The market declined for the third time in a row although the drop was quite limited in the final session of the week. As for the week, all three major indexes were off by around 2%. But several high-beta indexes, such as the Dow Transportation and the Russell 2000, dropped much more compared to the big three. Since the March lows, the market hasn’t suffered a real correction, which by definition is a decline of 10% from the previous top. In fact, since July, the S&P 500 hasn’t experienced a pullback in excess of 4%. Will it be the same this time? Many traders are betting so. But I think given the chances for a stronger dollar and weak commodity price, we should be prepared for a more severe one especially as we enter the historically volatile month of October.

Once again we received some weaker-than-expected economic reports, both from the housing front and the manufacturing front. Durable orders for August unexpectedly dropped 2.4% while economists were looking for a modest increase. Even excluding transportation, the number was still below expectations. New home sales figures for August came in at an annualized rate of 429K while 440K was expected. It should be remembered that the first-time buyer credits helped the sales for recent months and without such help, the data would be much worse.

Most major sectors finished the session lower led by transportation and industrials. The CRB commodity index dropped 0.3%. The US dollar was mixed against most major currencies. Treasuries were mixed with the yield curve flattening. The three-month US LIBOR declined 1 bps to 28 bps. The VIX index rose half a point. The market breath was negative on both NYSE and Nasdaq. The volume was neutral compared to the previous session.

The market declined for the second time in a row with both the Nasdaq and the S&P 500 finishing the session lower by around 1%. A weaker-than-expected home sales report was cited as the main reason behind today’s decline. But I think the more important issue here is after running up more than 50% since March, the market definitely needs new catalysts to move higher. However, little can be found because economic recovery will take time and Wall Street is infamous for its impatience. The US dollar once again moved in opposite direction of the equity market and commodity market. Crude oil, for the second day in a row, tumbled by more than 4% and closed below its 2-month trading range. As we pointed out earlier, commodity prices are worth paying close attention during early stage of economic recovery and it certainly seems so at the moment. I have been writing numerous times about how the US would benefit from a weak dollar. An article written by James Cooper in the latest issue of Business Week better illustrated the point by providing some detailed numbers. According to James, the US trade deficit peaked at 6% of its GDP in 2006 and then steadily declined as a result of weak dollar and weak economy. The trade deficit reached 2.4% of GDP at the second quarter of 2009. In the meantime, the US had cut its need for foreign capital by 56%. In other words, a weak dollar for the short run could mean a strong dollar in the long run.

We had some mixed data from the economic front today. On the positive side, weekly initial jobless claims declined more than expected to 530K, the lowest level in two months. Economists had been looking for a number of around 550K. Continuing claims came in at 6.14 million, also below expectation. The disappointing news, however, was from the housing front. The existing home sales for August unexpectedly declined 2.7% to an annualized rate of 5.1 million units. The decline was the first retreat since March and economists were in general looking for a rise instead. Although inventory dropped 11% to 3.6 million units or the lowest level since April 2007, investors chose to focus on the headline news.

All 10 major sectors finished the session lower led by energy and basic materials. The CRB commodity index dropped 2.1%. The US dollar was higher against most major currencies. Treasuries rose with the yields declining. The three-month US LIBOR declined 1 bps to 28 bps. The VIX index rose more than 1 point. The market breath was negative on both NYSE and Nasdaq. The volume was slightly lighter compared to the previous session.

The market experienced a major reversal during the final hour of trading and closed at almost the lowest level of the session. By close, all three major indexes were off by around 1%, making it the worst single day drop since Sep 1st. Similar to other FOMC meeting sessions, trading activities didn’t pick up until the statement was released at around 2:15pm. The Dow briefly broke the 9,900 mark but profit-taking easily reversed the gain. Interestingly, if one put the intra-day diagrams of the US dollar index and the S&P 500 together, he would notice an almost perfectly negative correlation between the two. Another noticeable development was in the weakness of the crude price, which tumbled more than $3 per barrel for the session. Mounting inventory was cited as the main reason behind the commodity’s weakness. Investors will soon realize that unless the global economy is going to have a V-shaped recovery, many industries will have problems of overcapacity.

Not much change can be read from the latest statement following the 2-day FOMC meeting. The committee noticed that “Economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased…” As to the housing market, the Fed extended its mortgage purchasing program to the first quarter of 2010, aiming to avoid disrupting the housing market. More important, the Fed reiterated its stance to keep the interest rate low “for an extended period of time”. The latest Fed funds futures indicated no Fed rate hike until at least April 2010. Investors got pretty much everything they wanted. But given the Dow has risen over 500 points since last FOMC meeting, some profit-taking should come as no surprise.

All 10 major sectors finished the session lower led by energy and basic materials. The CRB commodity index dropped 1.0%. The US dollar was higher against most major currencies. Treasuries rose with the yields declining. The three-month US LIBOR was unchanged at 29 bps. The VIX index rose less than 1 point. The market breath was negative on both NYSE and Nasdaq. The volume was slightly heavier compared to the previous session.

The market finished the Tuesday modestly higher. But that was enough to make all three major indexes sit once again at their highest level for the year. Similar to yesterday, it was a very light day in terms of news flow with the rest of the market eagerly waiting for the Fed’s interest rate decision, which should come out at around 2:15pm tomorrow. I’m going to spend a few more moments here discussing the latest Flow of Funds report that was released last week. Every time I come across an article with the title such as the US household debt is now higher than its GDP, I would pause and start to wonder why the author writes that article. There has been a long-time conspiracy story that the US government is quietly talking down the value of the US dollar in order to regain its competitiveness overseas.

Let’s take a closer look at the balance sheet of the US households along with nonprofit organizations. In the quarter ending on June 30th, the total assets stood at $67.2 trillion and the total liabilities were $14.1 trillion. The net difference is the net wealth of $53 trillion. So what do those numbers tell us? For anyone that has some basic accounting knowledge, it is not difficult to come up with a debt-to-equity ratio of around 27%. In many cases, debt level is equivalent to the use of leverage. Does a debt-to-equity ratio of 27% seem too high? Hardly. I believe many companies or families would deem such a ratio to be too low. Admittedly, the increase in liabilities has outpaced the growth in real GDP in recent years and that’s probably why some market watchers are worrying about a weak dollar. But with total assets at $67 trillion, even if we apply a very conservative return rate of 4% annually, it would generate $2.7 trillion in annual income. With that kind of income level (keep in mind we only apply a return ratio of 4% here), the total debt could be paid off in less than six years. So to me, I really don’t think the debt problem is that big, at least not for now.

What really counts to the US is the ability of its multinational to successfully compete overseas. As I have mentioned several times before, the revenue generating from non-US operations for the S&P 500 companies will surpass 50% for the first time late this year. It is not a small milestone as it means that the US companies will make more money in other countries than from their own country. Not many countries can achieve that. In comparison, China’s largest companies generate less than 1% revenue from their overseas operations in 2008. And a weak US dollar certainly has played an important role. On the surface, the US may appear weakened following the recent financial crisis but its core assets – the ability of its multinational to conquer the rest of the world may even been enhanced. Eventually, the US dollar will become even stronger.

Most major sectors finished the session higher led by energy and basic materials. The CRB commodity index rose 1.9%. The US dollar was lower against most major currencies. Treasuries rose with the yields declining. The three-month US LIBOR was unchanged at 29 bps. The VIX index dropped less than 1 point. The market breath was positive on both NYSE and Nasdaq. The volume was slightly heavier compared to the previous session.

The market finished the first session of the new week in a mixed fashion. In contrast to the brutal volatility a year ago, the Dow’s 0.42% drop today marked the largest one day drop since September 1st. It was a very light day in terms of economic news and we won’t get much from that front until Wednesday, when the Fed publishes its regular FOMC statement. One interesting development in today’s trading is the strengthening in the US dollar, which pushes the prices of both crude and gold lower. The US dollar is becoming more and more like a finance currency rather than its traditional role of a reserve currency. Investors are borrowing in the dollar when they feel times are good while doing the opposite when the market goes against them. It is understandable given the US interest rate is almost as low as that of Japan, whose currency is mostly used in the so-called carry trading. But I think down the road traders may get hurt in such a trade as the Fed will almost certainly hike its interest rate some point next year, probably in an aggressive fashion to defend its role as an inflation fighter. In other words, those deeming the dollar’s role the same as the yen may be disappointed in the end.

For the week ending on September 18, most major indexes continued to show bullish stance. The S&P 500 is now 20% above its 200-day MAs. Although by itself it has little implication in terms of where the market may go next, the fact that the market goes almost straight up for several months reflects investors’ increasingly optimistic views towards the economy. If the recovery turns out to be less robust, a sharp correction will come in. Sectorwise, airlines, leisure and casinos, and coals were among the best performers last week while gold miners, flat panel makers and discounter retailers were among the worst.

Most major sectors finished the session lower led by industrial and basic materials. The CRB commodity index dropped 2.2%. The US dollar was higher against most major currencies. Treasuries were mixed. The three-month US LIBOR was unchanged at 29 bps. The VIX index was little changed. The market breath was mixed on both NYSE and Nasdaq. The volume was lighter compared to the previous session.