Confidence Dwindling
10/17/2005
Friday morning saw the release of the preliminary University of Michigan
Confidence data for October, which recorded a worse-than-expected 75.4
reading versus expectations of 80.0. Last month's reading was 76.9.
Perhaps the parents of the students surveyed at Michigan have reigned-in
their free-spending kiddies?
The consumer confidence data coupled with Thursday's poll showing that
President Bush's approval rating hit new lows (38%) for his presidency
suggest strongly that people in general -- and investors, in particular --
are becoming increasingly leery of the underlying strength of the economy
and of the efficacy of the current Administration, which, to say the least,
is embattled on a number of fronts.
Is the Sept.-Oct. stock market decline a reflection of this underlying loss
of confidence in the U.S. Administration to deal with Iraq, the next
domestic crisis, the twin deficits, the Special Prosecutor's investigation
of Karl Rove, etcetera, etcetera? I certainly don't know, but let's keep
an eye on the euro-dollar relationship, which may have hit a significant
euro low (dollar high) recently.
If the dollar starts to head south with some power regardless of the
positive interest rate differential, then my sense will be that global
investment psychology has turned decidedly negative about U.S. investment
paper.
Have a look at my updated intermediate term chart analytics of the euro.
Looking at the equity markets, needless to say the net result of Friday's
action represented a continuation of the recovery rally that started at
Thursday's low of 37.33 on the Nasdaq 100 Tracking Stock (QQQQ), and which
hit a high at 38.07 Friday afternoon. The near- and intermediate-term
charts argue for more strength into the 38.20-.40 area -- but within the
context of a countertrend, oversold relief rally, not the start of a new
upleg. Serious damage was inflicted on the Q's pattern from July-October
when the price structure broke 38.30-.25 support earlier last week.
We should not be surprised to see the Qs recover to the original breakdown
point, which should be followed by a downside pivot reversal and resumption
of the dominant downtrend towards the 37-36.80 target zone. We will await
Monday's pre-market indications to determine if we should raise stops and
add to short positions for the expected resumption of selling pressure.
|