Market Moves: A Market Tug of War!
March 25, 2008
Many different forces are at work in the market. Fundamental and technical factors are the broad “pulls” and “tugs” that move the market. Interest rates, company news, economic reports, and mergers can make the market move up, down, and all around – sometimes in the same trading day! Traders and investors have to wonder which force will prevail in the market tug of war. Sometimes, the economic reports take control while, other times, the technical data moves the market. As you can guess, this keeps traders on alert during every trading day. This week’s market is presenting traders with an interesting tug-of-war match. Will the fundamentals rule this market? If so, how long can the economic data maintain control? And what does it all mean? Let’s begin with a look around the global markets.
The Asian indexes soared on Tuesday, March 25, 2008. The big winner in this winning region was the Hang Seng index, which gained an amazing 6.4 percent. The Nikkei also made a strong performance with a 2.1 percent gain. India’s BSE index would not be forgotten with a 2.0 percent increase. The Shanghai index, which initially fell 2 percent, ended the day in the positive. Investors in Asia are showing signs of increased risk-taking, particularly as the US Dollar falls to further lows against the yen and other Asian currencies.
The European indexes were on a roll on Tuesday, March 25, 2008. The indexes closed strongly in the positive, led by the financial and banking sectors. The European Big Four group had a strong rally, leading to multiple percentage-point gains. As usual, Switzerland’s SMI led the group with a 4.1 percent gain. The rest of the group ran a close second with the FTSE gaining 3.5 percent, the CAC gaining 3.5 percent, and the DAX gaining 3.2 percent. It was a shining day for the European and Asian indexes.
The US indexes are not faring so well. The Dow ($INDU) is struggling to remain in the positive, after a triple-digit point loss at the opening. The mixed economic data is causing havoc in the market with wary investors and timid traders. Let’s go straight to the data.
Economic Reports
Here is where the tug of war is taking place. The market is sending messages that the bulls can run with while releasing reports that the bears can hold on to. The data this week is just one example. On Monday, March 24th, the Existing Home Sales report was released. In a surprising turn of events, the figure which had been predicted to be quite low actually came out much stronger than expected. The bulls loved that! Of course, they are happy with the slightest bit of good news during this market. The existing home sales report is one of the best tests of the health of the housing market so the stock market and Dollar would have a bullish reaction to this news.
Then the bearish news was released. Consumer Confidence is low. No, it is very low. Analysts are saying that this figure is so low that it is comparable to the early 1970s! Of course, I am too young to remember those days with any degree of accuracy. But from my history classes, I remember that people were not exactly dancing in the streets during that decade. I vaguely remember waiting in long lines to buy gasoline. Analysts predicted that the consumer sentiment figure would decline slightly. However, a major fall for this figure is significant and should not be ignored. This medium market-moving report measures consumer attitudes on the economy, jobs, and spending. It is one of the most important and accurate measures of how consumers are feeling than any other report in its class. It cannot be ignored by the stock or bond markets. And, of course, the US Dollar can’t avert its eyes away from this sad news.
So, existing home sales are up, but consumer sentiment is very low. Who wins the tug of war this week? Let the market decide.
Yet we have other reports coming this week that can shed some light on who will be victorious in this market week. One of the biggest reports coming this week is the Durable Goods Orders report. Released by the Department of Commerce, the Durable Goods Orders report measures future manufacturing activity. Durable goods are high-price products with a life of more than three years. If orders are high, the economy is considered to be expanding. The January report was quite weak with orders declining by more than five percent. The February report is expected to be stronger, but the actual figure has not yet been released so we will just have to wait. But a strong figure could boost the stock market and give strength to the US Dollar. However, a weak figure would cause the value of bonds to increase. The report will be released on Wednesday, March 26th at 8:30am.
The next report that could move the market is big ways is the GDP report. While the original report is very market moving, the revision is equally powerful. The GDP report is one of the foremost reports on the health of the economy; it reports on whether the economy is growing or slowing. This is major news, particularly right now, since the market tug of war is keeping the bulls and bears off balance. The GDP revision is expected to report the same figure as the original report. This figure was 0.6 percent, which is low enough. Determining the impact of this figure is tricky since we also have to factor in the expectations for the figure. Still, I believe that the stock market would have a bullish reaction to this figure, if it does not decline any further. The bond market would have a bearish reaction, but only mildly. The US Dollar needs more of a boost to stay afloat so it might decline a bit after the release of this low figure. The GDP revision will be released on Thursday, March 27th at 8:30am.
So, the economic data is mixed and conflicting this week. I didn’t even mention the New Home Sales report, which is expected to show a slight decline. It will be released on Wednesday, March 26th at 10am. Whose side will you take? It’s not an easy decision because both sides have their strengths. Yet they also have their weaknesses. Either way, though, the market will move!
Market Moves Wisdom of the Week
Take both sides! As a trader, you don’t have to take one side over the other. Of course, you can hold your prediction about how one side will fare against the other. But a good trader does not want to be right; a good trader wants to make money! So the Market Moves Wisdom of the Week is to trade both sides. Place your primary trade, but always have a hedge trade in place. In this way, you can profit despite who wins the tug of war. And you will find profits at both ends of the rope!
Robin Lofton
Staff Writer and Trading Strategist
Profit Strategies.com
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