GDP

by Larry Levin

Despite all of Friday's tradable data, it was dead until the close. Moments before the close, however, all hell broke loose. For reasons still unknown, the S&P500 exploded ~18.00-handles in just 5-minutes. The initial reason given was month ending "window dressing" but it was too violent for that reason alone. Perhaps a massive vein of buy-stops was struck as well? Whatever the reason, Monday morning's trade should be interesting - be careful.

The Commerce Department reported first quarter GDP Friday morning and it wasn't very good. Although the report was modestly revised up from the previous estimate of a 6.1% economic contraction, it was still bad showing a 5.7% annualized decline. The revised estimate was worse than the consensus forecast for a 5.5% decrease. The first quarter drop in GDP followed a 6.3% decrease the previous quarter, which led Wall Street shills to exclaim we're headed in the right direction; we're apparently doing better. To wit I say no, the economy is still clearly heading in the wrong direction (contracting) but at a slightly slower pace.

I wonder if the folks who say this report proves we're headed in the right direction would say the same if their child's school grades were similar. Imagine your son being a straight A student, the envy of his class, when suddenly he brings home a report card showing a B average. The next semester he brings home an average grade of just a C. Shockingly, the following semester he delivers a report card to you with an average grade of D-. At this point you rejoice, noticing that his grade average has only fallen ? as bad as it had been, and cheer "Fantastic son! You're headed in the right direction!"

No, like the GDP and so many other data points, the boy's grades are still terrible and headed in the wrong direction. No economist would react to his son's failing grades as he does to economic data, because unlike economic data, he isn't paid to be enthusiastic regarding report cards.



Previous Day's Trading Room Results:

Trade Date: 5/29/09

E-Mini S&P Trades*
(before fees and commissions):

1) VA buy @ 11:40am at 905.50 = +1.25 & +2.25 (2 lot)

2) Algorithm positions (5)...combined Secret's and Algo total...+8.75


Electronic (YM) Mini-Dow:

1) Sell @ 10:25am at 8,398 = +10, +15, +21 (3 lot)...+$230.00 net



Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!