Tuesday, July 27, 2010

Is The Rally Over?

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December 2008..the last time we had 3-days in a row of triple digit gains in the DJIA. Today's Consumer Confidence numbers wasn't good and took some wind out of the sails from this rally. The group's index of consumer attitudes fell to 50.4 in July from an upwardly revised 54.3 in June, below the median forecast of 51 in a Reuters poll. >>READ MORE
Itz Stock Chartz, believes this move has more to go...the earnings are about half-way through now, just look at DuPonts numbers reported today?! However, the next catalyst will be this Friday's GDP report.

The Association of American Railroads has extrapolated their rail-car loadings report to forecast that if “the 88% correlation (between their numbers and the GDP) that held from Q1 2000 to Q1 2010 held for another quarter, Q2 2010 GDP would be 5.0% higher than Q2 2009 GDP, which translates to 9.3% higher than Q1 2010 GDP.” (Rail Time Indicators, July 2010, page 17). Most other opinions have reflected more modest growth, ranging from 3% to 4%, with the full year ultimately growing at about a 3% rate. In general, most economists have viewed the halving of economic growth from Q4 2009′s 5.7% to Q1 2010′s 2.7% as a return to the mean after a couple of quarters of heated recovery.

If the BEA was accurately reflecting actual consumer demand, they would report a contracting 2nd quarter.
We don’t know what the BEA will report on July 30th. Maybe stimulus spending will push the number up. Maybe factories continued to build up inventories in anticipation of a strengthening recovery — and if that happens, watch for factories to over-correct the other way during the third quarter (with numbers that will be released 4 days before the U.S. mid-term election). Or maybe the BEA will accurately reflect what has actually happened to consumer demand. In any event, it should be interesting.

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