Macro Outlook

Some things to ponder as the Dow sits just below a new all time high for the third day in a row:

The Commerce Department has just reported that consumer spending - that mighty engine of American wealth - fell by 0.1% in August, the first such decline since September 2005. They had Katrina to worry about back then. So what's our excuse now?

Perhaps it's the fact that incomes rose by a paltry 0.3% in August, the weakest showing in nine months. Or that supposedly dead core inflation was up 2.5% compared to August 2005, the biggest year-over-year increase in more than a decade.

Or maybe it's all that interest building up on folks' credit cards: the American Bankers Association, notes that the percentage of credit card payments 30 or more days past due increased to 4.41 percent in the April-to-June quarter, up slightly from 4.40 percent during the January-March period.

The last time stock prices were this high we had the excuse that the Internet had changed everything. And we still couldn't move any higher. Again I ask: So what's our excuse now?

Market Trends

Here's the rundown of this week's put/call ratios on the DJX:

On Monday, the ratio was 2.28. On Tuesday and Wednesday, it dropped drastically, coming in at 0.99 and 0.47, respectively. Yesterday, fear took over again and the put/call ratio went up to 2.75.

Meanwhile, according to my quantitative “Market Sentiment Advisor” research, 12 out of the 30 Dow component companies have a put/call ratio above 1, or very close to it.

Although we haven't fallen in value this week on the major market averages (in fact, the exact opposite!), I think this unexpected buying and push toward historic highs will make the sell off even worse next week.

Material Profits

A subject line from MarketWatch.com email made little sense to me this morning…

“Crude falls on talk of Nigerian production cut.”

Now, that's a bit backward, isn't it? A cut in production would normally mean a rise in prices. So I clicked on the link to find out what they were talking about.

The next headline I read is, “Crude falls as Nigeria denies it's cutting production.”

Now that's a totally different meaning from the email message. It just goes to show you that you can't trust the news at face value.

Trading Tactics

As the Dow climbs towards its all-time peak, everyone is wondering when the indices will roll over and trade to the downside. In my view, if we don't see it starting today, then it's wise to look to early next week for the start of the sell-off.

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