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Daily Market Summary & Analysis, AUG 31, 2010

Concern about the US economy caused equities to fall across Asia in today trading session. China down -0.41%, HongKong down -0.97%, Taiwan down -1.61%, Singapore down -0.23%, Japan down -3.55%, South Korea down -1.23%, Australia down -1.1%, and India down -0.34%. Japanese stocks tanked hard as investors feared the government and Bank of Japan would be unable to stimulate the economy. July Japan industrial production data was better-than expected, +0.3% m/m. Retail sales was also greater-than-expected, +0.7% m/m. These data, however, failed to inspire any buying and the Japanese Nikke hit 16-months low today.
In the US front…
The S&P Case-Shiller report show US national home price index rose up +4.2% y/y in Q2-2010. This is better than expected of 3.9%. Analysts David Blitzer from Standard & Poors’s, however, is not too optimistic, “this is just a calm before the storm,” he commented right after the data was released. August Chicago PMI 56.7 vs 62.3 in July; the data was weaker than expectation of 57.6. There is a silver lining in AUG consumer confidence, the index rose to 53.5 versus 50.5 expected. Today the FED minutes has indicated that they would consider more stimulus if necessary.
US equities suffered a big drop of -4.81% in August, the worst in nine years since 2001. Market participants are still confused as to where this market will be heading. Brent Wilsey, president of Wilsey Asset Management, is on a buy side as he feels investors are too pessimistic. “We are in far a better shape than March 2009,” he explained. Peter Costa, president of Empire Execution and CNBC market analyst sees a highly volatile market coming forward as fund managers shuffle their portfolios in September and October. Some market participants expect a high volatility of 30-40 range for the coming months, this is much higher than August volatility of 20 range.
Bob Phillips, managing partner of Spectrum Management Group remains bullish, citing the market will rally by the end of the year. “The positive catalysts for stocks will be corporate earnings, third quarter earning season, undervalued PE for the S&P, free cash flow, and political cycle”, he explained. Don Wordell, portfolio manager at RidegeWorth mid-cap value equity fund, stated that his fund has been buying stocks with strong fundamentals in the recent pullback. He sees a long term appreciation for US equities with time-line of 12 to 24 months.
The S&P 500 had a very choppy session today; the index closed at 1049.33, up +0.04%. Technically, the 1040 remains very critical for the S&P. If that breaks, it’s very likely the index will retest the July low of 1010. We continue to be cautious. A short-term bounce is still possible with the target of 1060-1065 for the S&P. However, we strongly believe that stocks might not be bottoming until the 900s range for the S&P. Traders continue to short into resistance and take profit very quickly. It’s unlikely there is any sustainable rally until we see capitulation in prices and volume.
Best regards to all, and good luck in your trading.

Disclosure: no stocks mentioned