August 12, 2010: It’s All Up to the Consumer Now
August 12th, 2010
As investors are catching their breath after yesterday’s drubbing of the bulls, focus is now on tomorrow’s July Retail Sales report. Consensus is for +0.5% for headline and +0.2% for ex-auto.
Yesterday’s price action was a stark reminder of just how much good news is priced into the market at current levels. The sell-off can be (and has been) blamed on many culprits but the Fed’s darkened view of the so-called recovery dealt a severe punch in the gut to the bullish camp. Some of yesterday’s technical carnage includes:
The major averages (Dow 30, S&P 500, Naz 100, and Russell 2000) dropped back into negative territory for the year.
The major averages all knifed back down below their 200 Day Moving Averages.
The Naz 100 and S&P 500 fell back below their 10% correction levels which are 1853 and 1098, respectively. That leaves only the Dow 30 (and two of nine S&P sectors) above their 10% correction levels.
Portfolio managers, traders, strategists, analysts, and anyone else who lives in the markets each day have been trying to interpret the message and meaning of the extreme volatility we have seen since the increasingly infamous “flash crash” of May 6, 2010. The lightning speed at which “the market” changes its collective mind is not an indication of bullish market sentiment, in our estimation. Rather, it shows that investors are becoming more short-term oriented and are quite content to sell into strength.
Today before the open, we got weaker-than-expected New Unemployment Claims but Continuing Claims were not as weak as expected. We also got July Import and Export Prices…both were weaker-than-expected. June Export Prices were revised from -0.2% to -0.7%. Add to that the -0.2% report for July (est. +0.1%) and the deflation argument becomes much more plausible.
Recent Consumer Spending data has not been as weak as estimated and there is likely to be at least some impact from back-to-school shopping so we could see some strength in Retail Sales. We would, again, strongly urge a sell into strength approach.
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