Market Commentary - 6.08.2008

June 8, 2008

Just when you thought it was safe to get back in the market, Friday came along and dashed all hopes of a market turn around. At the beginning of last week, the S&P 500 was starting to rally back over 1400 bouncing off the 1370 short-term resistance. It looked like the Dow had built a temporary bottom at 12,350 and surged all the way to 12,600 on Thursday. Then the clouds started to roll in and the perfect storm was brewing before Friday’s open. First it was Mortgage Foreclosures, as reported mortgage delinquencies hit record highs in the first quarter as the sharp housing downturn put even more American households under financial strain. Then before the market opened on Friday the Unemployment and Non-Farm numbers came out. Unemployment was reported at 5.5%, its highest level in more than 3-1/2 years as American employers cut jobs for a fifth straight month in May.

After these two reports were out and the opening bell chimed, oil shot straight up on the dollar and market weakness. Oil hit over $139 dollars a barrel gaining more than $10 dollars a barrel on Friday. These were record breaking highs both on the overall price of oil as well as it was the largest price jump in one single day in Oil’s history.

The market spiraled completely out of control after this, the Dow dropped 394 points, its largest downward move in 22 years, settling at 12,209. The S&P dipped over 3% crashing through the 1,370 support level, support that has held since April. None of this spells anything good for the US Market Outlook, economists are already calling for Stagflation, which the country has not seen since the 70’s. But at this point nothing on the horizon is pointing to anything good. Gas just hit $4 a gallon for the first time in US history, Oil is at $140 a barrel for the first time in US history, unemployment is up, foreclosures are up, and there isn’t much of an end in sight to the credit crisis. HP is sitting with a bearish grin on our face right now. We have been calling for this for months but the market and the hopes and dreams of it’s investors didn’t want to see the writing on the wall.

Earnings

To say this is a boring week for earnings is an understatement, as no company with a market cap bigger than $5 Billion is reporting - really no names worth mentioning.

Economic Data

Everyone will be focused on inflation data and retail sales this week:

Monday – Pending Home Sales

Tuesday – Trade Balance

Wednesday – Crude Inventories, Fed Beige Book, Treasury Budget

Thursday – Weekly Unemployment Claims, Import/Export Prices, Retail Sales, Business Inventories

Friday – CPI, Michigan Consumer Sentiment

Strategy/Outlook

The near term tops that were called for last week ended a little bit sooner and more abrupt than expected. Now the rocky road leading to the slippery slope is just beginning and coming up this week, we have our eyes focused on Thursday and Friday. Thursday the retail sales numbers are coming out, Friday inflation gets reported. With everything that has happened this past week, the US Market is in dire need of something positive if not neutral at the very least. As we said earlier the S&P has broken short term support at 1,370 and is eyeing 1,320 while the Dow creeps back once again to 12,000. We are bears all the way this week, the only thing that can help are some short term technical pull backs. However there doesn’t seem to be much out there stopping this market from trying to find a bottom. Oil and Gas are continuing to surge, leaving Americans lighter in the wallets which will have a ripple effect on spending and travel during this upcoming Summer Vacation Season.