VOLATILITY! Beware Hurricane Force Trade Winds

The current trading week threatens to be extremely volatile, with the potential for hurricane force trade winds. A collision of market forces coming together this week make for a volatile trading period. You might want to find a safe place to hunker down through the period so you can rest easy, unless you want to surf the waves with appropriate trading strategies. I’m telling my friends and followers to avoid the SPDR S&P 500 (NYSE: SPY) and other passive stakes this week and to reel in holdings in the most richly valued favorites of this market. We’ve already seen signs of the storm, with trading opening the week sharply lower Monday before a swift recovery and waves of volatility swept through. There are buyers and sellers on the loose, and the right set of natural and unnatural forces should come together to make for choppy trade this week. See the full report here.

The Real Reason Stocks are Sinking

It’s the job of market media to seek out and inform investors of the factors driving market moves, but they are not always correct in their quick-draw determinations. After all, the people mostly making these determinations are television producers and newspaper and website editors. Sure they try to take their lead from market strategists and influential investors and traders, but oftentimes the surveyed individuals simply talk their book or are otherwise wrong. Business television was telling us last Thursday that the driver of the tanking stock market was interest rate fear on Fed member speak and an obscure legislative action out of Russia that could threaten global stability supposedly. Both those ideas are reaches; I think that much should be clear, as we just had a very clear communication from the FOMC. The real driver of the stock market tanking last week was two-fold in my view, and includes an underlying capital flow driver and a catalyst spooking capital today. To put it simply for those of you who need to know right now, the fiscal year-end of hedge funds and other institutional investors have them on the ready to lock in their yearly gains that are at risk now. Today’s specific news event likely acting as spooking catalyst came from the Iraqi Prime Minister, who said in New York that there is a credible terror threat against U.S. and French subway systems. See the full report, The Real Reason Stocks Tanked here.

What’s Driving the Market this Week – The Fed, Scots & Fiscal Calendar

This week three factors weigh heavily. I dispelled fear of Fed action in my article Market Manipulation? Fed Fear Unfounded, but it appears many have not read the report. It’s okay, as it seems to set up an opportunity for gain, if not just for the manipulating forces, then for my followers too. The Scottish referendum worries me, because as Scotland pulls away with all those tax dollars today paid into UK coffers, and with public service worker benefits and other corporate ties at stake, there’s too much uncertainty about the impact to the important U.K. market and broader ties. Finally, the fiscal calendar of many institutional investors is closing this month, if not in August or October. I think this is driving some selling in the big winners of the last year, because not everyone cares about having a Tesla (Nasdaq: TSLA) show up in its statement of holdings. You know, managers can always mention the names in their annual letters instead and safeguard some profits today.

Also see our report: Gold – Waiting on a Russian Rebuttal to the EU

1-Year Chart of SPY at Yahoo

Stocks have enjoyed quite the run this year, as is evident in the chart here. However, the approaching change in Fed direction weighs on the heights reached here, as the cost of capital will increase for growth names in the S&P 500 and the Russell 2000. The Scottish referendum carries with it scary repercussions for the Brits and too much disruption for the rest of us, so pray for a “No” vote victory here and an intact United Kingdom. Too many gains are at stake as institutional managers look to close their books for the fiscal year. This latest selling in last year’s winners might continue through the month and maybe next as well.

Security	YTD	TTM
SPDR S&P 500 (NYSE: SPY)	+7.7%	+17.5%
SPDR Dow Jones (NYSE: DIA)	+2.9%	+10.8%
PowerShares QQQ (Nasdaq: QQQ)	+11.9%	+26.1%
iPath S&P 500 VIX ST Ft (NYSE: VXX)	-31%	-49%
PIMCO Total Return (NYSE: BOND)	+3.7%	+4.2%
PowerShares DB US $ Bull (NYSE: UUP)	+4.2%	+2.0%
SPDR Gold Shares (NYSE: GLD)	+2.2%	-7.2%
iPath S&P Crude Oil (NYSE: OIL)	-2.5%	-12.1%

Week Ahead

The Economic Reports
This week’s economic report schedule is full, however inconsequential to stocks. We’ve got our share of manufacturing data, housing reports, pricing measures and broader trade and economic growth barometers. Obviously, most important of all is the FOMC Monetary Policy release and the Fed forecasts, which unfortunately include the Fed Funds Rate forecast. They will serve to remind profit-rich investors of the end of free money coming.

On the manufacturing end, industrial production data was reported Monday, and showed a slight moderation and important miss against economists’ expectations. However, the Empire State Manufacturing Survey, which is regional, gained sharply. Later in the week, we’ll receive data from the Philly Fed as well.

Pricing measures weigh somewhat heavily this week, with both the Producer and Consumer Price Indices due. Also, the Atlanta Fed’s Business Inflation Expectations Index is published later this week. The Producer Price Index is expected to offer no sign of inflation, but the Core CPI measure is expected to post a 0.2% increase, which is borderline-worrisome but not quite there yet. I do not expect these measures to affect the Fed’s monetary policy release Wednesday.

Real Estate enthusiasts have the Housing Market Index, which measures homebuilder sentiment, and the Housing Starts data to look forward to this week along with the regular mortgage data. Homebuilders are expected to sing a better tune, with the HMI seen inching higher. Housing Starts are expected to ease off last month’s annual pace gains, but permit activity will remain steady, offering a solid note for stability moving forward.

The broader measures of the economy are lead by the Leading Economic Indicators (LEI) report, due Friday. Economists see the latest report showing a slower pace of economic expansion than in the most recent reporting, and this is consistent with other economic data which have shown some moderation of late. I would not be surprised if the LEI data comes in lighter than expected or if the prior month is revised lower.

THIS WEEK’S ECONOMIC REPORT SCHEDULE
Economic Data Point	Prior	Exp.	Actual
MONDAY
Empire State Mfg. Survey	14.69	15.9	27.54
Industrial Production	0.2%	0.3%	-0.1%
-Capacity Utilization	79.1%	79.3%	78.8%
OECD Global Economic Outlook	0.7%	0.1%	-0.4%
TUESDAY
Congress Begins ISIS Discussion
UN General Assembly
ICSC Weekly Store Sales	0.7%
-Year-to-Year Pace	4.0%
Redbook Store Sales	4.9%
Producer Price Index	0.1%	0.0%
-Core PPI	0.2%	0.1%
Treasury Int’l Capital (TIC)
WEDNESDAY
Current Account	-$111.2 B	-$114.0 B
Mortgage Activity	-7.2%
Consumer Price Index	0.1%	0.0%
-Core CPI	0.1%	0.2%
Housing Market Index	55	56
EIA Petroleum Status
-Crude Oil Inventory	-1.0 MB
-Gasoline Inventory	+2.4 MB
FOMC Monetary Policy
-FOMC Forecasts
-Chairwoman’s Press Conference
THURSDAY
Housing Starts	1.093	1.038
-Permits	1.052	1.055
Weekly Jobless Claims	315K	305K
EIA Natural Gas Report	92 bcf
Philly Fed Index	28.0	23.0
Fisher Speaks
FRIDAY
Leading Economic Indicators	0.9%	0.4%
Atlanta Fed Biz Inflation Expectations

The earnings schedule is light as we approach the end of the third quarter. Still, we have some education names to look forward to and several significant tech names, including Oracle, Adobe and Red Hat. For those of you looking for broader takeaways, you can keep track of FedEx this week and Herman Miller for signs of business spending and general economic expansion. Rite Aid will go bankrupt; you heard it here, and I don’t care how much Cramer loves this name. I visit the stores, and Rite Aid is the next RadioShack, unless it sells out to a stronger competitor.

EPS REPORTS
Company	Ticker
MONDAY
Analogic	Nasdaq: ALOG
Allied Capital Financial	NYSE: AFC
Biota Pharmaceuticals	Nasdaq: BOTA
Corinthian Colleges	Nasdaq: COCO
Doral Financial	NYSE: DRL
Education Management	Nasdaq: EDMC
Fabrinet	NYSE: FN
ITT Educational	NYSE: ESI
Majesco Entertainment	Nasdaq: COOL
NAPCO Security Technologies	Nasdaq: NSSC
UniTek Global Services	Nasdaq: UNTK
TUESDAY
Adobe Systems	Nasdaq: ADBE
Apogee Enterprises	Nasdaq: APOG
FactSet Research Systems	NYSE: FDS
Phibro Animal Health	Nasdaq: PAHC
WEDNESDAY
Cintas	Nasdaq: CTAS
CLARCOR	NYSE: CLC
Cracker Barrel Old Country	Nasdaq: CBRL
FedEx	NYSE: FDX
General Mills	NYSE: GIS
Herman Miller	Nasdaq: MLHR
Lennar	NYSE: LEN
Pier 1 Imports	NYSE: PIR
Scholastic	Nasdaq: SCHL
United Natural Foods	Nasdaq: UNFI
THURSDAY
ConAgra Foods	NYSE: CAG
IHS Inc.	NYSE: IHS
Marcus Corp.	NYSE: MCS
Oracle	Nasdaq: ORCL
Red Hat	NYSE: RHT
Rite Aid	NYSE: RAD
Rosetta Genomics	Nasdaq: ROSG
TIBCO Software	Nasdaq: TIBX
FRIDAY
NO REPORTS IN US

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