StreetSmartPost

Wednesday, September 8, 2010. 9:15 am.

The market experienced an 8% correction in February, rallied back quite strongly but topped out again in April. It then plunged to a new low for the year in July, at which point it was down 16% from its April peak. After an impressive rally in July that ran through the first week of August, it then experienced its worst August in a number of years.

Prior to last week, the S&P 500 had again been down for three straight weeks.

With September and October having a history of being the worst two months of the year, the financial media was quite convinced only more trouble lay ahead. Stories and interviews were full of pessimistic outlooks, archaic doomsday indicators like the Hindenburg Omen and Death Crosses were prevalent, with more than a few predictions of a pending market crash.

But after three straight down weeks the market was again short-term oversold, and the ‘monthly strength period’, which takes place around the end of each month, had arrived. 

So, last week the market enjoyed four straight up-days.

The catalyst for last week’s four straight up-days was not seen as being the oversold technical condition, or the extra chunks of money that automatically flow into the market at month-ends. It was a couple of economic indicators that were not quite as negative as Wall Street’s forecasts, even though the majority of reports continued to be worse than expected.

So, media sentiment reversed on a dime again. The stories and interviews last week were that the economy’s problems were over. The stock market bottom was definitely in.

One financial TV reporter, commenting from the floor of the NYSE on the slight improvement in the ISM Mfg Index to 56.3 in August from 55.5 in July, when Wall Street’s forecast was for a decline, said, “That’s what we needed to see as the final sign that the economic recovery is back on track.”    

But yesterday, European markets closed down. The U.S. market broke its four-day winning streak, with the Dow closing down 107 points. And last night saw Asian markets down quite sharply.

If there should be a few more down days you can bet the gloomy interpretation of economic news will return.

Already yesterday we saw some news stories were back to the pessimistic side. Bloomberg: “Unemployment may rise toward 10% on feeble growth.”  MarketWatch: “Why Stocks May be Headed Lower Soon.” Wall Street Journal: “Down the Rabbit Hole – Chips and the Economy.”

The volatility has made it difficult for both bulls and bears to make profits.

No wonder then that more hedge funds have given up, and closed up shop. No wonder then that investors have left the stock market and gone prospecting in areas of even higher risk, that they may know even less about – commodity and currency trading.

But this too will end. This year’s unfavorable season has been – well unfavorable.

I expect the market has unfinished work on the downside. However, it is still my expectation that the market will launch into a substantial rally from the year’s low that will last well into next year. At least that has been the history of the 2nd year of the Four-Year Presidential Cycle since at least 1918.

Yesterday in the U.S. Market.

An ugly day to end last week’s four-day winning streak. The market began the day to the downside and stayed there all day, selling off at the close to close on its low for the day. Keeping to its historical pattern of the monthly jobs report (last Friday) creating a triple-digit one or two-day move in one direction or the other, and then reversing by about the same amount over the next day or two.

Volume was quite light at just 0.83 billion shares traded on the NYSE.

Yesterday’s intraday chart:

The Dow closed down 107 points, or 1.0%. The S&P 500 closed down 1.1%. The NYSE Composite closed down 1.3%. The Nasdaq closed down 1.1%. The Russell 2000, closed down 2.2%. The DJ Transportation Avg. closed down 1.0%.

Of the ‘safe havens’, the U.S. dollar etf closed up 1.0%. Treasury bonds reversed to the upside after a negative week last week, the 20-year bond etf TLT closing up 2.0%. Gold closed up $9 an ounce at $1,255.

Yesterday in European Markets.

European markets also closed down yesterday. London closed down 0.6%. The German DAX closed down 0.6%. France’s CAC closed down 1.1%.

Asian Markets Were Down Last Night.

The DJ Asia-Pacific Index closed down 1.0%.

Among individual markets: (Indonesia was closed for a holiday).

Australia closed down 0.8%. China closed down 0.1%. Japan closed down 2.2%. Hong Kong closed down 1.5%. India closed up 0.1%. New Zealand closed down 0.4%. Singapore closed down 0.8%. South Korea closed down 0.5%. Taiwan closed down 0.4%.

Markets This Morning.

European markets were down earlier, worries about the European government debt crisis returning. But they have now turned fractionally positive on news that troubled Portugal’s debt auction received stronger demand than expected. The London FTSE is now up 0.1%. The German DAX is up 0.3%. France’s CAC is up 0.4%.

Oil is down $.30 a barrel at $73.79.

Gold is up $2 an ounce at $1,261, getting close to its record high of $1,265 hit in June.

Markets in the U.S.

This week has very few potential market-moving economic reports, only perhaps the Fed’s Beige Book, the U.S. Trade Deficit, and weekly unemployment claims. To see the full schedule of the week’s reports click here, and look at the left side of the page it takes you to.

There are no economic reports of consequence again today.

Our Pre-Open Indicators.

Our pre-open indicators are pointing to the Dow being up 30 points or so in the early going, probably meaningless as to direction for the day.

This blog provides free and ‘Premium’ Content.

The premium content area allows us to provide more information that investors should find useful, without violating the trust of our paying subscribers to Street Smart Report. The premium content’s small cost ($12 a month) is the equivalent of one cup of coffee a week.

Better yet, why not subscribe to the full Street Smart Report Online package at the equivalent cost of two cups of coffee a week and get all that it provides, which includes access to the premium content of this daily blog. Just click here and then on ‘Subscribe’ at the top of the page it takes you to.

In the premium content area today:

The short-term has been volatile, but how about our intermediate-term signals on S&P 500, and Nasdaq. And the weekly stock market pattern for this week.

Please scroll down to see other recent ‘Interesting Charts of the Morning’ and commentary.

To read my weekend newspaper column ‘Weighing In On The Week’s Economic Reports’ click here!

Subscribers: There will be an in-depth ‘Markets Signals and Recommendations’ update on your website later today, and a hotline message on your website tomorrow evening.

Non-subscribers: While it’s helpful to look at daily and short-term expectations, it is the intermediate and longer-term signals and market moves that are most important to investors. So, please consider a subscription to our independent research and recommendations. The cost is equivalent to the cost of two cups of coffee per week. Can you afford not to subscribe? At least subscribe to the premium content of this daily blog.

Street Smart Report Online provides our intermediate-term signals, outlook, and recommended holdings. Sectors, stocks, bonds, gold, short-sales, long-side and inverse etf’s and mutual funds. Highly regarded and in its 22nd year. In-depth weekly reports, newsletter, hotline, and much more! As a bonus for a one-year subscription you will also receive my latest book Beat the Market the Easy Way- Proven Seasonal Strategies That Double the Market’s Performance. Click here for subscription information.

**** End of Today’s post*****

Tuesday, September 6, 2010. 9:15 am.

In the ‘old days’, prior to financial TV shows providing Wall Street firms with endless opportunities to provide information to investors, trends were the important guidance. Were a struggling company’s problems continuing? Was the positive momentum of a successful company continuing? The latest sales and earnings estimates were watched closely, as were comments from company management. We used to look at price/earnings ratios based on prior earnings, and the trend of those earnings. Unwritten ‘rules’ were that a company unexpectedly reporting a disappointing quarter was probably going to report more of the same in the future. A company reporting good news, sales and earnings better than the previous quarter, probably had something new going for them that would continue.

Quarterly earnings reports are still important. However, now it’s all about whether they beat or fall short of Wall Street’s estimates of what they should be. The valuation measurement that counts is the price/earnings ratio based on Wall Street’s estimates of next year’s earnings.

That would be a great improvement, if Wall Street was any good at all with its estimates.

However, in 2008, we saw how stocks were driven lower, sometimes dramatically so, and instantly, because Wall Street was behind the curve. As quarterly earnings were reported they were invariably worse than Wall Street’s estimates, and prices dropped further.

It was not seen as a case of Wall Street’s estimates being wrong. It was that the companies did even worse than they should have in the recession because they didn’t do as well as Wall Street thought they should.

Wall Street seemed to panic in its rush to lower its estimates.

And as the stock market recovered off its March low last year, the surprises were almost all positive surprises, with the earnings reports, although often of more losses, were positive because they were better than Wall Street’s estimates. It was that the companies, although still struggling, with declining revenues and earnings, even growing losses, must be doing very well because they were doing better than Wall Street thought they should be doing.

It’s not only seen in earnings estimates but in the economic forecasts of Wall Street’s economists. Economic reports are not taken at face value, that home sales, or the ISM Index, or retail sales, or whatever are positive or negative, are continuing or reversing their uptrend or downtrend, it’s whether they were better or worse than Wall Street’s forecasts. Is that the real criteria by which to judge the strength or weakness of the economy? Obviously, it the majority of economic reports are better or worse than Wall Street’s forecasts, then the majority of Wall Street’s forecasts are wrong.

If 75% of companies report earnings substantially better than the estimates in one period, and 75% reported earnings substantially worse than the estimates in other periods, then obviously 75% of Wall Street’s estimates and forecasts were wrong. Yet the media and investors are either greatly excited or disappointed by those percentages.

It would seem that all they indicate is that markets are being driven by errors and mistakes. Not by what companies are actually doing, but how what they’re doing compared with Wall Street’s mostly incorrect estimates, not by whether economic reports are positive or negative, but how they compare to Wall Street’s mostly incorrect forecasts.

Proposed New Tax Break For Businesses.

The White House will propose to Congress a dramatic tax break for businesses that invest in new plants and equipment this year and next.

The proposal would allow businesses to write-off 100% of the investment rather than the current tax law that allows plant and equipment to be depreciated over a three to 20 year period. White House economists say the change would cut business taxes by $200 billion over the next two years.

It will certainly help businesses that are already doing well and planning expansions, but probably won’t help those most in need. A struggling small (or large) business, having problems getting enough sales to keep its current plant and equipment operating anywhere near capacity, is probably not going to invest in still more plant and equipment in order to get the tax break.

Asian Markets From Sunday Night & Last Night.

Asian Markets Were Up Sunday Night, following the U.S. market’s positive response Friday to the employment report when Asian markets were closed.

Among individual markets:

Australia closed up 0.8%. China closed up 1.5%. Hong Kong closed up 1.8%. India closed up 1.9%. Indonesia closed up 1.7%. Japan closed up 2.0%. New Zealand closed up 1.1%. Singapore closed up 1.1%. South Korea closed up 0.7%. Taiwan closed up 0.8%.

However, Asian Markets Were Mixed With Very Small Moves Last Night.

Among individual markets:

Australia closed down 0.1%. China closed up 0.1%. Hong Kong closed up 0.2%. India closed up 0.5%. Indonesia closed up 0.1%. Japan closed down 0.4%. New Zealand closed up 1.0%. Singapore closed up 0.1%. South Korea closed down 0.3%. Taiwan closed down 0.1%.

Yesterday in European Markets.

European markets were fractionally positive yesterday in very light trading. London closed up 0.2%. The German DAX closed up 0.3%. France’s CAC closed up 0.3%.

Markets This Morning.

European markets are down this morning. The London FTSE is down 0.8%. The German DAX is down 0.7%. France’s CAC is down 1.2%.

Oil is down $1.50 a barrel at $73.10.

Gold is down $3 an ounce at $1,248.

Markets in the U.S.

This week has very few potential market-moving economic reports, only perhaps the Fed’s Beige Book, the U.S. Trade Deficit, and weekly unemployment claims. To see the full schedule of the week’s reports click here, and look at the left side of the page it takes you to.

The U.S. has no economic reports of its own this morning, but the market is concerned by the return of worries over the debt crisis in Europe.

Our Pre-Open Indicators.

Our pre-open indicators are pointing to the Dow being down 60 points or so in the early going.

This blog provides free and ‘Premium’ Content.

The premium content area allows us to provide more information that investors should find useful, without violating the trust of our paying subscribers to Street Smart Report. The premium content’s small cost ($12 a month) is the equivalent of one cup of coffee a week.

Better yet, why not subscribe to the full Street Smart Report Online package at the equivalent cost of two cups of coffee a week and get all that it provides, which includes access to the premium content of this daily blog. Just click here and then on ‘Subscribe’ at the top of the page it takes you to.

In the premium content area today:

Gold. Crude oil. Short-term and Intermediate-term! And the weekly stock market pattern for this week.

Please scroll down to see other recent ‘Interesting Charts of the Morning’ and commentary.

To read my weekend newspaper column ‘Weighing In On The Week’s Economic Reports’ click here!

Subscribers: There will be an in-depth ‘Markets Signals and Recommendations’ update on your website tomorrow, and a hotline message on your website tomorrow evening.

Non-subscribers: While it’s helpful to look at daily and short-term expectations, it is the intermediate and longer-term signals and market moves that are most important to investors. So, please consider a subscription to our independent research and recommendations. The cost is equivalent to the cost of two cups of coffee per week. Can you afford not to subscribe? At least subscribe to the premium content of this daily blog.

Street Smart Report Online provides our intermediate-term signals, outlook, and recommended holdings. Sectors, stocks, bonds, gold, short-sales, long-side and inverse etf’s and mutual funds. Highly regarded and in its 22nd year. In-depth weekly reports, newsletter, hotline, and much more! As a bonus for a one-year subscription you will also receive my latest book Beat the Market the Easy Way- Proven Seasonal Strategies That Double the Market’s Performance. Click here for subscription information.

**** End of Today’s post*****

Saturday, September 4th, 2010. 10.00 am.

With such a positive beginning, the Dow being up 4.3% for the month so far after just three days, will September be able to follow its historical pattern of usually being a down month?

Mark Hulbert’s study, which I showed you a few days ago, showed that the pattern is particularly prone to taking place in years when August was also a down month and if the market was down year to date at the end of August. Those conditions were in place Tuesday, when August ended.

We can also look at the beginning of August. The market was also up over the first 6 trading days of August before reversing to the downside to produce a loss of 4.3% for the month, down 6.5% from that first week high.

But it sure would take a dramatic reversal after such an explosive three-day beginning to this month.

However, there is a problem in investor sentiment as far as this week having been an important low. Investor sentiment is not at the level of excess fear and bearishness usually seen at lows.

For instance, the weekly poll of its members by the American Association of Individual Investors is at a level of bearishness usually seen at correction lows when bearishness reaches or exceeds 55%. After rising to 49.5% bearishness the previous week, this week’s poll came in with bearishness at only 42.2%.

And then there is the VIX Index, also known as ‘the fear index’, which measures the sentiment of options players. It is also in a neutral area, not near the level of bearishness usually seen at correction lows.

The minimum level of fear (bearishness) usually seen at correction bottoms is shown by the horizontal red line.

The Weekly Stock Market Patterns.

The short-term weekly patterns continue to quite accurately following their history.

The ‘monthly strength period’ came in on schedule five weeks ago to produce a positive week. The following week was the usually negative week before August’s options expirations week, and it was certainly negative. The week after that was the usually positive week of the actual expirations. It closed mixed, the S&P 500 and Dow down some, but the Nasdaq and DJ Transportation Avg up. The following week was the usually negative week after the expirations, and it was certainly negative.

And the next ‘monthly strength period’ was due to be the influence this past week, and in spite of a heavy schedule of economic reports, most of which were negative, the market certainly closed up for the week.

Headlines From Elsewhere.

Wall Street Journal: “China Set on Forcing Drop In Property Prices. A series of official comments in recent days have shown that the Chinese government remains committed to forcing down housing prices, despite worries about a weak global economy and complaints from property developers. The government’s determination to keep cracking down on its frothy real-estate market may be a political necessity but risks hurting growth at a time when much of the world economy is weak, and contrasts sharply with efforts in the U.S. and Japan to add fuel to their fading recoveries.”

Barron’s (Alan Abelson): “Let’s Hear It For Bad Estimates. Graham and Dodd had it all wrong. . . . As last week’s stock market action made incontestably clear, such standbys as value investing and technical analysis are nothing but quaint relics. What really counts in today’s rapid-fire, sophisticated, computerized market are bum estimates. And the wider the miss of the prognosticators, the more powerful the impact. What occasioned this marvelous epiphany was the market’s bounce back culminating in a robust rally following Friday’s release of August employment. Wall Street’s collective crystal ball anticipated something in the neighborhood of 40,000 new hires by the private sector. Instead the actual number came in at 67,000. Eureka! That 27,000 miss was worth 127 points on the Dow. . . . . . You’d never know it by the joyous reaction of investors, but everything on the job front in August didn’t come up roses. All told 54,000 jobs disappeared last month, owing to the loss of 114,000 Census slots.”

The Pragmatic Capitalist: “Seven Weak Spots in the Employment Report. 1. Aggregate hours worked were flat. 2. All the employment gains were part-time. Full-time employment in the Household Survey plunged by 254,000. 3. Those working part-time for ‘economic reasons’ surged 331,000, the biggest increase in six months. 4. While private payrolls were better than expected, 10,000 of that +67,000 tally reflected returning construction workers who had been on strike. 5. Manufacturing employment was down 27,000 and total goods producing jobs were flat – hardly signs of a robust economic backdrop. 6. The diffusion index for private payrolls actually fell to 53.0 from 56.7 in July – a seven-month low. It was at 68.0 at the April high, which is consistent with an economy slowing down to stall-speed. 7. The labor market gap widened with the all-inclusive [unemployed and under-employed] U6 unemployment rate rising to a four-month high of 16.7% from 16.5% in July. (Souce: Gluskin Sheff).”

To read my weekend newspaper column ‘Weighing In On The Week’s Economic Reports’ click here!

Yesterday in the U.S. Market.

A triple-digit rally, keeping the historical pattern going of the monthly jobs report usually coming in with a surprise in one direction or the other that results in a triple-digit one or two-day move by the Dow in one direction of the other.

Volume was quite light at just 0.9 billion shares traded on the NYSE.

Yesterday’s intraday chart:

The Dow closed up 127 points, or 1.2%. The S&P 500 closed up 1.2%. The NYSE Composite closed up 1.3%. The Nasdaq closed up 1.5%. The Russell 2000, closed up 1.8%. The DJ Transportation Avg. closed up 1.0%.

Of the ‘safe havens’, the U.S. dollar etf closed down 0.5%. Treasury bonds declined sharply again, the 20-year bond etf TLT closing down 1.2%. Gold closed down $4 an ounce at $1,247, but up $9 for the week.

Yesterday in European Markets.

European markets also closed up, although well off their earlier highs. The London FTSE closed up 1.1%. The German DAX closed up 0.8%, and France’s CAC closed up 1.1%.

Global markets for the week.

A very strong week, breaking a three-week decline.

This blog provides free and ‘Premium’ Content.

The premium content area allows us to provide more information that investors should find useful, without violating the trust of our paying subscribers to Street Smart Report. The premium content’s small cost ($12 a month) is the equivalent of one cup of coffee a week.

Better yet, why not subscribe to the full Street Smart Report Online package at the equivalent cost of two cups of coffee a week and get all that it provides, which includes access to the premium content of this daily blog. Just click here and then on ‘Subscribe’ at the top of the page it takes you to.

In the premium content area today:

S&P 500. NYSE. Russell 2000. Potential overhead resistance! And the weekly market pattern for next week.

Please scroll down to see other recent ‘Interesting Charts of the Morning’ and commentary.

Next week’s Economic Reports:

Next week has very few potential market-moving economic reports, only perhaps the Fed’s Beige Book, the U.S. Trade Deficit, and weekly unemployment claims. To see the full schedule of the week’s reports click here, and look at the left side of the page it takes you to.

To read my weekend newspaper column ‘Weighing In On The Week’s Economic Reports’ click here!

NOTE: Our offices are closed for the long weekend, and I am going to take most of it off also. There will be no post Monday morning. I’ll be back Tuesday morning with an update of the action in Asian markets Sunday and Monday nights, the action in European markets, and up-to-date charts, and commentaries on the outlook for the economy and U.S. market.

Subscribers: There is an in-depth ‘Gold, Bonds, Dollar, Inflation/Deflation’ report on your website from Wednesday, and an in-depth ‘Markets Signals and Recommendations’ update, and a hotline message on your website from Wednesday evening. We have no changes since.

Non-subscribers: While it’s helpful to look at daily and short-term expectations, it is the intermediate and longer-term signals and market moves that are most important to investors. So, please consider a subscription to our independent research and recommendations. The cost is equivalent to the cost of two cups of coffee per week. Can you afford not to subscribe? At least subscribe to the premium content of this daily blog.

Street Smart Report Online provides our intermediate-term signals, outlook, and recommended holdings. Sectors, stocks, bonds, gold, short-sales, long-side and inverse etf’s and mutual funds. Highly regarded and in its 22nd year. In-depth weekly reports, newsletter, hotline, and much more! As a bonus for a one-year subscription you will also receive my latest book Beat the Market the Easy Way- Proven Seasonal Strategies That Double the Market’s Performance. Click here for subscription information.

**** End of Today’s post*****

Friday, September 3, 2010. 9:15 am.

The Labor Department’s employment report for August was released this morning, and although showing there were 54,000 more jobs lost in August, and the unemployment rate ticked up to 9.6% from 9.5%. it was a pleasant surprise, as it was considerably better than forecasts that more than 100,000 jobs would be lost.

We have always referred to the jobs report as The Big One!, since it has the historical record of coming in with a surprise in one direction or the other more often than any other economic report, resulting in a one or two day triple-digit move by the Dow in one direction or the other more often than any other report.

As we also tell you each month, the rest of the pattern is that whatever is the direction of the one or two-day move, it is almost always reversed in the few days following the one or two day reaction.

But for now the market loves the report, until it begins to realize that the economy needs more jobs, not a slower pace of losses.

Safe Havens.

Gold.

Gold is back up to the resistance area where its last rally ended in July, when that gold rally ended and gold began to decline, moving opposite to the stock market’s July rally.

As the stock market has rallied this week after several down weeks, gold has continued to rally.

But it is down $12 an ounce at the moment this morning, after the release of the jobs numbers, and the spike up in stock futures.

Bonds.

Bonds have already been weakening as the market rallied this week. Is it the beginning of the bursting of the bond bubble?

The last bond bubble, at the end of 2008, ended in December, 2008, three months before the stock market correction finally bottomed on March 10, 2009.

Yesterday in the U.S. Market.

Decent follow-through to Wednesday’s big rally, thanks mostly to a late day rally, seemingly no concerns in advance of the monthly employment report this morning.

Volume was just under 1 billion shares.

Yesterday’s intraday chart:

The Dow closed up 50 points, or 0.5%. The S&P 500 closed up 0.8%. The NYSE Composite closed up 0.8%. The Nasdaq closed up 1.1%. The Russell 2000 closed up 1.2%. The DJ Transportation Avg. closed up 1.4%.

Of the ‘safe havens’, the U.S. dollar etf UUP closed down 0.1%. The Treasury bond etf TLT closed down 1.1%. Gold closed up $7 at $1,253 an ounce.

Yesterday in European Markets.

European markets closed mixed with very small moves yesterday. London closed up 0.1%. The German DAX closed unchanged. France’s CAC closed up 0.2%.

Asian Markets Were Mostly Up Some Last Night. 

Among individual markets:

Australia closed up 0.3%. China closed down 0.1%. Hong Kong closed up 0.5%. India closed down 0.1%. Indonesia closed up 1.3%. Japan closed up 0.6%. Malaysia closed down 0.1%. New Zealand closed up 0.8%. Singapore closed up 0.5%. South Korea closed up 0.2%. Taiwan closed up 1.4%.

Markets This Morning.

European markets have moved sharply to the upside after the release of the U.S. jobs report. The London FTSE is up 1.3%. The German DAX is up 1.4%. France’s CAC is up 1.9%.

Oil, down prior to the jobs report, is now up $.31 a barrel at $75.33.

Gold, unchanged prior to the jobs report is now down $12 an ounce at $1,241, now up only $3 for the week so far.

Markets in the U.S.

This week has had a very heavy schedule of potential market-moving economic reports, including Consumer Confidence, the minutes of the Fed’s last FOMC meeting, the ISM Mfg Index, Factory Orders, the ADP Jobs report for August, Pending Home Sales, and culminating today with The Big One, the Labor Department’s important Monthly Employment Report for August. To see the full schedule of the week’s reports click here, and look at the left side of the page it takes you to.

Monday’s report was Consumer Income and Spending for July, which showed incomes were up only 0.2% in July, but spending was up 0.4%, and the savings rate declined. Tuesday’s reports were the Case-Shiller Home Price Index, which showed that single family home prices rose 1.0% in June from May, the third monthly increase after six straight months of declines, and was better than expectations. And the Chicago Purchasing Managers Index, which fell to 56.7 in August from 62.3 in July, and Consumer Confidence, which moved the other way, improving slightly to 53.5 in August from its five-month low of 51 in July. And the minutes of the Fed’s last FOMC meeting showed a lively discussion of the economic problems took place before they decided to announce more concerns than previously revealed about their economic outlook, and willingness to take potential action down the road if needed. Wednesday’s reports were the ADP Jobs report for August, which showed that 10,000 jobs were lost in the private sector in August, worse than forecasts, which were already dismal. The ISM Mfg Index rose some, to 56.3 in August from 55.5 in July, but it was better than forecasts. It was reported that Construction Spending declined 1% in July, down 10.7% over the previous 12 months. And automakers reported absolutely terrible auto sales for August. Yesterday’s reports were that unemployment claims fell by 6,000 last week, about in line with forecasts. 2nd quarter Productivity was revised to show a decline of 1.8%, double the 0.9% decline originally reported. Pending Home Sales rose 5.2% in August, better than forecasts, but were still 19.1% below August of last year. Factory Orders rose just 0.1% in July, worse than forecasts, held down by declines for computers and machinery. Retail sales for August rose 3.3%, better than forecasts of 2.5%.

And this morning it was the Labor Department’s employment report for August, and it was considerably better than expected. It showed there were 54,000 jobs lost in August, compared to forecasts of 110,000. And the previous reports for job losses in June and July were revised to show a smaller number of job losses than previously reported. The combined reports for June and July were revised to a total of 229,000 jobs lost from the previously reported 354,000.

The unemployment rate rose from 9.5% in July to 9.6% in August.

The report has the pre-open indicators moved from slightly negative to very positive. 

Pre-Open Indicators:

Our pre-open indicators are pointing to the Dow being up 130 points or so in the early going. 

This blog provides free and ‘Premium’ Content.

The premium content area allows us to provide more information that investors should find useful, without violating the trust of our paying subscribers to Street Smart Report. The premium content’s small cost ($12 a month) is the equivalent of one cup of coffee a week.

Better yet, why not subscribe to the full Street Smart Report Online package at the equivalent cost of two cups of coffee a week and get all that it provides, which includes access to the premium content of this daily blog. Just click here and then on ‘Subscribe’ at the top of the page it takes you to.

In the premium content area today:

Latest investor sentiment. AAII. VIX Index. Supportive of a bottom? And the weekly market pattern for this week.

Please scroll down to see other recent ‘Interesting Charts of the Morning’ and commentary.

To read my newspaper column from last weekend ‘Why We May Already Be In Recession!’ click here! It will be replaced with this weekend’s later today.

Subscribers: There is an in-depth ‘Gold, Bonds, Dollar, Inflation/Deflation’ report on your website from Wednesday, and an in-depth ‘Markets Signals and Recommendations’ update, and a hotline message on your website from Wednesday evening.

Non-subscribers: While it’s helpful to look at daily and short-term expectations, it is the intermediate and longer-term signals and market moves that are most important to investors. So, please consider a subscription to our independent research and recommendations. The cost is equivalent to the cost of two cups of coffee per week. Can you afford not to subscribe? At least subscribe to the premium content of this daily blog.

Street Smart Report Online provides our intermediate-term signals, outlook, and recommended holdings. Sectors, stocks, bonds, gold, short-sales, long-side and inverse etf’s and mutual funds. Highly regarded and in its 22nd year. In-depth weekly reports, newsletter, hotline, and much more! As a bonus for a one-year subscription you will also receive my latest book Beat the Market the Easy Way- Proven Seasonal Strategies That Double the Market’s Performance. Click here for subscription information.

**** End of Today’s post*****

Thursday, September 2, 2010. 9:15 am.

The market put in an impressive rally yesterday, that apparently was fueled in the beginning by a report of a minor improvement in manufacturing data from China. The Chinese Purchasing Managers Index rose slightly, to 51.7 in August from 51.2 in July. At 10 o’clock the rally accelerated higher on the report that the ISM Mfg Index in the U.S. improved from 55.5% in July to 56.3 in August.

Was that really the most important economic news of the day, or just an odd outlier?

Other economic reports were that retail sales in the euro-zone unexpectedly fell 0.3% in July, while the Purchasing Managers Index in Germany fell to 55.1 in August from 56.7 in July. And in Canada, where the economy was thought to have remained strong, it was reported that economic growth (GDP) unexpectedly fell sharply in the 2nd quarter, to an annual rate of only 2%, down from 5.8% in the 1st quarter.

The much anticipated ADP employment report for August showed that the U.S. jobs picture continues to deteriorate quite severely, this time the ADP report showing not a smaller number of jobs created, but a loss of 10,000 jobs in the private sector in August.

At 10 a.m., when the improvement in the ISM Mfg Index was reported, it was also reported that Construction Spending fell 1% in July from June, for a 10.7% decline since July of last year.

And then the automakers began reporting horrible auto sales for August. A few examples: General Motors’ August sales plummeted 24.9% compared to August of last year. Toyota U.S. sales plunged 34.1%. Honda sales plunged 33%. Nissan sales fell 27%. Hyundai sales fell 11.4%.

Compared to the previous month (July) GM’s sales were down 7% in August, Ford’s down 5%, Toyota’s down 12%, and so on.

And still the market remained on its highs to the close, with absolutely no attempt to sell off.

Was the ISM Mfg Index improvement that important, that it was able to overwhelm all the other reports?

Apparently. But it seems odd. Was something else going on?

Yesterday’s Big Rally.

The big rally yesterday had a significant effect on the short-term charts. Can major indexes break out above their short-term 21-day moving averages again? And if so what would it mean to the much more important intermediate-term outlook?

Odds of a Positive September Following Such An Awful August?

I’m seeing a number of pundits surmising that with everyone aware that September is usually the most negative month of the year, perhaps this year the negative activity was moved a month ahead, to create the worst August in a number of years. So now September will be a positive month.

Perhaps so. But if so, it won’t be because of the historical pattern changing when August is down.

Mark Hulbert has an interesting study on Market Watch from yesterday going back to 1896, regarding the odds of September being a down month in various scenarios, including when August was up, when it was down, in relation to VIX at the time, etc.

The study shows that historically over the last 90 years, September was down more on average when August was down than when August was up. It also showed that September was down an average of 2.8% when August was down, the market was down year-to-date on the last day of August, and the VIX Index was above 20 at the end of August, the conditions that were in place at the end of August this year. To read Mark’s full article click here By the numbers. Not sure how long they’ll leave the article available.

Yesterday in the U.S. Market.

A big rally day! Was it really on expectations of the economic recovery looking good again because the ISM Mfg Index was up some in August, even as ugly economic reports yesterday came out in construction spending, auto sales, and the jobs picture? Apparently.

Up strongly right out of the gate, and no attempt to sell off from the highs. Volume was 1.19 billion shares.

Yesterday’s intraday chart:

The Dow closed up 254 points, or 2.5%. The S&P 500 closed up 3.0%. The NYSE Composite closed up 3.1%. The Nasdaq closed up 3.0%. The Russell 2000 surged up 3.8%. The DJ Transportation Avg. closed up 3.9%.

Of the ‘safe havens’, the U.S. dollar etf UUP closed down 0.8%. The Treasury bond etf TLT closed down a big 2.6%. Gold closed down 0.4%.

Yesterday in European Markets.

European markets also surged up yesterday. London closed up a big 2.7%. The German DAX closed up 2.7%, and France’s CAC surged up 3.8%.

Asian Markets Were Up Last Night.

But analysts in Asia expressed disappointment that the gains were not larger, given the big gains in Europe and the U.S. yesterday.

Among individual markets:

Australia closed up 0.8%. China closed up 1.2%. Hong Kong closed up 1.2%. India closed up 0.2%. Indonesia closed down 0.4%. Japan closed up 0.4%. Malaysia closed up 0.2%. New Zealand closed up 0.2%. Singapore closed up 0.3%. South Korea closed up 0.3%. Taiwan closed up 0.8%.

Markets This Morning.

European markets are mixed with only fractional moves this morning. The London FTSE is up 0.1%. The German DAX is down 0.1%. France’s CAC is up 0.1%.

Oil is down $.67 a barrel at $73.24.

Gold is up $2 an ounce at $1,250, up $12 an ounce for the week so far.

Markets in the U.S.

This week has a very heavy schedule of potential market-moving economic reports, including Consumer Confidence, the minutes of the Fed’s last FOMC meeting, the ISM Mfg Index, Factory Orders, the ADP Jobs report for August, Pending Home Sales, and culminating on Friday with The Big One, the Labor Department’s important Monthly Employment Report for August. To see the full schedule of the week’s reports click here, and look at the left side of the page it takes you to.

Monday’s report was Consumer Income and Spending for July, which showed incomes were up only 0.2% in July, but spending was up 0.4%, and the savings rate declined. Tuesday’s reports were the Case-Shiller Home Price Index, which showed that single family home prices rose 1.0% in June from May, the third monthly increase after six straight months of declines, and was better than expectations. And the Chicago Purchasing Managers Index, which fell to 56.7 in August from 62.3 in July, and Consumer Confidence, which moved the other way, improving slightly to 53.5 in August from its five-month low of 51 in July. And the minutes of the Fed’s last FOMC meeting showed a lively discussion of the economic problems took place before they decided to announce more concerns than previously revealed about their economic outlook, and willingness to take potential action down the road if needed. Yesterday’s reports were the ADP Jobs report for August, which showed that 10,000 jobs were lost in the private sector in August, worse than forecasts, which were already dismal. The ISM Mfg Index rose some, to 56.3 in August from 55.5 in July, but it was better than forecasts. It was reported that Construction Spending declined 1% in July, down 10.7% over the previous 12 months. And automakers reported absolutely terrible auto sales for August.

This mornings reports so far were unemployment claims, which fell by 6,000 last week, about in line with forecasts, but Productivity was revised to show a decline of 1.8% in the 2nd quarter, double the 0.9% decline originally reported.

Still to come are Factory Orders, and Pending Home Sales, both of which will be released at 10 a.m.

Pre-Open Indicators:

The pre-open indicators have been fractionally positive all morning, and were unchanged by the economic reports.

Our pre-open indicators are pointing to the Dow being up 15 points or so in the early going, meaningless as to direction by the close. 

This blog provides free and ‘Premium’ Content.

The premium content area allows us to provide more information that investors should find useful, without violating the trust of our paying subscribers to Street Smart Report. The premium content’s small cost ($12 a month) is the equivalent of one cup of coffee a week.

Better yet, why not subscribe to the full Street Smart Report Online package at the equivalent cost of two cups of coffee a week and get all that it provides, which includes access to the premium content of this daily blog. Just click here and then on ‘Subscribe’ at the top of the page it takes you to.

In the premium content area today:

The effect of yesterday’s big rally on U.S. markets, short-term and intermediate-term. And the weekly market pattern for this week.

Please scroll down to see other recent ‘Interesting Charts of the Morning’ and commentary.

To read my weekend newspaper column ‘Why We May Already Be In Recession!’ click here!

Subscribers: There is an in-depth ‘Gold, Bonds, Dollar, Inflation/Deflation’ report on your website from yesterday, and an in-depth ‘Markets Signals and Recommendations’ update, and a hotline message on your website from last evening.

Non-subscribers: While it’s helpful to look at daily and short-term expectations, it is the intermediate and longer-term signals and market moves that are most important to investors. So, please consider a subscription to our independent research and recommendations. The cost is equivalent to the cost of two cups of coffee per week. Can you afford not to subscribe? At least subscribe to the premium content of this daily blog.

Street Smart Report Online provides our intermediate-term signals, outlook, and recommended holdings. Sectors, stocks, bonds, gold, short-sales, long-side and inverse etf’s and mutual funds. Highly regarded and in its 22nd year. In-depth weekly reports, newsletter, hotline, and much more! As a bonus for a one-year subscription you will also receive my latest book Beat the Market the Easy Way- Proven Seasonal Strategies That Double the Market’s Performance. Click here for subscription information.

**** End of Today’s post*****