7.31.09

7.31.09

We remain on the CASH signal for the stock market. From a technical view the major indices are very overbought, both short-term above 21-day moving averages, and intermediate-term above 20-week moving averages. The Dow, S&P 500 and Nasdaq are up against potential resistance at a trendline drawn through their previous rally peaks. The technical indicators, short-term and intermediate-term, are high in their overbought zones where we look for downside reversals.

On the fundamentals, negative economic numbers are coming back. This week it’s been that consumer confidence has fallen again this month, certainly not an indication that consumers are about to spend us out of the recession any time soon, as Wall Street seems to expect.

This week it was reported that Durable Goods Orders, that is, orders for big-ticket items, fell an unexpected 2.5% in June.

And the price of commodities plunged, led by a 5% decline in the price of oil, on signs that demand for commodities may be drying up. If demand for commodities is drying up, that is also not an indication that global economies are bottoming.

More earnings reports with declines, but seen as positives because they beat Wall Street’s estimates.

Aflac earnings down 35%. Hartford Financial earnings down 14%. Avery Dennison’s down 50%. Exxon Mobil’s down 66%. Goodyear a $221 million loss. Rockwell Collins earnings down 17%. Cummins down 81%. Parker Hannifin’s down 80%. And on and on.But the market doesn’t care. It’s all about speculation, hype, and hope.

Mohamed El-Erian, president of Pimco, who is now saying about the same thing, that the rally has gone too far too fast, and seems based on foolish hope that the economy is about to return to the type of strength it had prior to the serious recession, when in reality it has further to go on the downside and will be scraping along bottom for quite some time before returning to anemic growth of about 2% a year.