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Well, it looks like we now know the answer to the question:
Does a bull market rally in August on light volume portend a continued bull
market in the historically worst month of the stock market year -- September.
Apparently not as this last week was a lot uglier than the modest declines in
all major U.S. stock market averages would suggest. At this point, I don’t
expect September to do anything but confirm its bearish reputation.
This Week’s Market Movers
Last week, I was right on the money with my market mover prediction as
productivity came in low and inflation a bit hot and helped caused an ugly gap
down when the market opened last Wednesday.
This week is a fairly busy one for market movers, with Monday marking the
five-year anniversary of 9/11. Expect the markets to be jittery as milestones
and holidays tend to be dates in which terrorist plots are often hatched around.
Tuesday, the trade report will once again show a trade deficit of over $60
billion -- and a continued increasing gap in the trade balance with China.
Expect this to cause pressure on the dollar -- but the recent moderation in oil
prices will help a bit down the road.
Look for further weakening of the consumer, as indicated by Thursday’s retail
sales and Friday’s consumer sentiment. We also get one of those rare events
where the consumer price index flies on Friday but the Producer Price Index
doesn’t fly until the following week. Any sign of persistent inflation will be a
market downer.
Portfolio Shorts and Longs
Last week was a classic reason why it is important to cut one’s losses early.
The best looking stock in my portfolio from both a fundamental and technical
perspective, (ABAX | Quote | Chart | News | PowerRating), went into the dumper, falling close to ten percent in
two days. ABAX’s technicals are now nothing to brag about; and I cut back my
position to a small holding and will dump that small holding if it breaches $22.
However, this is a stock I will keep on my watch list -- but won’t even think
about reloading until it settles down. I also pared back on (HTI | Quote | Chart | News | PowerRating) on a
Friday reversal and remain sitting tight but unimpressed with either (AXCA | Quote | Chart | News | PowerRating)
or (STEM | Quote | Chart | News | PowerRating) at this point. Basically, then, I’m close to flat; and I’m going
to spend the next week or so look more systematically at the top and bottom
performers in strong and weak sectors while September works through its usual
rot.
Peter Navarro is a business professor at the University of California and the author of the best-selling investment book “If It’s Raining in Brazil, Buy Starbucks” and the business shelf bestseller The Well-Timed Strategy.” His latest book is “The Coming China Wars.”
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