak some 20% above current index prices.

These analysts point to a prominent chart pattern that has appeared on both the DOW and S&P indices: that of an inverted "Head and Shoulders." Most often, the head and shoulders pattern is associated with a bearish outcome, but when it is inverted as in the chart below, the predicted result is bullish.


Besides bolstering their price target for the S&P index with mark-to-make-believe based earnings predictions, traditional technical analysts measure the distance between the top of the head (i.e. the March low at 666) and the neckline, which is roughly 300 points higher, and extrapolate that price differential as the target for the top of the pattern: 1250. This would suggest we have much higher to go before any meaningful correction would occur.

If technical charting based on such pattern recognition seems like reading tea-leaves, or if the prospect of a rally to 1250 seems far fetched, don’t lose your head! As for the tea-leaves, I must point out that many well-known charting patterns (head & shoulders, bullish falling wedge, broadening formations, etc.) can be constructed from harmonic functions such as sine waves, even using multiple frequencies observed in stock market data. Thus the appearance of these repeated patterns can be explained directly from observable cyclic behavior.

However, the likelihood of such a pattern eventually achieving its technical target may be another matter altogether. Chart patterns, especially those that are ill-formed, often fail to meet price targets. Even those that are picture perfect, such as the bearish head and shoulders pattern that was so well publicized in July, can fail. Notwithstanding the ostensible need for supporting fundamentals, the S&P may therefore fall short of 1250 for other reasons observed by market technicians.

1. First, the eventual price much reach its target within a time frame consistent with the rest of the technical pattern, otherwise the pattern will likely fail. Such "failures" in the head and shoulder pattern can also be simulated using the above mentioned wave reconstruction methods where the amplitude and phase of constituent waves are adjusted to yield an incomplete pattern. Noting further the S&P chart in the figure above, it appears that the right shoulder is slumping in what should presently be a parabolic rise to the 1250 target. Instead, the index is struggling to maintain the millennium mark.



2. Second, market technicians observe that when the head and shoulders pattern appears as a bottoming formation (i.e. inverted), it is imperative that the right shoulder breakout above the neckline on markedly increased volume. Instead, market volume has been light throughout the latter stages of this rally except on recent days involving heavy distribution.



3. Third, given the broad constitution of the S&P index, if it were to reach that high of a target, it would seem relatively unlikely that either the DOW or the NASDAQ would be left behind. While the DOW itself is also presenting a similar pattern, the NASDAQ appears to be forming a more bearish formation. If the NASDAQ index were to pace the correction in coming days, it would further jeopardize any S&P climb to 1250.

In light of the above observations, the S&P is unlikely to reach the 1250 target before the bear market rally has reached its apex, and meaningful correction intervenes. In fact, there remains a strong likelihood that the top is already in, although 1047 remains a possibility. Readers should continue to watch key resistance (1018) and support (976) levels for indication of breakout in either direction. Opportunities for maximum profit seem to be growing short.


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Week Ahead: 9/11 Remembered

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9/11 Remembered

The close of this week will be a solemn one as we remember the tragedy of eight years ago. No economic report, no earnings release could play more importantly this week than our sad memories from that surreal morning. It scarred every one of us Wall Streeters for life, and it will live on with us for the rest of our days.

If you know someone who was impacted by the horror of that day, the witnesses of the wicked unveiling, do us a favor and help us through the day. It's never going to be easy for us, because we will never be able to wipe those horrid memories away. We will never get that smell of jet fuel and ash out from our noses. We will never heal the blisters from the bottom of our feet. We will never get the image of our brothers and sisters out of our minds, who chose jumping to their certain death over the excruciating pain of that unnatural hell fire. Please bear with us, as no number of years will heal our wounds completely, since they are torn open again each year. You can read "The Greek's" account of 9/11 via the link here.

God bless the innocent, heal the wounds of the witnesses; let him bring peace to the families and justice to the wicked.

The Week Ahead

Monday

While markets were closed in the US and Canada for the celebration of Labor Day, central bank heads from important industrialized and emerging nations met in Switzerland to discuss global economic issues. Also, the World Nuclear Association held its annual gathering in London.

Tuesday

Business resumes on Tuesday with the International Council of Shopping Centers' (ICSC) Weekly Same-Store Sales data release. In the most recent reading for the period ended on August 29, week-over-week sales fell 0.5%, compared to the 0.6% increase reported in the week just prior. The year-over-year change in sales amounted to -0.7%, versus a 0.2% decline in the prior year period. This data is supposedly adjusted for calendar shifts, like that for Labor Day and the start of the school season (read "back to school" shopping implication), but judging by the steep weekly change just seen, we're not so sure the ICSC has covered for it completely. With Labor Day falling at the latest possible time this year, more shopping might have been pushed forward a week to this coming week's data. The proof will be in the pudding, so look for a rise in the numbers this week if so.

Later in the day, the World Economic Forum is expected to publish its Global Competitiveness Report. At 3:00 PM, the Federal Reserve releases its monthly Consumer Credit Report for July. This measure of consumer credit outstanding is expected to show further contraction. This trend has extended from the fourth quarter of 2008 through Q2 2009. Economists are looking for a $4.0 billion cut back in July, versus the $10.3 billion contraction seen in June.

General Motors (NYSE: GM) is scheduled to meet to discuss the potential sale of Opel. Baker Hughes issues its August international rig count, and the earnings per share schedule includes news from Aerovironment (Nasdaq: AVAV), Alloy (Nasdaq: ALOY), C&D Technologies (NYSE: CHP), Casey's General Stores (Nasdaq: CASY), Flow International (Nasdaq: FLOW), FuelCell Energy (Nasdaq: FCEL), Mitcham Industries (Nasdaq: MIND), Nobel Learning (Nasdaq: NLCI), Palatin Technologies (AMEX: PTN), Pep Boys (NYSE: PBY), Rosetta Genomics (Nasdaq: ROSG), Smithfield Foods (NYSE: SFD) and Xinyuan Real Estate (NYSE: XIN).

Wednesday

President Obama will address Congress on the topic of health care reform. This could prove a good opportunity for the President to bring attention to his rivals who stand against it. A Massachusetts committee hears testimony regarding a plan to choose an interim replacement for Ted Kennedy's seat in the US Senate.

Three reports are due on Wednesday, starting with the regular Mortgage Applications data in the pre-market. The Mortgage Bankers Association's Weekly Applications Survey was last reported on September 2nd for the week ended August 28. The MBA publication indicated activity eased slightly in the last measured period. The Market Composite Index retraced ground by 2.2%, as the Purchase Index fell 1.0% from the prior week's tally. The Refinance Index decreased a more significant 3.1%, despite a more attractive average contract interest rate on 30-year fixed rate mortgages. 30-year rates fell to 5.15% that week, from 5.24%, and the average contract rate on 15-year fixed rate mortgages fell slightly to 4.57%.

Q2's Quarterly Services Survey is due at 10:00 a.m. In Q1 2009, Information revenue fell 0.9% against the prior quarter, and 3.2% when compared to the prior year condition.

The Fed's Beige Book for August is due at its usual 2:00 p.m. report time. The latest report for the FOMC meeting of early August showed a generally stabilizing economy, though still soft retail, commercial real estate and labor markets. Generally following an FOMC meeting, Fed presidents go on parade, so to speak. Pay attention to what they say, because much can be gleaned about the collective Fed's mindset. Chicago Fed President Charles Evans is slated to talk about inflation before the Council on Foreign Relations. Also, Dallas Fed Boss Richard Fisher will address a group in Texas on Wednesday.

OPEC is meeting to discuss production output, but the general feel is that the group will keep rates of flow steady. The EIA's Petroleum Status Report will be moved to Thursday this week, due to the Labor Day holiday.

The FDA will consider GlaxoSmithKline's (NYSE: GSK) vaccine against HPV in females. Apple (Nasdaq: AAPL) may introduce a new iPod Touch and Nanos with cameras on this day, while Texas Instruments (NYSE: TXN), Newfield Exploration (NYSE: NFX) and Owens Corning (NYSE: OC) hold shareholder meetings. At the same time, McDonald's (NYSE: MCD) will report on its August sales.

The EPS schedule includes Globecomm Systems (Nasdaq: GCOM), Hi-Tech Pharmacal (Nasdaq: HITK), Investors Real Estate (Nasdaq: IRET), K12 Inc. (NYSE: LRN), Korn Ferry Int'l (NYSE: KFY), Lakeland Industries (Nasdaq: LAKE), Luna Innovations (Nasdaq: LUNA), Mediware Information Systems (Nasdaq: MEDW), Men's Wearhouse (NYSE: MW), NCI Building Systems (NYSE: NCS), Ocean Power Technologies (Nasdaq: OPTT), Rex Stores (NYSE: RSC), Rural/Metro (Nasdaq: RURL), Shuffle Master (Nasdaq: SHFL), Signet Jewelers (NYSE: SIG), Smith & Wesson Holding Corp. (Nasdaq: SWHC), Spartech (NYSE: SEH), Streamline Health Solutions (Nasdaq: STRM), Talbots (NYSE: TLB), Titan Machinery (Nasdaq: TITN), United Natural Foods (Nasdaq: UNFI) and Zale Corporation (NYSE: ZLC).

Thursday

Weekly Initial Jobless Claims have eased off of the year's highs, but have since steadied in still troubling territory. Last week, the government reported weekly jobless claims at 570K, still hefty but slightly lower than the prior week. For this week's data, economists are forecasting 565K new claims filers lined up for benefits.

Also at 8:30, the International Trade Report for July is due. Economists see the trade deficit expanding to $28 billion, from $27 billion in June. The deficit also expanded in June, on higher petroleum prices. The Bank of England will decide on its key rates, as will the Bank of Canada on this day.

For the week ending August 28, the EIA reports crude oil inventory decreased by 0.4 million barrels and gasoline stocks shrank by 3.0 million barrels last week. Fresh data from the EIA is set for 10:30 reporting on Thursday. Also look for the Natural Gas Inventory Report around that time. Nat Gas in storage increased by 65 Bcf last week. The IEA will publish its monthly oil market report on Thursday.

The Fed's Balance Sheet is due for release at 4:30 p.m. Atlanta Fed President Dennis Lockhart will address a group on US and global economic interactions. Former Fed #2, Fred Mishkin is slated to address the National Association for Business Economics in New York. Meanwhile, Treasury Secretary Geithner will testify before an oversight panel on the subject of TARP.

Cowen is holding a clean-energy conference today. Meanwhile, Motorola (NYSE: MOT) is expected to introduce its Android-driven Smartphone. Covidien (NYSE: COV) and Hartford Financial (NYSE: HIG) hold shareholder conferences today. The EPS schedule includes news from AEP Industries (Nasdaq: AEPI), Bakers Footwear (Nasdaq: BKRS), Comarco (Nasdaq: CMRO), Finisar (Nasdaq: FNSR), Global Traffic Network (Nasdaq: GNET), Hooker Furniture (Nasdaq: HOFT), Lantronix (Nasdaq: LTRX), lululemon (Nasdaq: LULU), MDS Inc (NYSE: MDZ), Medical Nutrition (Nasdaq: MDNU), MGP Ingredients (Nasdaq: MGPI), National Semiconductor (NYSE: NSM), Navistar Int'l (NYSE: NAV), Nevada Gold & Casinos (AMEX: UWN), Stewart Enterprises (Nasdaq: STEI), The Descartes Systems Group (Nasdaq: DSGX), Volt Information Sciences (NYSE: VOL) and more.

Friday

It's September 11th, and we remember once again our fallen colleagues and heroes who lost their lives eight years ago in Downtown Manhattan's Financial District. We here at Wall Street Greek will never forget them nor the tragedy of the day, and we wish their families peace.

Import & Export Prices for the month of August should be reported on Friday morning. July's data showed import prices decreased at a greater rate than export prices through the month and compared to the prior year's tally. Petroleum pricing played an integral role in the month's change.

University of Michigan/Reuters Consumer Sentiment is due at 9:55 a.m. Bloomberg's consensus of economists sees sentiment improved to 67.0 in September, up from 65.7 at last check. The consumer is being closely watched and critically scrutinized now, and so you would be wise to pay attention to the trend here.

Wholesale Trade data is due for reporting at 10:00 a.m. Barron's consensus sees a 1.0% decline in Wholesale Inventories in July. That would compare against the prior month's 1.7% drop.

The Treasury Budget is due for reporting at 2:00 p.m. The consensus sees another big monthly deficit in store, as economists expect a -$140 billion deficit, versus the $180.7 billion reported in the prior month's data.

Friday's EPS schedule includes Aceto (Nasdaq: ACET), Brady Corp. (NYSE: BRC), Campbell Soup (NYSE: CPB), US Global Investors (Nasdaq: GROW) and a few others.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.

Welcome Back Greek America!

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Welcome Back Greek America!

August is a very special month for a great many Greek Americans. If you are reading this passionate Greek American publication, you very likely already know why. It's about the fulfillment of a dream that renews itself each year.

The fantasy is born from a feeling that strikes most of us sometime after Christmas. As naturally as flocks of exotic birds migrate each spring, we Greeks feel the burning desire to return to the home of our ancestors. Memories of the motherland bombard us with warm visions of pristine beaches and tables full of our favorite foods that satisfy our souls as equally as our stomachs.

A burning desire strikes us even before the flowers bloom; we must purchase our airplane ticket - destination Athena. In so doing, we realize we are securing the dream; we are forcing its realization. Greece is our medicine, you see; it's how we recharge our batteries to make it through the work filled toil of the remainder of our year. So as you return now renewed, we welcome you back Greek America! You are looking well.

By this time, most of you have returned from your charismatic villages and warm family reunions, and are already contemplating the "back to school" necessities of your own families. Your batteries are fully charged, and you are ready to reinvent your workplace. Hold on to that feeling, because it is a beautiful joy that warms all those around you.

It's probable that your return has also rekindled your interest in the economic situation and the stock market recovery. Oh, and we take it you have heard about the raging health care debate, where battles are being waged on many a town hall floor. While you may have been following these things via your restful balcony laptop interludes or Internet Café get-aways, you were likely only half attentive, given all the beautiful people passing by. So, we thought we might recap the month for you here, and help you back on your economic horse.

Lucky for you, a great portion of other Americans also take off in August, driving light trading volume and lazy days. Still, economic data, and market trends matter just the same. The Dow Jones Industrials Index rose 3.5% through August, while the broader S&P 500 climbed 3.6% and tech-heavy Nasdaq gained only 1.5%. The year's recovery rise has taken the Dow 44% higher year-to-date through the close of trading on September 4, 2009.

Stock market recovery has preceded economic recovery, though it's been anticipatory of it. In so doing, it has followed near perfectly its historical trend of leading the economy by six months or so. Economic "green shoots" began sprouting even before you left for Greece, and have continued to offer hope. Real estate prices have found base, and have even improved generally speaking over recent months, as have the pace of home sales, though ever so slightly. The manufacturing sector has also found safe footing, thanks to government intervention and stimulus like "cash for clunkers." Meanwhile, consumer and investor sentiment, as well as the flow of funds into US assets have improved, and the dollar even found strength for a bit.

However… over the past week, and following our warning at Wall Street Greek, the market began to reconsider certain excesses. We wrote that "Flighty Financials Threaten Stock Market Correction," and stocks swiftly followed suit, led lower by those aforementioned financial sector speculatives. The Dow gave back 1.1% last week, as stocks like AIG (NYSE: AIG), Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) returned as much as 20% of their value. What troubles the market even more, is the burden of still rising, and rather hefty, unemployment, which was noted last week up three-tenths of a percent, to 9.7%. So, welcome back Greek America, but the party is over.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.

Employment Situation - Just the Numbers 08-09

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Today's Employment Situation Report was released at 8:30 this morning. We will follow this "just the numbers" piece up with a more detailed analysis later. For now, we wanted you to know what is moving your market today.

Employment Situation

• Unemployment Rate: 9.7% in August, which proved importantly higher than Bloomberg's survey of economists had noted at 9.6%. Barron's and most others had set our expectations at 9.5%, so the report is a clear disappointment. The unemployment rate stood at 9.4% in July, which marked a step lower from June.
• Nonfarm Payrolls: At 216,000, August's payroll decline was slightly worse than the consensus expected; expectations had been set at -200K (-230K based on Barron's). Either way, this figure takes a back seat to the unemployment rate impact. July's shedding was revised to a worse number at -276K, from -247K.
• Average Work Week: This stuck at 33.1
• Average Hourly Earnings: Increased 0.3%, versus a 0.2% consensus and prior month rate

Please see our disclosures at the Wall Street Greek website and author bio pages found there.

Jobs Data Parade Begins with ADP & Challenger

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It's that time of the month again. I'm talking about the time for the regular monthly jobs data, which kicks off with today's ADP Private Employment Report and Challenger, Gray & Christmas' Job-Cuts Announcement. These two key metrics will be followed by the Monster Employment Index and Weekly Jobless Claims tomorrow, and the federal government's Employment Situation Report on Friday.

Jobs Data

ADP Private Employment Report

ADP today noted the lowest monthly private employment loss since September of last year. Private industry payrolls fell just 298K in the July-August period, down from the revised June-July count of -360K, and offering further hope for the labor market and economy. However, let's not lose sight of the fact that the labor market is still deteriorating, just at a slower rate. While the second derivative, the rate of change, matters much to the leading indicator stock market, what matters most to economic growth, consumer spending and corporate profits (and therefore stocks), is an improving employment situation. We do not have that yet, based on this data...

Looking more closely at the details, goods producing industries and the service sector shed jobs equally last month, but the rate of decline in the manufacturing sector improved. This no doubt was related to the stabilization of the auto sector and general economy.

Challenger's Job-Cut Report

Challenger, Gray & Christmas reports on announced corporate layoffs monthly, offering insight into the hiring trends of corporations. After panic set in, businesses gave in and begin laying off employees indiscriminately; and so we would expect this report to be one of the leading employment data points in showing labor market turn.

That said, rejoice in the fact that announced job cuts decreased by 21.5% from July's count. Challenger noted 76,456 announced layoffs in August, nearly returning completely to the nice number seen in June. Still, the market is already counting on economic recovery, so we need to see turn here in the trend for these data points to really drive trading. The broad market indexes are all about flat this morning, as a result. HOWEVER, I guess that's still better than the bloodshed of the past two days. Oh by the way, did you read our market warning on Monday and take heed? You might have saved some money.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.