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Market Commentary - 8.17.2008

August 17, 2008

People are longing for the days when the market was either all good or all bad. At that point at least there was some direction and you could pick your entry spots. Now, however the market is on the Yo-Yo string. It is getting to be a bit ridiculous with days of up 200, down 200 or flat. Who knows what will happen when the Market decides to “Walk the Dog” or “Go Around the World”.

It seems at this point as oil goes, so goes the market – there is seemingly little to propel the market higher except falling oil. And even that isn’t being put into perspective. Yes, Oil is down about $25 dollars a barrel from it’s all time highs, however let’s remember that Oil is still up over 50% from where it was a year ago. This has led to higher prices on consumer goods, less spending and just another contributing factor to the overall market decline. It is one of leading reason why this market is as volatile as it is.

Some analysts are noting that we have seen tremendous dollar strength over the last two weeks and attribute this to a market bottom and turn around. If you take a closer look as to why the dollar is getting stronger, it is not necessarily true. This is more a result of the European currencies including the Great British Pound and Euro getting weaker. Europe is starting to go through the same stages of recession the US has over the last year. Interest rates are being cut and their markets are slowing down with the housing and credit issues coming to the forefront. The dollar is not getting stronger so much as the other currencies are getting weaker.

We hate to continue our overall pessimistic stance on the market but we haven’t seen anything to say otherwise. Let’s get a few positive up days in a row based on good overall financial reports and not the hopes and dreams of it’s investors before we start breaking out the bubbly, celebrating that happy days are here again. The only thing we continue to stay positive on is the Tech and Health Care Sectors, which are remaining strong with the financials lagging.

We expect consumer discretionary, homebuilders, financials, airlines, etc. to start rolling over to lead the market lower. We are once again at the point where everyone is saying July was the bottom, and it’s time to start buying. Once again we believe this is a great time to start reloading on short positions with the expectation the markets will make a new low over the coming weeks and months.

The week ahead

Earnings

Another light reporting week, which will be all about the retailers – some of the majors, and a whole bunch of smaller mall-based retailers will be reporting – the market’s not expecting anything pretty, but as the effects of the rebates wear off it could get a whole lot worse:

  • Monday – BHP Billiton (BHP), Lowe’s (LOW), Perrigo (PRGO), Trina Solar (TSL)
  • Tuesday – Analog Devices (ADI), Hewlett-Packard (HPQ), Home Depot (HD), Medtronic (MDT), Myriad Genetics (MYGN), Saks (SKS), Target (TGT)
  • Wednesday – Bally Technologies (BYI), BJ’s Wholesale Club (BJ), Eaton Vance (EV), JDSU, Limited Brands (LTD), Ross Stores (ROST), Salesforce (CRM), Suntech Power (STP)
  • Thursday – Aeropostale (ARO), Barnes & Noble (BKS), Burger King (BKC), Dick’s Sporting Goods (DKS), Foot Locker (FL), Frontline (FRO), Gamestop (GME), Gap (GPS), HJ Heinz (HNZ), Hormel Foods (HRL), Intuit (INTU)
  • Friday – Ann Taylor (ANN)

Economic Data

Not much data this week, so the focus will once again be on oil prices:

  • Tuesday – Building Permits, Producer Price Inflation (PPI), Housing Starts
  • Wednesday – Crude Inventories
  • Thursday – Weekly Unemployment Claims, Leading Indicators, Philadelphia Fed Index

Strategy/Outlook

Overall we are expecting the broader markets to top out in the next few days, and oil to make a short term bottom. Once this transition is complete and the bottom is in place, the price of oil will start to climb again thus pushing the market back down. Things will hopefully calm down a bit and start to trend again. Remember even if the economy is bad, in the options market we can load up on Puts and still be making money.

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Posted by HPTG Analyst | Filed Under Free Market Commentary 

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