Stocks Recover To Hold Support
- SP500, NASDAQ remain at the 50 day EMA, but the intraday action is constructive.
- Jobless claims crack back above 400,000
- PPI core tops expectations but not enough to alarm the Fed.
- Leaders continue to start to the upside and we will see if the rest of the market follows for at least a run to the February highs.
MARKET SUMMARY
Despite the news and an early selloff, stocks recover to hold support.
The market finished basically flat. There was some down economic news in the form of jobless claims and a stronger-than-expected core PPI, and that had investors and the financial stations somewhat gloomy. On top of that, the futures showed that the stock market would open significantly lower. There was not a lot of hope on the session, but all the lead up to the open changed right as the bell rang. Futures were lower, but as soon as the market opened, stocks started to turn back to the upside. That started a slow, steady rise to the close that left the market basically flat on the day. NASDAQ was down a fraction; SP500, flat; NASDAQ, +0.1%; SP600, +0.6%; SOX, +0.1%; NASDAQ 100, -0.25%
There were no major moves, and that in itself had some people gloomy. The market has been unable to move through the February peak and looks to be stalling X that is what some are saying, at least. Overall, the session was not negative in my view. Stocks sold off but they rebounded. Volume was up on the NYSE as stocks rallied back through the 50 day EMA after breaching it intraday. That was not a huge boom in volume, but it was a nice rise in trade as stocks sold off at this support level and reversed to close marginally positive.
The NASDAQ enjoyed the same type of action. It started right above the 50 day EMA with a gap lower, and then made a move through the 50 day EMA on the low. That was followed by a reversal that brought it back to nearly flat. Volume was lower on the NASDAQ, so there was not that buying surge. We did see some leaders moving up, however, as we did on Wednesday. The indices are showing good intraday action, and leaders are actually taking the lead.
BWLD had a nice break to a rally high on strong volume. HUN had a nice upside break of 3.5% on strong volume. It is in a completely different sector than BWLD. LUFK had a strong 4% move itself. Looking in tech, WBSN had a great 3.5% move. TITN was up over 5% on the day. PIR had a strong 4% move, and the list goes on. Some leadership stocks started to the upside across the market.
We are big into technical action and big into leadership. We saw many quality leadership stocks that have been moving well make a recent test and then move back to the upside on Thursday. We saw the market sell off and then reverse, then come back with a nice buying spurt. It was not a buying binge, but the action was a good shakeout to the downside right over a support level and a reversal. That is something of a positive.
There are still technical issues to deal with, of course. There is the February peak, the deeper selloff, and the inability to bounce back through resistance on this last run. If the SP500, for instance, holds at its current level or even down to the February low, it is still in excellent position to rebound off of an inverted head and shoulders and take on that February peak.
While I am not 100% optimistic about the prospects for the market heading to the upside, there is good individual technical action on the indices. Leadership stocks that have been moving and carrying the market up are also coming back around after a brief test and posting solid gains of their own. It may not be a 100% flashing “BUY” sign, but it sure looks positive that the market can make another run at those February peaks. Then we will get another measure of just how strong the market is after the impressive run it has put in over the last year.
News Driving the Action.
What was driving the news on Thursday? There were two big reports out. The initial jobless claims cracked back over 400K for the first time in five weeks. They came in at 412K, much higher than the 385K expected. That put a damper on things to get started. It was in line with what the economy has been doing of late, which is having a slow backtrack from the better results it was showing.
The PPI for March was lower than expected at 0.7%. It was expected to rise over 1%, and that is down from the 1.6% reported in February. It put the year-over-year at 5.8%, and that is fairly steep. The core rose more than expected at 0.3% when it was expected to come in at 0.2%. The year-over-year is still under 2%, so the Fed is not too worried about that. Of course, the problem is that the Fed’s focus on the core does not tell the story. We have a commodity inflationary run. That is causing commodities to soar, and a lot of those are excluded from the PPI. Energy is considered but is excluded from the core, and that is supposedly what the Fed watches.
We have inflation creeping in on everything but what the Fed is actually watching. There is inflation, and Bernanke even admitted to it just over a week ago when he said they had to watch the current recent rise in inflation. It is out there and they know it. I just hope they do not ignore it if things continue to get worse. We have the problems in Washington coming with the budget. The President’s budget still wants to print money. Even the republican response is still too high; there are no cuts to defense in it. Both sides have a lot of work to do, but do not know if we will get anything done.
One of the most disheartening things about the recent exchanges was that the President’s plan offered nothing with respect to entitlements. His answer was predominantly to raise taxes and implement his grossly expensive healthcare plan. He maintains that if you spend almost $3T, you will save $1T. I have heard that before. I think my wife told me once that she went shopping and bought all these items at 30-40% off. Just think of all the money we saved because of her doing that. Sounds the same to me X tell me if I am wrong.
Another story that cast a pall over the action was analysts downgrading MSFT and saying it had weak shipments. While that dampened the large caps, there were smaller techs performing quite well. It was not a move that zeroed out the technology sector. While NASDAQ itself was virtually flat, it was the NASDAQ 100 that led the move to the downside.
There was one more piece of news that was not exactly savory. The Q1 personal computer shipments were down, and that is the first decline since early in 2009. That was quite a downer for the technology sector overall. Of course, that tied directly into MSFT with its operating system.
FRIDAY
Friday there will be more important economic data, starting with the CPI. We will see whether or not these hotter producer prices are crossing over into the consumer area. They are not expected to rise too rapidly on a core basis, with just another expected 0.2% rise. The overall is expected to rise 0.5%. We will see the year-over-year quite solid, but the Fed will be looking at the core for what that is worth.
The New York PMI will be out, and we will also see Industrial Production and Capacity. It is always important to see how they are playing out as well as the Michigan Sentiment. We will see if it is bucking up at all. We note that Sentiment has fallen over the past month. We will have to see if it can improve itself.
There is a lot of data along with earnings. After hours we had an important one from GOOG; it missed and was taking a bath. The stock closed at $578 and was trading around $550 after hours. We sold some of our puts going into the number X you never know. Employee costs were eating them up and it caused GOOG to miss on the bottom line. We will have a bit of our position left to take some bigger gain. That will be nice on Friday, but it is just not as big a gain as we wanted. That was part of the plan X playing earnings is kind of a crapshoot. We are holding through the results. That is why we take some and let some ride, because we sometimes get these kinds of moves.
The market is trying to reverse and is struggling at this point. It is not collapsing, however. It is holding above a support level, and we will see if it can rally. We have taken some good positions in leadership stocks that have started to bounce over the past couple of days. I really like the ones we are picking up. They are quality stocks that have made modest pullbacks and are starting to make the break back to the upside. They can give us nice runs into their earnings reports. A lot of these had earnings reports in early to mid-May, so we have plenty of time to let them run. The market has pulled back ahead of earnings, so it has the ability to get ahead of steam and run.
GOOG may try to quell the activity on Friday, but we also looked at the SPYders after hours. They were not getting kicked around that much. Why? GOOG is hiring a lot of people. It has a lot of cost issues. It has never really had them under control, but its growth has been so huge that it has been able to just plow right through them. Now it is not growing as much, and its employee costs are coming to the fore as an issue.
It is hiring a lot and has generous benefits and what-have-you. It has to deal with those. It is likely more of a GOOG issue and will not impact the rest of the market. I do not expect the GOOG story to be an impediment for the market moving back up. It will not help, however. If a big large-cap tech stock does not move or goes down, that will influence a heavily-market-cap-weighted index such as the NASDAQ.
That does not mean other individual stocks will not move higher. That is what we have been playing lately and will continue to look at. CTSH, NVDA, ISRG, PIR X you name it. There are many out there that have been moving higher, and we want to take advantage of that. There are still some that may bounce up. I was talking about some of these stocks that can make a move to the upside, such as JOYG, DE, or CAT for that matter. There are many out there, even some that we already have. CUB is bouncing off the 50 day EMA. TZOO is one to consider. It is trying to bounce higher again, although it had a wild day. We may have missed the best entry on that. But you get the picture.
There are still many good stocks out there moving higher. The question is how they will react after GOOG and with more earnings. We picked up a few as noted, and we will look at some more on Friday. We may not be in the mood to buy as many on Friday, although the pullback is young in the market overall. If we are going to get an earnings run, it looks like it is ready to do it after today’s action. It reached lower, kind of a shakeout, and made a recovery. It was not a big move, and we are not going to see things blast off to the upside X at least I do not think so. We can still earn some money as things continue.
The question is if it will be able to take out the January peak. We will have to see. It is setting up. It is not giving up, and it could make the run at that level. That will be the key. We can get a nice run to that point, make some money, and see what happens then. That does not mean we are looking at a huge run, obviously, but it is a run we can make money off of. That is the name of the game. There is a lot of data out on Friday, and I will be eager to see how the market reacts. I am optimistic about the near term considering how the leaders were moving on Thursday. We will have to see if they can continue to lead to the upside.
