Good Position to Move Higher in this Third Relief Bounce
- Stocks recover from a weak open, but cannot recover from a Bernanke that delivered nothing new.
- Europe gives, Europe takes away.
- OECD cuts US and Japan growth forecast as New York Times says double dip chances climb to 50/50
- Bernanke repeats Jackson Hole, dutifully passing ahead of Obama’s ‘major’ address tonight.
- Major address that covers little new ground, misses the point in how we create economic growth in the US.
- Down for the day but indices still in good position to move higher in this third relief bounce.
Stocks recover from a weaker open, but Bernanke’s pass causes buyers to do the same.
Ben Bernanke was the focus of the day when it came to the market. Tomorrow the focus will be the President’s major economic address this evening to a joint session of Congress. There will be a lot of photo opportunities. The President will propose a lot of the same Keynesian stimulus programs that were in the first stimulus bill. You will see Joe Biden and the Democrats jumping to their feet and applauding. You will see the Republicans looking upset that the President is proposing to spend more money in the same way that did nothing the first time around. Maybe that is the point of the whole address. In my view, it will all be a reelection stunt. It is part of a program to paint the Republicans as obstructionists, putting them in the worst light possible.
That had little to do with the market on Thursday. What did? It was the old situation where Europe gives on Wednesday and takes away on Thursday. On Wednesday, Greece and Italy implemented their austerity plans and everyone was happy. On Thursday, Mr. Trichet, the head of the ECB, downgraded the GDP forecast for the entire EU zone. He said that inflation was no longer an upside issue. He said the risks to the downside have intensified. That was not good for U.S. stocks and investors that are chronically worried about whether Europe will make it through this crisis or not. After all, last night we heard that George Soros said things are worse in Europe than they were in 2008. Those were not good times, although it was worse here than it was in the EU.
Just so happens, on the same morning, the OECD (I have looked it up and still do not know what that is) downgraded the U.S. and Japanese growth forecasts substantially. It moved them down from 2.5-3.0% levels for 2011 and 2012, and it put them down at 0.5%. They finally joined the game as far as I am concerned. I wrote them down a long time ago, and the data has made it fairly obviously that that is the case.
Jobless claims came in at 414K, up 2K from the prior week. That was revised higher as well, of course. It is just a joke. It is like the weather forecasters putting the afternoon rain chance at 20% on the Gulf Coast (in a normal summer, not this drought). They do not know if it will rain or not, but there is a chance. It is the same thing here. Every week we see the pundits put out 400K as the new jobless claims. Every week we see it is more than 400K. It is what they say because they are not sure. There are supposedly more jobs being posted on job sites, but there are still no real jobs being created. The guessing came continues. We do know one thing for sure: The economy is in terrible shape. Most likely, the President will not propose anything earth shaking and new tonight that will move needle.
It was an interesting start to the session. Stocks were lower, but this was on the heels of a nice, strong move on Wednesday. You would expect a little giveback early, and that is what stocks were doing. Futures were lower. SP500 opened lower. After a quick bounce and test in the first half hour of trade, it caught a bid and rallied nicely at session highs near 1206. Of course that 1200 is a psychological level. It tested it and looked pretty good. It came right back to 1200 and started to bounce. That did not hold. There was a bit of nervousness ahead of Bernanke, and stocks peeled back. Then, Bernanke’s speech was released at 1:30 EST. There was an immediate pop and immediate reversal off of that pop.
Why? Bernanke is not proposing anything new. He basically reiterated his Jackson Hole speech. He said that the Fed stands ready to help, but he did not go into any particular ways that the Fed WOULD help. He just said it could be done, but he was not going to do it right now. The market did not like that; it reversed and never really recovered the rest of the session. A little bounce in the last hour helped improve stocks off the low, but they gave up their gains and were basically damaged goods subsequent to Bernanke’s speech.
SP500, -1%; NASDAQ, -0.8%; Dow, -1%; SP600, -2%; SOX, -0.6.
Frankly, what could you expect Bernanke to do other than pass? His boss, President Obama, is delivering his major economic address tonight. It reminds me of the father from “A Christmas Story” with the lamp shaped like a lady’s leg in his window. When people ask what it is, he says, “It’s a major award!” as if calling something major makes it so. In any event, without being too catty, the President has called for this major economic address in front of a joint session. Again, you will probably see one side happy and the other side yawning a lot. The idea is to paint the Republicans as obstructionists who are not interested in the little man in the United States.
Bernanke passed and the market did not like it, but it was not total carnage. There were losses on the day, and stocks did fall back off of their highs, but it was not a total implosion. It has done this before. On the last rally, there was a move off the lows, and then a day that looked like it was rolling back over only to continue the run. It could roll over from here, no doubt. There is a little dark-cloud pattern on the candlestick chart, but the market knows what will happen. I doubt that this is the zenith of this move. I think we will still get a bit more to the upside to test those prior lows before any real selloff. I could be wrong, of course. I thought all along the market would make it to those levels quicker than it has. Nonetheless, the action on Thursday does not seem to indicate a complete rollover.
FRIDAY
Friday will be the aftermath of the Obama major economic address. Oh, my. There will also be some economic news. There will be Wholesale Inventories out half an hour into trade. That will be interesting in terms of the glass being half empty or half full. Are they producing more? Are sales up or down? It is expected to be 0.7%. Not a big forecast at all, but it is always interesting to see which way it is heading and play that off the number of sales. Are sales declining or ramping up and thus depleting inventories? Are sales flat or down and are inventories up simply because they are not selling anything to the retailers? We will see.
The big news will be the Obama speech, of course, and whether anything new will be put forth. There are rumors that there could be some new things. Then there are other reliable sources saying there will not be any repatriation, tax breaks for the money overseas, or anything like that. It would take a real change in the attitude toward the capitalist system, free enterprise, and letting markets works. That is just not in the wherewithal of this administration. I do not anticipate anything new along those lines. That said, I do not think the market expects anything new. The market is very smart. It would not anticipate the President to offer any earth-shaking plan that the Republicans will embrace. There will be some things that everyone agrees to such as the payroll extensions, but it will be nothing major.
That puts us back at the market, and we are looking at what the heck it will do. As I said earlier, this is a potential trouble spot for the market. It could set up a head and shoulders and sell off further, but there are a lot of potential leaders in really good patterns that could make the break to the upside. They could help turn this market up and lead it back into this resistance range before it encounters any further trouble. That is exciting, and we continue to look along those lines. On Friday we will continue to look for those plays. We entered some of them on Thursday. We got some of them tossed back in our faces, but not horribly so. We will continue to look at them. We can look at ILMN. We can pick up some more positions because we did not jump in full bore we took partials and we can come in and pick up more if they can make the break to the upside. We remain positive. We will look as those and others that did not hit the buy point today but are in the same position. We also have several downside plays at the ready. They are already on the reports, and we can play those if things turn back to the downside.
There is a wild card out there. There is a credible terror threat that has been reported tonight that would be coincident with the 10 year anniversary of 9/11. This was somewhat anticipated. I was thinking there would have to be something coming up. I assumed Homeland Security was looking at this, and of course they have been. That makes you feel good. We will have an alert issued as to what they anticipate it to be. That may impact the trade early, but it also may just set up a better move to the upside.
I think that these stocks could get a bid and make the break. It could happen on Friday. After Bernanke and the President have spoken and after we get a better idea of what is going on with 9/11, we may be ready to move higher. Some may not want to. 9/11 is not far away it happens this weekend. They may not want to do anything before the weekend, but if we see positions moving, we will pick up a little here and there again. If nothing happens and we get to Monday, we could very well have a very nice run to the upside.
It will not be a run that says the economy is fine and that the proposals from President Obama and the ones to come from Ben Bernanke will cure the problem. No, it is still just a relief rally. We are still looking for a move back up into this prior resistance level. That move can, however, make us very good money. If the market will give it, we will definitely take it.
