On Monday, August 16 2010 opened with bad news from Japan of a slowing GDP as weak growth in Japan added onto worries about the strength of the global economy.

This negative news of a slowing global economy was partly balanced out as tech stocks lead to the upside on the news that Dell is purchasing 3Par Inc. for $1.13 billion. Acquisitions are seen as a bullish indicator for a sector for two reasons: first, the company doing the buying means they have cash on hand or a credit line available that permits them to make the acquisition– second, the company being purchased by a larger company usually sees its stock spike as the purchase price of shares in the acquired company are made known. In this instance, Dell agreed to pay $18 per share for 3Par and the stock instantly adjusted up to $18 for a fast 86% gain.

By the end of the trading day on Monday, stocks closed approximately where they opened.

Tuesday, August 17 2010 observed a gap up open after the Federal Reserve’s report that the nation’s industrial output in July climbed 1%, more than expected. The market was sent even higher on retail giant Walmart reporting second-quarter earnings of 97 cents a share, beating expectations of 96 cents a share. The retailer also raised its full-year outlook. However, some time around 10:00 AM things changed. The market encountered a big sell off into the closing. Now the mainstream media did not report on the tumble in the last hour of trading since they may not have noticed it. With the markets closing up, that was all the news focused on. You and I know better. The main reason the last hour of trading is important is that it is almost completely dominated by professional traders. The market ultimately snapped its five day losing streak by closing up but that last hour of trading was bad.

On Wednesday, August 18 2010 U.S. futures rose slightly as retail giant Target Corp. matched forecasts for earnings growth. Target reported second-quarter profits of 92 cents a share, consistent with analysts but revenue of $15.53 billion came in a bit short of forecasts for $15.58 billion. As investors read over Target Corp. and the softer-than-expected sales for the second quarter the knee jerk reaction by futures traders became overly optimistic. Then by mid-day, BJ’s Wholesale dropped 3% as the retailer cut its profit and sales forecast for the year. Demand for oil dropped as crude futures fell below $75 for the first time in 6 weeks. The Energy Information Administration said U.S. petroleum inventories dropped by less than expected in a bearish sign for the energy sector.

SPY reversed at about $110.40 and formed a Bearish Double Top. For the following 3 hours, large selling occurred as the positive news from Target was completely wiped out by the negative news from BJ along with dropping oil demand, both which validate the slowing economic growth theory.

Thursday, August 19 2010 saw the Labor Department reporting that initial claims for unemployment benefits increased by 12,000 to 500,000 last week. The third sequential weekly climb pushed claims to their highest level since late 2009. The global recovery is about jobs. I do not care what the talking heads say, there is no such thing as a jobless recovery. Three consecutive weeks of climbing unemployment claims mean that the economic recovery isn’t only deceased, but we are headed back down and starting to erase the economic recovery gains that were made during the last year. The sectors leading the market lower on the bad jobs numbers were Industrial Goods, Basic Materials, and Consumer Discretionary stocks. The Industrial Goods sector is made up of companies like Boeing, cement maker CEMEX, construction machinery like Caterpillar, building materials companies like Fastenal Co, residential construction like KB Homes, heavy construction like Fluor, metal fabrication like United States Steel, waste management like Waste Management, Inc., industrial electronic equipment makers like ABB Ltd. and Rockwell Automation Inc., and even small tools and accessories like Snap-on Inc. The Basic Materials sector is made up of oil and gas companies like Exxon Mobil and PetroChina, industrial metals and minerals companies like Peabody Energy, steel and iron companies like Vale, oil and gas drilling companies like Petroleo Brasileiro, oil and gas equipment and services like Schlumberger Limited and Halliburton Company, chemical companies like Dow Chemical, oil and gas pipeline companies like Enbridge, oil and gas refining companies like Imperial Oil and Marathon Oil, and aluminum companies like Alcoa. The Consumer Discretionary sector is made up of companies like General Mills, Toyota, Pepsico, Coca Cola, Kellogg, Colgate-Palmolive, Sara Lee, Nike, Tyson Foods, Whirlpool, Polo Ralph Lauren, Habro, and Winnebago Industries.

So we had a massive plunge on Thursday started off by the bad unemployment numbers. However, if the bad unemployment numbers are what started the fire, then the Philadelphia Federal Reserve added fuel to the flame. In its monthly study of economic activity in the Mid-Atlantic area, it showed that economic activity fell by 7.7 percent to the lowest level in more than a year. SPY plunged from 110 all the way down to 107.50.

My perspective on the merger and acquisitions action last week is like, all right, how nice that Fortune 500 companies are sitting on $2 trillion in cash and more buyouts are in all probability just around the corner. But this does not even attempt to correct the problem of high unemployment and the truth that an insufficient number of jobs are now being created. Companies are not using their extra cash to add to payrolls, and eventually this will be the main reason we will have a double dip recession.

Friday, August 20 2010 began the day bad with SPY hitting a low for the week at 106.74. But 9:00 AM and on saw large buying for the remainder of the day. The buying came from the Tech sector. But overall, SPY closed down for a second straight week on persistent concerns of how severe the second double dip in this recession is going to be.

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