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Wednesday, September 08, 2004
Good evening friends,
Market Recap
Mr. Greenspan never fails to put people to sleep when he is speaking and today was no exception as the market slept through the Federal Chairman's testimony. The Dow fell -30 points, the NASDAQ dropped -8 points, and the S&P slipped -5 points. Both the Dow and the S&P are still above their respective 50 and 200 SMA's while the NASDAQ struggles below both of these key averages. Until all three indices are above these lines, we cannot call this market a bull market yet.
Greenspan vs. UCLA
Mr. Greenspan came out with comments today that the economy is “gaining traction”. He went on to say that we are recovering from what he described as a “soft patch” in the economy. This is contrary to the news that also came out today from the UCLA Anderson Forecast http://www.uclaforecast.com, which said the economy is still in a soft patch. The thought is that there is a greater downside risk than upside. In addition, consumer spending is seen as the key to recovery, and the fear is that if consumer spending slumps further, we will face some dire times. Given Mr. Greenspan's comments, it seems certain that interest rates are set to continue rising. Oil still remains over $40 a barrel and the volume has yet to come back into the markets this week. The higher volume I was anticipating this week has not materialized; institutions do not seem to want to commit to the markets just yet.
So who is right? Mr. Greenspan, the well respected chairman of the Federal Reserve, or college grad students in charge of running the Anderson Forecast? My cautionary outlook has me leaning towards the Anderson forecast over Mr. Greenspan. Even his comments were sprinkled with some cautionary statements. For an economy that is supposedly gaining traction, it sure is not showing up in the usual places. Retail sales numbers have indicated a very slow back to school season. If that trend continues, the holiday numbers for retailers are likely to be down as well. GM just increased the incentives on 2005 model year vehicles and other manufacturers will most likely follow suite. The housing sector is likely to suffer more as interest rates tick up again. All these indicators point towards a slowing consumer sector of the economy.
We need to remain cautious in our own outlook until consumers start spending and investors start investing. If that does not begin to happen soon, I think those college students will be one up Mr. Greenspan.
Last night we moved one of the previous market leaders PLMO on our long list to our short list because the chart looked like it was rolling over. The day after moving PLMO to our short list, the stock is down 13% or $4.57. If you shorted this stock today congratulations, the chart rolled over as expected and may fill the gap all the way back down to 21.50 where we originally listed the stock on our long list in June. Traders who bought when we listed this stock would have made a 90% gain on the long side as it rocketed above $40. If you flipped your position and you are now short, you will make even more money to the down side. If this gap should fill, it would be another example of how technical traders who play the moves can lock in gains as opposed to investors that buy and hold. Those investors who bought and held PLMO may see all their gains wiped out if the gap should fill.
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