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S&P Watch: 990-1010 Range May Be Nothing More Than Noise


Use the area above 990 as the stop for short positions initiated on a break of 990.


Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial). It's being shared here for the benefit of the Minyanville community.

The market ignored yesterday's quadruple whammy of terribly disappointing retail sales. A very disappointing Wal-Mart (WMT) report, very disappointing foreclosure data, and disappointing initial jobless claims. This is recovery-killing stuff.

But the bad news on the consumer front keeps piling up. Today's University of Michigan Consumer Sentiment Survey registered a shockingly disappointing 63.2 reading versus the 69.0 consensus. That is the lowest level since March.

Breaking down the survey further, one sees that the current conditions index dropped from 70.5 to 64.0. The expectations index fell from 63.2 to 62.1. Also note the overall decline relative to the July reading of 66, despite a rising stock market which is usually a coincident indicator of consumer sentiment.

This is pretty strong stuff that needs to be paid attention to. Could the Michigan Survey be reflecting what I've been predicting for the past few weeks? I suggest folks might want to read my most recent articles (Solving the Consumer Demand Dilemma and Retail Sales a Warning Shot Across Economy's Bow) on why I'm predicting that consumer demand is likely to disappoint in 3Q and 4Q 2009. Although I would caution that with respect to the Michigan survey, due to the small sample size, the margin of error could be large.

But the bad news to digest today on the consumer spending front doesn't end there. The numbers for just about every retailer that reported late yesterday and today have been horrendous. Check out the reports for JC Penny (JCP), Abercrombie and Fitch (ANF), Blockbuster (BBI), and Ticketmaster (TKTM), for example. Pretty disastrous stuff.

On the positive side, I will note the surprise in the industrial production number today. The number was mainly driven by gains in the auto sector. While this data point is significant, for reasons I lay out in Solving the Consumer Demand Dilemma, I believe that data at the consumer level are far more important to monitor than production data at this point.

What am I doing? For now, I'm doing nothing. Anything between 1010 and 990 looks like it should probably be treated as random "noise" at this point.

And by the way, I did nothing with yesterday's close marginally above 1010. It was not a decisive break and I wanted to see it at least hold at the open today. In any event, for future reference, I will use the area below that 1,010 level as a stop for any net long position I initiate above 1,010. And I will use the area above 990 as the stop for short positions initiated on a break of 990.
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