Despite Quake, Tsunami, Market Did Not Sell Off
{ Despite quake, tsunami, EU bond yield surge, weaker sentiment, and morning pundit predictions the market would selloff, it didn t.
{ January retail sales rise in line at 1%, but driven so to speak by gasoline price increases.
{ Michigan sentiment takes a hit on gasoline prices. Inflation expectations jump.
{ Business sales hit a 12 month high at 2%
{ SP500 looks just like November and SP600 as well. NASDAQ and SOX, however, have to make a comeback.
MARKET SUMMARY
You hate to ask what more can happen, yet the market is holding up for now.
It was another day loaded with news. Unfortunately there was some tragic news with the earthquake and tsunami in Japan. Our thoughts and prayers go out to the victims of that natural disaster, as well as those rushing to their aid. The US Navy and many other branches of the service are rushing to give supplies and equipment to Japan to help the relief effort.
In addition to that terrible news, there were other worries out. There was an EU bond yield surge. We cannot forget the debt crisis (with the US included) that still has to be dealt with. Bond yields were surging, and there was weaker sentiment in the US. There were a lot of predictions by the pundits that the market would sell off as the day wore on. You would expect that looking at the futures early on, but that is not what happened. Indeed, we were looking at the futures and the charts. We put out a premarket alert saying that the market would bounce. It was merely a technical bounce; there was no solid foundation or reason for it to do it other than a technical situation. Sure enough, that is exactly what happened on the day.
The futures were down but, almost to the minute that the bell rang, the market turned positive and rallied throughout the session. It came back a bit late in the day, but overall quite solid. NASDAQ, +0.5%; SP500, +0.75%; Dow, +0.5%; SP600; +20%; SOX +1%. It has a long way to come back. It has been beaten up this week, but it managed to post a gain even though it looks to be a relief gain at best.
It was not a huge day to the upside, but it was not a day to complain. It was a relief bounce on some of the indices and individual sectors. SP500 still looks quite solid. The slight undercut of the 50 day EMA on Thursday and a recovery on Friday sure makes it look like November. Of course looks can be deceiving, so we cannot bank everything on the fact that February and March look like November of 2010.
You do have to take what the market gives you, and it was bouncing nicely. There were great stocks moving very well on Friday. It was not just a relief move. Retailers were moving quite nicely. Old standbys such as CHS were rallying nicely. BONT tested and looks to be ready to bounce back up after breaking from a triangle. This was common. There were energy stocks moving back up well, particularly the refineries such as FTO. Some technology stocks were performing well. A had a nice reach lower and reverse. These are solid stocks in solid patterns performing nicely even as some sectors show wear and tear. We will discuss more of those in the leadership section.
MONDAY
Next week brings a plethora of economic news starting with a lot of regional manufacturing reports. New York comes in on Tuesday. We will have the rate decision by the Fed on Tuesday as well. It probably will not give us any kind of change of plan, although we need to start looking for the pullback. Even though there was Quantitative Easing II, it will run out by the summer. The Fed will have to start telling us what it will do after that X whether it will go to Quantitative Easing III, as some are suggesting, or if it will do a complete pullback. If it starts talking pullback, that is when the market will start to panic and drop. Some are saying that is why it is doing it right now; it is starting to factor in the Fed eventually backing off from this massive liquidity pump.
There are also housing starts and building permits. There is the PPI, the CPI, and the Philly Fed on Thursday. There is nothing scheduled on Friday. We have plenty of data to keep the market occupied X as if it needs it. We also have the bond issues in Europe and the riots there. We have the protests, riots, and church burnings, etc. in North Africa and the Middle East. There is continuing turmoil in Libya. It is an unbelievable denial what the Libyan government says versus what is showing up on film. That is always the way when dealing with a totalitarian society. Sometimes it does not even have to be totalitarian, as we know.
There are also the natural disasters. Then we have our own issues in the US with the state capitals and the disagreements between those wanting collective bargaining in the public sphere and those wanting to take away some of the luxurious punch bowl that has been doled out and cannot continue. That is an interesting story itself. All of this will have to work its way out.
It is one of the most interesting years we have had in quite some time. Of course I keep saying that about every other year. That just shows you how the world has to adjust to get along with each other better in a time where the global economy is truly becoming global. There is also a fight to maintain elements of sovereignty that you have to in any country. There are some ways that we do not want to be like other countries. They do not necessarily want to be like us. It is a good thing we keep our identity, but we have to figure out how to work together as we do it. We are having some growing pains with respect to that.
In any event, there is a lot of activity, and that is all an overlay to the technical picture. We have talked a lot about the SP500 and the SP600 looking fine in their patterns. You can even throw the DJ30 in as well. I liked the DJ20 a few weeks ago, but as soon as they hit that new high they were sold off. There is an issue there as well. Nonetheless, we had these consolidations, and we will see if the SP500, SP600 and the Dow can offset the likes of the SOX. It is in a lot of trouble at this point, and NASDAQ is below the 50 day EMA and not looking like a spring chicken either.
Friday we got a bounce we were looking for. Come Monday, I hope we are not kicking ourselves in the behind for not closing more upside positions with this bounce. We will see how that plays out. Again, there are many good upside stocks. There are good sectors doing well and stocks within those sectors performing well. That keeps us heartened that money is still moving into these areas and others in the market. Some leaders like the semiconductors and energy, however, need some air let out of them. They have had tremendous runs, but it looks as if oil will continue higher. If it does, that should help prop up a bunch of the energy stocks that pulled back to their 50 day EMA.
BHI had a very solid day. It bounced sharply off of its 50 day EMA. It is not a lost cause by any means. There are some chips that even still look good, although they are getting few and far between. It is getting difficult to find a lot of good stocks even in the technology sector. They are out there, but it is harder to find some of them so you look in other areas.
We have been mining some of the retail areas. They have looked good. Even some of the technology stocks have come around and started to look better after they have consolidated. We will continue to look for the upside plays because we have some key indices that are still in their uptrends and still look as if they want to hold them.
We will also be looking at some of the downside. They made us good money this past week with X, FCX, etc. But it has been a tough go making money to the downside because the bid under the market bounces it right back up. We may get some improvement again in the metals. They are trying to come around. It will still be a market where we look for the upside plays. We will look for downside plays in sectors that are corroding and starting to crumble. We can play it both ways, almost having our cake and eating it, too. It is a bit choppier and tougher to do, no doubt.
We will keep our play sizes down for now. Do not try to be a hero. There is no point to that in these kinds of transition stages. Even if it does not change the trend, it just rotates and becomes very choppy for awhile before resuming the move. We have made money doing it, sure. We have been banking gain now and then with three or four plays here and there. It is not the steady four or five plays a day. It shows you there is chop going on. You should not take as big of trades, and you should not overweigh your portfolio with any one of these plays in particular. Take even trades and take smaller ones. Do not be greedy, and just let the plays work.
If they do, that is great. If they do not, you can get out of them and move on. You are not going to win the game in this kind of market, but this kind of market can help you lose the game if you are not careful. You do not want to take big risks at a time when it doesn’t warrant you taking big risks. Narrow the size, narrow the goal. Be happy with smaller gains and do not let losses get out of hand.
Enjoy the weekend. We will hope and pray for the people in Japan and other places affected by the tsunami. We hope that everyone in the world can settle down and see the big picture. Then maybe some of this hostility will end. I know it is pollyanna, but there is power in positive thought. If you get enough people thinking positive thoughts X like in Kelly’s Heroes, “Stop with the negative waves, Moriarty!” Let us start having some positive vibes, and you would be surprised how things happen.
If you do not think it will happen around the world, at least do it for your portfolio. Have confidence in your trade, because that makes a huge amount of difference. Be confident and positive, and you will act quickly and decisively. You will get out of trouble faster, and you will let other plays run that are working for you if you are confident and bold in your actions.
