September Rally or Crash?

Our inverse positions slid backwards on Friday with the strong pre-weekend rally and we currently have the following unrealized gains/losses in our positions:

Standard Portfolio:

Position #1: +0.6%

Position #2: + 1.3%

Position #3: +0.7%

Ultra Portfolio:

Position #1: +4.4%

Position #2: +2.4%

Position #3: -2.0%

We expect choppy action and so remain in the "Yellow Flag" mode as the bulls and the bears struggle for control of the direction of the markets going into autumn.

The markets remain overextended and treacherous and next week will mark the beginning of the autumn season with all market participants back from vacation and so volumes should increase.

Depending upon whom you read, you can get equally strong opinions about whether September will bring a rally or a crash.

Strong arguments can be made for either side based upon fundamentals and we'll review some of those in a moment. On the technical side, the view is mixed, as well, as the markets remain overbought and MACD in the major indexes are on "sells" while many point and figure charts remain on "buys" but with short term negative momentum. Overall, the market remains very overbought but the VIX declined this week which could indicate higher prices ahead.

The View from 35,000 Feet

The big news this week was the jobs report on Friday with unemployment rising to 9.7%, the highest in 26 years and the 20th straight monthly decline.

65% of employers are still shedding workers and there are now fewer jobs in this country than there were ten years ago although we have added more than 30 million people to our population in that time.

The July unemployment number was revised upwards and there are an additional 9 million involuntary part timers. These numbers show improvement over the bottom of this recession but are still worse than the lows of recent recessions.

Also on the bearish side, a summary of newsletter writers puts bullish sentiment at levels last seen just before the beginning of the bear market in October, 2007, and insider stock selling ran far ahead of insider buying in August. Both of these would be considered bearish indicators going forward.

On the bullish side, the ISM manufacturing report crossed 50 this week, indicating a return to growth and retail sales were mixed but slightly better than expected. The bullish view of the employment report is that the numbers are declining which should be the precursor to job growth ahead.

The big question remains as to whether this rally is sustainable after all the stimulus runs out in light of the fact that the economy is facing extraordinary deficits, credit is still tight and the consumer is still under extreme pressure with prime mortgage loans now being the trouble spot and the commercial real estate debacle still lying dead ahead.

The Week Ahead

Tuesday: July Consumer Credit, Fed Beige Book

Thursday: Weekly Jobless Claims

Friday: Michigan Consumer Sentiment, July Wholesale Inventories

Sector Spotlight

Leaders: Silver, Taiwan, Korea

Laggards: Agriculture, Real Estate Oil

We can talk all we want about the fundamentals of the bull or bear argument, and we can look at all the technical patterns we want, but in the end, the only truth is in the tape. Recent market action may or may not "make sense" but it is the truth and September promises to be an exciting month as market players return from vacation and we enter the historically "worst" month of the year for the stock markets.

Disclosure: None

Comments

[Roger Knights:]

'Tember!

Sep 06 08:53 AM

[Roger Knights:]

'Tember!

Sep 06 08:53 AM

[RECESSIONPROOF:]

those who know will not say, they just position their trading for profits

Sep 06 02:15 PM

[SeekingTruth:]

Job losses = Higher productivity (good).
Higher productivity = more job losses (bad).

How, as a nation, do we address this conumdum?
Especially in the face of a growing population where more jobs are needed every month just to stay even.
We had better figure this one out, and take action , or the results will be much worse than people are anticipating.

Sep 07 12:02 AM

[Dollarhane:]

Your data point this week of wholesale inventories will be key. A lot of companies are under-stocked and under-staffed. I am worried that we may see a lift in inventory levels as well as staffing and then we see a renewed drop off after initial strength in economic data. This, coupled with a stop in stimulus may bring us into 2010 with anxious thoughts.....(???)

Sep 07 09:28 AM

[The Recusant:]

This 2009 forecast: January through March was a stormy and dismal winter that broke into a growing and blossoming spring. This lead to a sunny summer. However, ahead lies a very stormy fall.

Sep 07 12:18 PM

[Hmm?!:]

Having immigrated here legally.......How about removing the 4.3% of illegal workers in America?

Takes out more than 4.3 million people who can not pay for health care, often contract, no taxes paid. Hence illegals get paid more, no health care or tax costs. Forget the ridiculous "they do jobs Americans don't want to do". They do jobs for less than Americans want to, because they can!

Blue collar America will continue to suffer with downward wage presssure and higher unemployment than white collar America until the issue is resolved.


On Sep 07 12:02 AM SeekingTruth wrote:

> Job losses = Higher productivity (good).
> Higher productivity = more job losses (bad).
>
> How, as a nation, do we address this conumdum?
> Especially in the face of a growing population where more jobs are
> needed every month just to stay even.
> We had better figure this one out, and take action , or the results
> will be much worse than people are anticipating.

Sep 07 11:50 PM

[Mad Hedge F...:]

tryu. While the month of October has the reputation as the neighborhoodslut, it is in fact September that does the real damage to yourpocketbook. Yes, that September, the one that started yesterday. Since1929, the average September has dropped by 1.3%, compared to an averagerise of all months of 0.5%. Remember, Lehman went bust in that monthlast year, and with lead market Shanghai suffering a diabolical August,you have to wonder if history will repeat itself once again.

Sep 08 10:57 AM