Market Wrap – I.O.U. a lot of Money!
By Robert Perrego, at 4:30 pm on July 2nd, 2009The steep drop off the open in the market reflected some lousy job numbers with unemployment rising to 9.5%, a 26 year high. After the first hour of trading the market trended sideways in a tight range which was more indicative of ‘who cares’ than trading shares. Trading was actually extended 15 minutes (till 4:15) today due to ’system irregularities’. What that means I have no idea, but being a bit of a conspiracy theorist I am thinking some big-shot needed a little more time to sell a lot more shares. You can listen to the explanations on TV but I saw the market action leading up to and into those 15 minutes – DOWN.
If the market didn’t give you an I.O.U. for the amount your portfolio valuation most likely dropped this morning, California might. Today the bear on the California flag ate its way through to their budget and the state, now cash broke, started sending out I.O.U.s to pay their bills. As California struggles to come up with a plan to pay their debt and fund state operations, they are basically sending out state ‘notes’ with a promise for future payments. If this sounds familiar this is pretty much exactly what borrowing or bonds are. These I.O.U.s have to paid sooner or later, and with the short term interest rates pretty close to zero I guess these I.O.Fools are paying the market interest rate as well. Many banks are honoring the I.O.U.s and cashing them but the rates they pay is not known as of yet. The state deep in debt is now using a whole new class of debt – what a surprise. One interesting result of these I.O.Us is that using them effectively increases the money supply. Does the term ‘cut spending’ mean anything on the Left Coast? Hey, for that matter does ‘cut spending’ mean anything in Washington, D.C.? Is this California Calamity a precursor of how D.C. is running the country? Hopefully not.
Two levels to remember – 887 on the S&P 500 and 8300 on the Dow. There has been media attention given to a forming bearish Head and Shoulders reversal pattern lately. The ‘neckline’ of this pattern is at about 887 and 8300, and if the market trades below, and closes below these levels a sell signal will be triggered. This pattern is also known as a ‘measuring pattern’ as it gives a target to where the market will trade to once the neckline is broken. The targets for this situation are S&P 828 and Dow 7800. The pattern is more cleanly defined in the Dow.
The Dow traded below 8300 at about 3:30 p.m. but rallied (bounced?) off this level and then sold off into the extra 15 minutes of trading to close at down 223.32 (-2.62%, 8280.74). The S&P 500 was the biggest loser today dropping 26.91 points (-2.91%, 896.42) and the Nasdaq 100 dropped 35.06 (-2.36%, 1446.28). The Dow closed below the ‘neckline’ and the S&P 500 closed below support at 900, which could set up an attack on its neckline at 887. These technical signals say next week is going to get ugly. Besides this technical weakness the Treasury is auctioning off $65 billion in various maturities of new money to fund our lovely budget deficit. If any of these auctions goes poorly it could be more bad news for stocks.
Three of the top upside leaders on the RakedIn leaderboard today were POT, Drugs (ELN) and trucks; The Russians raised their rate on fertilizer and Potash Corporation (NYSE: POT) jumped $5.10 (5.61%, $96), Oshkosk Corp. (NYSE: OSK) followed through on yesterdays rally, adding another $1.50 (8.13%, $19.93) and Elan Corporation (NYSE: ELN) added 60 cents (8.57%, $7.60) after Johnson & Johnson (NYSE: JNJ) bought a $1 billion stake.
Sepracor Inc. (NSDQ: SEPR) had a depression drug get depressing results in a trial and the stock price was depressed by $3.22 (-17.99%, $14.67), TiVo (NSDQ: TIVO) took a legal setback via a court ruling against them and dropped $1.68 (-15.59%, $9.09) and Illumina, Inc. (NSDQ: ILMN) dropped $4.68 (-12.27%, $33.46) after lowering their Q2 revenue estimates.
Well… Happy Fourth of July! Hopefully soon you can be independent of your mortgage, credit cards, car payment, high taxes and your rising federal debt portion. Yes – I am planning on playing the Mega Millions Lottery too.
