Coffin - 1; Nail - 0
The good economic news was that GDP revision figures remained positive at +0.2%. Recall from Monday and Tuesday night's Wrap that, "In the mix will be the Q2 GDP growth on Wednesday, which if negative (meaning 0.0% growth or less) would be the first of only two nails needed in the coffin to officially label our economy "in recession". It could provide a big, negative psychological effect. . ." Whew! While meaningless in magnitude, that fractional difference plus or minus the zero line creates a huge difference in forward psychology. But in the end conditions remain the same.
The bad news for the bulls looking for a positive GDP number is that nobody cared and after knee-jerk gap open that lasted exactly 22 minutes on the SPX and Dow (only 6 minutes on the NASDAQ), markets sold off anyway. Only in the end could we tell that today's selloff was to be confined mostly to the first hour. After that, the low volume, lack-of-conviction days of summer took over in its, by now, all too familiar pattern. Big move on news. Trade flat. Low volume.
One interesting thing that kept the GDP on the positive side was the surprising (well, maybe not) boost in government spending in addition to the expected and well-known consumer spending that has so far propped up the economy. It appears that you, Uncle Sam, and I have more than offset the massive equity losses, accelerating layoffs, flagging global trade and higher energy costs. Looks great on the surface, but do not hang your bullish hat on it. Remember, these numbers are subject to revision like most other government released figures. The bigger trend in GDP is still down. Even an airplane with a dead engine can still fly inches off the runway until it finally stalls. Take a look at the following chart as shown on briefing.com:
Anybody see a trend in there? Now that we know GDP was barely positive, do we have grounds to claim today was the absolute bottom and know it is safe to buy equities again? For those thinking, "yes", go directly to Jail, do no pass Go, and do not collect $200. It is a downward trend and there is no evidence at all to say it is over.
Oh, and for those following SUNW looking for definite signs of a bottom and that SUNW has tuned a corner with signs of stabilization, look in the opposite direction. The conference call is a warning noting that orders for the preceding eight weeks are lower than projected six weeks ago, and SUNW will likely fall short of the $3.7 bln revenue it needs to break even in the Q3. As we write this, SUNW is trading down $0.63 from the close at $12.80. The rest of the hardware sector remains untouched as the market is taking SUNW's comments as a SUNW-related issue only.
AMD and WCOM also added to negative pressure during the trading day by guiding numbers lower and cutting capital spending by 10%, respectively. Is there any doubt this is not a bottom yet?
There were some sectors getting a boost - like the oil business, which saw bullish action after the API reported a more-than- expected gasoline inventory drawdown, thanks partially to a Citgo refinery fire that eliminated some production capacity. Paper stocks were up too on merger news (Mead and Westvaco), as were insurance, biotechs, and HMO's.
Sounds bearish, but profitable for those who understand the background. Now let us see how we might trade it from the objective viewpoint of charts.
Dow Industrials chart (INDU):
The Dow has finally broken support on the weekly chart. Failing 10,000, the 9,400-9,500 range in the March lows could easily be attained. Fortunately, the daily chart will at least allow for the possibility of 9800 support. Stochastics for both charts are falconing (as in rapidly diving bird) toward oversold, and the lower Bollinger bands pointing down are extending an invitation for the candles to join them at lower levels before reversing.
That said, the 60/30 charts are a different story. The Dow has given up 333 points in the last three days and is need of serious, if only temporary relief. Every passing hour gets us closer to the explosion point offering relief to stressed and oversold stochastics. It will likely make for an acceptable swing or day long/call trade for gunslingers, but will likely be short-lived given the predominant downward direction of the daily/weekly charts.
Scorekeepers note: The Dow gave up 131 points to close at 10,090 on just 966 mln NYSE shares traded. Decliners led advancers 17:14.
NASDAQ-100 chart (NDX):
Surprisingly, the NASDAQ gave up little compared to the Dow, losing only 26 points to close at 1499 on 1.4 bln shares traded. Decliners handily whooped advancers 4:3. Despite the lack of severe damage today, NDX is showing real weakness. While the weekly chart shows candle support at 1440 and again at 1350 near its March lows, there is still some downward distance to cover from the current 1499. Daily charts can offer some support at 1480, but the now diving stochastic trend suggests too much weakness to have that kind of stranglehold.
Meanwhile, while the 60/30 stochastics grovel for release from oversold region (that would make some bullish daytraders happy for the moment), the green arrows on the 30 minute chart show downward price movement as the stochastic rises in the same proportion - big negative. I know these short-term charts are due for a rally, but given the weakness, I am tempted to forego the call play and look at the strength as a better short/put entry.
S&P 500 chart (SPX):
OK, now for the real market otherwise known as the SPX. Once again daily and weekly supports are broken with stochastics and lower Bollinger bands pointing down. After three down days of falling roughly 40 points, the 60/30 charts suggest a reflexive bounce is immanent. But 1155-1160 will likely provide resistance, and nothing short of GE and MSFT announcing orders for everything are up substantially is likely to reverse that. Again, look for any short-term positive moves as an opportunity to enter short/put positions.
One other item we decided unworthy of mention yesterday, but worthy today, is the VIX, which now stands at 25.73. While it is climbing, indicating some caution is returning to the market, 28 may the point at which resistance will turn it back down and get the bulls a bit happier at that moment. For now, do not look for pessimism to wane that much.
What of tomorrow? More of the same - low volume should keep price moves, even if they are large, meaningless for the next few weeks. For the bullish day traders and swing traders, there is likely a bounce coming that will provide some limited upside, but do not think of it as the return of the good old days. Be prepared to exit with a tight stop on any reversal. Never let a profit turn into a loss as bullish hope fades following the next intraday rally. Only a return of volume gives the market bulls a chance of any staying power. Until then, make the most of the opportunities provided. Those are mostly to the downside.
See you at the bell.