Friday, August 14, 2009

Market Tumbles On Weak Consumer Sentiment

Sorry for no posts yesterday. Between conference calls and external meetings, the day simply got away from me. The market powered higher yesterday, but volume was the lowest I can remember for a non-holiday session. That means there was very little conviction behind the buying.

This morning, we received some mixed economic data, but it seems investors keyed off the weak consumer sentiment figures and sold stocks. The University of Michigan consumer sentiment survey came in at 63.2, well below expectations for 69.0. I'm not sure what is skewing this number so negatively, but something is.

That datapoint overshadowed a positive industrial production number (+0.5%), and a CPI report that showed consumer prices were flat vs. last month, and total CPI fell -2.1% year/year.

The dollar is higher today, which is weighing on commodities. Oil is trading below $70, while gold is trading near the $950 level. The materials sector (-3.17%) is down the most so far today, while consumer staples (-0.86%) are down the least. Semis and homebuilders are also getting hit pretty hard.

Asian markets finished mostly higher overnight. Hong Kong reported its Q2 GDP rose +3.3%, as it pulls out of recession. In China, the Shanghai index closed lower, falling to a 6-week low.

The 10-year yield is lower, nearing 3.50%. And the VIX is higher today, up +4.3% to 25.77.

Trading comment: The market looks like its 4-week winning streak will end this week. This is something that I predicted on Monday, as it is very hard to continue the momentum we have had. If the S&P finished here (997), it would be -1.3% lower for the week.

Sentiment has become a little too bullish of late, which increases the odds for a bit more of a pullback. I recognize that each pullback so far this year has been relatively shallow, and the market has stairstepped higher each time. I will be monitoring the sentiment indicators to see if folks again rush into the bearish camp, which would support the case for another shallow pullback.

Trading-wise, I am starting to add to our short Treasury (TBT) position in our accounts. And I am also playing a potential intraday bounce via GS and SSO. But I will likely be out of those either way by the close.

long GS, SSO, TBT


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