The market was sick for most of the week. At the start of the week, many traders and investors were bidding the market as it seem to be a good buy from the dip. However, the market did not go up higher up for the next few days due to a barrage of bad news coming out from the market. Yet there are still many traders and investors still believe that the market had more room to run for the last quarter of the year.

The highlight of the week was Friday, when Non-Farm Payroll came out worst than expected by a big margin (-263k v.s. -175k). However the market did not react badly on Friday. This is because the market had already sold off big time the previous day, Thursday. The market seems to know the news before it releases on the next day. Goldman Sachs’s analyst had come out lowering their expectation from -200K to -250K on Thursday after market close.

On Monday, the market started off with a bang at the opening bell. Merger and Acquisition (M&A) activities had supply plenty of reason for the bull to bid the market especially after three days of bearish movement. As traders and Investors getting lesser negative day to enter long position, they will grab whatever slightly good news to join this bullish train.

On Tuesday, the market was a little confused with the economy data. The market was spooked by the worst than expected Consumer Confidence (53.1 v.s. 57). The better than expected Case-Shiller Home Index (-13.3% v.s. -14.3%) gave investors and traders a little confident in the market. At the end of the trading day, traders and investors choose to be a little caution ahead of the next trading day.

On Wednesday, the market tumbled on the first 30 minutes of the trading period before it recovered all the lost by the mid of the trading day. Another round of selling happened at the end of the trading day before the market closed up slightly negative. Throughout the whole trading day, it was very volatile with seller selling in heavy volumes and buyer buying with bit and pieces of the market.

Once again, lousy economic news dominates the headline on Wednesday. ADP Non-Farm Employment Change came in worst than expected (-254K v.s. -200K), Chicago PMI came in also worst than expected (46.1 v.s. 52.1) and lastly a larger than expected increase in the weekly Crude Oil Inventories (2.8M v.s. 0.5M). Final GDP came in slightly better than expected (-0.7% v.s. -1.2%).

On Thursday, the market sold off aggressively as the weekly unemployment claim (551K v.s. 532K) and ISM Manufacturing PMI (52.6 v.s. 53.9) reports came out worst than expected. The lousy Total Vehicle Sales reports supply the bear more ammunition to push down the market. The selling pressures intensify towards the end of the closing bell because the market might have received some news that the Non-Farm Payroll might be worst than the street had expected.

On Friday, the market sold off initially at the start of the opening bell after the released of the Non-Farm Payroll reports. The Non-Farm Payroll report came in worst than expected (-263K v.s. -179K), the Unemployment Rate increased from 9.7% to 9.8%, Average Hourly Earnings decreases from 0.4% to 0.1% and Factory Orders drop from 1.4% to -0.8%. Overall the economic data on Friday painted a gloomy picture ahead in the United State. Despite all the gloomy data, the market manages to turn positive on a few occasions within the trading day. At the end of the day, the market closes slightly down to end for the week.

Major Events

• FDIC had closed 3 banks in Michigan, Minnesota and Colorado on Friday brings the total tally to 98 in 2009.
• The 3 banks failures cost FDIC around 300 million.
• Non-Farm Payroll (-263K v.s. -179K).
• Unemployment Rate 9.8%
• U.S. Treasury Secretary Timothy Geithner says risk remain to global economies.
• ECB President Jean-Claude Trichet voice support for a stronger dollar.
• Japanese Finance Minister Hironhisa Fujii said the government would intervene if the yen’s moves become excessive.
• Junk-bond returns pick up speed at quarter’s end. Speculative-grade corporate bonds have return almost 16% in the last 3 months, according to an index complied by Merrill Lynch. That’s boosted gains for the year to about 48%.

Economic Data

This coming week, the economic data will be light. The market will be focusing on the ISM Non-Manufacturing PMI on Monday, followed by Weekly Crude Oil Inventories and Consumer Credit on Wednesday. On Thursday, the market will be looking at the weekly Unemployment Claims, Wholesale Inventories and weekly Natural Gas Storage. On the last day of the trading week, the market will be looking at the Trade Balance of the economy.

Fed Chairman Bernanke will be speaking on Thursday followed by other fed members will be speaking on Friday.

Look out for heavy European economic data in this coming week as it might influence the market in the U.S.

Earnings

This coming week, Alcoa Inc. (AA) will kick off the earnings season as the first blue-chip company to report results on Wednesday. Throughout the week, notable companies such as Monsanto, Yum Brands Inc, Costco Wholesale Corp, Family Dollar Sores Inc, Marriott International and PepsiCo Inc will be schedules to release its earnings report.

On average, earnings at S&P 500 firms are expected to be down by 24.8% from the year earlier quarter. At the start of the quarter, earnings were expected to be down 20.9%. Lowering expectations will likely to help stocks when the actual results come out. Once again investors and traders will be looking for better-than-expected earnings in the third quarter.

Analysts are expecting this quarter earnings season to be like previous quarters, with companies beating lower expectation.

Summary

Unemployment rate inch closer to the psychological level 10% as the month passes. Many folks in United States find themselves without a job as companies opting to cost-cutting strategy to make their earnings report look better. Without jobs, many folks have to default on their housing bill and others bills. Even those people who had been working as part-timer feel the pinch as their hourly wages had been slowly declining for the past few months. Higher fuel cost added further strain to the jobless people.

All these events do not seem to be bothering the market. This is due to the fact that many traders and investors citied that the employment reports is a lagging indicator. They also point out that the market itself is a leading indicator of the market. As long as there are more people getting retrench and getting lower pay each day, the market will likely tumble down once the market realized come to senses.

The first week of October proved to be nasty to the market. This coming week might be a different story though. Traders and investors will be focusing on the upcoming quarter earnings. Many of them expect a better than expected earnings from most of the companies. However, if the earnings report in this coming quarter did not live up to expectation, this October might mark the 2nd recession or the double dip in the market.

The crude oil prices prove to be resilient as it bounced back from the low of $66 to $70 last week. The crude oil prices end higher for the week even though the inventories increased more than expected in the previous week. The strength of the Crude oil price comes from the reiteration of the Goldman Sachs forecast of $85 at the end of the year.

The U.S. dollar managed to hold the ground and edge higher in last week. The dollar was being supported by a few key announcements from the ECB president, Fed Chairman Bernanke and Japanese Financial Minister. The strength of the Dollar will likely to put a dent unto the commodities sector.

In conclusion, the market is likely to feel further strain this coming week. Uncertainty in this quarter earnings might force some investors to liquidate their position. Heavy volumes will likely to be seen in this coming week, as investors will be looking for opportunities in the market. Since the market painters had done their jobs for the last quarter, this quarter might be very interesting if they decided to let the market to run it course. Economic Data should be disappointment but the earning reports will be hard to guess as it really depends on the expectation of the street.

Sector Rotation

This week, Consumer Staples (0.08%) is the only positive sector in the market. Financials (-5.24%) lead the sell-off followed by Industrials (-4.95%), Materials (-4.85%), Energy (-4.5%), Consumer Discretionary (-3.49%), Technology (-3.2%), Utilities (-3.16%) and Health Care (-2.39%).

Defensive Sectors such as Consumer Staple and Utilities will likely to benefit from the nervous market as investors shifted their funds to low beta stocks while analyzing the earnings reports in the market.

Look out for the material sector in this coming week. Alcoa and Monsanto earnings report will provide the investors a clue into the future earnings. A strong earnings report with good guidance will be a big boost to the sector.

In conclusion, the market will likely to be extremely volatile as this month might be the tipping point for the market to either finish the year high with style or finish the year low with plenty to worry about.

Technical Analysis

The S&P500 Index closed at 1025 last week. This indicates a loss of 19 points (1.8%) from the previous week’s close.

The market had 2 consecutives negative week following last week lost. The disappointing Non-Farm Payroll report pushes the S&P500 towards the major support level, 1025. The market suffers badly throughout the week. The only positive day was on Monday as the market was celebrating the Merger & Acquisition activities.

The optimism and confidence in the market still seems to be very strong. This is due to the fact that easy money had been made for the past 6 months. Many traders and investors are looking into this coming quarter to load up the stock.

While the streets are very confidence in the market, the insiders seem to be selling throughout last few months. Insiders are seen selling their shares rather than scooping up.

Looking at weekly candles, the S&P500 Index is suggesting a downside movement if it can break below 1025 in the coming week. The weekly chart shows that the 2 consecutive negative weekly candles produce a lower low and lower high. The shadow of the weekly candle clearly indicate that the bull was fighting strongly every week but eventually lose out to the bear.

Looking at daily candles, the S&P500 Index looks like it might be starting the week with a positive Monday. This is because the market had been negative for 4th consecutive days. The 5th candle reversal day will likely to happen on Monday.

The immediate support levels are S1: 1025, S2: 1000 and S3: 990.
The immediate resistance levels are R1: 1040, R2: 1060 and R3: 1080.

In conclusion, the market this coming week is likely to be bearish if it can break and hold below 1025 level. The investors and traders will be looking upon the earnings to decide the direction of the market. Beware of the buy the rumor and sell the news of the market. If the investors and traders had been buying the rumor that the earnings will be good, then they will likely to sell into this rally regardless of the earnings reports.

[Lawrence Chua]