The morning of Monday, August 9 2010 was continuation from the late rally of the earlier Friday. These kinds of massive upward moves in late trading are crucial. At market open, the market is dominated by amateurs. At market close, the market is dominated by professionals. The reason is that nearly all amateur traders have day jobs that do not enable them continuous access to trading. Pros, on the otherhand, trade all day long. Amateurs and professionals trade against each other. That is why the open and the close tend to be at opposite ends of a daily candlestick.
At about mid-day on Monday, August 9 2010, a little sell off happened however true to the late buying pattern mentioned above, the market had a very good up move into the close.
Tuesday, August 10 2010 was unbelievably different. The market opened up having a massive gap down, with trading starting at 112.50 (SPY) as futures were dumped. Asian and European equities posted broad-based losses, with the Shanghai Composite index ending down 2.9%. The declines came after information indicated that China’s July trade surplus surged to $28.7 billion, as exports soared 38.1%. This was an instance of foreign markets pulling down our markets totally on the back of decreasing growth in China.
By mid-day, the news hit that U.S., wholesale inventories rose .1 percent in July, while sales fell .7 percent; economists questioned by Reuters had predicted a more robust build in inventories along with a sales increase. This pushed SPY down to 111.50. But even slower development in China, discouraging wholesale inventories and sales, and even the anxiety of the forthcoming Fed policy statement did not stop the final hour rally. By the close, expert bull traders sent SPY back to where it opened at 112.50
Wednesday, August 11 2010 was horrifying. The previous day’s U.S. economic data as well as information from China and Japan also highlighted the slowing down of the global recovery. Stock index futures fell to session lows after the government reported a bigger-than-anticipated trade gap of $49.9 billion in June.
The Fed published it can help assist the recovery by reinvesting maturing mortgage-backed securities in longer-term Treasury securities.
Investors commenced selling after the Fed announcement. The thing is, the Fed has been clearly proclaiming that it wished to lower the money it put into the economy as the recovery picked up pace. The Fed’s move of buying Treasury securities means that the Fed needs to act to prevent a double dip recession.
Next additional bad news hit on August 11, 2010. Personal computer purchases are falling off a cliff according to J.P.Morgan analyst Christopher Danely, which released a research report downgrading his revenue and earnings estimates for Intel, the earth’s largest chip maker. Meanwhile, Robert W. Baird & Co. analyst Tristan Gerra provided a similarly sad assessment of PC orders.
“Our checks indicate a sharp deceleration in PC order trends continuing into August, following a below-expectation July month,” Gerra published in a note to clients. “Hopes of a meaningful recovery for the September month are much less likely, in our view, ultimately causing a likely below-expectations for next quarter.”
If you happen to subscribe to my channel on You-tube or are a reader of my blog, you’re fully cognizant that tech has got to rally to lead us out of a bear market. Tech has always done this. This is known as Sector Rotation. Tech will be the sector that leads an economy out of a recession because it is tech that enables corporations to increase productivity while reducing costs. Therefore with PC orders falling off a cliff, it gives institutions an obvious indication that without the support of tech, this market just isn’t yet ready to leave this recession. Combined with the Fed’s action of buying longer-term Treasury securities, it also indicates that this economic recovery is formally deceased.
Professional traders responded appropriately by racing to the exits. By the end of the day on Wednesday, August 11 2010, SPY closed at 108: a staggering 3.8% drop in a matter of hours. The VIX which measures the amount of put buying jumped 14% and technically went into an uptrend. Certainly, Wednesday was a pivotal day for the markets.
On Thursday, August 12th, 2010, the market traded mainly flat. Good earnings from GM were crushed by unsatisfactory earnings from tech bell-weather Cisco and its lower earnings forecast in the quarter ahead. Additionally hitting the scales for the gloomy side was documented weekly jobless claims increasing 2,000 to 484,000, versus a decline expected among economists.
Friday, August 13th, 2010 totally removed Thursday’s little gains and formed a sideways Rectangle pattern.
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