Pre-Market Analysis 8/1

In the spotlight yesterday was GDP - data for Q2 was better than Q1's but it was not as good as expected. Revised data for Q4 of last year showed the economy shrank at a 0.2% annual rate. Bad news from Labor Department too - the number of newly laid-offs was 448,000 last week (the most in five years), and more job cuts are expected in the months to come.

Personal consumption expenditures is up by 1.5 % from April to June. Not entirely impressive. Since consumer spending drives about 70 % of the U.S. economy, this is a significant data. As it is now, consumer confidence levels are at record lows.

AND, Former Fed Chairman Greenspan has spoken again and remarked that there will be a 50-50 % chance that a recession is imminent.

The result of all the above is here:

Dow dropped 205.67 points.
S&P 500 dropped by 16.88 points (1.31%)
COMP dropped by 4.17 points (0.18%)
RUT dropped by 4.34 points (0.60%)

On a slightly cheery note, export growth rose 9.2% after rising 5.1 % in Q1, thanks to a weaker USD. BUT, it is expected that inflation and energy prices will slow it down.

Oil
Oil dropped by $2.69 to settle at $124.08 a barrel after it's Wednesday high. The threat of a recession (think less flying, less driving, less SUVs, etc) was alleged to be the reason causing oil traders to dump their oil contracts. Large investment funds are also reportedly liquidating their oil positions over the past months, and are in fact shorting crude contracts. Overseas, demand for oil has dropped in China due to restrictions imposed on driving and the closing down of environmentally unfriendly factories.

There's sure a whole lot of mixed signals from everywhere - inflation, no inflation...recession, no recession....not enough jobs to go around, yet people are spending (thanks to tax rebates payout)...

So what's a daytrader to do with all these info?

Beats me.

Trading is an art. And D's the right-brainer here. Not moi.

During times like this, I like to go back to my charts.

Yes, I love charts. Wonder if I mentioned that before...

But I'm not showing any charts today.

Coz all the charts shown in my pre-market analysis yesterday are still telling me that market will continue to soar until DOW and S&P hit Fib 61% level. The current rally seen on the charts are actually forming patterns of bear flags and wedges. Signaling that downtrend is likely to resume after the rally that began in mid July is over. Possibly by mid Aug.

But unlike the DOW and S & P, RUT's daily chart is showing signs of it coming down perhaps as soon as today.

So, yes, I remain bearish on ER2. Especially when today's the first trading day of Aug. Traditionally, it has been bearish.

Been digging into the genesis of the housing and credit crunch issues and I found myself time traveling to Bretton Woods time! I've digressed again.

To cut a long story short, US always has a way of creating a new problem from a previous solution, but hey, they're still thriving today - look, DOW has been on an uptrend since the beginning of the century, hasn't it? And CEOs are continuing to take home income and bonus in the tens of millions. They will find a way.

As traders, we just need to ride with the trend, follow the smart money (ie. don't buy when they are selling it to you!), keep close tabs on everything the Fed and US congress are saying and doing. And don't we forget the former FED chairman and mad Cramer.

Keep an eye on the following economic data to be released later today:
8:30am EST Nonfarm Payrolls for July consensus -75K prev -62K
8:30am EST Unemployment Rate for July consensus 5.6% prev 5.5%