There’s a good chance that the biggest financial story on Wednesday August 5 won’t be a financial story at all.
In a stunning turnaround North Korea’s Kim Jong Il has pardoned two American journalists and ordered their release from a North Korean prison. The “special pardon” to Euna Lee and Laura Ling came after a surprise visit to Pyongyang from former President Bill Clinton. In March the two women had been found guilty of entering the country illegally and in June they had been sentenced to 12 years at hard labor.
I’d expect that financial markets in Asia will rally overnight on the news. The slightest sign that anyone can negotiate with the North Koreans over anything will soothe nerves in a region set on edge by more than a dozen tests this year by North Korea of rockets capable of hitting the country’s neighbors.
Clinton’s success in secring the journalists’ release is already being called a “turning point” in U.S.-North Korean relations. That is, of course, complete balderdash. But this is the kind of news that will make investors cheer in Tokyo, Seoul, Hong Kong, and across Asia.
And it should be enough to give a little more life to a U.S.stock market that’s looking increasingly exhausted.
With the Standard & Poor’s 500 stock index and the NASDAQ Composite index crossing above the psychological barriers at 1,000 and 2,000, respectively, stocks will need a little something to keep them going. The technology sector, which had led the market through much of July, has been the weakest sector in the last two weeks. That’s left it to the financials to pull the freight with whatever help they can get from a weak dollar pushing up commodity prices and commodity stocks.
On a slightly deeper techical  level this market has started to flash the kind of sell signals that indicate a correction–and that’s really all I’m expecting here. Nothing worse than a 10% pull back to establish a new base for the next stage in this rally. The RSI (Relative Strength Indicator), a commonly followed technical tool, hit 75 on Monday August 3. Many technical analysts regard a reading of 70 as a sell signal.
Trimming positions to bring your portfolio back into balance and selling partial positions to cash in some profits is perfectly appropriate here. But I don’t see the need–yet–to do major selling. I think a pause here is exactly what this rally needs.
A major move downwards awaits a change in psychology. Right now investors are reading the economics news as evidence that we’re on the edge of a global recovery. It’s going to take some disappointing headlines to change that thinking around.
I remain convinced, however, that we’ll see at least one more round of exactly that kind of disapointing news within the next 12 months.
So much for my crystal ball. Bad earnings trumped the news on North Korea in Asia and then we got worse than expected reading on ISM services survey. Economists expecting index to improve to 48 from 47 in June but insztead got decline to 46.4 Remember a rading of 50 is the dividing line between the economy contracting, as now, and expanding.) Dow down about 100 as I write.
Retails sales in euro zone below estimates
ISM SERVICES BELOW ESTIMATES but ISM manufacturing above
This means economy still not running as thought by stock markets but manufacturing picking up as stock build up going on for coming XMAS season , if real economy doesnot pick up by that time which I doubt as unemployment will make sure retail sales and services remain subdued then surely this mini bubble of asset classes will go burst ..that means first qtr of next year will actually tell us what is going on and the real worth of stocks
In the mean time stocks will give back some ground and wait for validation of real economy improvement levels …
Hope Jim agrees ….
I should have started my sentence with “With hindsight, I think the news of the release is being seen by the markets in Asia….”
I think the news of the release is being seen in Asia as appeasement and reflecting a change in U.S. policy of strictly not accepting nuclear weapons in N. Korea to accepting a defacto nuclear armed status of that country with the hope that it will appear as if it was a negotiated win for both sides.
All news do not live long. People have a short memory.
p.s. That is why I like buying stocks on bad news.
Jim, what do you think about the GE accounting fraud case. Is it time to pull out of GE? Although this dates back to 2003, it raises questions on the the health of GE capital now and the possibility of further accounting fraud.
(http://www.sec.gov/litigation/litreleases/2009/lr21166.htm)
—
Without admitting or denying the SEC’s allegations, GE agreed to the financial penalty and consented to the entry of an order permanently enjoining it from violating Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The charges announced today conclude the SEC’s investigation with respect to the company
Jim,
I’ve been trimming a little off positions I was fortunate enough to have profits in and your price target info was very helpful (not to mention the insights you provide reaching them). Thanks for the good work providing not only spot on buy recommendations, but also target prices to measure there success.
At times like this I like to remember bulls and bears make money; but only pigs get slaughtered.
Regards,
pk3hi
ok Mr. Jubakdamus, cant wait to see if youre right manana!