On the Market 8-16-2010

Quote of the day

~ Jay Leno ~

The BEARISH AAII Investor Sentiment readings have moved to 9-month lows. Once again the stock market got rejected at the upper limits of the trading range that began to be established in early May. Volume during that period continues to wane. "Price" is below the 200 day moving average in all the major indexes. BULLISH Investor sentiment is off the lows, but seems to be holding up okay. The Market slightly oversold and the Bollinger bands show "price" pretty much dead center in the spectrum. So looks like it could go either way i.e. more back and fill/sideways. We've had to narrow range days after Wednesday’s precipitous drop. It doesn't appear to me, yet anyway that we’re totally clear of the double dip recession worry, but stocks look damn cheap by any historical standards; J.P. Morgan

said that the earnings yield between analyst forecasts of 8.1% and high yield bonds at 8.3% is the narrowest in history. Likewise the dividend yield in the Dow Industrials is currently at 2.65%. The Treasury 10-year is at 2.64%. So, it doesn't look to me that there is a significant potential for a big drop notwithstanding the potential of the market reaction due to a strike at the Iranian nuclear facilities or some other geopolitical event like North Korea going berserk. The US economy stinks but corporate profits are up big time; 84%from a year ago. Topline revenues were up 6%. It's amazing that business can continue to prosper while we've lost 8 1/2 million jobs. So far this year the private sector has rehired about 630,000 workers. * According to the Treasury Department China cut its holdings of U.S. government debt by $72.2 billion, or 7.7 percent, through May from last year’s record of $939.9 billion in July 2009. Support in the S&P 500 (

) is a 1079/1080 and then 1077, next support would be 1058 / 1060 then the deep support lows at 1011. Resistance will be at (

) 1083/1085, and 1087. Under the, “RAY OF HOPE” banner: · USA productivity shows first drop in 17 months. This is probably a positive indicating that business is taking their foot off their cost cutting rationale and looking to hire? · Capital expenditures by corporate America are beginning to jump. Q1 investment came to just below $1 trillion. The low quarter of the down-cycle was $810 billion in Q3 2009. For some frame of reference in 2007 Q3 capital expenditures were $1.2 trillion. Capital spending as a percentage of GDP in 2009 was the lowest since World War II. · Euro zone GDP is perking up above analysts’ expectations. German GDP grew at 2.2% in Q2; analysts had expected 1.14%. France was also up 0.6% above forecasts as was Spain and Italy. Only Greece fell below the plus numbers at negative 1.5% GDP. Resistance in the (

) is at 1106/1108 then at 1116. The next stop / resistance would be the resistance at the August 4 highs of S&P 500 (

) 1129. Channel projection points to (

) 1180. (

) support is at 1107/1108 and then down there at 1090, 1060 and then at 1011, the lows (and the head) of the market downstroke that was established on July 1, 2001. Market tidbit of note: China just surpassed Japan as the world's second-largest economy. Goldman Sachs (

) believes China will overtake the USA by 2027. World GDP in 2009 was $58.1 trillion. The USA accounted for $14.3 trillion, EuroZone was $12.5 trillion, Japan $5.1 trillion and China $4.9 trillion.

The BEARISH AAII Investor Sentiment readings have moved to 9-month lows. All long-term BULLISH investor sentiment readings are off their lows of 6-weeks ago or so, but continue to remain somewhat subdued. (High BULLISH readings in the Investor Sentiment Readings usually are signs of Market tops; low ones, market bottoms.) · The AAII Investor Sentiment Survey BEARISH number FELL to 30.1%. The prior 8-weeks were 38.2%, 33.3%, 45%, 37.8, 57.1%, 42%, 32.4% and 30.7%. · The AAII Investor Sentiment Survey BULLISH read was 39.8%. The prior 13-weeks were ― 30.4%.40%. 32%, 39.4% 20.9%, 24.7%, 34.5%, 42.5%, 34.5%, 37.1%, 29.8%, 41.3 % and 36%. · The Consensus Index Bullish investor sentiment survey was 51%. The previous week was at 50%.The prior 14-weeks were 44%, 34%, (the low of this market retreat) 37%, 39%, 37%, 43%, 49%, 40%, 39% 42%, 44%, 56%, 60% and 76%. · The Market Vane (Market Letter Survey) posted a BULLISH read of 50%. The preceding 14-weeks were ―48%, 50%, 44%, 46%, 39%, 40%, 47%, 49%, 42%, 43%, 42%, 46%, 49% and 53 %. The BARRON’s Confidence Index came in at 74.9 and tells us that the economic recovery continues. The prior three weeks were 77.4, 78.3, 77.2. The Index registered new highs of the cycle 11-weeks ago at 79. One year ago it was 68.4. The Confidence Index is the High-grade bond index divided by the Intermediate grade and is a premier measure of how the bond markets many $ trillions are allocated. The discrepancy between the yields is indicative of investor confidence. There has been a solid improvement in the spread ratio since its all-time low in November / December 2008, indicating that bond investors are growing more confident and have started opting for more speculative bonds over high-grade bonds. Recall my "Quotes of the day" from a week ago.

By Edward Pinto *Fannie Mae chief credit officer 1987 to 1989. If there is ever a guru regarding the history of the housing mess, Edward Pinto is the guy. He's just published a titanic report called "Government Housing Policies in the Lead-up to the Financial Crisis." The report delineates the blow-by-blow screw ups of our government do-gooders and their dumb-ass policies that led to this catastrophe. We'll be hearing a lot about this, but not from the major media or the Obama administration, who by the way is hosting a conference on Housing Finance Reform on Tuesday. I hope this gets tons of press, somehow, somewhere. Pinto says the Dodd-Frank housing finance bill is far too shaky to build on. I'll keep you up on this new report, but here's an 11-12- 2009 WALL STREET JOURNAL article that might whet your interest: http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748703298004574459763052141456.html