Prague Twin

Wednesday, July 12, 2006

Economic Report

Breaking with tradition, I am reporting on the market tonight, but I have a good reason.

The stock market took a shart drop down in late trading today. Whereas the DJIA was -34 points at midday, by close it had lost over 121 points and closed almost at it's lowest point which is rare. I can't find a day in the last six months when the market closed so close to it's low point for the day. These losses were largely due to poor earnings forcasts for Q3 and Q4 and some disappointing earnings reports released today.

If you look at the three-month chart you can see a very strong down trend developing since the high at 11,700 two months ago. You see four relatively uniform, realitively lengthy, doward trends. These are punctuated with increasingly sharp corrections to the upside. The last two were mostly confined to a single, huge day. The last week is showing a very consistent funnel down.

Technicians tell us that the trend is usually slowly moving, while a correction when the trend overshoots itself is usually sharp.

If this applies to the current situation, you should expect a long, slow decline for U.S. equities. 11,300 looks to be the cap in the medium term. If this level cannot be broken, we should see 10,700 in about a month.

Also, the United States May 2006 trade deficit came in 1.2 billion under market expectations at $63.8 billion. One of my trusted sources had called for $64 billion, so they did well. The dollar got a little boost from that news, breaking some important resistance levels, but was unable to stage a substatial rally.

I think the poor earnings outlook will continue to weight on the market. There is a chance for the Euro to go down to $1.25 again, but I suspect it will remain range bound between $1.2650 and $1.2910 and that the Euro bulls will make a run in the morning. Currently it has consolidated right at $1.27. Most likely, we will see slow upward action for the Euro tomorrow.

3 Comments:

  • Another volatile day today. Started out really bad on the Dow. As of 11:30 Eastern the Dow's olny down 80. Oils over $76 a barrel. Earnings report expectations are bad. The talking heads on CNBC seem to think the environment is so bad right now that a rally next week is almost guaranteed since earnings report can't be nearly as bad as the current expectations for them are.

    By Blogger reality-based educator, at 5:37 PM  

  • That may be a fair point. This down trend has overshot itself a little perhaps. I'm expecting to see 10,700 in about a month. Right now we are halfway there in 2 days, so a bouce is likely.

    By Blogger Praguetwin, at 7:44 PM  

  • It's Friday, and the markets are down again so far (though off there lows.) Oil is near $78 a barrel. Retail sales were bad, consumer sentiment is down, earnings expectations are still pessimistic, the Mideast has traders on edge...

    So far no bounce. But we'll see as the day goes on.

    By Blogger reality-based educator, at 4:53 PM  

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