SUMMARY:
- Market indecisive, once giving up a gain then recovering it as pre-quarter end shuffling continues.
- Choppy but holding the range.
- Jobless claims fall below 400K. First since April 1.
- Q2 Final GDP at 1.3%. Better but at this stage of a ‘recovery,’ pathetic.
- Pending home sales down but not as bad as it has been.
- China stock market at a 14 month low as market speaks of a recession that has started.
- Quarter ends Friday so likely not going to get a clear picture of market. As long as the range holds, however, treat it as a . . . trading range.
 

This time the market recovers, and it needed it after early losses.

It was another day where the futures started to the upside. The market looked strong in the morning again, but it has been something of a Viagra market of late. In other words, it is having trouble keeping it up. Maybe its supply of Viagra has not arrived yet. Futures were up. Stocks started higher. They rallied and then came back mid-morning. They bounced again and then sold off into the afternoon. It took an afternoon recovery to bring the indices back to positive. It did bring most of the stock market back, but NASDAQ and the semiconductors were lagging. There was another warning last night in semiconductor land. AMD missed big. That is raising a lot of questions about semiconductors that had set up and were looking better. Some of them are still looking better, but they are unable to produce.

The market tends to think, “What have you done for me lately?” You have to be able to produce. It reminds me of a line from Ghostbusters: “Hey, I’ve been in the private sector they expect results.” That is a hot topic today. We expect results. Even in the government sector, people are wondering where all this money is going that we have spent. What did it do other than put us in massive debt and line the pockets of some of the FOO’s Friends of Obama? I do not want to bash the guy, but he has as many scandals as the Republicans were ever accused of. A scandal is a scandal no matter what side of the aisle someone is on. Nonetheless, the market managed to come back and put on some gains.

SP500, +0.8%; NASDAQ, -0.43%; Dow, +1.3%; SP600, +1.8%; SOX, -1.3%.

Overall the market did come off its lows. I guess that is better than a sharp stick in the eye.

Right now there is end-of-quarter shuffling. The market is going through the throes of big funds trying to window dress before they send out their Q3 prospectus. They have to get the right stocks into the portfolios so they can show everyone that they participated in this move because they have all these great names in their portfolio as of the end of Q3. That does not mean they made a lot of money, but it does keep the market shuffling around and inside its range. The shuffling is somewhat disappointing, but it is inside the range. It is also not breaking down. There are positives. On the one hand it is going nowhere and looks troublesome because of the volatility; on the other hand it is holding the range. If we factor in the end of the quarter, things do not look that bad.

It was a wild day. A lot of marquee stocks had a rough session. Some were able to recover and some were not. CMG managed to recover after a big selloff. RL sold down big and then made a recovery. Others were not so lucky. NFLX continued its bombardment to the downside. PCLN had a tough day, selling off below the 200 day EMA. It was unable to recover it. Chinese stocks had a hard time because the U.S. is launching a probe into some of the trading and around the companies. That hit them all pretty hard. BIDU dove lower. SOHU was down. Pick your stock and it was likely down on the session.

Does this have anything to do with the fact that the Shanghai market is now at a 14-month low? Maybe it will bounce off the lows hit back in 2010. Maybe not. In my book, this means a recession in China. I think we are pretty aware that that is happening. I reported month ago about the ghost towns in Beijing and other areas in the office districts. They built office buildings and no one was in them. Then they were moving into the hinterlands and building more as it government continued to fund more stimulus to get more and more buildings in place. As they are finding out, when the stimulus money ends and there is no activity to sustain it, you slide back down in the hole (maybe even further). It makes that it much harder to get back out. Without a doubt, China is having some issues of its own. We will see what happens.

The U.S. market managed to hold its own. No complaints about that. Jobless Claims fell below 400K for the first time since April. Pending Home Sales were better year-over-year, although there are explanations for both as to why they were better. GDP was better than expected, but it is still atrocious. Germany approved the bailout, so there were some positives to get market ginned up. Again, it had a hard time holding it. It could be about the end of the quarter. Looks heavy. A lot of good stocks were in trouble. Maybe that was all end-of-quarter as well. We will just have to let this work through the system and see what happens.

We did not do a lot on the day. We did take some gain. We banked solid gain on UTHR, downside. Around 80% on the put options. Not bad. We took advantage of FOSL having a rough opening on the day. We picked up nice gain there as well as it traded low and started to recover on the day. We moved into some positions as well. We picked up an upside with HRC. A neat pattern. We picked up a downside position in VRX as it rolls back over yet again. I did not want to do much because of that end-of-quarter shuffling. It had the market unsettled and trying to find a trend, but it had a hard timed holding it. We want to let all the machinations work their way through. Then we will see if the market wants to move higher from here or if it just wants to roll over. Again, it is still in the trading range. That is a bonus. If the market holds the trading range, we can play the range as we have been doing. I have a feeling it will make a break sooner than later, but we will just have to see how it plays out after this unrest filters through the system at the end of the quarter.

FRIDAY

There is more data coming out on Friday. We have Personal Income and Spending, and we will see if the spending ramps up. It is expected to drop but still be more than the income. Income is expected to drop as well. We will see if the PCE Price Index is rising. It is expected to rise another 0.2%. The Chicago PMI will be very important. It is after the open. It is expected to decline but still remain above 50. There has been a little bump in manufacturing. It never moves in a straight line. It was not going as high as they said it was earlier in the year, and then they came back and it was worse. Now it is bouncing back. It ebbs and flows. It may not be in recovery mode, but it is recovering near term. We also have Michigan Sentiment. Consumer Confidence was pathetic, so I do not expect Michigan to be much better. There is not much reason for it to improve.

What about the market? That is the important thing. Tomorrow is the last day of the quarter, so we may have a bit more shuffling, but that may be out of the system. Nonetheless, it will be hard to put a lot of new money to work on Friday. We will look at good patterns that ignored the shuffling and were not wildly volatile. If a stock held its pattern, ignored the action, and shows us the buy, then it will be worth putting some money to work in that situation. In other words, we will not ignore the play simply because it is the end of the quarter and it is a wild time. Again, if the stock is not paying any mind to the end of the quarter, we can have more faith in what it is showing us. If it shows us a move, we can step in. It does not mean we will step in 100%, but we can pick up positions. That will be to the upside, and we can still look for some downside.

I am worried about the market. There is some better news at the end of this week that could help things rise into the weekend. But after that, what happens over the weekend? Maybe something comes up and maybe not. Even if nothing comes out, I am still concerned but that is my gut talking. Remember what the market can do when you trade by your gut? It can leave you gutted. So we will stick with what the patterns are showing. That has been treating us well. Volatility has gone up and down, and we have gotten hammered with some of this. We just have to be careful and make the good, high-percentage plays that can return nice gains and do not have big downside exposure. One way we do that is to avoid those wildly-moving stocks right now until the end of the quarter can work its way through. When it does that and we see how these stocks want to break, we can put our money to work with more confidence. Then it is not just being pushed around or subject to a false move generated by some of the hedge funds or big fund managers.

Earnings are coming in the not-too-distant future, so we will see more warnings and issues. That is another concern I have for the coming week. The chips have been warning when everyone expected that they would be much better. We will start seeing some earnings next week, and we will see more warnings. Be careful of those. It will be a treacherous time when stepping through the first part of October and these earnings. After that it may smooth out and give us some good runs toward the end of the year.