Flat As A Board
Market Trend:
Down
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Market Outlook:
Possible continuation of relief rally
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Sector’s Long:
None
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Sectors Short:
None
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Peter’s Picks:
Peso
The Broad Market Outlook:
Through the Glass Darkly
Most weeks, we have a pretty good idea of
what the odds-on direction of the market is likely to be. This is not one of
those weeks and therefore being in anything other than cash this week would be a
reckless gamble rather than an intelligent speculation.
That said, one possible scenario is a
continuation at the open on Monday of Friday’s relief rally — with the
likelihood that the rally will stall either by the close or at the latest
Tuesday. We find support for this scenario in the observation that few traders
are likely to load up on the long side prior to the anniversary of 9/11. In
addition, there is little on the data calendar to provide the market with any
lift — at least until Thursday and Friday.
More broadly, we also believe that there remains a significant probability that
the market will continue to explore the downside once the latest nascent rally
subsides. There is simply not enough good news either in the macro data or
the corporate earnings warnings to suggest a robust recovery — any bullish
sentiment notwithstanding.
Here are the key dangers:
Oil
prices: Continuing to spike on speculation about war
in Iraq.
Terrorist threats: If Al Queda has any
nastiness up their sleeve in the short run, this time interval would be a likely
one to spring it.
Falling consumer demand:
Consumer
confidence is down, 0% financing is pulling money out of the malls and into the
auto dealers, low interest rates are pulling more dollars out of the malls and
into housing purchases, and even if consumer spending doesn’t fall, the retail
sector sans autos is in deep trouble.
Anemic business investment: It’s a
business-led recession and only business can pull us out of it. As earnings
estimates continued to be revised downward, the “animal spirits†of our Captains
of Industry more and more resemble pussycats than lions.
Weak dollar: Yes, it is still a threat,
the recent strength notwithstanding.
Jobless Recovery: The latest “good
news†on the falling unemployment rate that Wall Street went gaga about on
Friday turns out to be more of a jobless recovery as the fall came from an add
on of 41,000 government jobs for airline security even as private sector
employment dipped.
Our Bottom Line: We are looking for a
possible retest in the next several weeks in which all three major indices — the
Dow, S&P 500, and Nasdaq — blow right through their lows and search for yet
another bottom. Then and only then will we (maybe) get a rally that lasts more
than a few months.
The Week’s Macro Data
Market Movers: 9/11 Predominates
Wednesday’s
anniversary of 9/11 will dominate the tone for the market week. Absent another
terrorist attack, we may see a nice market bounce on Thursday but are unsure
that the current nascent rally will take us very far.
As for the
economic data, on Monday, look for consumer credit to spike up on the current 0%
auto financing binge. Not a particularly happy sign.
Tuesday’s
Chain Store Sales Snapshot is not normally worth much of a look, but with chain
store sales suffering, this will be a tea leaf with more meaning than usual.
The Fed’s
Beige Book on Wednesday is great Nerd reading as it provides a regional
blow-by-blow of the economic conditions. This might be a good week to join the
Nerd brigade and scope this out.
On Thursday,
the data begin to get more interesting as both the weekly jobless claims and the
trade numbers come out. A negative surprise on the trade deficit could
re-ignite concerns about a weaker dollar AND suggest a further softening of the
European economy IF our exports are declining. Since it’s difficult to imagine
good news on this front, look for a negative market reaction. As for jobless
claims, the Smart Money will be looking for any sign that last Friday’s good
news on the unemployment rate was really a chimera —- and may well get it.
On Friday,
it’s finally the big data day of the week: A possible double whammy of weak
retail sales and a consumer sentiment either stuck at current low levels or
falling further is our bet for the ugly surprise of the week. At any rate,
either an up or down surprise with these numbers WILL move the markets. If it’s
bad news, this could be the day that traders start running for the exits. We
will be watching this carefully.
The Macroeconomic
Calendar
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* Potential major
market movers in red
Peter’s Pick: Dinero
(PESO)
This is possibly the best week of the
year to start in hard and ready cash. However, I’m very ready to short the
Cubes on any sign that what looks to be the next mini-rally is going to fall
hard.
If you have a favorite macroplay or stock
you would like us to consider in this column, send an e-mail to
peter@peternavarro.com or go directly to
https://www.peternavarro.com. We’d love to hear from you.