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Still growing, but risk of slowdown increase

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Stocks have recovered from their session lows after this morning's economic data had the index of leading economic indicators falling -0.2% in August, the third such decline for this forward looking report. Economists had forecasted a decline of -0.1%. The Conference Board said the economy is still growing, but the starting to weaken leading economic indicators index heightens the risk of an economic slowdown.

Seven of the 10 leading indicators fell in August, but only one indicator - money supply - made a significant positive contribution. The coincidence index rose 0.1%, with three of the four indicators advancing. Only industrial production fell.

Meanwhile, the lagging index fell -0.1%, which five of the seven indicators rising.

Ken Goldstein, an economist at the Conference Board said, "The coincidence index shows an economic recovery, but there is a danger that even this weak recovery could stall, especially if the consumer market starts to slow."

In the past six months, the leading index has dropped -0.1%, with just four of the 10 indicators advancing. Typically, economists look for an annualized drop of -3.5% in the leading index to signal a turning point lower in the economy.

Both the NASDAQ Composite (COMPX) 1,191 -2.4% and NASDAQ-100 Index (NDX.X) 861 -2.29% broke their previous 52-week lows from late July and August respectively. Currently, the NASDAQ-100 Index (NDX.X) has moved off its morning lows of 843, and bears are looking for intra-day resistance right near current levels.

Index traders in both the S&P 500 Index (SPX.X) 831 -1.67% and S&P 100 Index (OEX.X) 416 -1.86% have seen initial bearish targets reached this morning (835 and 419). Those that perhaps pulled their target stops would most likely follow with a trailing stop just above today's openings (846 and 425).

Volume at both the NYSE and NASDAQ has reached just over 800 million shares, with NASDAQ a little heavier at 886 million.

Breadth is decidedly negative at the big board with decliners outnumbering advancers by a 3 to 1 margin, with NASDAQ breadth slightly more than 3 to 1.

Deterioration in the new highs versus new lows continues to weaken on a daily basis at both the NYSE and NASDAQ. The big board has 36 stocks hitting new 52-week highs versus a much larger 255 stocks hitting new lows, while NASDAQ has just 12 stocks trading new 52-week highs today, versus 266 stocks at new lows.

The sectors we follow on a daily basis are all red, with the exception of the Oil Service Index (OSX.X) 74.59 +1.31%, perhaps finding some bidders as the December crude futures (cl02z) $30.60 +3.09% spike back above the $30/bbl level, after Iraq announced over the weekend that it would reject any new U.N. resolution on weapons inspections along potential damage to oil/natural gas platforms having some risk in the Gulf of Mexico due to Tropical Storm Isidor. October Natural Gas futures (ng02v) $3.95 +5.10% are finding buyers on the Tropical Storm Isidore news. A break above the $4.00 level in this contract would be a level not seen since June 2001.

Jeff Bailey
Senior Market Technician
Option Investor

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