Market Commentary – August 31st, 2011

A Few Thoughts Before the Open:

It is good to be back in to the office after a couple of weeks of travel and working off site.  In looking at this week’s economic calendar it should be noted that in addition to weekly jobless claims on Thursday,  we have nonfarm payrolls and the unemployment rate for the month of August to be released on Friday.  The current expectations are for the unemployment rate to tick upwards to 9.2%  Other news items of note for the remainder of the week include the ISM index on Thursday.

Despite having the overall market stage a nice rally since the start of last week, it is always important to remember that nothing moves in a straight line.  It should also be noted that Congress returns from its Summer Vacation on Tuesday September 6th;  only God has any real idea what sort of gobbly gook is going to be said once Reid and Polosi get back to Washington DC.  Either way,  my best guess is that they will say something not too positive for the markets.  My thoughts are that it might be smart for short term traders to be flat ahead of the Labor Day weekend.

Earlier this week I saw a technical analyst (whose name I can’t remember) on CNBC who claimed that the Dow Transports were now confirming a “buy signal” in the market,  I have to respectfully disagree.  Just because the overall market rallies for a few days it is not the start of a new short or medium term trend,  especially when the market was rallying from such a steep sell off.  In the August 16th edition of this blog,  I discussed what I would consider to be the level of a normal retracement in the Dow Jones Industrial Average following the recent sell off.  I continue to stand by my earlier post,  a typical retracement would see the Dow Jones Industrial Average rallying to somewhere between 11,381.63 and 12,043.22 on a closing basis.  With yesterday’s close of 11,559.95  the Dow has basically reached just passed the minimum level for standard retracement.  In my opinion,  until the Dow Jones Industrial Average closes above 12,043.22 we could see a turn back lower at any point in time with the real possibility of the Dow moving below its August lows.

I’ll be back tomorrow morning with more thoughts on the market.