Blog : Penny Stock Week: Holidays to Clog Arteries, Slow Market

by Ed Zwirn on November 25th, 2013

By one of those odd coincidences which sometimes occur on the gastronomical calendar, Thursday will see both the official Thanksgiving holiday in the U.S. and the beginning of the eight-day Jewish celebration of Hanukah. This first of this season's round of holiday blowoff weeks is likely to come to a sluggish end Friday, when key players process turkey stuffing and a subset of these lie dead to the world after having downed potato pancakes as well.

And, despite all the headlines about the major market indices all setting yet more records, with the Dow Jones Industrial Average stealing the show by closing over 16K for the first time, a slow market slog this week would prove to be the perfect followup for last week's relatively slow market gains.

Most major market niches saw modest gains last week, with the Dow closing Friday at 16,064.77, up 0.6% from the prior week's 15,961.70, eking out its seventh consecutive winning week. The broader market also saw a restrained upward movement, with the NASDAQ Composite gaining 0.1% and the penny stock-rich Russell 2000 up 0.8%.

Last week's economic releases saw some positive results for both housing and consumer activity coinciding with a continued lack of any inflationary upswing.

--Wednesday morning saw a better-than-expected retail sales report showing a 0.4% increase in October, following September's upwardly revised flat reading.

--On Wednesday, consumer prices, which had been expected to hold absolutely flat in October, actually fell by 0.1%, after rising 0.2% in September. The "core" CPI, which excludes food and energy, also showed a tame reading, rising by a less-than-expected 0.1%, the same rate of increase seen in September.

--Wednesday's October existing home sales figure came in at a better-than-expected 5.12 million, falling from the prior month's 5.29 million, driven downward in part by mortgage processing delays attributable to the government shutdown.

--More evidence of a lack of price growth in the U.S. economy came Thursday morning, with the release of a report showing a 0.2% fall (as expected) in October producer prices, following a 0.1% decrease. The core figure rose by a higher-than-expected 0.2%, after rising 0.1% in September.

Looking ahead this week, the abbreviated calendar of economic releases will kick off Tuesday morning, when the government plays catchup with its housing starts and building permits updates.

The consensus is calling for the report to show a 915,000 housing start figure for September, a pickup from August's 891,000. October is expected to weigh in a tad higher, at 920,000.

Building permits, a more leading indicator, are expected to total 932,000 a month for September and October, up from August's 918,000.

On Wednesday, the market is expecting to see a 2.2% fall for October durable goods orders, reversing the 3.8% gain seen in September. Excluding transportation, the indicator is expected to squeak out a 0.2% gain, following September's 0.2% decline.

One further note: The breaking news about the nuclear deal with Iran has already resulted in a fall in oil prices. Whether or not traders are proven correct in the bets they have placed over the weekend that volatility in the Middle East will fall as a result of this deal, this puts a downward pressure on energy prices at a time when demand is slack (e.g., compared to the summer driving frenzy). While the broad economy should benefit, some energy-related companies could be hurt by pricing pressure, including alternative energy producers who need to show that their alternatives are cheaper.