Pivotal Week Ahead

• October 1, 2001
• Dave Floyd

A pivotal
week awaits traders and investors alike. Unlike last week where the
economic statistics were taking a snapshot of August activity, the market will
need to digest a few reports which may offer some insight as to the
underpinnings of the economy in the aftermath on the WTC attack. Combine this
with an FOMC meeting on Tuesday and you have the makings for some volatility as
well as an indication as to where the markets go from here.

Key Economic
Numbers: (does not include all reports to be released)

Monday:
10 AM EST September NAPM
report

Tuesday:
No time available September Vehicle Sales

Wednesday: 7:30
AM EST September Mortgage Applications

10 AM EST NAPM non-manufacturing

Thursday:
8:30 AM EST Jobless Claims ending 9/29/01

Of particular interest will the
Wednesday release of Mortgage Applications. While the week immediately
after the WTC attack showed a healthy increase, the vast majority of the
applications were for refinancing (mine included). New mortgage
applications are still showing signs of weakness, and this report will give
traders and investors further data to digest. Based on my casual
observations, in the Peter Lynch style of analyzing economic forces, I would
have to say that the housing sector is slowing. A few homes in my
neighborhood are still holding open houses. This was unheard of just a few
short months ago. Using hard evidence, or in this case historical
perspective, one has to wonder how much longer the housing market will remain
firm.

Based on this, one needs to consider
the possibility of shorting some of the homebuilding stocks. Stocks like Clayton
Homes
(
CMH |
Quote |
Chart |
News |
PowerRating) which has been beaten up lately, is now trading at its 50%
retracement level from where it broke down in early September. See chart
below.

The other linchpin of the economy, the
strength of the consumer, is still debatable. There will be some hard
evidence next week of what Joe and Jill Consumer did with their disposable
income in September with the release of Chain Store and Retail
Sales. As shown in the graph below, retail sales, in terms of
percentage change, is quite grim.

Going forward it is hard to see
anything that will stem the tide. The wrapping up of the third quarter
will see the sending out of thousands of quarterly 401K, I mean, 101K
statements. This harsh reality of peoples retirement savings will have a
major impact on those who are in their 50’s and planning for retirement.
Suddenly, for many, the prospect of an early retirement may be called into
question. This fact will not promote the outlay of cash, if anything
“saving” will become a common theme. Additionally, if the fundamental and
technical views are any indication, the recent rebound in some retail stocks may
make for enticing shorts. Stocks like Wal-Mart
(
WMT |
Quote |
Chart |
News |
PowerRating), also trading around its 50% retracement of the recent sell-off, as well as showing growing margin
pressures, may yet succumb again to the forces of gravity.

Looking ahead to today’s session, I
expect the morning to offer up its usual dose of volatility, but trading will
be light in the afternoon ahead of tomorrow’s FOMC meeting. I don’t know
about you, but the rally last week felt very strained. Stocks appeared
reluctant to go higher. In fact it was the first time in a while where I
was frequently using limits to get out of my long positions intra-day because
the volume and liquidity was somewhat sparse. Normally, on up days, you
can exit longs into the heat of the rally and expect a good momentum fill off a
market order. No such luck last week.

Key
Technical Numbers:

As always, feel free to send me your
comments and questions.

Dave

P.S.
I’m looking forward to sharing the nuts and bolts of how I trade at TM2001
this weekend. You’ll learn the two big keys to my trading: 1)
How to define a powerful intraday trend; and 2) The precise
parameters that tell you where to enter your trade in the midst of that trend.
I will also explain to you the “feel and rhythm” that enables me to
trade with
consistency. This is one element of my trading that I could
never convey on paper through a set of rules or a formula. You’ll just have to
meet me in Las Vegas, and you’ll know what I mean!