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Goldata Financial
Dedicated to above average returns in the stock market.
STOCK MARKET COMMENTARY
August 31, 2009
From Elliot
Goldberg, Registered Investment Advisor, Goldata
Financial
Last week, the market’s appetite for news to move it higher appeared to
have been satiated. While the averages were up slightly for the week, there
was a preponderance of good news, each of which initially drove prices
higher, but was met with a significant amount of selling, reversing the buy-the-dip
trend of the last few weeks. The first of these was Monday morning’s
futures which were up all pre-market reacting to positive markets in Europe.
The averages turned down at noon and finished basically flat for the day.
Tuesday brought word of Fed Chairman Bernanke’s nomination for a second
term, a surprise in its timing, which along with higher consumer confidence
numbers, rallied the markets temporarily, but gains were muted by the close.
Wednesday’s durable goods report was positive but was not the catalyst
for a rally that we have become accustomed to seeing. Thursday’s
unemployment report showed no improvement and a resultant squall took the
averages down over a percent, with the market finally exhibiting some strength
by rallying at the close. With this strength, one could have dismissed market
action earlier in the week as the outlier, but Friday’s action
dispelled this thought. In the pre-market, Intel (INTC) announced that they
were boosting revenue and earnings estimates for Q3, jolting the futures
higher, which was to be expected. As the opening bell approached, the futures
started giving up these gains and by mid-morning, they were gone. One other
disturbing trend was the increased amount of speculation entering the market.
This was exhibited in the form of volume and price action in three stocks
which are, in essence, wards of the state (and probably worthless) --- Freddie
Mac (FRE), Fannie Mae (FNM) and American International Group (AIG). The
combined volume of these three contributed about 20% of the total volume this
week with increases in price ranging from 30-50%. Last week’s missive
discussed the possibility of hyperbolic action to mark an end to this move
and this type of action qualifies as a start. Therefore, additional defensive
measures were taken in managed accounts starting Friday afternoon in the form
of stops raised on any position with significant gains. In the
“unintended consequences” column this week was a report that the
percentage of participants in the “cash for clunkers” program
having buyer’s remorse was more than twice as much as under normal
purchasing conditions. It seems that the good news is that they now have a
new car. The bad news is that most now have a new $350 monthly car payment
and higher insurance premiums (for collision). This can only reduce consumer
spending in non-auto areas going forward as wages are, at best, stagnant. Conclusion:
While picking a top (or bottom)
is a fool’s game, risk/reward points to the increased probability of
the elusive pullback investors have been looking for. If the rally continues, we will
continue to participate. Stops will continue to be moved up intra-day in an attempt
to protect the downside from the pullback, should it appear.
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