thursday update

SHORT TERM: GDP report rattles market, DOW -206

Overnight the Asian markets were mostly higher, Europe opened higher but closed mixed. US index futures were relatively higher overnight, but sold off rapidly before the government released the results for Q2, ending June 30th. The results +1.9% were a bit lower than the generally accepted optimistic expectations of +2.3%. But what caught my attention was the revision downward of the already final Q4 2007 GDP from +0.6% to -0.2%. Also at 8:30 the weekly unemployment report was worse than expected +448,000 claims. At the open the market gapped down to SPX 1274, it closed at 1284 yesterday. Within the first few minutes it stabilized and then rallied above yesterdays close to 1285 by 11:00. Another pullback followed when the market failed to break through the 1287 pivot, and by 12:30 the SPX hit 1271. Again the SPX rallied, this time to 1283 by 2:30, before turning over and closing at a new low for the day. At the close the SPX/DOW were -1.55%, and the NDX/NAZ were -0.20%. Bonds gained nearly one point, Crude dropped $2.65, Gold rallied $9.75, and the Euro was higher. Support for the SPX remains at 1261 and then 1240, with resistance at 1287 and then 1316. Short term momentum was extremely overbought yesterday and has since turned lower after putting in a negative divergence on the hourly chart. The near term indicators were also overbought and edged slightly lower. Tomorrow at 8:30 the monthly non-farm payrolls report, then at 10:00 ISM manufacturing and construction spending.

Today’s failure to break through the 1287 pivot was not surprising, considering the short term negative divergences forming at todays high. This type of divergence also occurred at 1267 on July 21st, when the market quickly sold off to 1249 the next day, before rallying to 1291. Expecting the 1261 pivot to hold during this pullback, and then the market should rally to another set of higher highs. Staying with the 1287 – 1240 – 1327 scenario for Intermediate wave B. On another note.     

How can the government revise a quarterly GDP report that already had several opportunities for revision in the three months following the initial report in late January? Several major economists came out in December/January stating that the economy had turned negative. Then when the published government reports suggested they were incorrect, these economic forecasts were discounted. Now we find that they were correct afterall. Will we also find, three months from now, that Q1 2008 was also negative. Therefore qualifying the economy as being in a recession already? No wonder the FED, in January, first made a surprise rate cut, then an unprecedented 75 basis point fed funds cut on the 22nd. What did they know that we weren’t told? Fortunately, this ongoing bear market is not misleading anyone. 

MEDIUM TERM: downtrend bottomed at SPX 1200

LONG TERM: bear market

CHARTS:  http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987