It's GDP Day!
Actually, it's just the 2nd estimate of Q2. The last estimate was 1.7% back on July 31st. That bad news was not good news in retrospect but the Dow jumped from 15,500 to 1,650 over the next two sessions on the usual logic that a worse economy means MORE FREE MONEY from the Fed. At the time I warned that it wasn't anything to get excited about (and don't forget we changed the way it was calculated, or it would have been much worse) – but I was wrong for two days before becoming very, very riight. So right, in fact, that A MONTH AGO I said:
In the bigger picture, we ran up from 1,350 on the S&P in November to 1,700 (just shy) last week and that's 25% and again, a 20% overshoot is predictable in our 5% Rule™ so we expect a pullback to 120% of 1,350 to 1,620. We did get that already from the initial run to 1,687 in May so we could call that the correction we needed and, if so, then this is not exhaustion but healthy consolidation for a breakout.
Again kids, this is not hard and we don't need the silly, squiggly lines – it's just math! There are charts back on the 7/31 post to illustrate the math for those who need visual stimulus and you can see the updated long-term SPY chart here (Dave's on vacation!). Keep in mind – I can only tell you what's going to happen and suggest a few trade ideas – that's the limit of my powers...
Early this morning I sent out a Morning Alert to our Members (also Tweeted) to short the Dow Futures (/YM) at 14,850 and we got some Egg McMuffin money ($250 per contract) on the 50-point dip. Now we're coming into the GDP Report and we're back to 14,850 but very, VERY dangerous to play into the report – as it could go either way.
8:30 Update: And it went UP!!! Up a lot – 50% over the initial estimate and it's now 2.5% vs. 2.2% expect. This represents a 50% miss by our leading Economorons and it seems to be coming from higher exports and lower exports than anticipated (that has already been reversed by the run-up in oil and gasoline in Q3). Another big number in Q2 is Durable Goods, which were up 6.1% and that has also dramatically reversed in July already.
Corporate Profits were up $78.3Bn in Q2 (first estimate today) and, of course, taxes on those profits only went up $10.5Bn (13.4%) – not shocking as that's pretty much exactly the percentage of taxes that Corporate Citizens actually pay. Dividends (also taxed at 15% for the top 1%) went UP a whopping $273.8Bn and "Undistributed Profits" still managed to rise $205.9Bn.
$78.3Bn is enough money to hire 6,264,000 $50,000 per year workers! Unfortunately, 331,000 people LOST their jobs last week and Continuing Claims rose by 9,500 to 2.99M mid-term unemployed (the longer-term unemployed are dropped from the count!). We will NOT have an economic recovery if it's based on sucking all the wealth and income away from the bottom 80% – as we discussed in our Member Chat this morning – that's what did in the Roman Empire.
So I think good news is bad news because it's too good and we can re-short the Dow Futures at 14,850 (/YM), Keep shorting oil (/CL, now $110 again but tight stops over the line) and I'll stick by my downside target on the S&P from July 31st at 1,620 and PROBABLY a follow-through to the 200 dma (now 1,560, which is the 2.5% line on the Big Chart). As I said earlier – I can only tell you what's going to happen and suggest some trade ideas – what you do with the information is entirely up to you! 
We already have plenty of bearish plays to ride the next leg down with and we'll certainly add a few more in Member Chat, including some more downside hedges. Meanwhile, be careful out there!
