- Ask and ye shall receive: market provides a bit of follow through.
- EU visits Greece once more with loads of money.
- Jobless claims rise yet again, still well over 400K per week
- Leading Economic Indicators rise, matching expectations, but revisions dog prior gains.
- Companies have a lot of money but the Administration complaining about it and threatening companies won’t get them to spend it. Bring forth the right policies and they will . . . and the economy will follow.
- Decent earnings but economic data remains very weak. Why is market racing toward the prior highs? Could it be QE3?
- Riding the rebound, letting positions run, but don’t forget it is still inside a trading range.

MARKET SUMMARY

After a pause the market continues the surge off the higher low.

The theme tonight is “Ask and ye shall receive.” On Wednesday, I discussed the need for follow through, whether it was short term or long term in market rallies. I was specifically talking about the need for the market to resume its upside bounce off of the mid-range support levels and the indices’ trading ranges, given the Wednesday pause. We had a strong day on Tuesday and a do-nothing day on Wednesday. That is okay, but we need a return to the advance (i.e., follow through) if the move is going to be successful. That turned out to be exactly the case on Thursday. The indices posted some impressive gains. SP500, 1.35%; NASDAQ, +0.7%; Dow, 1.2%; SP600, +1.1%; SOX, +1%.

Futures were not that great early on, in the wee hours of the morning. Then the EU announced new bailout plans for Greece. It was coming to visit Greece again, bearing sacks full of money. That helped turn the futures, which were down after some less-than-exciting results from INTC and other tech companies. Their guidance was not as positive as hoped. That totally reversed the futures’ outlook. Moreover, we had very good results from MS. After some lackluster earnings from GS, MS produced some of its best earnings in quite some time, and it delivered one of its best upside moves in quite some time. It broke a steady downtrend from February.

Those results helped overcome some rather weak outlooks from INTC and other tech companies. Even though INTC managed to recover quite a bit of its loss after gapping lower on the morning. There was also a little M&A help as some health companies decided to get together today with ESRXs, picking up picking up MHS. MHS gapped to the upside, and that always excites investors. It is a “who’s next” kind of game, wondering who will be picked up and purchased with all of that money sitting on the sidelines. It is much better to buy a business now than to invest and create it. It is safer to do that. Much as it was safer for oil companies to buy other oil companies back in the 00′s because it was cheaper than having to explore. They could buy a company with a lot of proven reserves for a lot less than they would need to explore to find that same amount of reserves. With cash on hand and no one hiring (and feeling no need to hire because of a lousy US economy), it makes a lot of sense to use some of your stock in this rally to pick up companies that you always wanted to have but were afraid to go after.

Given the European action, the dollar turned to the downside with a nasty break lower. Bonds sold off sharply as well. The markets are definitely responding to what is happening on the bailout scene, and it is affecting a lot of different markets currency, bond markets, and stock markets, of course. Stock markets love bailouts. It simply means pushing problems down the road and ensuring extra liquidity. That means higher equities prices at least near term. These things tend to turn out badly but, for now, the party is on again in equities.

They did party a bit on Thursday, moving up toward the top of the range once more. They are still below even the recent July peaks, so I wonder if they can propel themselves to a breakout. Always look for a breakout when you see a higher low in a trading range. With the earnings propelling them, and obviously buy outs propelling as well, you see stock markets around the world making upside moves. It does not mean they will break out however, because they are still in a trading range. I always like to see the higher lows, but it is just a pretty picture until they actually make the move. Nonetheless, I have no complaints. I have a lot of upside positions that I have owned for quite some time. They are running very well right now. Indeed, I am letting most of them continue to run upside without taking anymore gain. It is one of the money-management traits you need in the market.

Take partial profits at the right times. When there is a pullback and an attempt to break to new rally highs, let them run and make a break. Particularly since we have this higher low in the trading range that often presages an actual breakout move from the range. It is a good bet first to let them run at this point and see if they can provide us with a breakout. If so, we will bank even more money after they make that initial breakout run. Frankly, we are letting a lot of them simply run with the market. As long as the market does not take them out, we can let them run. The only caveat is option plays that start to run up against the expiration clock. But we have a lot of options in September and October, so we have plenty of time to let them run.

FRIDAY

There is no economic data to talk about. There are just earnings, debt deals, and the EU. MSFT reported its results after hours, and its Windows sales were disappointing. That is its cash cow. It is not a growth area, and that cash cow is cashing out a bit. It was down, but not enough to take things out. We have not seen individual earnings stories take the market down. Overall the market is riding higher. On some earnings, yes, but also on debt deals and on something else. I think there is an assumption that there will be a budget deal. There is an assumption that it will not be anything major. There is an assumption that it will put off any serious cuts until later, but it will provide liquidity to continue all of these programs that pump liquidity into the economy. And that liquidity goes where? To jobs, right? No, no, no. It goes into the market. The market is anticipating that extra goose.

They think that the Fed is waiting in the wings for this to be passed, and then QE3 will come in. The economy is in terrible shape. The economic data continues to worsen. The Philly Fed was up, but those are modest gains. Ben Bernanke has often said that his job is not over until the jobs improve. They are worsening, so he wants to start a QE3, and I think that is what the market is waiting for.

Gold continues to move higher. Commodities prices overall, such as oil, continue to move higher. And we have the dollar moving lower and bonds moving higher. There is anticipation for further stimulus. Obviously stocks are moving up because they love the liquidity the Fed has pumped in. Is there any reason for the stock market to be where it is based on economic growth? The recovery from early 2009 saw the Dow down at 6500, and now it is up at 12K. Is that warranted by the economic growth we have had in this country? Of course not. That is a liquidity-driven move, and that remained in effect until June when the Fed ended its Quantitative Easing. Then there was a hiccup in the market.

Now, with the continued bad economic numbers and poor data with respect to jobs, the market is assuming the Fed will come in with new Quantitative Easing. I believe that is why the market continues higher despite poor economic data. Maybe it is also anticipating a policy change; maybe it is looking all the way out to 2012 and 2013. That is a reach, I would think.

We are range riding right now. We are going to ride the market higher, letting our positions continue to run. But do not forget that we are inside of a trading range. Until it proves otherwise, we will trade it as such. In other words, as we get up toward the top of the range, we have to be cautious and watch out for a reversal even though we have a higher low that can lead to a breakout. We just have to play the game the market is playing and taking what it gives. Obviously we are letting our positions run higher because they are back on the upswing. As they power to new gains or bump into the highs, if the market stalls, that is our queue to take a little more off the table. The ones that have been there a long time, we can just let them run for us. We will not get too pushy with them since they have treated us well for quite some time.

We will get pullbacks, probably when we get up to the top of the range. Even if there is going to be a breakout, we get some kind of pullback. That is all right. We can use that to prepare. Either we will pick up stocks as it makes to break to the upside, or we will play it to the downside. In any event, we will play the individual stocks. We will have index plays when they set up, but individual stocks are moving in waves. When they set up nicely we can take advantage of that.

No rocket science here. We are just taking what the market gives. Right now, we are riding a pretty good upside, and we will let it run. I do not know if we will do too much on Friday. After all, we have a good surge moving. I do not want to spend a lot of money right before the weekend and right before the market gets to the top of its trading range.