The major indices closed on Friday in far better shape than might have been expected, suffering only modest declines for the week as a whole after Fed Chairman Ben Bernanke sparked a sustained rally on Friday with comments suggesting the Fed was willing to consider more muscular intervention in the economy to quicken the pace of recovery. The S&P 500 slid only 0.7% for the week after being down as much as 2.3%—eventually settling at 1,064.59 at Friday’s close (+17.37, 1.66%). Bernanke made clear his belief that growth will pick up significantly in 2011, suggesting that the Fed will consider “unconventional measures” to forestall any slide into double-dip recession. Bernanke’s statement reassured investors, and stocks rallied 1.7% following the announcement, with the Dow up 164.84 on Friday to finish at 10,150.65 (+1.65%) and the Nasdaq rising 34.94 to close at 2,153.63 (+1.65%). Friday afternoon also witnessed a sustained Treasury sell-off.

YTD Stock Market Performance

Response to the Fed’s message was mixed overall. Only three of the ten major sectors rose, led by utilities (+2.0%), with the tech sector acting as a significant drag on the market—down 2.1%. The majority of economic data remain far from reassuring, with the housing market once again on the precipice. Existing home sales were down 27.2%, reaching an adjusted annual rate not seen since record-keeping began in 1999. At the same time, new home sales plummeted to between 276,000-334,000—the lowest figure since 1963. Second-quarter GDP was revised down to 1.6% from 2.4%, though most analysts had expected a lower figure.

On the corporate front, Dell and Hewlett-Packard are involved in a bidding war for 3Par, a data storage company. Dell, which had seemed to have a takeover of 3Par well in hand prior to HP’s involvement, was forced to raise its offer significantly, to $27 per share. HP has since responded with $30 per share offer.

Canadian-based Potash (POT) has rejected a $130 per share offer from BHP Billiton (BHP) and is said to be encouraging other bidders.

Intel has lowered its third-quarter revenue projections significantly, to between $10.8 and $11.2 billion.

In Europe, the FTSE 100 was up 45.72 to finish at 5,201.56 (+0.89%), the DAX rose 38.59 to close at 5,951.17 (+0.65%), and the CAC 40 gained 32.41 to end Friday’s session at 3,507.44 (+0.93%).

In Asia, shares finished mixed on Friday, aided by a major reversal in Tokyo as investors shrugged off losses amid hopes of further stimulus action and a government initiative to counter the recent rise of the yen. The Nikkei 225 Index added 84.58 points, or 1%, to finish at 8,991.06. Hong Kong’s Hang Seng fell 14.71 points, or 0.1%, to close at 20,597.35–its sixth straight negative session. Shanghai’s CSI 300 Index rose a modest 8.47 points, or 0.3%, to settle at 2,858.57.

Light crude oil finished at 75.57 per barrel, up 0.53%; gold closed at 1,235.70—up 0.01%. The 10-year Treasury bond rose 6.12%, producing a yield of 2.65%.

The rocky ride for investors is expected to continue in the coming week, as the glow from recent corporate earnings reports fades and the focus shifts to weak—and weakening—economic data.

Absolute Return Trading Systems (ARTS) Inc. delivers market timing instructions to its subscribers from its proprietary algorithmic market timing software.  The system, designed by a team of researchers over more than a decade, is designed to produce positive returns in both up and down markets.  ARTS provides performance and risk information on 43 exchange traded funds (ETFs) and 21 stock market indices and has consistently been a top-ranked market timing service as measured by the leading third-party performance verification service, TimerTrac (www.timertrac.com).

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On the whole, the week ending August 6 was far from smooth, though it began promisingly enough. Markets moved strongly upward at the start of the week, finishing above their 200-day moving average for the first time since June. Positive data from the ISM Manufacturing Index helped to build confidence.

However, typically mixed economic data began to sour moods by the middle of the week. A better-than-expected July ISM Service Index of 54.3 was effectively offset by a worse-than-expected 1.2% drop in June factory orders, a drop in pending home sales for June, and stagnant personal income and spending numbers for the same month.

A reported increase in private payrolls for July had no effect after news came in that initial jobless claims for the week ending July 31 hit a three-month high of 479,000. On Friday, negative sentiment was reinforced by the US federal government’s report that 131,000 nonfarm positions disappeared in July, well above a projected loss of 87,000 jobs. Overall unemployment, however, remained static at 9.5%–in part because many have given up looking for work.

Sellers took over the market on Friday–though a late recovery ultimately pushed stocks back above the 200-day average. Some strength was visible in building products, life science tools and restaurants.

Large numbers of retail investors clearly remain anxious about re-entering the stock market as economic conditions continue to weaken and additional corrections appear imminent. Depressed trading volume clearly reflects this.

Corporate earnings continue to defy expectations, but their influence has been weakened significantly. Pfizer, Kraft, and Mastercard all issued robust numbers.

Another significant event came in the form of Fannie Mae’s earnings report, with the government-backed mortgage giant reporting a net loss of $1.2 billion in the second quarter of 2010–infinitely more reassuring than its net loss of $11.5 billion in the first quarter. Net revenue was $4.5 billion, up 49 percent from $3.0 billion in the first quarter of 2010. A jump in net interest income and shrinking credit-related expenses helped to bolster the company’s numbers.

The Dow Jones lost 21.42 points to close at 10,653.56 (-0.20%), while the S&P 500 was off 4.17 to finish at 1,121.64 (-0.37%). The NASDAQ dropped 4.59 points to finish at 2,288.47 (-0.20%).

In Europe, the FTSE dropped 33.39 on US jobs data to settle at 5,332.39.

In Asia, Shanghai added 37.64 to end the day at 2,658.39 (+1.44%). The Hang Seng also had a strong performance, rising 127.08 (+0.59%) to close at 21,678.80. The Nikkei 225 bucked the trend, however, dropping a modest 11.80 (-0.12%) to settle at 9,642.12.

The euro gained 0.0120 against the dollar, finishing at 1.3276 (+0.91%). The dollar dropped to $85.45

(-0.45%) against the yen. The yield on the US Treasury’s 10-year bond fell to 2.82%.

Oil rose 0.15 cents to close at $80.55 per barrel, while gold added $2.25 to finish at 1,205.90 (+0.19%) per ounce.

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The ARTS Team

About: Absolute Return Trading Systems (ARTS), Inc. www.absolutereturnsystems.com

Absolute Return Trading Systems (ARTS) Inc. delivers market timing instructions to its subscribers from its proprietary algorithmic market timing software.  The system, designed by a team of researchers over more than a decade, is designed to produce positive returns in both up and down markets.  ARTS provides performance and risk information on 43 exchange traded funds (ETFs) and 21 stock market indices and has consistently been a top-ranked market timing service as measured by the leading third-party performance verification service, TimerTrac.

Popularity: 11% [?]

August 1, 2010

Though Friday’s session was choppy, July came to a close with stocks enjoying their best monthly run in a year. The Dow Jones Industrial Average and the S&P 500 each added close to 7% during July—given impetus by generally favorable earnings reports from a host of major US companies. Three-fourths of the 300 companies in the S&P 500 that reported earnings in July surpassed analysts’ projections; Chevron and Merck are the latest to issue extremely positive numbers. Yet anxiety over stagnant job growth in the US remains poised to derail market performance as investors fear that a “jobless recovery” will eventually work to shrink company profits.

YTD Stock Market Performance

Performance on Friday was mixed, with investors pondering somewhat contradictory data on the US economy, consumer confidence and regional manufacturing. The Dow fell just over a single point as a result, finishing the day at 10,465.94 (-0.01%); the S&P moved marginally upward, to 1,101.60 (+0.01%), and the NASDAQ composite added 3 points to close at 2254.70 (+0.13%). The overall rebound is clearly heartening given the downward drift of stocks in recent months—largely in the face of Europe’s debt crisis and underwhelming US economic data. On Thursday, stocks lost value on news that a regional Federal Reserve president had expressed caution about the strength of the economic recovery, and skepticism was reinforced by ambiguous data. US GDP rose at an annual rate of 2.4% in the second quarter, down from 3.7%–upwardly revised–in the first quarter. Though a majority of analysts had expected a second quarter rise of 2.5%, the figure represented the fourth straight quarter of positive economic growth. Consumer spending, however, remained tepid, while measures of consumer confidence painted a portrait of a still-dubious US populace. At the same time, regional manufacturing activity increased markedly, with the Chicago PMI reporting a figure of 62.3 in July—up from 59.1 in June.

European markets ended Friday mixed. The CAC 40 in France dropped 0.2%, while Germany’s DAX added 0.2%. The FTSE 100 finished 1% lower.

All Asian markets were down at Friday’s close. The Shanghai Composite was off 0.4%, the Hang Seng dropped 0.3%, and Japan’s Nikkei in Japan was down 1.6%.

The dollar rose against the euro, but fell against both the British pound and the Japanese yen. Gold added $12.70 to close at $1,183.90 per ounce, US light crude rose 59 cents to $78.95 per barrel, and the yield on the US Treasury’s 10-year note dropped to 2.91%.

On the whole, consumer sentiment continues to lag far behind hard economic data, which suggest that the recession has been over, technically speaking, for almost a year. Only sharply rising employment—unlikely, at this point–is likely to mitigate negative sentiment and reassure wary investors.

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The ARTS Team

About: Absolute Return Trading Systems (ARTS), Inc. www.absolutereturnsystems.com

Absolute Return Trading Systems (ARTS) Inc. delivers market timing instructions to its subscribers from its proprietary algorithmic market timing software.  The system, designed by a team of researchers over more than a decade, is designed to produce positive returns in both up and down markets.  ARTS provides performance and risk information on 43 exchange traded funds (ETFs) and 21 stock market indices and has consistently been a top-ranked market timing service as measured by the leading third-party performance verification service, TimerTrac.

Popularity: 28% [?]

It was a week dominated by earnings reports. By Friday’s close, stocks had reached a one-month high as earnings reports from the industrials sector in particular reinvigorated hopes that recovery is well underway and here to stay. The Dow gained 102.32 on Friday, up 0.99% for the day and 3.24% for the week, closing at 10424.62. Verizon, General Electric, and American Express led the charge on Friday, though Boeing was the week’s star, up 10 percent between Monday morning and Friday afternoon. Verizon beat earnings expectations, though revenue fell as the company continues to battle an energized AT&T; GE’s board approved a 20 percent dividend increase, and a number of brokerages have raised ratings on American Express. Johnson & Johnson proved a laggard, down more than 3 percent for the week. The NASDAQ added 23.58 during Friday’s session, up 1.05% for the session and 4.15% for the week, finishing at 2269.47. The S&P 500 rose 8.99 on Friday, adding 0.82% for the session and 3.55% for the week, eventually settling late Friday at 1102.66.

YTD Stock Market Performance

Positive sentiment was generated (at least in part) by the fact that the vast majority of EU banks passed crucial stress tests, despite reservations among some analysts about the stringency of the tests themselves. Only seven banks failed, and they were generally small and regional, concentrated in Germany, Spain and Greece. Rising investor confidence could be seen in the fact that the CBOE volatility index—a crucial measure of investor fear—lost more than 10 percent, finishing on Friday below 24.

European banks such as Barclay’s, UBS, BNP Paribas, and Deutsche Bank had a mixed Friday on US markets. Royal Bank of Scotland and Bank of Ireland, however, responded positively to the stress test results, rising 4 percent on the news.

In Europe, the DAX rose 175.96 (2.94%) to finish at 6,166.34, while the FTSE 100, less convinced by the bank stress tests, fell 1.19 (0.02%) to close at 5,312.62. In Asia, the Nikkei remained flat, though the Hang Seng added 225.63 (1.10%) to finish at 20,815.33.

The euro closed marginally higher on Friday against the US dollar.

Gold finished the week flat at $1,187.80 per ounce, while oil dropped 3 percent, closing at $78.98 per barrel.

Overall, in a week marked by significant earnings reports, sentiment appeared to swing upward. Most companies beat expectations, though not by as much as many analysts and investors had hoped. In the coming week, 157 other major companies will report earnings, including DuPont, BP, ExxonMobil, Chevron, Boeing, Visa and Merck—among others. Will the current positive outlook hold after next Friday’s close? The vast majority of investors certainly hope so.

Be sure to follow our performance on Twitter and Facebook!

The ARTS Team

About: Absolute Return Trading Systems (ARTS), Inc. www.absolutereturnsystems.com

Absolute Return Trading Systems (ARTS) Inc. delivers market timing instructions to its subscribers from its proprietary algorithmic market timing software.  The system, designed by a team of researchers over more than a decade, is designed to produce positive returns in both up and down markets.  ARTS provides performance and risk information on 43 exchange traded funds (ETFs) and 21 stock market indices and has consistently been a top-ranked market timing service as measured by the leading third-party performance verification service, TimerTrac.

Popularity: 100% [?]