Volatile Range
The stock market fell sharply Thu and Fri before and after the employment reports Fri morning. The Nonfarm Payrolls report showed 207,000 net jobs were added in July, which were 27,000 more than the market expected. Also, Hourly Earnings in July rose 0.4%, which was twice what the market expected. There's a strong inverse relationship between employment and profits, in part, because when employment increases, then productivity falls, which generally lowers profit growth. Moreover, some proportion of additional labor costs tend to come from profit growth when there is little slack in the economy. Furthermore, lower productivity is inflationary, ceritus paribus (all else equal). Employment is a lagging indicator. The Unemployment Rate is currently 5.0%, which is considered to be the natural rate of unemployment, where there is an optimal balance of labor and leisure. A lower unemployment rate would indicate strain in the labor market, which would drive up wages. So, there is some concern for slowing profit growth and rising inflation, e.g. a wage-price spiral, although there have been signs of disinflation recently. Nonetheless, U.S. monetary policy is still accommodative, and the Federal Reserve will need to remain vigilant to preempt inflation. Consequently, the stock market may have reached a short-term top last week, and may consolidate for a month or two. July-August-September is the seasonally weak period for the stock market. The chart below shows SPX rallied about 110 points over a 3 1/2 month period. The two big down days Thu and Fri were on lighter volume, which may indicate a trading range next week. SPX hit a high at about 1,246 last week, and 1,253 is a multi-year Fibonacci resistance level that may not hold for at least several months. SPX closed at about 1,226 1/2 Fri. Short-term resistance is at the 20 day MA, currently about 1,231 1/2, last week's pre-Friday low at about 1,235, and the 10 day MA, currently just over 1,236. If SPX rises into that area early next week, that may be an opportunity to buy Sep puts. If SPX rises higher, e.g. to test the recent high or multi-year Fibonacci level, that may be an opportunity to buy Aug puts (SPX options expire in two weeks). SPX is currently in a support zone, i.e. the congestion area over the past few weeks when it held the 10 day MA, and the long Price-by-Volume bar at around 1,225 (on left side of chart). Other short-term support levels are the open gap at 1,221, the 50 day MA, currently about 1,213 1/2, and the longest Price-by-Volume bar at around 1,200. If SPX fails to hold the 200 day MA, e.g. in Sep, then it may close the gaps at 1,174, 1,143, and 1,138. Next week economic reports are: Mon: None, Tue: Productivity, Wholesale Inventories, and the FOMC announcement, Wed: Treasury Budget, Thu: Retail Sales, Unemployment Claims, and Business Inventories, Fri: Export & Import Prices, Trade Balance, and Michigan Consumer Sentiment. The FOMC is expected to raise the Fed Funds Rate another quarter point to 3.50% Tue. I believe the FOMC will continue to tighten the rest of this year, until monetary policy reaches a neutral stance (perhaps 5% Fed Funds Rate). The weekly oil inventory report is Wed. Chart available at PeakTrader.com Forum Index Market Overview section. Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998. Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time. This methodology has resulted in excellent returns with low risk over the past three years.
Related News
|
 |
|
|
RELATED ARTICLES
Pros & Cons of Investing in Bonds
What are Bonds?
Why the Rich Keep Getting Richer
Rich people: fortunate, lucky, selfish, and arrogant? Or highly educated, caring, brilliant individuals? Becoming rich isn't hard, but it does require a bit of time and knowledge. Having time to get rich, educating oneself, and buying assets are the three key factors in attaining untold wealth.
The Biggest Oil Opportunity in the World ? And How You Can Profit From It
Where is the second biggest deposit of oil reserves in the world?
Annuity Investment Guide
While there is not a lack of information on annuities, there certainly is a lack of good information. In an age full of information, we are constantly bombarded with irrelevant data. Annuities are great investment vehicles. Annuities are bad investment vehicles. Annuities were my mom's worst nightmare. You have heard all the stories. So what do you do?
The Truth About Real Estate Investing - Is It Right For You?
You have probably been hearing, seeing and reading that real estate investing is the best thing since sliced bread. There are many late night cable television infomercials spewing out sales pitches for courses that teach you how to buy residential real estate no money down or for next to nothing. Furthermore, polished pitch men on the advertisement emphasize that it is so easy that anybody can do it. They smugly show you that it is simple as they pencil out on the back of a napkin how you will supposedly make a fortune in real estate. Then these real estate investment course promoters show "actual" interviews of people who have reportedly made gobs of money with the course system.
July 2005: Hurricane Forecasts for Weather Traders
Tropical Storm Arlene formed as a tropical depression on June 8, 2005 near 83 West Longitude and 17 North Latitude. Although Dr. Bill Gray's updated hurricane forecast for 2005 calls for 15 named storms, with 8 of the 15 being hurricanes, orthodox meteorology cannot pinpoint the time and place for the origin of any of those future storms. My June forecast published on Ezinearticles.com entitled "June 2005: Weather Forecasts for Weather Traders" called for tropical storm or hurricane formation between June 7 and 11, 2005 around 86 West Longitude and 24 North Latitude. This forecast was prepared in May 2005 long before conventional meteorology had any indication of tropical storm activity for June. As can be seen, Arlene formed near these coordinates. It then passed close to them on June 9th and 10th.
Have You Ever Seen A Map of the World Turned Upside Down?
For those accustomed to viewing things a certain way, it is quite disconcerting. One almost expects the ocean to pour out. It just seems wrong. Yet, the way we view the globe is entirely arbitrary, based largely on the way we've always seen it.
Going Offshore For Asset Protection
There are a number of key reasons why individuals and businesses consider going offshore for asset protection purposes.
Going Against the Conventional Investment Wisdom
First of all, I want to give everyone the disclaimer that I am not a registered financial advisor and I don't play one on TV. Therefore, I cannot legally provide financial advice and I will not do so. This is for informational purposes only and I'm not recommending any of my personal investment strategies to anyone else. Now, with that being said, I will outline some techniques I use for my personal investment strategy, without going into a whole lot of specifics. I generally go against the conventional investment wisdom that you are accustomed to hearing, although I do use both a conservative and a not-so-conservative strategy.
Dumb Money
Many people have, at one time or another, taken some of their hard-earned funds, and decided to put them in the stock market. These well-meaning individuals either acted on a tip they saw on CNBC, or actually believed one of those crazy faxes/emails that said XBXB @ $0.17/share was the next Microsoft. These people thought they were being smart, but they probably just ended up lining the pockets of brokers and mutual funds when they lost money on their 'investment'. I know, because I've done it, too.
Larry, Moe and Curley, Investment Brokers
Larry, Moe and Curley were sitting in their
favorite restaurant just off Wall Street having
their usual 3 martini lunch and were discussing
the day's events and their client portfolios.
Retirement or Financial Freedom?
In the past most people never retired. They died. The average life expectancy was much less than it is these days, and there were no financial planners around to help people save up enough to quit work. As recently as the 1960's, if you did manage to save up enough money to retire, you'd be lucky to live another 5 or 6 years before you kicked the bucket. This made financial planning for retirement a little easier because you really only needed enough income for a few years.
Remembering TEOTWAWKI and Learning from It
Its only been about 5 years since we had major scares in the marketplace regarding Y2K. You might recall that many computer systems were not programmed to be able to understand the change from 1999 to 2000. There was a tremendous amount of panic created by those who were convinced that as the clock hit midnight on on New Years Eve 2000 that we were going to enter the Dark Ages.
Wit and Wisdom on Money, Wall Street and Success - Part #4
Can you concisely summarize your investment philosophy in a few sentences? My experience is that most people can't. The quotes that follow are diamonds that offer a real powerful education in the world of Risk Management. They have had a profound impact in my life. I pass them along hoping they achieve a similar effect on your investments. Enjoy!
How Eating Bitumen Made Me a Better Stock Trader
Stock market trading is a fascinating activity.
Rules for Simplified Employee Pension Plans better known as a SEP Plans
A SEP is a special type of IRA. Under a SEP plan the employer creates an IRA account for each eligible employee, hence the name SEP-IRA. A SEP is funded solely with employer contributions. Employees do not make contributions to their SEP-IRA retirement account. Any money that goes into a SEP automatically belongs to the employee. Thus, the employee has the right to take his SEP IRA account money with him whenever he stops working for the company.
Emotions: A Traders Worst Enemy; Get Rid of Fear and Greed - Youll be Glad You Did
You hear it over and over and over in books, forums, and chatrooms. Fear and greed, fear and greed, fear and greed. Emotions are a trader's worst enemy. What are we supposed to do about it? We are human after all. Human beings have emotions. We can't just throw a switch and suddenly behave like "Data" on Star Trek the Next Generation.
Mutual Fund Returns May Not Be As They Seem!
Arthur Levitt, during his tenure at the SEC, experienced many cases where the non-indexed mutual fund manager bought shares for their own accounts before the fund bought the shares. The fund's purchases drove up the price of the stocks and the fund manager's made a killing on the deal. This is called "front running," and is illegal under securities laws.
Angel Investors: Who They Are & When Are They Appropriate
Angel investors are individuals who invest in emerging business ventures. Angels typically provide both capital and know-how to companies who are in either their start-up or expansion phases. To reflect the increased risk of investing in such firms, angels seek a higher rate of return versus traditional public stock investments.
Asset Location ? Increase Investing Returns & Reduce Your Taxes
Location ? Once the holy grail only for real estate investors is fast becoming the mantra for every stock, bond, and mutual fund investor. Experts and studies now recognize managing asset location is second only to asset allocation in determining the success of your investment returns.
|
