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Tuesday, October 04, 2005
Market Recap
A massive reversal today for the market as stocks suffered a sharp sell off late in the day. The DOW was up slightly all morning long with plenty of strong stocks looking good. Then stocks started to drift south slowly about 12 PM EST and the selling picked up in a hurry in the last two hours of the trading day. By the close, the DOW found itself down 94 points, the NASDAQ lost 16 points and the S&P lost 12 points. Even as the indices sold off today there were plenty of winners on the bulletin that held up well to include SNDK, UGNE, FWLT, DXPE, BBSE and CIEN all up big today.
Yesterday's ISM number was unexpectedly strong, which was good news except that it fueled inflation worries and Fed worries, which was bad news for stocks. Today's selling may have been a delayed reaction to this data. To sum up this action, the market continues in its move/counter-move mode, swinging in a trading channel that it cannot seem to breakout of. There are a number of mixed messages and uncertainty still in the market so it is no wonder it cannot get out of this range. Until today, despite the hesitation and indecision in the indices, many stocks were acting quite bullish and making new highs. This action today has taken a little wind out of the sales of some of the leading stocks.
The Manufacturing Index
The index that measures manufacturing output surged in the latest reading that came out yesterday. It was 59.4, vs 53.6 in the previous report. Businesses and home owners rushed out after the hurricanes had passed and began the clean up and rebuilding process, causing a rush on demand for these materials. Prices in these materials have risen because of this demand, adding more pressure on an already stretched supply. That is what it comes down to in a case like this. Simple supply and demand is dictating that construction materials and other goods are on the increase. The demand to rebuild is outstripping the supply.
With the recent surge in the manufacturing index, many will assume that the economy is charging ahead and the Fed will use these figures as re-enforcement for their continued future rate hikes. The index jumped because of the surge in demand for materials in the areas affected by the hurricanes. But, the Fed is not going to point to that as being the reason that the index rose. We know it is because of this one time event, but they will cite the increased demand as an inflationary highlight and one that they need to suppress quickly.
Manufacturers did not anticipate the needs based on a one time event (a hurricane) so therefore the short term effect is going to be something that resembles inflation. It is not what I would call true and sustainable inflation but the Fed would not admit it, of course. This is another excuse for them to raise rates. We know the real story. The Fed is on a mission to get short term rates back up to 4.5% and they are not going to stop until they get there, no matter what information about the economy is received. It has become quite obvious now, that rates will continue to rise for at least two more FOMC meetings, that's right, 6 more months of rate hike fears before the market will be comfortable with the Fed ending its tightening cycle.
Caution is Advised Again
There are no charts tonight but should the markets continue down tomorrow, going to cash and locking in any gains you may have may be prudent. Housing stocks look primed to go much lower and could be nice short entries. We will have many more charts for you when they set up again. Right now, caution is well advised in your trading.
STHQ Chart Index
If you go to the chart index in the left side menu, you can review and study charts that we have annotated for each stock listed in the past.
For New Members
For all of the new members with us, please make sure to read the link “How to use Bulletin” at the bottom of the Bulletin page on the website. It is critical that you know how to use this trading tool before trying to trade the stocks mentioned. The effectiveness of your trades will diminish if you do not completely understand how the information is presented.
Earnings Calendar
We have added the earnings link for each stock on the bulletin. To access the link for earnings, you can either use the link below or click the link on the bulletin for the corresponding ticker. Click the online bulletin in the left side menu for access to the earning calendar for each stock listed. It is not recommended to hold a position through earnings. You can always buy the stock back after the dust settles.
http://www.earnings.com
Stockcharts Listing
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