New Bad Data Overpowers Bank Earnings

bad retail sales numbersToday was a result of just exactly what I talked about in yesterday's post. Even in the midst of this great bank earnings season thus far (if you consider it great), real economic data once again overpowered and sent a message to investors. Considering that there is a lot of debate of how much we can really factor in these recent strong earning reports from financial institutions, due to recent bailouts and accounting changes, a day like today could be a wall for this recent rally we've seen.

First, as I discussed yesterday, investors did not take Goldman Sachs's new $5 billion offering with much optimism, as it closed down over 11% today. Even if they do have a strong cash position at the moment, investors do not like companies diluting their shares. However, it was not the GS offering which solely caused for the down day. Two critical economic data points were announced today, giving a lot of direction of where we are and where we're going.

The first announcement we received is the retail sales report. This is something I have been talking about time and time again. With the recent spikes in unemployment (which by the way if you are unemployed, RiseSmart.com is a great place for people looking for jobs with 6 figure salaries, they have a free trial too), coupled with the collapse of the residential market, it has brought consumers to a point where most have almost completely eliminated discretionary income spending, especially in retail stores. In addition to that, most are saving more of their income as well, if they can. However, the market expected last month's retail sales increase of a .3% gain and unfortunately the real data killed that number, reporting a very bad -1.1%.

This indeed confirms that we remain deep in a recession/depression and are not getting enough money to the consumer to begin to boost up small businesses. Much of the recent press has been monopolized by financials, however, these data points are the real indicators showing us where we have been and where we're going. With these types of numbers, I would not expect very good numbers out of retailers this earnings season. I'll be looking to short Nordstroms, Macy's, Best Buy, Pacific Sunwear, and others.

The second number to get investors attention, especially me, was the PPI number released. Now remember, this is the number I have been tracking very closely as an indicator for a deflationary downfall. With the -1.2% number released today, that makes it the fourth consecutive month (year over year) of a loss in the PPI. This month's number was far worse than last months, showing that the trend is getting worse. This report confirms, at least for now, the progression towards a deflationary down-spiral as our wholesale goods continue to diminish in price. Coming down with this number today was also Gold and Oil, as they tend to move up with inflation. I still feel that after the deflationary period, Gold will find its wings to soar when our next foe, inflation, joins the party.

I felt today's reaction did not reflect the actual meaning of the data that was released today. Sure, we closed down 137 points in the Dow, but these are bad numbers. Many are still clouded from recent earnings reports as well as analyst's early calls of an ended recession. However, tomorrow acts as a very critical turning point for this rally and could open the doors for some downward retracing.

It will be an early morning for me where I will be looking at the early morning trading trends. A strong move for FAZ in the first two hours of trading will most likely cause me to pick up a good amount of shares in the morning. If the market has another strong push down tomorrow, technicals are saying we could have a minor re-tracing of anywhere from 800-1000 points. Even with upcoming BAC and C earnings, I still think a move tomorrow could bring bears out of hibernation.

I will also be tracking the above mentioned company's earnings dates and look for shorting opportunities, in which I will go into more detail my strategy on tomorrow's podcast. For a long opportunity, I like Google. Earnings come out Thursday, and due to recent strong numbers from Amazon and other E-commerce companies, I think Google could put out some pretty solid numbers. However, that's only if I have to go long. Even with Intel's strong numbers released today, their shares are getting killed in after hours, due to their unclear expectations for the next quarter. It is very clear that investors are taking next quarter's expectations almost more seriously than the last quarter's reported data.

So tomorrow will be an early, busy day for me. Hopefully, I will begin to see more action in the trading account soon. I do not feel that we are at the doors of THE deflationary spiral which I've talked about in other posts, but at another door of opportunity. Indeed we are getting closer, and the PPI number today proves it. So with that, have a great evening and Happy Trading.

3 comments:

  1. Newbie Says:

    FF,
    Good post. I picked up another round of FAZ in the premarket after the retail sales and PPI data were released. Whether the market is up tomorrow and for the rest of the week it doesn't matter to me. I am confident that we will have a significant pullback during the next few weeks. How long it lasts depends on a lot of factors, mostly the government's insistance on intervening. They should save their energy and the taxpayers money and let the economy takes its natural course.

    I have to admit I am a little bit suprised at your cautiousness during this bear market rally. Good to hear you are looking at perhaps jumping back in tommorow. You seem to understand the market and have pretty good predictions. Your Zecco account should be screaming green now. Eager to have you back in the market.

    Cheers.

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