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The old adage is that a watched pot never boils also applies quite nicely to the stock market: A watched market never tops, or so it seems. Top picking has been a hazardous occupation for bears such as myself over the past five years, but this didn't stop me from going out on a limb and trying to pick the top last week in Imminent Decline Dead Ahead. In that report I said I thought we were in for a big decline soon and that "...the market should end the day lower than it starts on Wednesday [the day of the Fed meeting announcement], and lower on Friday than it starts the week on Monday." Well, I got the first part wrong - the market was up big on Wednesday, reaching its highest point of the day - and the week - just before the Fed announcement (Point 1 on the chart below). It sold off immediately following, but still closed the day way higher thanks to Cisco's bullish earnings report, and the good news from the Fed.
The
market made another run for new highs at Thursday's open (Point 2), and
one more right around lunchtime (Point 3) before running out of gas and
collapsing into the rest of the day. Although the range for the week was
only about 1%, the week was not without drama and volatility! Business
news headlines crowed about the new 5-1/2 year highs for the SPX, but
the index only bested these levels by a couple of points (the thick red
line on the chart denotes the May 06 highs), and at the end of the week
the market couldn't hold its gains. My subscribers were kept abreast of
developments as the week progressed in Parts
II and III
of this series.
Much
of the preceding month's worry is now gone: The oil crunch is clearly
easing, and interest rates are actually coming down. With these worries
out of the way, we can start hoping for some things to get this market
going higher, right? Next week we've got a slew
of economic numbers on the way: home sales, consumer confidence,
durable goods orders, the Chicago NAPM survey and more. And what I call
market sweeps week - 3Q earnings releases, that is - also start next
month. Let's hope we get some indication for a soft landing, because
last week's Philly Fed Index (the
first negative reading in three years) and the drop in August's
leading indicators (slowdown
not seen leading to recession, the Boston Globe confidently reports)
didn't look so hot. In fact, these were the primary triggers behind last
week's market selloff from the highs. (If I recall correctly, Point 2 on
the first chart above marked the release of the Leading Indicators, and
Point 3 was the release of the Philly Fed Index - the news that really
sank the market.) By the way...I'm an executive recruiter in the banking industry. Our clients (banks) are expanding at a rate that we have NEVER seen before, not even last year. MONSTER sign-on bonuses for Commercial Loan Officers, Regional Presidents, & Compliance Officers. Think about it...if the Banking industry even had a whiff of an impending "recession"...why would 75% of our clients be telling us they will be increasing staff size over the next twelve months (and last year was a record year for us)? ...from an employment perspective, the banking industry is more bullish now than I HAVE EVER SEEN IT, and I've been a recruiter for eleven years. I'm long & strong on U.S. equities until the trend tells me otherwise. If this is true, then are predictions for a recession premature? Do the banks know something the rest of us don't? Do banks stand to "make bank" in foreclosures and repossessions in the great housing bust? Or is it just that participants are always the most bullish at the top? I'd love to hear your comments. In the meantime, I'm keeping a close eye on the stock market, as I believe this is the best leading indicator of a recession. I'll also be taking a look at the commodity market this week as well.
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