The Market Will Drift Lower Ahead of the Unemployment Number.

March 31, 2008
Author: Peter Stolcers, Founder of OneOption

Last week, the market closed with a whimper. The NASDAQ composite will finish 15% lower for the quarter and the S&P 500 will close 10% lower for the quarter. This is our weakest showing in 5 years. End of month fund buying is supporting prices today. Once that dries up, the market is likely to drift lower. Asian markets traded lower, led by China which was down 3% overnight. That market staged a parabolic three-year rally and now it has quietly lost 30% of its value from those highs. Japan was down another 2% last night at it has lost 35% of its value in the last year. European markets were stable and they are trading marginally higher. This morning, the Chicago PMI came in at 48.2. That was a vast improvement from the 44.5 reading in February (the weakest result in six years). A reading below 50 still reflects economic contraction. Tomorrow, we will get auto sales, construction spending and the ISM manufacturing index. Wednesday, we will get the ADP employment index and factory orders. Thursday, we will get the ISM services index and initial jobless claims. The grand-daddy of all numbers comes Friday with the release of the unemployment report. I believe the news this week will meet expectations and the gloomy outlook will weigh on the market. Treasury Secretary Paulson unveiled a 218-page plan to overhaul financial regulation. Is the most far reaching regulatory system since the market crash of 1929. This put our recent crisis into perspective. The Fed has demonstrated a willingness to do whatever it takes and that will support the market. Banking stocks report earnings in two weeks. If the write-downs start to slow, this could be the catalyst the market is looking for. Goldman, Lehman and Morgan all posted decent results. Last Thursday, the demand for the Fed’s mortgage backed loans was light. That is a good sign since financial institutions are not scrambling for liquidity. I believe in the market is in a bottoming process that could take many months to resolve. Today's chart shows how tech stocks have formed a nice base. In order for them to stage a sustained rally, they will need to move through the horizontal resistance level. I believe they represent a good value at this level and the downside is relatively contained. In short, am expecting the market to drift lower this week and I believe this move will set up buying opportunities in a week or two. For the next two months I expect the SPY to range from 125 – 140. image

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