Another Wild Week...With Not Much Change

The markets ended the week with a slight loss of 0.7%. This masked a rather volatile week. Earlier on, the market lost 2% in value from the prior week, than rebounded almost 3% during the middle of the week before settling back for a loss on Friday and closing out with the 0.7% net weekly loss mentioned previously. Causes for the back and forth action? Inflation numbers (market down), stronger economic growth numbers (market up), Dell Computer earnings worse than expected (market down again). With labor day over, the old adage is that traders will come back to Wall Street from summer vacations, and the market will see greater activity, but also a more focused direction. We have continued economic numbers, a presidential election and a new batch of earnings numbers coming in the months ahead. Should be an interesting time.

And Now for Something a Little Bit Different

An interesting blog from a BBC writer who has gone a month trying to be completely free of using any products with plastic. Click on the title for the web-link to read more - hopefully an inspiration to be aware of our consumption habits (and impacts) and to help think of ways of being more earth friendly.

The Buck is Back

Interesting article in the Wall Street Journal today (click on the title above to view the article) about the many up and down cycles the US dollar has gone through over the past 30 years. Each cycle has lasted 5 to 7 years. The dollar has veered from periods of strong growth to weakness and back to growth again.

The latest cycle started in late 2001 with the dollar's peak against the year, marking seven years into the current down cycle. The dollar began rebounding against the euro and other currencies several months ago, rallying 8% against the euro alone over the past 6 weeks. Potential explanations for the change include greater foreign capital coming to the U.S. in search of cheap acquisitons of U.S. assets, reduced U.S. commodity demand and lower relative economic growth in the Eruope. Is this the turn? We shall see.

Inflation - Yesterday's Story?

Economic headlines scream about rising inflation and we've certainly seen it's impact at the grocery aisle and at the pump. However, over the past month, a wide range of commodities, from aluminum to fertilizer to gold and oil, have experienced significant corrections, many of which have been greater than the bear market definition of a 20% decline. These price drops are indications these markets may have gotten ahead of themselves, and also are a signal that worldwide growth is now expected to be much weaker than originally anticipated. With slower growth we may begin to see muted inflation activity and the possibility, albeit faint, of deflation, which could end up being tomorrow's headline.

A Bear Market...in Gold

Gold joins the parade of commodities which have technically entered bear market territory as defined by a 20% or more correction in price from the high. As of this writing, gold has declined 21.5% from the highs it hit in March (amidst the Bear Stearns bailout). Gold is now down roughly 6% for the year. Gold has averaged a 34% decline during bear market periods. The inverse of gold is the US dollar and, interestingly, the dollar has hit a 2 year high against the pound.

Are Institutions Selling into the Rally?

Check out the web-link in the title above. Analysis of money flows indicates big institutions are selling into the recent rally while the small (retail) investor is buying. It is never a good sign when this happens. Be careful out there.

Market in Uptrend...For Now

The markets have been in an uptrend since the July 15 lows. The S&P 500 Index, a broad measure of the 500 biggest U.S. companies, has elevated over 7% since hitting it's low in mid July. Looking at the market from a technical and supply/demand perspective, we could see the markets rise another 3-5% in the short term, but at that point the market will hit an important inflection point - long term supply/demand factors come in to equilibrium at that point and you may have the risk of a lot of institutions exiting out of the market (after they hit their break-even points). The movement of the S&P 500 when it reaches 1325-1350 will be a key tell...

A Bear Market...in Oil

Crude oil closed on Friday at $115.20, marking a 21.4% decline from the high price of $146.60 achieved in early July. The definition of a bear market is a 20% or more decline in price from the market high. By that definition, we are in a bear market for crude oil.

The prior 3 oil market corrections lasted 1.2 years and averaged declines of 62%, 53% and 35%, so we may see more price movement on the downside...a welcome relief at the pump.

Stock prices do well when oil prices go down, and this may offset some of the recent volatility and value loss in the stock market, and may explain the recent rebound in the stock market...keep a watch on crude oil as an important barometer for the broader market and economy.

Riding through the "W"

I am concerned we are experiencing a “W”-shaped economic pattern; and that after we quit “riding the middle part of the “W,” which is where market participants, analysts and some investors believe the worst is over, we will enter the right side of the “W” for an economic double-dip. Adding to the near-term “feeling good” sense has been the second largest monthly decline in commodities ever, a collapse in the price of crude oil, and a firming of the dollar. All of this should allow the equity markets to travel higher in the short/intermediate term, but then what...? This is increasingly a trading market, which also means opportunity for those who are nimble and staying on top of the fray.