SUMMARY:
- Stocks blow early gains, still at the November crossroads
- Earnings remain mixed, some suggesting a solid consumer, others wondering where the consumer went. Consider WHO is getting the business.
- PPI higher across the board. No doubt inflation continues to heat up, but that is far from the Fed’s worry list.
- Bonds continue to ignore inflation worries for now. Anticipating a continuing weak economy, Fed action, or both as LIBOR rates creep higher.
- The new stimulus strategy is really a campaign strategy.
- Tuesday was a pause in the bounce. Wednesday started to look like a stall in the bounce.

MARKET SUMMARY 

Still at the November highs.

After the Tuesday selling and a decent late recovery, stocks started the session upside and rallied into the first hour. A hotter PPI didn’t really deter the futures, likely due to some decent retail earnings showed a consumer hanging in even if consumers are not thriving. Most importantly I suppose, there was no fresh hell out of Europe for the markets to deal with. Oh it is still out there, just didn’t have anything new to dish to investors Wednesday.

Consider the retail earnings a bit further, however. WMT reported better than expected results and a good outlook. URBN did not, saying consumers disappeared the past 10 days. TGT topped expectations and said things look bright. DELL said the consumer side of business is weak. DKS, sporting goods, is ‘cautious’ on the economy.

The pattern: discounters are seeing increasing traffic and business while the specialty and department stores are seeing business decline. A true indication of a recovering economy is when consumers leave the discounters and head to the other retail segments. That was occurring when the Fed’s first QE inflated asset prices and people felt better after the financial crisis and started to spend again. Now that is waning and they are returning to the discounters, leaving the department stores and specialty shops. That is an indication the economy is backsliding. Duh!

That the economy is in decline has been clear since the start of the year. It is not, as the President and some others claim, the debt reduction wrangling that caused the decline. Debate is what the US is ALL ABOUT. That is how we do things in an open society. We don’t have an oligarchy, a monarchy, or any other small group in control, at least in theory. The only way we get things accomplished is by debate. That is our system. More debate is good. More speech, not less speech, is the only way our system can work.

Was it the debt debate that caused S&P to downgrade the US? NO. As I wrote at the time the plans considered having a chance of passing were doomed to lead to a downgrade because none of them accomplished what the ratings agencies said had to be done. Shift the blame if you want, but only a small group were pushing the ideas that would have avoided a downgrade. Thus blame the President and the majority in Congress who voted for plans that had no hope of avoiding S&P’s downgrade. And by the way, the economy was already tanking long, long before Congress and the President decided to ‘get serious’ about the debt burden.

Not too far off the planet there. At least I am covering current events.

The news was good enough for investors to move in early and push stocks upside to nice gains. Then the bid ran out. The indices topped out below the November peak and flipped to negative. Hit the low just after lunch and even set up an inverted head and shoulders pattern intraday. Started to break higher, but just ran out of time as the bell rang leaving NASDAQ and the other growth indices lagging the large cap NYSE indices yet again.

NASDAQ -0.47%. SP500 0.09%. DJ30 0.04%. SP600 -0.28%. SOX -0.65%.

It was not bad action as they did once again rebound off session lows, but unlike Tuesday with a modest pause, this one looks a bit heavier with NASDAQ sagging and SP500 getting a bit droopy as well. Maybe it is just a pause to shake out a bit more and then resume; not out of the norm. But . . . there are a lot of stocks that rebounded in those bear flags that seriously started to roll back over Wednesday. The market is still at the crossroads but it is going to have to show the move soon if it is to continue the relief bounce.

Consequently we sold some stocks that rebounded back to resistance but were stalling out. They may bounce as well but they were struggling. Picked up some more downside position as well.

THURSDAY

Big day for economic data. The usual weekly jobless claims in the morning but also consumer prices (CPI) are out ahead of trade. Will the consumer costs follow producer prices higher? They will have to at some point.

Existing Home Sales, Leading Economic Indicators, and most importantly, the Philly Fed round out the data at 10ET. New York posted its second contraction month on Monday and Philly is expected to come close to a down month at a modest 1.0 reading. Plenty to impact investor psyche.

That news can provide the trigger, either upside or downside. As discussed above, the indices bounced in their relief move and now they are on pause just below the November consolidation peaks. Crossroads that for two days they have been unable to cross so to speak. They weakened Wednesday and if you are so inclined, definitely look half empty. Some consider it foolish to anticipate further upside, but we have seen similar action in years past. Nonetheless we are not so cock sure that we are not positioning if it does not continue the move.

Thursday should tell more of the tale. Another downside shakeout could spring the buyers into a further bounce. Certainly if the market sells from here it is pricing in a very weak economy to come, even weaker than now. But of course we do not have to worry because a new stimulus package is to come, one that the President ‘knows’ will work.

Is it really a stimulus plan? I posit it is a campaign plan. The President will put forth more of his Keynesian beliefs, the ‘pump priming’ notions that claim food stamps are stimulus. No kidding, that is what they are saying. Oh he will piggyback onto that a Reagan-era program gleaned from his meeting with Art Laffer, but that is just for window dressing. Bush II showed us the problems you encounter when you mix and muddle your economic theories. Lots of spending, truncated success levels even if you do have some good ideas.

Then when Congress refuses to go along with more of the same kind of spending (they will package it differently, but Keynesian spending is Keynesian spending) the President will blame them for preventing the US from recovery. Sound familiar? That is what his administration said about the downgrade: it was the opposition by the republicans that caused the downgrade. Of course that is not the case as discussed above, but many of the masses will believe.

Thus it is not intended to fix the economy, but a clever political maneuver designed to fix approval ratings. It will be draped in the flag, etc., but if spending hundreds of billions, indeed trillions, did not produce jobs or economic recovery, piling up more debt on top of that prior debt won’t help. As Einstein said, doing the same thing again and again expecting a different result is the definition of insanity.

But I digress. The indices are at a point where they have to hold the line and continue the relief move or go ahead and give it up. We have positioned for both possibilities, and frankly, looking at the divergent patterns of stronger and weaker stocks, both could work if the market continues its relief move. If stocks cannot hold the move thus far and reverse, that shows a really weak economy, and thus we close the upside but for the very strong and continue to play the downside.