The Week Ahead: The End of Summer

This week may be an excellent time to take some profits from local Arizona stocks trading near their 52-week highs, such as ON Semiconductor Corp (ONNN), or Southern Copper Corp. (PCU), or Pinnacle West Capital Corp. (PNW). The bull market that started in March, with the S&P 500 Index testing 666, is showing signs of exhaustion, closing Friday at 1028.93. After the near-death experience of global markets from last September through March, including a 2008 negative return of 37 per cent for the S&P, taking profits will not be the worst decision one could make, at this time.

There are other headwinds facing the market to consider this week, as well. A slew of economic reports will hit the market; today the Chicago PMI, on Tuesday, ISM Mfg Index, and Construction Spending. On Wednesday, ADP Employment Report and Factory Orders; Thursday, Jobless Claims, Chain Store Sales, five different Treasury Auction announcements, and on Friday, the Bureau of Labor Statistics will announce the new unemployment figures, with the consensus predicting a loss of another 200,000 jobs and the unemployment rate rising from 9.4 per cent up to 9.6 per cent.

Elliott Wave’s Robert Prechter is calling a market top forming at these levels based on the latest wave count described in his August financial newsletter. Prechter’s forecasting record for the past year is quite strong. When he is in the zone, you must give credence to his outlook.

Many investors agree that the market has gotten ahead of itself in anticipation of a strengthening economy in the fourth quarter of 2009. After all, the government has only released 20 per cent of the $780 billion dollars, authorized in the stimulus bill to kick-start spending, with 80 per cent more waiting in the wings to juice the economy.

Nevertheless, the larger question is this: Will consumers come back into stores and spend like before? Or, has one too many close calls, in the past ten years with the dot.com bust, residential real estate bust, and stock market bust, plus retirement fast approaching baby boomers, permanently changed their spending and savings habit?

The savings rate in the US has gone from a negative number to over six per cent, in the last three years. If the consumer keeps their hands in their pockets, recovery from this downturn will be longer and more painful than currently advertised by Washington DC and Wall Street.

After the last 12 months, I cannot rule out anything that may or may not development in the stock markets. We are far from having a healthy economy, banking system, or fundamentally sound, earnings environment. Still, since March, markets have turned in a history-making performance to the upside. Just like the history-making performance to the downside, in 2008.

Thank God, we have a three-day weekend to rest.

Disclosure: No positions

Comments

[Larry House:]

Hang onto your hat over the next couple of months. No matter what one expects, I am sure there will be some surprises. I have a few long equity positions that I think/hope will hold up through a storm. Time will tell.

Aug 31 05:03 PM