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| Stocks: S&P 1,080, Part II - Jul. 30, 2004 |
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Introduction
As circumstances have evolved over the last few days, S&P 1,080, give or take, did indeed turn out to be an important number. The index traded as low as 1,078.85 on Tuesday, as high as 1,103.72 yesterday, finishing yesterday's session a touch over 1,100. But this respite from the market's recent slide may be nearing an end.
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From the missive of early Tuesday morning (7/27, "Stocks: S&P 1,080"):
"For the time being at least, the S&P 500 has established the 1,080 area as an important technical support level. I don't think it will hold too long [and] I don't know how legitimately important it is, but if people think it's important, then it becomes important ... Yesterday's general behavior reinforced the notion. The S&P had a range of 1,078.85 to 1,089.82, closing at 1,084.07 ... The index traded at or a bit below 1,080 on and off during the session, but it seemed to find a decent bid generally around 1,080. Therefore, for the time being, this becomes a key number."
At yesterday's high, the S&P 500 stood almost 25 points or 2.3% above Tuesday's low. On a close-to-close basis (from the recent low close of 1,084.07), the S&P is up more than 16 points or 1.5%. Almost 11 points of this gain came on Tuesday; the balance came Wednesday and yesterday combined.
There may -- or may not -- be something of an event later today, when the Commerce Department releases its advance estimate of second-quarter gross domestic product (8:30 AM, ET). The consensus forecast looks for growth at about a 3.7% annual rate during the quarter, a bit lower and slower than the first quarter's 3.9% rate.
Remember, too, that the final estimate for the first quarter, released on 6/25, surprised analysts by coming in a little lower than the estimate that preceded it. It had been anticipated to come in a bit higher.
There was a discernable slowing in certain areas of the economy during June. It will be interesting to see if this shows up in today's second-quarter numbers.
However, here is where a little intrigue could enter the picture later today. In addition to releasing its advance GDP estimate for the second quarter, Commerce will also release its annual revision of prior years' results. These revisions will go back to the first quarter of 2001. Here's the statement issued by the Commerce Department on 6/25, when it reported on final GDP for this year's first quarter.
"The annual revision of the national income and product
accounts, covering the first quarter of 2001 through the
first quarter of 2004, will be released along with the
'advance' estimate of GDP for the second quarter of 2004
on July 30."
Notice the beginning of the revision period. It just happens to coincide with the start of the Bush Presidency. Thus, there is a chance today's revisions could reflect a little election-year hanky-panky.
I don't expect that the overall revision will change total GDP growth very much over the entire period involved. But what you could get is a reconfiguration that results in a little back-loading of weakness. In turn, the resulting lower base numbers would magnify growth over more recent periods.
One thing for sure about today's report: the CNBC crowd will be doing its very best to spin the numbers in the most favorable way. These folks may be dumb, but they're not stupid. They fully appreciate the opportunity that will be presented to try to keep the incipient stock-market rally alive. But in this regard, they may have their hands full.
I suspect the recent rally represents a prototypical bounce in a market that had become heavily short-term oversold. If so, it is unlikely prices will trend higher for much longer. Using the S&P 500 as a proxy, my guess would be maybe another 1% to the upside, and perhaps not even that.
Today could be key, especially were the market to experience one of those genuine kiss-of-death patterns -- strongly higher early on, based in this case on a bullish interpretation of the GDP results -- only to be followed by a vicious reversal. And, of course, there is always a possibility of the other outcome, to wit: lousy GDP results and a lousy market.
Be sure that CNBC and the other venues in the regular propaganda loop will be working hard to avoid the latter!
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