The Dow has made a few bullish runs in the past trading week. These moves—both up and down—have allowed the index to cross over the 13K line. Even as the trading day opened on Tuesday, May 20th, the Dow remains in 13K territory. But how long can it remain in that position? There are so many pressures that are threatening to stomp the index back across the 12K line, perhaps back into 11K territory. The economic data is not a strong ally to the index. The deals have provided support, but their appearances are few and far between in these economic slowdown days. Still, one cannot ignore that the Dow bulls are an optimistic breed. They have shown remarkable resilience against the Dow bears, the Dollar bears, and even the economic recessionists. But miracles do happen. And the Dow has made many star-quality appearances in recent times. However, a high level of uncertainty prevails across the globe. This uncertainty is also shown by other markets that had a very bearish day. Let’s take a quick look at the global markets before returning to discuss the uncertain Dow.
The Asian markets had a very bearish day on Tuesday, May 20, 2008. The Hang Seng was the big loser in the region, trading down 2.2 percent. Other indexes like the Shanghai index and Nikkei each experienced a slightly bearish day. Yet India’s BSE index was one of the few winners on the continent with a 0.77 percent gain. High oil prices and economic worries sapped the strength from most of the Asian indexes.
The European continent also experienced a very bearish day. The European Big Four group closed with big losses though trading was mixed throughout the trading day. The big loser in Europe was London’s FTSE index, which fell 2.9 percent. The SMI, CAC, and DAX each showed moderate losses of more than a percentage point. After four consecutive days of gains, the European indexes were set for an “adjustment” that left them bitten by the bears. The mining sector showed the biggest losses. BHP Billiton (BHP) plummeted 4.1 percent followed closely by Rio Tinto (RTP), which fell 4 percent.
Back in the US, the Dow ($INDU) traded down nearly 200 points. Inflation worries and soaring oil prices are considered the culprits of the Dow’s fall on Tuesday, May 20, 2008. The market was hit by a major economic report on this trading day, which fueled the market’s economic and trading worries. Let’s take a look at this report and major report expected at the end of the week. Housing is in the future.
Economic Reports
The market is not expecting a lot of major market-moving reports this week. Yet a few reports are quite important. Two of this week’s reports have the power to move the markets in the US as well as Asian and Europe. The Producer Price Index (PPI) measures the change in prices that businesses pay. This is called business inflation. Who cares? Every conscientious and profitable trader cares about the Producer Price Index because it basically determines the rate of inflation that consumers will ultimately pay. Does that get your attention? It should because the markets around the world watch this market-moving report closely. The stock and bond markets tend to agree that a low business inflation figure is good for the economy. The US Dollar also agrees with this assessment. The PPI was released on Tuesday, May 20th. It showed a higher core producer costs in April.
The next big report is coming at the end of the week. The Existing Home Sales report is one of the major measures of the housing market. In fact, existing home sales account for nearly 80 percent of sales in the housing market. Hence, it is considered a good measure of performance and health in the housing sector. Existing home sales are expected to decline in April. This could indicate an economy that is slowing down. The stock market would not be happy with this report. The bond market should have a bullish reaction to this decline. The US Dollar could decline on this disappointing report. The Existing Home Sales report will be released on Friday, May 16, 2008 at 10:00am.
Next week, we have many market-moving reports. The New Home Sales report will be released, which measures the number of newly-built homes that have been sold during the month. While new home sales are not as popular as existing homes, the new home sales data shows economic strength in other areas such as construction and permits. Another report coming next week is the Consumer Confidence report, which measures how consumers feel about the economy, spending, and their jobs. While this touchy-feely data is somewhat soft, it can affect how foreigners view the economic climate and future of the US economy. So, this report is important and market-moving. Another big report coming during the following week is the Durable Goods Orders report, which measures the number of orders on big-ticket items sold in the US. This advance report provides a sneak peek into the US economy for the following month. Last, but definitely not least, we have GDP report coming next week. This is the big kahuna of economic reports. The original report is quite market-moving and its revisions can also shake up the market.
Look for big moves and economic reports coming next week. The data takes center stage this week and for the next week so watch out for the data.
Market Moves Wisdom of the Week
Fight uncertainty! With all the technical indicators and economic data released every week, it is easy for a trader to get confused and feel uncertain about his or her trades. There is so much news that it is impossible to act on all of it. Yet it is important to know the news events affecting the market, understand the economic data, and refer to the technical data and charts in order to place sound trades. However, there is no reason for a trader to feel uncertain or lack confidence. So the Market Moves Wisdom of the Week is to use your best research to enter trades and avoid uncertainty. Lacking confidence in one’s trades will lead to losses and stress. However, fighting uncertainty in the market can put the trader on the best road to profitability!
Robin Lofton
Staff Writer and Trading Strategist
Profit Strategies.com
