- No specific trigger, but market in position to rally posts an impressive move.
- Housing market malaise: New Home Sales fall again.
- Richmond manufacturing contracts.
- Obama talking with Buffett, so everything must be okay.
- Gold finally backs off a bit.
- Initial move looks good but at this point it is one day at a time for any upside.

MARKET SUMMARY

Second relief bounce attempt ignites.

Why not look at gold to start out the night? It has been up while the market has been down. Today gold was down, losing 30 points on the session and 65 points after hours. The indices staged impressive upside gains, and you can pick your reason. Everyone was playing “pin the tail on the reason for the rally” today. Say what you want, but it really did not matter because it was technically set to move. I believe the wheels were set in motion during the selling in early August when all of the market internals and sentiment readings hit extreme levels. At the time I said you will often see them spike to highs. You see an initial move, and then you see a double move by the indicators such as the VIX, and then you have a subsequent move after that second spike. That looks to be exactly what the market is showing now.

An impressive move across the board. SPY was up early all premarket session long. It was fading toward the open, but then it rallied nicely through the day. Indeed, I discussed in the morning alert about the pullback in the futures actually being a good indication because it would keep a sellers from taking such a hard shot at the market. Stocks turned, rallied, and surged all day into the close.

NASDAQ, +4.3%; SP500, +3.4%; Dow, +3%; SP600, +5%; SOX, +5.2%

Again, impressive moves across the board with the indices closing at session highs. This looks to be the start of the second attempt of the relief rally off of this double bottom that held at the original August low as well as the Summer 2010 base peaks. What are we shooting for? Up to the November peak on the SP500 and perhaps the March and June lows. We will have to see what kind of strength it has. We do not want to be to too cocksure about this market moving higher, but it does have the look. We have seen this before.

There were a lot of premarket indications, other than the futures, that the market may try to move higher. There were a lot of conversations about how the market “could not hold the lead” and other trite sayings about the inability to hang onto gains. My personal favorite is that the market would always “snatch defeat from the jaws of victory.” That ages me a bit. That used to be a great line from a pundit who would spoof sports analysts. But I digress.

There were many reasons other than just extreme negativity. China’s manufacturing was better than expected, and that is always good for a few points to the upside. Then Obama was talking with Warren Buffett. I am sure everyone will feel safe and comfy about that considering that Buffett apparently wants to tax everybody into deficit reduction. Yet if you took all of the money from every billionaire in the country, you would not put a dent in our debt. Nonetheless, that is one of the avenues they want to go down. Maybe some positives will come out from that. Perhaps Mr. Buffett can educate the President with respect to numbers and definitions. He could tell them that people who make $200K per year are not billionaires. Maybe that will be the silver lining from this meeting.

I caution you that Warren Buffett is not just some gentle grandfather who benevolently looks out for the economy and everybody in the U.S. He has never uttered one word that did not benefit himself or his companies. Anything he tells Obama will be for the benefit of his companies, and you are talking about a guy who has already made billions of dollars. He will be looking to protect his own. That may not sound kind, but that is how he made his money and how he keeps it. Unless people wake up and realize that, they will keep getting taken in by these people who say it is in everyone’s best interests if certain individuals (everybody, frankly) pay more taxes.

As noted, it was an impressive move even with some negatives. I am not just talking about the President meeting with Warren Buffet or the earthquake in Virginia that has rattled nerves on the East Coast. There was not a ton damage, but there is some because their buildings are not ready for that. All that talk did not faze the market, but there was some more bad economic news from the government. The President may have been glad for the little earthquake action to take everyone’s mind off of it.

New Home Sales for July fell 0.7%. 298K recorded versus 310K expected. June was written down 12K as well. Inventories rose to 6.6 months from 6.3. That is not horrible when you consider that Existing Home Sales have an inventory in excess of 9 months. I just shows that the housing market is in a malaise, to borrow a Jimmy Carter term. There does not seem to be any relief in the near future or the long-term future for that matter.

We also had the Richmond Fed, another regional manufacturing report. It does not get a lot of press, but these are getting more press now because of the alarming numbers. It came in at -10. It is getting worse and worse; indeed, that is the worst showing of this region since June of 2009. Chinese manufacturing may be doing just fine, and that may help the exporting multinationals, it is the same old story for the rest of the country. For most of the businesses and job holders (i.e., small businesses) it is a terrible economy that is getting worse every month.

Some will be relieved that at least Chinese manufacturing is okay. They will that China’s economy may continue to utilize some of the goods we export to it. But is that really what we want for the country? Will that help us work our way out of this mess? It has not done it thus far. Some of the multinational companies continue to build larger and larger war chests of cash while, at the same time, further reducing their workforces. The Chinese manufacturing has done fine while rest of the economy has gone down. It is not helping the rest of us. There has been no trickle-down effect from the exporting companies that have benefited most from the Obama stimulus and his vision of an exporting country.

Indeed, they are holding onto their cash and not hiring. You cannot blame them given the uncertainty in the economy. There are all the new regulations, there is healthcare, and there is who-knows-what-else because they are writing 900 new executive-order regulations per month. There is a lot of indecision, and you cannot even blame the guys with all the money for not spending it. It would be foolish to do so.

There was not a lot of great news for the market to latch onto and rally. It did rally nonetheless. What does that mean? It means this was a very technical move with the foundation set back in early August when these extremes were hit on the dive lower from late July. It was a good start. We have seen many good starts; we saw several in early August. Back and forth, and then finally a modest bounce that rolled right back over. Now we have something more substantive. We have a good beginning. We will see if we can derive the moves we want to ride up to the November peak or to the March and June lows.

WEDNESDAY

We have some more economic data. The most notable is Durable Goods Orders from July. Crude Inventories will be out as well. With oil on the rise of late, we will see if it can continue the move or if it needs to roll over just a bit. Right now the news plays a role, but we are in a very technical move. We are getting the bounce we were looking for. Of course this is a critical point in time because the indices are coming up to the 10 day EMA. But the really the big move to come is still the rally up to the prior August peak and on to that November peak. If they cannot make that move, if they roll over before then, then things are really, really bad heading toward the future. Thus far, they have been unable to do that. They bounced and were unable to make that on the first relief bounce. They did show a little gumption and have set up a second move.

The question is whether they can they rally up to the November peak or to the March and June lows. That would show there is at least something in the tank. I do not know if they have that in them at this juncture, but they do have a good move underway. They are technically set to do so, also with a lot of extremely negative sentiment indicators in the back pocket that have set up this move.

Thus, I feel very good about move continuing. I felt good about entering plays on Tuesday. We entered some early and some late. Tomorrow morning I would like to enter more that may have gotten away from us or were not exactly at a good point to enter at the end of the day on Tuesday. Sometimes that happens. With some positions you have to wait and see if they will hold the move. They held it, but they were up pretty solidly on the session. Often you will get a test back after a big move to the upside on the next morning. You get a little fade to test were it gives you a little bit of giveback. Then it resumes the move.

For example, look at DIA. It could come back and give us a bit of a test as well. Many of these plays could do that, and that is fine. We could get those entry points off of a bit weaker open. That is not unusual after such a tremendous move upside. CCMP may come back toward that 20 day EMA and then start back up. That would make a lot of sense.

That is what to look for on Wednesday. We can anticipate the move continuing. There is still time to buy on this initial surge. We may get another opportunity to buy as stocks test and stall a little bit near that prior August peak. If they stall and then break higher, that gives the signal they want to make that run to the November high and at least set up the ABCD pattern. That will make us some nice money to the upside before we perhaps roll things over to play the downside.