The stock market does not work the way most people think. A commonly held belief — on Main Street as well as on Wall Street — is that a stock-market boom is the reflection of a progressing economy: as the economy improves, companies make more money, and their stock value rises in accordance with the increase in their intrinsic value. A major assumption underlying this belief is that consumer confidence and consequent consumer spending are drivers of economic growth.http://mises.org/daily/4654Read more…
Tomorrow the Office of National Statistics announces the second reading of the UK GDP second quarter.Market expectationsThe first reading showed a growth of 1.1%, almost twice as fast as the market had expected.The general consensus for the second reading is for no change. However, with strong headwinds facing the UK economy, traders will be keeping an eye on the second reading, particularly if there is any deviation from market expectations.There is no doubt that recent weak economic data from the UK and important trading partners the US and EU has raised investor concerns over the potential for a double dip recession.Indeed only recently Mervyn King, the BoE governor, said that “business and consumer sentiment have shown signs of softening…and there is great uncertainty about the outlook for both the US and our most important trading partner, the euro area.”¹ (source: Market Watch 11/08/10)There could however be some optimism that the second reading of Q2 GDP may be revised up considering the recent data concerning construction activity grew 8.6% last quarter, much higher than the 6.6% expected.A stronger than expected reading could boost hopes that Britain will escape a double dip recession, whilst a weaker second reading could escalate fears and force traders to seek defensive asset classes.
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By Gareth Soloway on August 19th, 2010 11:24am Eastern Time
The markets are forming a classic “M” pattern on the intra day. This can be seen clearly by looking at the chart below of the SPDR S&P 500 ETF (NYSE:SPY). According to the M-A pattern formation, the markets may be now due for a small up move, prior to the next down leg. This portion would be known as the “A” pattern after the “M” seen below.
The markets drop today is due to ugly economic data. Jobless Claims came in at 500,000, the worst in 9 months and Leading Indicators and Philly Fed were both extremely bad. The markets collapsed each time the the data was released, at 8:30am ET and again at 10:00am ET. Gold is slightly higher on fear while oil is dropping on the perception that demand will fall.
The weakest stocks today seem to be commodity based. Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) are both dropping over 1.5% as oil tumbles. United States Steel Corporation (NYSE:X) had been strong over the last week on rumors of a buyout. After gapping higher today, it has now reversed and turned negative as well. Bottom line is this, the weaker the economic numbers, the weaker the perceived demand will be for oil, steel and all other commodities but gold.
Gareth Soloway
Chief Market Strategist
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By Nicholas Santiago on August 18th, 2010 3:37pm Eastern Time
One must really get a good laugh when looking at all the shenanigans played during options expiration week. Yesterday the Dow Jones Industrial Average rallied higher by more than 170.00 points only close the session higher by 103.00 points. This tells us that the large institutions took care of business when it came to shaking out the small retail options trader.
Yesterday Potash Inc (NYSE:POT) turned down a buyout bid from BHP Billiton Ltd (NYSE:BHP) for $39.5 billion. As we all know Potash Inc stock has soared higher and now has a floor underneath it. Today buyout rumors are everywhere. United States Steel Corp (NYSE:X) is rumored to be bought out by another company. This is one of the oldest stocks on the New York Stock Exchange. Is someone really looking to buy this company? Perhaps someone or some institution needs that stock at a certain level before Friday's expiration. The stock is trading higher by $2.60 to $49.90 a share and was even higher intra-day.
What about American Eagle Outfitters (NYSE:AEO) today? This stock soared higher intra-day by nearly one point on a buyout rumor. Come on give me a break. How can these rumors just spread like wild fire without anyone questioning their legitimacy? These games get played all the time during the week of options expiration.
Please realize that the small retail options investor rarely ever exercises an option. They will usually close out the option position long before the Friday expiration for a gain or loss in the premium. Therefore, take this week with a grain of salt as it seems these are just institutional games that are getting played. This type of activity has happened from the beginning and will unfortunately happen until the end. I even remember Ben Bernanke cutting the discount rate just before the opening bell on an options expiration Friday. What a shame.
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