The Market Does What the Market Does, However
- Market refuses to sell as SP500 breaks to new rally high and growth indices log solid advances.
- New home sales rise 17%, topping expectations.
- FOMC unanimously continues the same policies due to low employment, etc., and the market can deal with all of that . . . money.
- State of the Union ‘embraces’ business? Just more big government views.
- Earnings treatment remains mixed stock by stock, but the market continues to rise overall.
- Bonds turn right back down but still in the lateral range. Close to an answer after this action.
- Market renews the upside even as nagging questions remain. The market does what the market does, however.
MARKET OVERVIEW
Strange looking selloff.
Just goes to show you cannot get too enamored with your own ideas and impressions regarding the stock market or any other market for that matter. The market always has the final say and on Wednesday, despite weaker growth index action heading into the session, the wide majority of stocks bounced, turning NASDAQ back up through its gap zone and pushing SP600 back up into its range versus looking in from below.
The market did not slam the door on any correction. It never does. Stocks could reverse tomorrow given the right circumstances. They could do that, of course, on any session. Wednesday, however, the buyers showed back up and kept the trends going, buying early and often, holding the market up all session and providing a little kick late in the day to make sure the gains stuck.
The move was broad (3:1 breadth on NASDAQ) and volume increased nicely on both NYSE and NASDAQ. Leading groups such as semiconductors bounced, and other sectors under pressure of late, e.g. industrials, energy, and metals, bounced quite nicely.
We picked up a few positions early but nothing major. When it was clear the move would hold and that volume was solid, we picked up some more. When stocks in good position make good moves you typically need to respond. We are not entirely comfortable with the renewed upside, but the market doesn’t really care about investors comfort levels. As I say often, the market does what it does and we have to act or not. With NASDAQ up 0.75%, SP600 gaining 1.7%, SOX climbing 0.9% and good stocks rallying, we decided to act.
THURSDAY
Jobless claims, Durable Goods Orders, pending home sales, and oh yes, earnings.
More economic data and jobless claims are important because the Fed is focused on employment as its key indicator. Money will flow until it sees significant, lasting changes. That may be too late for inflation, but that is the plan. Of course the market likes liquidity in the short run, particularly with so-so economics; the money goes into the financial markets and asset prices appreciate. No secret there.
Earnings continue to ramp up and after hours QCOM posted nice results and NFLX, much to the chagrin of numerous television ‘analysts’, again posted strong results that defied the negative prognostications that NFLX is flawed. Herb Greenberg (how did he get back on television?) rants about NFLX earnings just as he rants about other companies that enjoy strong momentum. Herb doesn’t understand markets. He doesn’t realize that even though product X may be better than product Y, when the market wants Y it will get Y and forget about X. At some point that will change and Y will crash (X may or may not ever rise) and Herb and his ilk will exclaim ‘I told you so!’ Of course by that time we will have pocketed lots of dollars. We were told this when NFLX made us 200%, 300%, and 400% gains in 2010. Man, if being that wrong makes that much money, then who wants to be right? Of course, as with all things, timing is everything. Herb will eventually be right: all stocks run their course and roll over. Maybe NFLX’ day is near at hand; it wasn’t after hours as NFLX rallied 14 points over its close.
Even with these good results the earnings effect is rather specific, at least as far as big moves for stocks. Overall the indices are moving modestly upside even as some stocks surge on results and other purge. It is still a stock picking market even with this Wednesday move, it is just that there are quite a few strong stocks in good position given the pullback that preceded the Wednesday action.
Again we are wary of this market and the advance. Even without this little hiatus in NASDAQ and SP600 there was not a lot of upside left before some serious resistance was met. Thus while we are playing the continuing trend we are willing to have smaller time and gain horizons for now while the market works through this chop and deals with this next, and rather close at hand, resistance.
Jon Johnson
