Overview and Observation;
"Grasping at straws." Investors spent market session hours searching frantically for a reason to buy or sell equities, Treasury bonds, currencies and other dollar and interest rate based criteria on which to develop a trade. Technicians got "whipsawed" as they had to quickly maneuver to expand their projected "range" and determine where their "stops" should be. The "program" of "buy high, sell low, or sell low then buy back high" apparently did not work well for account valuations. Without definitive direction by the U.S. Federal Reserve, frequent "comments" by some of the Fed area Presidents move markets and until which time as Fed Chairman Bernanke makes that "definitive" statement on his economic projection and subsequent rate decision we will continue to experience wide price swings. Now for some actual information to help my readers "navigate" through the "jungle" of news and reports…
September 30-Year Treasury bonds closed at 140 07/32nds up 16/32nds on Friday as the money made the "trip" from equities back to the "safe haven" of Treasuries. The University of Michigan/Thomson Reuters index showed a decline to 82.7 from the May 84.5. Once again analyst expectations were incorrect as they projected a reading of 84.7. That, as well as the flat May U.S. industrial production lent concern about the so called "economic recovery" and prompted the selloff in equities and the rally in Treasuries with the corresponding decline in yields. The U.S. Federal Open market Committee scheduled for June 18 and 19 should emphasize a "calming effect" but with the expected reduction in the bond buying program could produce additional market activity. Fed Chairman Bernanke is expected to indicate that any reduction in bond buying would not necessarily mean the Fed is ending the quantitative easing program. We expect the weak U.S. economy to impact yields and produce further price gains in bonds. Hold those calls we recommended recently and add on any further price decline.
The Dow Jones industrial average closed at 14,070.18, down 105.90 down 0.7% and for the week lost 1.16% even against the triple digit gain on Thursday. The S&P 500 closed at 1,626.73, down 9.63 or 0.59% and for the week lost 1.01%. The tech heavy Nasdaq closed at 3,423.56, down 21.81 and for the week lost 1.32%. The Thursday rally was prompted by the better than expected first time unemployment number but at over 330,000 still remains a problem. Once again the concept of a "jobless recovery" is a fallacy in my opinion since an unemployed "consumer does not consume." The producers of those "unconsumed products" will be next to lay off workers. As I have been stating for some time, any reduction in the first time unemployment number is not a sign of recovery, but merely an indication that companies have no more employees to lay off without "shutting their doors." I would not take solace in any reduction in the weekly number on that basis. I reiterate, implement hedging strategies for holders of large equity positions. The use of futures and options can provide some protection against what I see as a 2008 type decline. Don’t get "caught again."