NASDAQ Pushes Past January High
- Muddled jobs report and still the market rises.
- NASDAQ pushes past January high, SOX surges, leaving the small caps odd man out.
- Unemployment rate dives and so do non-farm jobs. Things are better, things are worse, but you have to assume overall improvement, right?
- Oh Canada. Four times more jobs than expected.
- Bonds diving as the problem that was holding it in its range likely won’t topple the recovery.
- Dollar recovering, but a long way to go to credibility.
- Irrepressible stock market continues to push higher, fueled by the Fed’s liquidity supertanker.
- Retail, tech coming back around, starting to lead once more.
MARKET OVERVIEW
Jobs report snow job leaves market without the clear signal we wanted.
A muddled jobs report left us without the clear signal we wanted to see on the day. That is typically the way of the market; you think something has to show up and it does not. The market does what it will do, and it does it on its own time.
The jobs report was muddled. Unemployment fell to 9%. That makes the two-month decline from 9.8% to 9% the best in 60 years. But (and this is a big but) when there is such a decline, historically there is an accompaniment of a large number of jobs non-farm, private, you name it. We are not seeing that. The non-farm payrolls only rose 36K versus 148K expected. The private jobs only rose 50K versus 163K expected. Who can you trust? The market did not know what to do. At first it meandered around in the premarket. It was negative, but then it reversed and started to the upside. It continued to move higher most of the day. There was a mid-morning dip, as there frequently is, but it reversed, rallied, and the indices closed out near their session highs.
NASDAQ was finally able to take out its January peak. It shaved it by a gnat’s butt, as we like to say around here. It did take it out, and thus it joined SP500 with a move above its prior peaks. The SOX was already there. It decided it would avoid the Christmas rush and surge up by itself, and it was rocking and rolling on Friday. That leaves the SP600 small caps by themselves, having not taken out the prior peaks in this trading range. Even the mid caps posted a new rally high on Friday. That leaves you wondering about the small caps and about the rally. Then again, maybe it is just that point in the economic move where the stock market starts to trend out of small cap growth and into the more staid and steady. That could be. There was a resumption in the move in technology as NASDAQ broke higher, and retail stocks started to move back up.
That is the theme to end the week. Some downtrodden techs reversed and started to rally, and retail that was down reversed and started rallying as well.
MONDAY
The news next week looks rather boring. There is not a lot coming out. We have the usual suspects and Michigan Sentiment on Friday. The rest of the week the economic data is not going to excite anyone that much. The stocks will be looking to the remaining earnings that are out there, as well as what is going on in the geopolitical world. We had a lot of good data on economics, and we had a lot of good data on earnings. We had a scare on the geopolitical scene, but it looks to be stabilizing. It should be nirvana for stocks at this point, right? We will have to see.
It has still been a long run, and there is still the possibility of a pullback. We cannot take that off the table despite the moves that the market has made, such as NASDAQ breaking up through its recent highs. It has been consolidating laterally, but it is not a very big consolidation. SP600 looks to have a better lateral consolidation ongoing than NASDAQ, but it has not been able to break higher as NASDAQ has.
Next week we may get out of the jobs picture and out of the economic data shadow. Maybe then we will see just how the indices will react given that NASDAQ just cracked through its high. I will not say NASDAQ will continue to move upside on this move. It may turn right back down in a vacuum of news with respect to the economy and earnings. That said, we have seen money flowing back into tech stocks. It was clearly there on Friday, and we will have to see if it continues and pushes the index higher.
If it does, that is fine. We will close out the QQQQ’s we were just taking a chance on that anyway in the event that the Thursday turn to the downside got really ugly. As noted, buyers came right back in and pushed NASDAQ up. You could call this market irrepressible; it just does not want to fall back down. The Fed and its liquidity supertanker are pumping liquidity into the stock market. It is trying to build up the feeling of wealth by appreciating our financial assets. Therefore it has been trying to push the market higher so we would all feel wealthier and spend that money.
The problem is that the retail investor has not been into this stock market move very much. After getting burned in 2008 again and then getting burned by the flash crash in May, the retail investor has backed off again. The retail investor may not be feeling all that wealthy. That leaves it up to the big companies that have the stock holdings, and they got all the stimulus money anyway. We have seen what a rip-roaring recovery we get with them leading the way.
It has to be grass roots. One thing we should know in the US is that anything effective, widespread, and lasting has to be from the grassroots. That is where real change comes from, not from the big boys calling the shots and the government trying to pick winners and losers. It comes from the garages. It comes from the back study where those better ideas are hatched and then put into practice in our economy. Those are where the jobs come from.
There is encouraging news with the unemployment rate and the household survey. Maybe people are staying to hell with trying to find a job with these big guys who are still laying people off in this “great recovery.” They may make their own jobs by starting their own businesses. If that is the case, then we will have some good growth ahead. The problem is the small cap stocks are not leading anymore, and that is where a lot of these companies would come from. Mixed signals, but the trend is better overall.
We will watch next week. We are concerned that NASDAQ will not be able to hold the break. It is good to be concerned, and we have been concerned all along. What has that gotten us? It keeps us honest. We have still been buying into upside plays because we are taking what the market gives. We are seeing downside plays set up. The problem is they will go down for a few days, but then they reverse and turn. The money keeps coming back in. Do be skeptical about moves. There is rotation ongoing, and at any time a certain sector could come under fire as a big mutual fund (or two or three or ten) start unloading shares in certain sectors and they start to sell off.
That money has been staying in the market. It has been moving somewhere else. We need to watch where it is moving just as we are now. We see a little tech coming back, and we were trying to pick up some tech this week. We are seeing retail come around. There may be other areas where it is trying to work its way back in, and we will have to move into those areas. Money is rotating around the market, so you follow it. You try to figure out where it is going, get in, and let it push your stocks to the upside.
We have been fortunate. We have been able to ride several positions for a long time. We will continue to do that as we look for new upside plays. I know this leg is extended. It has come a long way, but we just have to stick with the move as long as the plays keep turning up and giving us buy points. We have seen them give the buy points and then continue to move higher. That is the liquidity from the Fed.
Bernanke said again this week that he will stand by that. He believes that the unemployment rate is still too high. There are still too few jobs being created for any kind of self-sustaining recovery. He will keep that supertanker hooked up to the economy, and that would mean to the financial markets. He will keep pumping that liquidity in.
There will be times when the market stalls and comes back to test what has NASDAQ been doing for the past three weeks? It was unable to move and going laterally. After that, the liquidity kicks in again and you have another leg higher. We had the August to November leg, we had November which was basically a pullback, and then December on through January. Now a little three-week walk to the side. That is the pattern we have. We have a great base below this rally, and it still suggests that there is much more upside. Possibly two more of the kind of legs we have seen thus far.
It seems illogical. It does not seem like the market would run that much when it is just fueled by liquidity, but that is what liquidity does. How many times have we seen a stock or index run much further than we ever thought it could? With that in mind, I would like to use this quote from Bull Durham again because it is so relevant: You have to stick with the streak. Do not [censored] with the streak. If it is in place and working, go with it. Be wary, however. There is another quote I like from Field of Dreams: You have to watch out for in your ear when you are looking the other way. I know those are baseball quotes on a football weekend, but I could not think of any football movie quotes for the Super Bowl. If you think of any, send me an email and maybe I can use it in a supplemental report.
