Stock Market Analysis

Friday, October 12, 2007

Thus Ends A Sideways Week...

I don't usually write on Friday nights but due to the growing audience to this blog, I have decided to begin Friday night writing. So, thank you for tuning in again and enjoy...

This sideways week has ended on a slightly upbeat note today as core-PPI (inflation) index increased by only 0.1%, beating estimates of 0.2%, further proving that inflation is not a concern in the economy... so, what is? Recession of course! This reading continues to support a rate cut at the end of the month and thus the optimism.

The Producer Price Index (PPI) is an extremely important index and is the first major inflation indicator to be released on the second Friday of every month. The PPI is made up of a group of indexes, measuring the change in price manufacturers pay at various stages of production. Of greater concern to the investment community is the "Core-PPI" index. The core-PPI index takes highly inelastic and seasonally variable elements such as crude oil and food out of the equation in order to arrive at an index that truly reflects market action. The Core-PPI is so important that the investment community often neglect the main PPI reading. A classic case in point is today. PPI was higher than expected due to higher crude and food prices but Core-PPI was lower than expected by 0.1%. Investors chose to act on the Core-PPI, not the main PPI number.

On the technical front, the Dow continues to play by our book by trading atop the 14000 level as expected. There was no conviction and strength behind today's move as the advance was made on much lower volume than the drop of yesterday, so, don't take this as the start of a rally... the Dow's just not prepared for that yet. The Dow continues to look over extended in relation to its 30WMA, so the danger's not over yet.

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