The economic data during this short week doesn’t look good. The reports coming during the week will show multi-year lows and recession-invoking news. The market bears will be stomping happily in their caves. But everything isn’t lost. Company news runs the gamut from exciting to disappointing, but most of the company news is fairly good, particularly in this challenging economic environment. So the market bulls can also run with joy. On balance, though, the bears are winning this battle over market control. And this week will give them a stronger tug that could yank the bulls flat into the mud. Let’s see how the bulls are faring in the global markets.
The Asian markets were very bullish on Tuesday, May 27, 2008. The big winner in the region was the Nikkei, which gained nearly 1.5 percent. The Hang Seng made a good showing, gaining 0.67 percent though most traders know that this is a very small move for this white-hot index. Bargain-hunting is cited as the reason for these big gains. Yet many of the indexes in Asia made bearish moves. India’s BSE index was the biggest loser in the region, falling 1.8 percent.
In Europe, the indexes had a very mixed trading day. The European Big Four group was split with half the indexes closing up while half closed downwards. Among the winners were Switzerland’s SMI, which gained more than a percentage point, and Germany’s DAX, which closed up 0.56 percent. Germany was a big surprise as the country’s consumer confidence survey that was very low for the continent’s biggest economy. Among the losers were London’s FTSE, which fell more than a percentage point, and France’s CAC 40, which fell 0.33 percent. This mixed performance in Europe is puzzling, but probably due to the drop in the price of oil, a slightly stronger US Dollar, and bearish economic data.
Back in the US, the economic data is dominating the market scene. This is true for the next two weeks. But this week, the Durable Goods Orders, consumer surveys, and housing data are likely to move the markets. The Dow ($INDU) had a very slow opening of the week since all the markets were closed for the Memorial Day holiday. This has taken some momentum out of the market, which is trading flat in the early afternoon hours. Yet the Dow opened with double-digit gains, but could not hold on to those meager gains through the morning hours. There is not much company news so the economic reports will dominate the market. The bears should be pleased with this news. The bulls could start to cry. Let’s see who will prevail.
Economic Reports
This article began with discussing how the economic reports will move the market this week and that this data is likely to weigh heavily on the US indexes. These heavy-hitting reports are highly anticipated by the markets and so are likely to have a strong impact. With the Dow struggling to stay afloat, this week’s data could be the feather that pushes down the index.
One of the biggest reports of the month is the Durable Goods Orders report. It is an advance report in that it provides a glimpse into the level of production that is anticipated in the future. That is because this report measures the number of “orders” for durable goods, which are high-priced products that have a life of more than three years. These products tend to cost more money and, therefore, can drive the economy. If the number of orders is high, there is a good chance that the economy is growing. Conversely, a low number of durable goods orders signals that the economy is slowing down. The bond market loves a low durable goods orders figure, which is bullish for the value of fixed income securities. The US dollar and stock market prefer a high durable goods orders figure. A high figure will attract foreign investors who will purchase dollars, which strengthens the Greenback. A high figure will also lead to higher production and higher corporate profits, which will be reflected in a higher stock price. The Durable Goods Orders figure is expected to fall—quite dramatically—from losing 0.3 percent in April to losing 2.8 percent in May. The report will be released on Wednesday, May 28th at 8:30am.
The next big reports will be consumer reports at the end of the week. The Consumer Sentiment report and the Consumer Spending report measure how consumers feel about jobs, the economy, and shopping. While these “feelings” might not seem important to the impersonal market, it is very important to the economic climate of the country. If the climate is low, then domestic consumers will not spend their hard-earned money and foreigners will not invest into the weak economy. Both consumer surveys are forecast to show declining trust in the economy. The stock market and US dollar could have a bearish reaction to this declining figure. The bond market could soar. The reports will be released on Friday, May 30th.
Well, those are the big reports coming this week. Of course, new home sales will be released. I don’t think that anyone will be surprised that new home sales have declined from April. This could hurt the stock market, but anything could happen. The market holds many surprises!
In closing, the economic data is strong and bearish this week. The market has sometimes proven resilient against this attack. But it is likely to succumb to this next bombardment, particularly in anticipation of the manufacturing and jobs data looming in the near future. As the Dow enters in the final two hours of trading, the index is slightly stronger. It has picked up a bit of momentum to trade at around 30 points higher. Still, I think that this hard-earned small gain will probably fail to hold. Yet I remain a market bull so I proclaim loudly that the Dow will prevail!
Market Moves Wisdom of the Week
Keep hope alive! Traders are an optimistic people. Yes, even the contrarians are optimistic. Traders know that their chosen lifestyle is enigmatic to most people, including their spouses, and that the cards are stacked against them. Yet traders continue to trade through losses, downturns, and struggles. They keep the vision of profits, winning trades, and financial independence. So the Market Moves Wisdom of the Week is to keep hope alive and well. Keep trading for profit. Keep trading for fun. Keep losses and stress to a minimum. And, most of all, keep healthy, happy, and profitable!
Robin Lofton
Staff Writer and Trading Strategist
Profit Strategies.com
