- The second bounce gave it a shot, lost its nerve.
- Libya conflict appears to be ending but oil doesn’t seem to care.
- Dollar/LIBOR ticks higher again as markets ponder whether Bernanke will or won’t at Jackson Hole.
- Still in position for a second relief bounce but Monday’s failure means it has to show it can make an advance stick.

MARKET SUMMARY

Week starts as last week but this bounce cannot even hold the day.

Two Mondays back stocks started higher and posted a nice gain into the close. Looked positive but the rest of the week was only positive if you were short the market as stocks sold off through Friday. This Monday futures enjoyed solid early gains and held them into the open. Or more to the point, held them until the open. As soon as the bell rang stocks started to give back their early moves.

They did try a bounce a half hour into trade and that worked . . . for 20 minutes. A selloff to the Friday closing prices led to a lunchtime bounce that looked good, at least until lunch ended. Then the bid died and stocks slid lower again on into the last hour. A bounce formed once more and it failed as well. Even though the indices closed positive it was a hollow advance as NASDAQ gave up 52 points off its high, SP500 21 points, DJ30 230 points.

NASDAQ 3.54, 0.15%. SP500 0.29, 0.03%. DJ30 37.00, 0.34%. SP600 0.08%. SOX 0.80%.

The action left the indices solidly on top of the August lows and the summer 2010 base. Solidly refers to the splat you could hear as they rolled over intraday. Still in position to bounce for a second move in the relief rally attempt, but the intraday rollover shows buyers need something to trigger an appetite for stocks even if it is just for a snack. Perhaps they are looking west to Jackson Hole (east if you are west of Wyoming) and Ben Bernanke announcing some form of new stimulus.

TUESDAY

Economic data picks up again with New Home Sales (July) at 10ET. Plenty of scheduled news this week but the end of week Bernanke Jackson Hole announcement is what most are looking at as the report that makes the difference.

The market has stumbled ever since QE 2 ended and for good reason as the economy has stumbled since January. On top of that it was a weak-kneed recovery to begin with. US citizens have just not caught a break, but as oft discussed in the past, that can be expected when you promulgate policies that are time-tested as bringing about economic malaise. Incredible the similarities between the 1970′s and the 2010′s. Bad monetary policy starting with Nixon, bad fiscal policy continuing through Ford and Carter, massive expansion in regulation gratis Carter. The list goes on and the result is as rational minds would expect: do the same thing, get the same results. It is not different this time. They are not smarter, as if that would help rectify bad policy.

No, it is just a terrible economy that is draining citizens even more. Today we learned that more mortgages are behind than last month. No surprise. This recession/depression has been going long enough where the rope people are hanging onto has become shorter and shorter. Come September we get the President’s next attempt at stimulus but the same policies repackaged with a supply side program stuck in for looks won’t fix the mess.

That is why without some Fed stimulus we say any bounce is doomed to fail. In reality, even a Fed-induced rally is doomed to fail just as the QE2 rally failed when QE2 ended. You can flood financial markets with liquidity, but if the policies do not promote investment in the US to unlock capital to fund new ideas and services, at BEST you get a return to the median when the stimulus is removed. The bad thing is, more liquidity simply means the likelihood of uncontrollable inflation later.

With the possibility of QE3 in some form lurking, however, we are still ready to play an upside bounce if it shows itself and can stick the move. There are many stocks in great position to rebound, and if the bounce is only so they fail again, that is okay. We anticipate enough bounce to make some money upside and then flip it for a really good roll lower.

Of course the market can always just say to hell with it and fold from here. There is nothing necessary about a rebound occurring. It simply makes logical market sense given the setup we see in the indices, the former leaders (the household names), and the extreme internal readings already notched. Thus you have to be ready for that move if it occurs. If it does not, there are some downside plays that are not overcooked we can participate in, knowing that a continued selloff from here is an indication of a really weak economy ahead.

Gloomy indeed, but put that aside and look at how you can profit from it versus worry about it. A bounce upside and we can take some more positions to play an upside move. A failure and we let our downside plays run and pick up a few more as with RYN today.