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On Monday, August 16 2010 opened up with negative 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 the slowing global economy was partially offset 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 sign for a sector for two reasons: first, the company doing the buying means they have cash on hand or a credit line available that allows 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 quickly 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 saw a gap up open following 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. But at around 11:00 AM things changed. The market suffered a big sell off into the closing. So the mainstream media did not report on the dive 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. We both know better. The reason the last hour of trading is important is that it is almost totally dominated by professional traders. The market finally snapped its five day losing streak by closing up but that last hour of trading was awful.

On Wednesday, August 18 2010 U.S. futures increased slightly as retail giant Target Corp. matched forecasts for earnings growth. Target reported second-quarter profits of 92 cents a share, in line with analysts but revenue of $15.53 billion came in somewhat short of forecasts for $15.58 billion. As investors read over Target Corp. and the softer-than-expected sales for the second quarter the snap decision by futures traders became overly optimistic. Then by mid-day, BJ’s Wholesale slid 3% as the retailer cut its profit and sales outlook for the year. Need 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 took place as the positive news from Target was entirely wiped out by the negative news from BJ and also falling oil demand, both which validate the slowing economic growth picture.

Thursday, August 19 2010 had the Labor Department reporting that initial claims for unemployment benefits rose 12,000 to 500,000 last week. The third sequential weekly climb pushed claims to their highest level since late 2009. The economy recovery is centered on 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 imply that the economic recovery is not only expended, 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 consists of companies like Boeing, cement maker CEMEX, construction machinery like Caterpillar, building materials companies like Fastenal Co, residential construction like DR Horton and 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, industrial metals and minerals companies like BHP, steel and iron companies like Vale, oil and gas drilling companies like Petroleo Brasileiro and Statoil ASA, oil and gas equipment and services like Schlumberger Limited and Halliburton Company, chemical companies like DuPont de Nemours and The Dow Chemical Company, oil and gas pipeline companies like Kinder Morgan Energy, 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 Pepsico, Kellogg, General Mills, Sara Lee, Campbell Soup, Procter and Gamble, Colgate-Palmolive Co., Avon, Philip Morris International, Toyota Motor Corp., Coca-Cola, Anheuser-Busch, Sony Corporation, Kraft Foods, Nike, Polo Ralph Lauren, International Paper, Canon, Archer Daniels Midland Company, Tyson Foods, Mattel Inc., Hasbro Inc., Whirlpool Corp., Harley-Davidson, Inc., Winnebago Industries Inc., and Newell Rubbermaid.

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

My opinion on the merger and acquisitions activity last week is like, fine, how good 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 fact that an insufficient number of jobs are now being created. Companies are not using their extra money to add to payrolls, and at last this will be the main reason why 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 rest 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 will be.

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