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Goldata Financial
Dedicated to above average returns in the stock market.
STOCK MARKET COMMENTARY
August 24, 2009
From Elliot
Goldberg, Registered Investment Advisor, Goldata
Financial
Last week, it appeared early on that the long-sought after 10%+ correction in
prices had finally started to evolve. Punters awoke Monday to S&P futures
down over 2% in the pre-market as weakness in China’s market overnight
and an earning’s miss by Lowes (LOW), the
home-improvement chain, were the culprits blamed. The bears fought off all
rally attempts during the day and the averages finished down about 2.5%.
Tuesday brought a meek attempt at a rally, which further encouraged the bears
and with news of yet another sell-off in the Chinese market Wednesday morning
and a disappointing unemployment report, the bears were feeling their oats
(or whatever they eat). The S&P futures implied a decline at the open of
over 1%, but when the opening bell rang, fagetaboutit.
After a small decline, the averages turned northward and never looked back
for the rest of the week, pulling flat by end of day Thursday and showing
gains for the week by Friday’s closing bell. There continues to be a
bid under this market, which must trump any negative fundamental arguments
considered. Technically, Friday’s breakout to the upside implies
support from market technicians and further gains before the correction
starts. Positive news from the retail sector came from both Target (TGT) and
Gap (GPS) as they both beat earnings due to improved margins and leading
economic indicators showed their fourth monthly gain in a row. This
week’s “can’t anybody here shoot straight” moment in
Washington came on Wednesday when 200+ auto dealers in the New York City area
decided to discontinue the tremendously profitable, government-sponsored “cash
for clunkers” program as their attempts at reimbursement from Uncle Sam
were met with frustration and bureaucratic delays. This is a $3 billion
program that can’t be administered properly and should give us all
pause about turning over health care administration (think public option or
single-payer) to their cousins in government, the size of which dwarfs “cash
for clunkers”. The data about existing home sales deserves a mention as
it showed an increase for the fourth consecutive month. Not emphasized as
much was the fact that prices have retreated considerably and that the bulk
of sales took place in the “under 250K” market, the place where
the $8,000 tax credits incent first-time buyers (31%) the most as it is a
larger percentage of the purchase price. Also interesting was the fact that
17% of purchases were with cash as opposed to an historic level of 10%. What
does this mean? From this perch, it means that the laws of economics and free
markets continue to work. As price comes down on the supply/demand curve, it
attracts more buyers. Any first-time buyer considering a new home has every
incentive to do it before November 30 as that is when the $8,000 tax credit
currently expires. The increase in cash buyers implies that we continue to
de-leverage as a society and that any asset requiring leverage will continue
to underperform. It also implies, as with “cash for clunkers”,
that we are “pulling forward” demand, draining future buyers from
the demand column. Look forward to some weaker numbers on car sales (starting
now) and home sales (December). Conclusion: Mr. Market continues to frustrate
the bears and those waiting for a pullback to “get in”. Bull moves
like this can end with a hyperbolic move upward before pulling back and we
don’t want to miss it so we’ll stay on board. To protect gains
should this scenario play out, a minor modification starting next week will
be to move up stops on large gains as they will dissipate quickly after the
upward move reverses.
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