Commodity Stocks Look Good – We Need Follow Through!

Yesterday, the market staged an unexpected reversal. Volatility in continues to dominate the market and we have been to hell and back since last Thursday. The initial jobless claims showed a loss of 6,000 jobs and that was in line with expectations. Continuing claims climbed to 3.53 million and that was a bit concerning. As people stay unemployed, the credit risk rises. Import prices fell in August and that set the table for a tame PPI today. The PPI was expected to decline by .5% and it actually dropped .9%. Unfortunately, that number was overshadowed by weak retail sales. Economists had been expecting a rise of .3% and sales dropped by .3%. This result casts serious doubt on the theory that lower gasoline prices will spark consumption this fall. Next week, the FOMC will meet. Lower inflation and global interest-rate cuts will help them maintain their current policy. Interest rates are not expected to change and some analysts believe they could fall by year-end. In any case, I don't believe the FOMC comments will have much of an affect. Earnings from Goldman Sachs and Morgan Stanley are likely to drive trading. The financials have been struggling to maintain gains over the last few weeks. Yesterday, Goldman Sachs broke below key support and traders would are choosing to error on the side of caution. This is one company that continually exceeds expectations and I believe the market could have a positive reaction. The market is right in the middle of its one-month range and I don't expect a huge option expiration bias next week. The intermediate-term trend is down and we are in a seasonally weak period. Consequently, I am trying to temper my excitement over yesterday's reversal. The fact that the market found major support well above the SPY 120 level is very encouraging. As I mentioned, commodity stocks were putting in a capitulation low. If you took my lead and got long fertilizers stocks, you made a ton of money. I still like commodity stocks and I believe they are deeply oversold. The market continues to chop around and it has been all over the board this week. Traders are expecting some news on the Lehman front and will see what happens over the weekend. I expect directionless trading. If the market stages a small late day rally, it will add credence to yesterday's reversal.

Daily Bulletin Continues...