Pre-Market Analysis 8/5

This was how market fare yesterday (Aug 4):

Dow fell 42.17, or 0.37% , to 11,284.15.

The broader market suffered a steeper decline:

-S&P 500 fell 11.30, or 0.90% , to 1,249.01
-COMP fell 25.40, or 1.10% , to 2,285.56
-RUT fell 12.02, or 1.68% , to 704.14
-S&P financial index fell 1.3%
-DOW home construction index fell 1.7% .

Economic Data

-Consumer spending, adjusted for inflation, fell by 0.2% in June

-Personal income data showed that Americans received their smallest gain in incomes in a year.

-Factory orders rose 1.7%, beating expectation, and is the strongest monthly gain since December. But that didn't seem to move market yesterday as all were focused on the issue of inflation (reflected in consumer spending data).

Commodities

Crude oil dropped to $119 a barrel on the New York Mercantile Exchange yesterday for the first time in three months. The decline was reportedly due to tropical storm Edouard veering away from energy facilities in the Gulf of Mexico, and in part due to the anticipation that demand is likely to fall in an atmosphere where consumers are more inclined to save than spend.

Gold, generally an inflation hedge, took a beating as a result of oil's drastic decline. The December for gold dropped $9.60 to settle at $907.90 an ounce in New York.

Platinum futures tanked for a second session as a result of last week's disappointing U.S. auto sales.

Where Market is Heading Today

If history is anything to go by (refer to my previous entry to see a similar pattern in March this year), with the drop in commodities on a down day, we should see some sort of rally today.

Although August is traditionally the worst month for S &P and 2nd worst month for DOW since 1987, for reasons I have cited in my earlier posting , and, taking into account also all the above-mentioned, I am still of the view that for this week at least, we're going to see some upside... something that's similar to what happened in the 3rd week of Feb (in grey elliptical in chart below):



That said, where the market goes in today's session is going to depend a great deal on Fed's economic assessment statement later today, which will give investors a sense of what the Fed's bias is with regards to future rate moves.

What's expected is that Fed is unlikely to raise rates, keeping it at 2%, as price of commodities has eased somewhat for now.

Here's an advice I would heed: in a haphazard market like today's, any news CAN, and WILL, drastically move the market. So be prepared for whiplashes (if losing money gives you heart attacks, don't play for now), and sudden moves that you can't fathom within the trading day (but just might make sense to you the next day or in the days that follow).

On the economic calendar today are the following items:

10:00 EST ISM Services for July Consensus 48.7 Prev 48.2
14:15 EST FOMC Policy Statement