Markets Still Looking for a Catalyst to Direction

Sandy, Jobs Report and the election – which will have a greater impact on the markets going forward? Hurricane Sandy will cause the first disturbance on Monday as it makes landfall in the Northeast. Being a native Floridian the anxiety of the storm and clean up that follows are never simple. All exchanges have announced closing of operations as they prepare to deal with the storm. This will disrupt the markets somewhat depending on the global news. This event promises to make Tuesday interesting. The jobs report is another issue all together, it will be the last piece of meaningful economic news prior to the election on November 6th. Estimates are again 120,000 new jobs. Still weak relative to the jobs needed to grow the economy. All said, if itn’t likely to change the outcome of the election either, but it will add some new fodder for the campaigns final days. This promises to be a busy and interesting week for investors.

I would like to revisit the Friday GDP number. First let’s break it down… inventories were lower, non-residential real estate investments were down (actually negative in the report), computer software and hardware were flat, exports were negative and imports were negative… but, government spending was up 9.6%? Coincidentally that is the largest gain in spending in three years! And to think this was all just prior to the election, and resulted in the GDP number jumping to a 2% growth for Q3? Really? If you factor in the spending number it added just over 0.7 percent to the overall number, take it out and we are back at the 1.3 percent GDP growth for Q2 which is more believable based on all the other reports for the quarter. The other big point of note was that business spending turned negative… no investment in equipment, no growth and thus no jobs. Not the best picture we could have for a struggling economy.

My primary outlook for the week is in relationship to the intraday reversal on Friday. Do we get a bounce off the lows? The NASDAQ 100 index tested the 2640 level and close above the 200 day moving average at 2665 on solid volume. The index set up a possible bounce off support back near the 2715 mark short term. If the momentum really picks up maybe a test of 2800 could be possible. Either way, the outcome of the move on Friday is one key to the early start of the trading week. For those who like short term trading opportunities the trade was set up on Friday and Monday (now Tuesday) will either provide the follow through higher or fail. Watch for the NASDAQ index to provide some clues either direction. The closing of the markets on Monday could impact this follow through as well.

The catalyst to the NASDAQ would have to be technology stocks. The Dow Jones US Technology index tested support at 722 on Friday and bounced similar to the NASDAQ 100 index. A move back above 732 could provide some upside for the sector with a potential move to the 772 mark. This is one sector to watch on the upside should we get the follow through on the upside from the bounce Friday afternoon.

What about all the talk of the more selling? Since hitting an intraday high of 3196 on September 21st the NASDAQ has dropped 209 points or 6.5 percent. This falls into the category of pullback more than a correction. Based on the analyst comments and projections the index was supposed to sell back near the 2730 level. The initial move lower has been based on speculation of slower economic growth and earnings eroding. Thus, far the economic and earnings data have shown a slowdown and inturn a test lower in stocks. The data has not been bad enough to justify more selling near term. Thus, the bounce off support at this point is being predicted, but the longer term outlook is still a big question mark, and in time  we may very well see a test of the 2730 level on the NASDAQ. Markets don’t move in a straight line and there will be plenty of additional data points to validate the bounce off support or renew the downside move based on further weakness in the economy and earnings. Patience is the key to successful investing over time.