No follow through on the Wednesday break as the economic data disappointed.

I will start with a chart of INTC after hours. It was flat during the session. It reported earnings that beat on the top and bottom line as well as on the margins. As the afternoon session progressed, it picked up speed to the upside. Before you get lathered up, however, realize that INTC closed around $21.20 and is trading at $21.85 after hours. That is a substantial move for INTC. I say that somewhat facetiously since INTC has been a dog of the Dow. It has moved up while the rest of the market rallied, but it has not moved up much.

That about sums up the session on Thursday overall. Looking at the daily chart, the SP500 started lower, sold off, and recovered for a modest loss. To tell the real story, however, you have to look at an intraday chart. The market rallied higher to end on Wednesday and started lower on Thursday. It managed to catch itself and rebound to positive, but it was hit by bouts of selling in the afternoon. It was not too dramatic. It was more of a steady pullback with three significant drops in the afternoon. Stocks managed to recover, rally back up, and take back a lot of the lost ground in the last half hour, though they were unable to turn positive. NASDAQ, -0.07%; SP500, -0.17%; Dow, 0.2%; SP600, flat; SOX was up but gave it back late; NASDAQ 100, +0.03%. Not a banner day.

It is interesting that there was no follow-through after the SP500 broke through its 127% Fibonacci extension on Wednesday. It spent a week moving laterally in a relatively tight consolidation above the 10 day EMA. It made a strong break, but it could not do anything with it on Thursday. That is not the kiss of death necessarily, but I would like to see a bit of follow-through after a week of rallying.

Why did the market not make the move we would have expected? The economic data on the day will tell more of the story. Thursday brought initial jobless claims. They clocked in at 445K, which was 30K more than expected and easily topped the 410K of the week before. Continuing claims were lower. They hit a low not seen since 2008 at 3.879M. That was much better than expected, and that provides hope   maybe. It is an issue of people falling off the rolls. They renewed the benefits, but they are only renewed for so long. There is a group of long-term unemployed that both political parties are wooing, and they want jobs.

It was a grotesque display during the election. They were talking about wanting concessions. I guess that is what you get nowadays. Everyone wants to cash in instead of just doing the right thing. These bogus government schemes built up imbalances in the economy over decades and caused it to crash. I guess if your job was thrown in the garbage because of those schemes, you might be bitter. You might want to get something out of the government after that. I will not get started on what we ought to do with all these programs to get back to being a true world leader again. I would have to digress, and that might upset some people (including myself and the transcriber).

I do want to talk about the jobless claims bouncing back up. You cannot put too much stock in these, just as we cannot put too much stock in the 415K of the week before due to seasonal adjustments. It is that time of year where it is hard to get an accurate read. Do not worry about it. The market did not seem worried. It took the news and managed to recover. The futures were down after the numbers came out, but they rallied back toward the open. Futures sold off an hour earlier on the news, but then they rebounded towards the close.

It was not necessarily the jobless claims that upset investors. The PPI was hotter at 1.1% versus the 0.8% expected, but that did not upset too many people either. The core PPI was at 0.2, right in line with expectations and lower than last year. That put the overall PPI, year-over-year, at 4%. That is a bold number. Food and energy costs are really hitting the producer. The year-over-year of the core   less food and energy   rose 1.2%. That is enough to get the Fed’s attention, although it is still within its “speed limit.” Nonetheless, those are impressive numbers that cannot be ignored.

The trade deficit hit a ten-month low as exports rallied more than expected. All of this had a role in the market, but it did not damage anything. The news that took the wind out of the market turned out to be a revision of the Philly Fed. It was originally reported at 24.3 but was revised down 15% to 20.8. The market never felt the same after this. It double topped, it sold off, and it had bouts of selling. It rebounded, but it never could get back on track.

That seemed to represent the problems of the day. There were issues after the good bond auctions which were not actually good bond auctions. The ECB and the other central banks fixed the game so that Germany, Portugal, Greece, and Spain would come out strong and showing confidence in the Euro. It was rigged, and that is what the revision in the PPI seemed to reflect here. We had this breakout on supposedly good news, but we are having the same issues. At least we are up front in saying we revised it because we overstated it originally. That is the kind of world we are living in. The central banks are printing a lot of money, hoping we will all forget that things are bad and allow them to paper over all the issues. We will see.

FRIDAY

There is big economic data out on Friday. The CPI comes out along with retail sales, industrial production and capacity, and Michigan Sentiment. A lot of heavy hitters on the day. The Philly Fed revision might not be headline news, but it helped stall out the market’s advance. This data could be very important in how the market reacts on Friday.

We had some stocks break higher on Wednesday. Very solid action. That is exactly what you want to see, and it is action I did not expect, quite frankly. I am happy to let positions run higher, no doubt about that, but I was dubious as to whether SP500 and NASDAQ could break through the 127% Fibonacci extension. They did, and because we let our positions run (we let the market tell us what to do) we were not disappointed by it at all. We just took some more gain, and we are taking positions here and there because we keep seeing money put to work in individual stocks.

That is the way it is right now. It is more of an individual-stock situation. All boats are not rising because there is money rotating in the market. You have to go where the money is coming in. That has been healthcare and technology   particularly software and chips. We have been putting money to work there. Along the way, we have also picked up energy stocks that have been working well for us. It is mostly the smaller independents that have been making the bigger gains.

We are going to keep looking for opportunities. The market is still in its uptrend. I have doubts about whether the market can take on and overcome the next resistance once again. Primarily that involves the SP500 and the points from March of 2008 and May 2006. There are issues with old peaks and valleys that stand in the way. SP500 closed at almost 1284, and that gives it plenty of room to run. The next resistance is at 1313, and after that at 1325. It still has plenty of upside. Thus SP500 can still put in a great upside move and make us some really good money up to these resistance points.

That is why we are letting positions run. That is why we are not overly anxious to take the downside because, despite a lot of people saying a downside correction is imminent, the market continues to defy that logic. I have talked before about why it does that. We think we can pick tops and bottoms, but we cannot always do it the way we would like. Stocks surprise us. The internet stocks should never have run as far as they did in 1998-2000, but they did. Everyone said they would top. They did, but they topped two years after they said they would. You get the point.

We have good positions and we will let them run. If we see other good positions set up, there is room to make money to the upside. The question is time. We have earnings, and I do not like to take many new positions right before earnings. We do, just not a lot of it. I like to play the aftermath; there is a lot of opportunity there. We will keep doing what we have been doing.

We are taking positions, but a lot of the positions we are picking up are back in February. We still have plenty of time for them to run to that level. We are still letting positions run to the upside, but a lot of stocks look as if they are ready to roll over. RES started to roll over today, and ZUMZ may be doing something along those lines. SKS is a luxury retailer that surprises people. It has a triple top in here, and I am curious if it will make a break lower.

There are a lot of stocks that are ripe to fall. They can do that as some parts of the market still move up because of that rotation. Money rotates out of one area and they decline, then it rotates to new areas and they move up. SP500 still has a cushion between it and next resistance, so there is room to move up. As long as the earnings keep coming in decently, stocks look as if they will make a continued move higher for at least another week or two before they start to change gears. Then people may decide to take profits before any more news comes out and before SP500 actually hits that resistance.

Jon Johnson