Courtesy of Phil’s Stock World
Can the S&P make 1,000 today?
As we can see from AlphaTrends chart, that’s going to be a tough breakout and, even if we do make it, can we hold it? In yesterday’s post I said we were ready to switch off our brains and BUYBUYBUY the rally and our breakout levels did all hold yesterday but I decided, in Member Chat, that we needed to raise the bar slightly before we started shutting down our thought processes into the weekend. We simply used the 2.5% lines of Dow 9,297, S&P 1,000 (interesting!), Nas 2,017, NYSE 6,438, Rut 562 and SOX 308 in my 10:16 Alert as our official buying breakouts but those same levels gave us a great indicator to get out of our longs and press our shorts as they all failed by 11:09.
It is going to be very much up to the GDP report and we have a pretty low-bar expectation of -1.5% but that’s a heck of an improvement over last quarter’s -5.5% and this earnings season has been nothing if not a celebration of “getting worse more slowly.” As we all know, personal consumption makes up 70% of the GDP while government is about 18% and business investment just 12%. Durable goods are only 8% of the GDP while consumables (which includes clothes and, obviously, food and fuel) are 20% and 40% is “services” but 1/4 of that number is Real Estate so that’s a little confusing.
As we know, not much is actually getting better but that’s not the issue with GDP as we are measuring “growth” compared to the prior 4 quarters and our prior year was a disaster! This is like when a raging fire causes a house to collapse and you stand there looking at the wreckage and say “at least most of the fire is out now.”
The good news is the comps just keep getting easier and easier the worse things get so, at some point, you are bound to improve! As you can see from Briefing.com’s Real GDP chart on the left, there’s a pretty wide disparity between the Real and Nominal GDP and that’s because the Real GDP meansures the production of goods and services valued at constant prices. So we aren’t producing that much less, we’re just getting less for it…
We’ll get the scoop at 8:30 but our global partners weren’t waiting with the Hang Seng jumping 1.7% and the Nikkei going them a little better with a 1.9% move. Japan had some better-than-expected earnings from the banking sector but it was exporters that led the rally to give the Nikkei a new high for the year as the Yen fell to 96 against the dollar even thought they dollar fell against other currencies (so the Yen fell even harder against the Euro). That enabled Japanese investors to shrug off $67 oil as well as 6-year high unemployment of 5.4% in June, up from 5.2% in May. ”We don’t envisage an improvement in the employment situation this year and deterioration is a major downside risk for consumption,” Goldman Sachs economist Chiwoong Lee wrote in a note.
Consumption can’t be that strong in Japan as consumer prices fell at a record pace in June (and this is a country that’s had 10 years of deflation so that’s a big record!). Prices ding fresh food declined 1.7 percent from a year earlier after sliding 1.1 percent in May, the statistics bureau said today in Tokyo. The decrease, the sharpest since the survey began in 1971, matched the estimate of economists. “It’s difficult to anticipate an economic recovery robust enough to lift Japan’s consumer prices anytime soon,” said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo. “Prices may be stuck in negative territory beyond next fiscal year, and a rate increase is out of sight.”
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