Just as the economy is sending mixed signals, so are the technical indicators. Our trend indicators for the NASDAQ and Russell 2000 reversed to "Up" this week but the weekly NASDAQ chart shows a "Doji" pattern that reflects a more or less equal balance between bulls and bears with the bias being with the bears. The anticipation of continued strong earnings reports which drove the indexes higher last week has now turned to fear that earnings in the next quarter will not meet expectations. We think this fear is justified, for reasons discussed below, and August will see a continued decline in the major indexes.



Friday's declining GDP figures and falling consumer confidence indicate that the recovery is not going well. Regular readers may recall that on 06/04/2010 I drew attention to the Consumer Metrics Institute growth index indicator that implied that GDP for the second half of the year could be of the order of -2%. Following the release of the second quarter GDP numbers on Friday they have published some analysis that suggests that a negative second half is indeed possible. Their key points are that

• Suppliers increased inventories in the first quarter more than initially measured in anticipation of increasing consumer demand accounting for the 1% upwards revision in GDP
  
• consumer demand was anemic in the second quarter and inventory build-up slowed
• weak consumer demand will lead to a cut back in inventories and a continuing fall in GDP

Read their commentary at http://www.consumerindexes.com

Of course the US GDP is but one component of the world economy and many US companies operate globally so there is not a direct correlation between US GDP and the stock markets.  Many companies will continue to grow if the global recovery continues. There will continue to be breakout opportunities, although fewer of them as this weeks breakout numbers, compared to last weeks, show.

No new features this week.

This section will return at the end of August after the kids return to school.