Blog : Penny Stock Week: The Sideways Stock Pattern

by Ed Zwirn on August 19th, 2013

The market for everything from penny stocks to blue chip shares seems to be in a holding pattern following the prior week's disastrous showing. Stocks have opened to a mixed investor reception Monday morning, with the Dow Jones Industrial average trading water, the NASDAQ up 0.44% and the penny stock-rich Russell 2000 down 0.16%.

This follows a week which saw the DJIA closing Friday at 15,081.47, down 2.2% from the prior week's 15,425.51, its most-pronounced weekly decline so far this year.

Broader market indices tanked along with the 30 DJIA blue chip stocks, with the NASDAQ losing 1.5% and the penny stock-rich Russell 2000 down about 2.3%.

--On Tuesday, July retail sales came in as expected with a 0.2% increase, following June's upwardly revised 0.6% rise. Excluding auto sales, which were sluggish in July, retail sales rose 0.5%, up from June's upwardly revised 0.1% increase.

--On Wednesday, the July producer price index, which had been expected to show a 0.3% increase, stayed flat, a slowdown from June's 0.8% rise. The "core" figure, which excludes food and energy, which had been expected to show a steady rate of increase at 0.2%, actually rose by only 0.1%.

--Thursday's consumer price index release came in as expected to show a 0.2% July increase, down from June's 0.5% rise. The core figure as expected showed a 0.2% rise, the same as June.

--Also on Thursday, figure for July industrial production proved a disappointment. While the consensus had called a 0.4% July rise, following June's 0.3% increase, the number stayed absolutely flat, while June's figure was revised down to 0.2%.

--On Friday, two real estate numbers showed pickups for July. Housing starts, which came to an upwardly revised 846,000 in June, weighed in at 896,000 for July. Building permits did better than expected at 943,000, versus June's upwardly revised 918,000.

Looking ahead this week, two reports are expected to shed further light on the performance of the U.S. real estate sector:

--On Wednesday, the consensus calls for a 5.1 million July existing home sales figure, a slight uptick from June's 5.08 million.

--On Friday, the July report of new home sales is expected to show a fall to 485,000, from June's 497,000.

Taking the longer view, despite the significant amount of profit taking going on out there, the absence of any sign of inflation, coupled with continued weakness in the jobs market, ought to continue to provide a welcoming monetary environment for stocks. Add to that recent reports of economic rebounds in the E.U. and Japan, and investors in small-cap stocks should have the wind at their backs, as depressing as the news from around the world may be for other reasons.