Thursday, December 10, 2009

The Bull is on the Last Leg and Ready to Fall

This market is still in a sideways range near a Key Fibonacci retracement from the Long term downtrend. The Dollar ( Exports ) and the carry trade will not help this market go UP any further. It will have to be another catalyst to drive this market higher.

The US Labor Department released its latest statistics on unemployment benefits today, and the data paints a picture of a still very sluggish labor market. The week ending December 5 saw 17,000 more people filing new claims for unemployment benefits, boosting the total number of claims to a seasonally adjusted 474,000. First-time claims are a measure of the number of new layoffs. Economists had been expecting the number of initial claims to drop to 450,000; today's number was thus a disappointment. Equally troublesome was the fact that the total number of people claiming benefits of any kind (for the week ending November 21) swelled by 417,000 to now in excess of 10 million.

According to the financial press, investors brushed aside this negative employment picture because of the news that rising exports had helped narrow the US trade deficit in October. According to the Commerce Department, the US trade gap shrank to $32.9 billion in October, in spite of economists having anticipated an increase. US exports were boosted by the weak US dollar, which makes American goods cheaper overseas. A smaller trade imbalance deficit is seen as a positive, as it stimulates the gross domestic product (GDP).

Interestingly, the market gained ground today in spite of a modestly stronger US dollar (the dollar index was up 0.1% for the day). In recent months, US dollar strength has often led to weakness in the equity market. Of concern for the broad market is however the weakening financial sector (financials overall lost 0.2% today). Rumors that Citigroup will have to raise a new equity stake in order to repay its TARP funds were seen as a key contributing factor. Some market analysts also cite the fact that that the US treasury Secretary is making the case for an extension of the $700 billion TARP plan (we discussed this yesterday) as a cause for concern, as it underscores that the US financial system remains frail.

Tomorrow is seen as a crucial day in terms of economic data. Retail sales, as well as consumer sentiment and business inventory data will be released and may have a market-moving impact.

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