Buyers Storm Back
- Peace talks, Same Store Sales prime the market for a strong price gain.
- ECB to raise rates, US to keep on pushing liquidity.
- Jobless claims make it 3 of 4 below 400K. The trend is getting right.
- ISM services tops expectations.
- Indices clear interim peak as rubber match tilts in favor of bulls.
- Market expects jobs report to beat expectations. How the market reacts to the report, beat or miss, likely tells the story of any remaining correction.
MARKET SUMMARY
Buyers storm back in a triumph for liquidity.
What a difference a day or two makes. Tuesday the market was shot in the gut and dropped like a stone. Wednesday it tried a modest rebound, but it was not convincing. On Thursday, before the market was close to opening, futures were rocketing to the upside and they never came back. There was a pause before the market opened but they rallied. There was a pause half an hour into the session, and then a steady step higher into the close. The indices essentially closed at their peaks for the day, and the gains were very impressive. NASDAQ, +1.85%; SP500, +1.7%; Dow, +1.6%; SP600, +2.33%; SOX, +1.9%.
What it was reason for the futures gap up in the morning? There was a lot of playing pin-the-tail-on-the-reason for the rally, whether it was oil prices, jobless claims, or liquidity. It looks like the pump was in full gear and had a full pond of liquidity to push into the market. As soon as they got the chance, investors were ready to invest. With the positive economic data and what we have seen over the past several weeks with initial jobless claims, it looks as if the market is anticipating a good jobs report. It is anticipating something that will beat expectations handily.
Why do I say that? A lot of the commentary revolved around the fact that oil may decline now that Hugo Chavez of Venezuela wants to broker a peace deal and be a mediator between Moammar Gadhafi and the warring factions from the east. That barely dropped oil; it finished down less than one dollar. There was no real giveback in the price of oil that would have spurred this rally. We have to somewhat scratch that.
There are indications in other markets that suggest a fear factor may be declining and maybe that was part of what was going on. If anyone truly believes that Chavez will broker a peace deal and the insurgents will settle for Moammar Gadhafi staying in power in any way, shape, or form, they are crazy. That will not happen. The purpose of this uprising is to get rid of him. It is not to make a deal with him so that as soon as the international eye is turned the other way Gadhafi can slaughter them. Where have we seen that before? Iraq? In any event, I do not buy it, but it seems somewhat plausible when you look at the gold price. Gold tumbled lower on the session after surging higher on Tuesday. We will see. We will look at that more later.
Other news was also credited with this great swoosh to the upside. Initial claims came in for the third week out of four below 400K. They were at 368K when 400K was expected. Remember I said it was really a copout to say 400K was expected grow some stones. Anyway, last night I felt it would be below 400K, and it was substantially so. Continuing claims fell nicely. The four week EMA fell also. No doubt that had an impact on the session, but it had no impact on futures.
I was watching the futures, and they actually went down after the news was out. They never moved back up above where they were before the jobless claims report was issued. If the idea was that the market was moving well because of the economy picking up, then this definitely helps overall market sentiment. As noted earlier, it was probably a factor in what will turn out to be a better jobs report on Friday than anticipated. The report itself will not have an impact directly on that report, but it shows the trend. And you have to respect what the trend in jobless claims is showing.
Same Store Sales really revved up the market. They were outstanding. There were some big beats, including some by department stores. They did not perform very well the past couple of months, and now there were some huge wins. SKS posted a 15% gain in sales versus 5% expected. JWN, JCP, M most of the department stores did very well.
One of the concerns has been that consumer enthusiasm would diminish after the holiday binge and with oil prices rallying and pushing gasoline to the upside. It may still be diminished because a lot of the increases in gasoline prices are not included in this retail sales report. The big spike in gasoline prices occurred in the past week, and that data is not factored in yet. We may see a dampening of the consumer enthusiasm, but it certainly did not bother the market on Thursday.
The ISM services report was nice, coming in higher than expected at 59.7. A nice goose to the upside. It did not hurt the theme that the economy continues to improve. After a little slow patch of some data, it is starting to pick back up and consumers are continuing to buy. Underlying all this is the Fed liquidity pump keeping that liquidity flowing into the market and the economy and lubricating any of the rough spots that the market hits.
Indeed, looking at the chart, this is no kind of pullback at all. It is just a week-and a half of a little chop back and forth. That could be the hand of the Fed coming in and saying they will keep the liquidity flowing. It smoothes over the little downfall and does not even let it get to the 50 day EMA. I do not know if that is the case or not; we are still in the rubber match.
The indices did clear the early-week peaks, so the advantage tilts toward the bulls on this. We are not done yet. There are a lot of expectations built into this jobs report, and if it fails to make investors happy or they suddenly have buyer’s remorse after a big upside day on Thursday we might see some stocks get thrown back in the face of the buyers. We will have to see, but it certainly looked like a strong-enough day from our perspective.
It does not compute that this would be enough to consolidate such a long, strong run, but you have to look at the volume, the breadth, and the stocks on the move. You have to conclude it was a powerful day. The answer is not written yet on whether they can take out these prior peaks, but they sure look better. There is a higher low on SP500 and then a higher high coming back in. It is hard to argue with what the market is showing.
FRIDAY
It is already Friday, and it is all about jobs because it is the first Friday of the month. We will take a look back at February and see what the payrolls were. They are expected to post 185K gain, and that was bumped up from 180K. The private payrolls are expected at 198K, and they were bumped up as well. Nothing like a stronger ADP, better economic data, and Warren Buffett and some head hunters saying hiring is starting to get everyone more excited. Expectations are getting ratcheted up.
The market is pricing in a better-than-expected employment report. We will see if it can deliver. The unemployment is expected to rise to 9.1%. Why? More people will be coming into the jobs market because everyone is feeling great. Everyone is ready to move back in and go to work. I am sure that is true, but it is a case of whether they can find it yet. There have been several years of people trying to find jobs, and they have not been able to do so. Hopefully they will now start to find jobs. We do have to correct our treatment of small business. We have to get the small businesses ginned up so they are able to get money and expand. If they can do that, they can hire people as well.
What do we do? We see the markets coming back, and there is good volume as they bounce back. Leaders we wanted to buy into are moving higher such as RAX, WMB, and GMCR. They were moving to the upside, and we want to participate in those moves. I believe the market needs more of a correction, but this is one of those times where it has a bit of correction but there is a big liquidity bid underneath it. Thanks to the Fed, it has not been removed. When it dips, the buyers come in. They cannot immediately bounce it up without a little bit of downside, but now we have a week and a half of very choppy up-and-down trade and a very strong move on Thursday.
Will it last? That is the key. No one knows that for sure. The rubber match is tilted in favor of the bulls. The question is what they will do when they get to that February peak. The big question for tomorrow is how they are going to react to the jobs report. What if it is in line? Will it be enough? If it does not meet expectations, will that be enough to take the market down? Perhaps not. You would think if it missed a heightened expectation that would be a bad thing. Maybe for the short term, but not for the longer term because the market is building in better jobs numbers. It sees the trend. Investors see what is happening with the weekly jobless claims. They hear what Buffet is saying and what the head hunters are saying.
It is being built in, but one day will not necessarily scuttle the move. It may knock it back temporarily, but it does not have to take it down. If there is a beat and it jumped higher, you have to be careful. There could be a beat and then everyone will claim we are in nirvana and it is time to buy, buy, buy. You have to watch out for that kind of euphoria because it could gap up to the February peaks and then reverse. There may be more selling. Maybe this is going to take another two or three weeks. It did not look like it after Thursday, but we still do not know. It has not made the decision on that upper high. We will have to see how it plays out. The point is to be ready for interim weakness if the market gaps upside and cannot hold the move.
The bigger picture is the nice base in the summer, it broke out, tested it, held, and made its second run. This is the second run. Sure it was a long run longer than most. Maybe we used up two runs here instead of just one. That still leaves another run or two to the upside after this consolidation. We want to factor that into everything we do. That is why we sometimes give them the benefit of the doubt. We might say this is holding a support level, the market is still moving with the liquidity, and they break to the upside.
Overall, I think this means the market is still going to head higher barring some unforeseen event if Bernanke suddenly decides to stop injecting the liquidity or something major blows up in the Middle East, North Africa, or elsewhere. Those things can happen, and that could scuttle the run. All things being even (as they have been), it looks like the run would continue after this consolidation, however long it turns out to be. I will see you in the morning with the jobs report out before the stocks open. We will see what the market looks like it will do. A lot of news has been pushed into the market this week. This is the culmination of that news, and how it opens may not be the way it closes.
