Next Five Days Critical for Stock Rally

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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In a healthy market the first four trading days of the month should be up in the aggregate. This month, it's the first five trading days in the U.S. because Friday is the day before a major holiday and stocks usually go up on those days. The seasonals are negative for stocks, with September historically being the weakest month. U.S. money supply has been contracting lately and investor sentiment has turned sharply down, both also negatives for the market. Whether this can outweigh the U.S. government's invisible (and not so invisible) hand in the keeping the market rally going remains to be seen.

The Chinese markets had a dead cat bounce last night, being up only a fraction of a percent after dropping around 10% in the previous two days. European markets are weak this morning. Unemployment is increasing in the Eurozone even though France and Germany supposedly pulled out of the recession with their positive recent GDP reports. In the UK, the manufacturing sector went back into contraction in August after being positive for one whole month in July (there was much celebrating about how UK manufacturing had recovered when those numbers came out). Even more problematical for the British economy is that consuming lending in the UK dropped last month for the first time since records have been kept. Like the U.S., the UK is highly dependent on consumer spending to keep its economy going. Also like the U.S., their solution to produce economic recovery is money printing.

In the U.S. auto sales are predicted to be the best since last September thanks to the Cash for Clunkers program - just one of many U.S. government programs that reward people who engaged in irresponsible and stupid economic behavior (and paid for by those who didn't). The ISM manufacturing report out this morning is predicted to turn positive because of the improvement in the auto industry. Unless the U.S. government has some new program every month to buck up the manufacturing sector, it might quickly turn negative again as happened in the UK. The biggest beneficiaries of the Cash for Clunkers program have been Toyota and Honda (Why doesn't the federal government just shoot the American auto manufacturers and put them out of their misery?). Interestingly, Japanese auto sales were reported up for the first time in a year last night.

Manufacturing activity has been up for the last 5 or 6 months in China (depending on which report you read). While internal demand was cited as one reason, exports are supposed to be up. Who is buying more of their exports? The major economies are all in bad shape and despite a positive economic statistic here and there thanks to government stimulus programs and jiggling of the figures, they will remain in bad shape for some time. Eventually, global stock markets will figure this out.

NEXT: Global Stock Markets Weaken

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.