Market Again Overcomes Adversity and Indices Rally
- Early economic data knocks stocks back, but once again they recover to gains.
- Jobless claims tenacious, jump back to 451K.
- Durable Goods look bad, but take out a 99% aircraft drop and you have good growth, solid business investment.
- Good comeback yet again as growth leads with strong individual stock moves, but NASDAQ, SP500, SOX have to take out their recent highs.
- Even with the gains and good leadership there are still concerns about the viability of this last move.
- AMZN disappoints after hours. As of yet earnings hve not stalled the move. That makes Friday quite interesting.
MARKET OVERVIEW
Market again overcomes adversity and indices rally, but still have doubts.
Futures were up, but they were knocked back somewhat by the economic data. It was not too appealing to investors. The initial jobless claims played the up-and-down game once more at 454K versus 410K expected. There have been a lot of seasonal adjustments. With Christmas and the snow, there are always problems related to seasonal changes whether it is in shopping or the weather. Four states claim that snowstorms had a major impact on their jobless claims, and that is likely the case. We are still looking at a level around 425K to 430K, and that is very high.
Durable goods for December did not do the market any favors at -2.5% when a gain of 1.5% was expected. If you take out transportation, it rose 0.5%. That is basically in line, though 0.1% lower than expected. If you take out aircraft, which fell 99%, you get a nice bump of 2.4% in the durable goods number. Capital expenditures posted a very nice 1.35% gain. The news was not that bad, though the jobs are atrocious. That is just the way it is. When the government is giving stimulus to big companies like GE, we will not get job creation.
GE is just trying to find a way to stay alive. GE lobbied the administration to be the point company on all of its green initiatives. It had to do it; it was dying, and this gives it a revenue source. It is not creating new jobs, however. Even if it were, they would be the most expensive jobs on the planet. We have to get the small businesses going, but they still cannot get any credit. The SBA is coming out with a new program that is supposed to be in place the early March. Maybe we will finally see some money get to the small businesses.
I do not know if any of you have checked into it, but I often talk with small businesses. The SBA loan is 10-12 pages, and you have to provide unbelievable amounts of documentation. A lot of startups have a hard time coming up with it, or even having the money to create all of the documentation. Then after all of that, you basically have to drop your pants for a cavity search. It is atrocious. This plan, which is part of the new stimulus, will cut the form down to two pages. It will also grant a ten-day response time with the SBA versus forever (since you can never get everything that the SBA wants from you with the long form). This is in response to complaints that there was no help for small businesses.
They are also raising the guarantee percentage to 90% from 80% of the loan value. There may be some positives that finally force some money down to the small businesses. We will see. It would be a great thing to finally get some of the stimulus money pushed the way of small businesses. We are obviously going to spend the money, so we might as well get it to the people who create jobs versus those who just pander to the administration and refuse to tell the emperor he has no clothes.
I got off track, but these are very important points with an economy struggling to recover. It looks like things are getting in gear, but the engine of our economy is not driving things. That engine is the small businesses those guys and gals with a better way to do something or a new idea all together that has never been thought of before. AAPL started in a garage, and MSFT was in a motel in New Mexico. They started from nothing, yet that is where millions upon millions of jobs were created in the 1980′s and 1990′s.
It is amazing the results you get when you unleash American entrepreneurship versus subsidizing aging businesses. Japan did it in the 80′s. There was a lot of pain in the US semiconductor companies in the late 1980′s, but it got Japan nowhere. It got it a lost decade. Instead, our semiconductor industry grew stronger and stronger. How many governments have folded because they tried to run business? If that worked so well, the Soviet Union would be on top of the world today. But, again, I digress.
Earnings were out on the day, and there were some great showings. NFLX beat and made a breakaway gap. UA beat and surged higher on strong volume. QCOM beat, gapped higher. All of these raised their guidance significantly. Very nice action. Others beat as well. CAT gapped higher. LLY had a nice surge from nowhere. T beat but gapped lower. PG beat but gapped lower. CL also beat and gapped lower. What is the problem? They beat, but their guidance was not that great. They are not growth companies. They have grown a lot of their earnings over the past year when they got a bunch of government money, but they are not growing. That is why their forecasts were weak and they gapped lower.
On the other hand, POT gapped higher on strong volume. Good earnings. It cleared its prior resistance on that gap, and it also announced a three-for-one stock split. ETN had a nice surge, and it also announced a stock split. If there are good earnings, good results, and good news, you are being rewarded. If you come in line or even beat a bit but do not have something to hold out for the future you do not get much. That is the story of economic data no matter what you do. If economic data looks good going forward, you get rewarded; if it does not, you have problems.
Let us get to the market. It is about time. The market started weaker. Futures were up but got knocked back by the jobless reports and the durable orders. They rallied back up toward the open. The market opened higher, sold off, and rallied back to close nicely. SP500 did this, and the NASDAQ did it as well. It was not a bad move given that things started soft. I always love the low-to-high action. NASDAQ, +0.6%; SP500, +0.2%; Dow barely scratched; SP600, +0.45%; SOX, +2%; NASDAQ 100, +0.7%.
The action was in the growth. Recently it has been in the SP500 and the Dow. Those are not growth indices, and it is not good for the market when they are the leaders. Resurgence in the growth indices is a positive. We saw some good moves in some quality stocks as well. We saw a return to the growth stocks, and that needs to be done if the market will continue to move significantly higher.
FRIDAY
There is an advanced read on the Q4 GDP. It is expected to pop in at 3.7% a nice boost over the 2.6% prior. We will be watching the Employment Cost Index. Not that we believe in cost-push inflation, but the Fed does. Michigan Sentiment will be out, and we will see if it can continue to rise. We had that little surprise in the other consumer confidence that puts it just above the 50 level. That is pretty much dead-on recession. Maybe we will see a continued improvement in how people are feeling. That is a good indicator when coming out of a recession.
People tend to spend if they are feeling better as they come out of it. When things are good, sentiment indications are not that important. People tend to buy if things are okay. The main thing you have to remember with Sentiment is that it improves when views about jobs and employment improve. If you feel your job and your paycheck is secure, then you tend to have higher confidence and you will spend. If there is a concern, then you will conserve. The fact that Sentiment is better and people are spending is a positive. The issue for 2011 is still whether the holiday shopping increase seen in 2010 can hold into 2011 when there is not a holiday involved.
Looking at the charts again, here is the problem as I see it. The market has been rising mostly through earnings. There was a hitch last week, and it was a serious one. You had reversals, an attempt to bounce, and then a reversal of that move. That was not good, but there was no follow-through. They came right back. The sellers lost out, but they are not out of the picture. The market has had a good move. They took a shot and were unsuccessful. Look what happened in November. Sold, took a shot, bounced back, and made higher lows. It looked fine. We have not had that kind of selloff here. It bounced down, but the sellers lost out and the buyers came back in. They had some decent volume. Now they find themselves at those prior peaks already. After three days to the downside, they find themselves back at those levels they hit before they sold.
Has anything changed at this point? Has there been a dramatic reversal in earnings or anything else that would drive stocks? No. Has the Fed changed its policy? Have earnings changed? No. We still have great stocks reporting great earnings with solid guidance advancements. Then there are others that beat but do not show good guidance. Others are just in line and cannot give us anything good either. The latter two are the majority, and the first group has been able to drive the market higher. There comes a point in the earnings season where they cannot do it themselves either. This will be a very important test on NASDAQ, SP600, SOX, and even on SP500. So many are looking at the 1304 level, and the SP500 closed at 1299 after just cracking through 1300 intraday. We will have a lot of issues tied up in how the growth indices test those recent peaks and how SP500 tests 1300.
The market looks a bit tired, but it also keeps showing the winners. We keep seeing buys. It is almost amazing that you keep seeing good stocks come into play and produce good movers again and again. We have talked about several of them. LEAP is leaping higher for us right new. TITN has been moving up very well. There are stocks out there making the moves, and I am not even talking about the semiconductors right now. We continue to see the leadership, and we have to go with what it is showing us. That means we have been putting money to work. We have not, however, been loading the boat on any position.
We are participating in the move, but we have scaled back the size of our buys because we are concerned about the highs. That is normal. If it helps you sleep at night, then do it. If you have to take a little gain, do it. We always take partial profits, and that makes us better traders. We do not have that sense of all-or-nothing. If we bank good money, we can then let our winners run. We do not have to worry about losing everything if it comes back on us. Same thing with the size of the position.
I am not comfortable taking huge positions right now, so we are taking partials. We are doing what we feel comfortable with, and you need to do the same. Find your comfort level. We do not feel good about this level. We will be looking at some downside positions if these form short, near-term double tops and roll over. Looking at the IWM, it has bounced back up to the top of this prior range. It might be slowing down. Watch that. Watch the NASDAQ and watch FCX. Have some of those in your back pocket to use if necessary. Not many have been paying off lately. A stock breaks to the downside and then tries to turn right back up and find some buyers. Others like GPS are heading down. We will see how this plays out.
We have misgivings, but the trend is in place. The trend has been fairly strong and resilient. If we see the moves by quality stocks, we will pick up positions. When the trend starts to break if it fails here or we see a problem, we can then keep our stop losses tight as always. We can keep taking gain so our positions are not-overly weighted and, as stocks move higher, just take smaller positions and truncate our expectations for the upside. The risk/reward is not as great as it has been, so that warrants a bit of caution. That is all it warrants, however. Again, the trend remains in place.
See you on Friday. We will see how the GDP comes out. We will also see how the market reacts to MSFT and, of course, the indices at these recent peaks.
