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It was another wild week as the bulls continued their stampede.  This market continues defying gravity and is certainly due for a breather, long overdue, in fact.

People are saying they've never seen a rally like this but while impressive, it's not unprecedented.

Looking back at the "tech wreck" of 2000-2002, the initial rally at the end of that bear market logged more than 25% on the S&P 500 in 2003 and went on to eventually gain 100% until its peak in October, 2007, a quick rise over four short years.

During that time, there were minimal corrections and none of them were more than 10%, the "official" definition of a correction.

Going farther back in time, we see that after the Great Depression, there were several explosive, double digit bear market rallies on the Dow with six greater than 10% between 1929 and 1932.

Of course the big question is, "is this a new bull market or 1930?"

I don't know but with the commercial real estate problems looming ahead and earnings improvements being driven more by cost cutting rather than top line revenue, along with a stressed out consumer, it's easy to make an argument that we're not out of the woods yet. 

But, almost all the news was good this week and I really hope it's the start of a new bull market and a real recovery rather than a revisit of the 1930s because before it was all over back then, the Dow lost 90% of its value from peak to valley.

The market remains very overbought and dangerous, in spite of all the positive cheer around right now.  There isn't much resistance between here and 1100 on the S&P and good support at 980 and then again at 950.

The View from 35,000 Feet

Unemployment improvement was the big news on Friday with job losses declining from 443,000 in June to 247,000 in July.  Weekly hours were up and the unemployment rate actually declined which launched Friday's rally.

The S&P went to a 10 month high, which by the way, is equal to where it was in 1998, and so a buy and hold investor hasn't moved an inch in eleven years.

Earnings reports continued to be "better than expected," and are down -28% year over year compared to the forecast -35% and more than 70% of companies have beaten estimates.

Friday saw yearly bank closures spike to 72 with two more going under and many analysts are now saying the recession ended in July. 

The only piece of glum news was a drop in consumer spending, -4.7% year over year, the biggest drop since records on that subject were started in 1960.  And this could be ominous since consumer spending makes up 70% of GDP.

But existing home sales were up and insurance giant AIG reported its first profit in 7 quarters.

The Week Ahead
  
Tuesday: June Wholesale Inventories 
 
Wednesday: Federal Reserve meeting/interest rates
 
Thursday: Initial Jobless Claims, July Retail Sales

Friday: July Consumer Price Index, July Industrial Production, August Michigan Consumer Sentiment
 
Sector Spotlight
 
Leaders: Home Builders, Financials, Real Estate

Laggards: Bonds, Singapore, Inverse Indexes.

August is going by way too fast.  I hope you're enjoying a peaceful summer in spite of all the uncertainty that surrounds us.

Sincerely,                               To get a Complimentary Special Report from Wall Street Sector Selector, click here:

John

John Nyaradi

Publisher

Wall Street Sector Selector

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