- Not pretty, but relief bounce part 2 continues.
- Gold slammed for second day, but through all the selling it is at the 20 day EMA.
- Durable Goods orders nicely higher except for business investment
- Moody’s downgrades Japan debt. Start the investigation!
- France cuts its growth target. Are the big European fix gasping?
- CBO says debt to rise $1.3T in 2011, unemployment to stay at 8.5% through end of 2012.
- Not a lot of power so be prepared for a ragged move upside to resistance.

MARKET SUMMARY

Takes a second shot but the upside holds Tuesday for a second day of rallying.

After a big surge Tuesday you would expect a bit of early weakness, a bit of a hangover. Wednesday morning there was more than just a hangover as the Dow showed a 100 point loss in the futures. Why the downbeat action after such an ebullient Tuesday surge?

France cut its own growth target for 2011 to 1.75% from 2.0% and 2012 to 1.75% from 2.25%. Consistency. It is also consistent with its socialist policies, going after those making 500K+ euros with a tax to raise 200M euro. Of course Obama wants to do the same here, but on those making $250K+, a much lower standard. Obama as well is consistent in his views that are, of course, in line with Europe.

Moody’s cut Japan’s debt rating a notch to Aa3, still a premium rating, but slowly heading lower. I hope Japan starts an investigation of Moody’s and its ratings methodology. How dare they cut Japan? After all, S&P cut the US rating and an investigation of S&P’s ratings on housing was announced a week later. I wonder just what Moody’s was doing ahead of that earthquake and tsunami? Why didn’t it see that was going to happen and warn investors ahead of time? Very suspicious.

FYI, Japan lost its AAA rating in 1998, and though it has held interest rates at 0% ever since, undermined its currency consistently (the most recent this week when it announced a $100B facility for those suffering from a higher yen value), pumped billions into old-line banks and businesses that would collapse but for the government assistance, and cracked down with more and more regulations, it is still on the wane, taking its credit rating down with it. Is that shocking? Not really, but it may be to those in charge of the US today if they think their policies, virtually identical to Japan’s, will result in a rebirth of the US. Oh we will get a rebirth, but it won’t be the US we and our forefathers grew up in.

Then there were July Durable Goods Orders. At 4.0% they topped the 1.9% expected and Junes -1.3% debacle. Ex-transports and they rose 0.7% versus the -0.6% expected. That news turned the futures from the depths back to the not so desperate. No one seemed to mind, at least for the day, that business investment fell 1.5%. Recall it was manufacturing and business investment that led the US ‘out’ of recession. Both of those are now sucking air so to speak and the economy is stumbling. Durable goods were comforting but not dispositive. There certainly is not enough buying to prop up more manufacturing activity as the regional PMI reports are showing us, and one month up does not offset the trend lower in the data. It is hopeful, and it is better than a 1.3% decline as expected, but it does not, as those desperate for good news would say, market a change in the trend no more than a bump higher in the ISM two months back signaled that the manufacturing ‘slow patch’ was over as so many pundits shamelessly hoped versus basing their comments on the facts.

Stocks made it back toward flat at the open and rallied to positive in the first half hour. Weak home prices sold them back to flat with NASDAQ flipping negative as techs, a leader in the moves the prior two sessions, faded. Didn’t look good as lunch got underway as the indices hit session lows. Indeed, the indices were showing intraday doji at the 10 day; if that held to the close, not good action at all. A slow turn through lunch, however, started the recovery. By late afternoon the indices approached the early session highs. By the close SP500 topped its early peak while NASDAQ traded just below that level. Not a bad recovery at all given the dump of the early session gains.

NASDAQ 21.63, 0.88%
SP500 15.25, 1.31%
DJ30 143.95, 1.29%
SP600 1.30%
SOX -0.12%

In the end the market logged its second day of the relief rally, part 2. Still well below the November peak. You can look at that in two ways: it still has plenty of room to run upside, or it has not changed the recent downside bias much. It may not be a straight power to the upside and it may be more of the same to many investors, but the relief move based on those extreme internal and sentiment indicators is finally trying to make its mark.

THURSDAY

Already Thursday and the weekly jobless claims top the bill. Important, but the market is eyeing two other issues. First, AAPL’s Steve Jobs announced his retirement after hours. AAPL is down 5% post-session trade, but many say that his replacement was running the company anyway. Second, investors are looking at Friday and Bernanke’s speech from Jackson Hole. Muriel Rubini feels Bernanke will announce a form of QE3. Others say no. I know that I don’t know, but I don’t believe he will announce any new plan, instead reiterating the Fed is ready to move in with more stimulus if needed. The durable goods report gives him some cover to do just that (i.e. really nothing).

That is worrisome for the market. I am not convinced it expects Bernanke to gush forth another QE package. If it did the market would not have collapsed lower in July and early August. It would not have this hesitation on the rebound attempt. It is not sure itself. What we are seeing right now is some short covering just in case he does announce a package.

That means if he does not then the sellers will reassert their shorts and the market bounce is at risk. While we here still view a viable technical bounce to the November high and even to the March/June lows, the technical picture can be overridden by governmental action. If Thursday provides another upside session, you start thinking about banking some gain on the upside positions. It won’t be the levels we were looking for (unless the market surges and hits that November high), but taking some gain and putting it in the bank is not a bad plan in the face of thus unknown.

If a stimulus is announced stocks will surely jump and we would miss out on some gains, but we would still have part of our positions in place to ride those rails higher. Then on a test we can reload. Why would we do that? Because as in August 2010, the announcement of a new QE in one form or another changes the landscape as financial instruments would benefit from the restart of the liquidity pump.

With the bounce upside we are also starting to look at more downside positions that are setting up with each move higher. We can look at some more upside, but after two solid upside sessions on a bounce the window for new upside is closing quickly. There will be more downside on the report tonight to be ready in the event the market move stalls out on Bernanke or not. Remember, it is our premise that the market is going to fail on this run sans something from Bernanke.