Another Upside Session with a Late Fade
- Same stories push stocks higher for more than a week of gains as EU production rises and Slovakia manages to ‘pass the bill!’, though not the President’s.
- Another day, a little closer to the top of the range, then a late drop.
- FOMC sees ‘considerable uncertainty’ US growth will increase.
- China copper inventories greater than estimated. Cooper on a rebound but a rebound going nowhere.
- The indices are back to the top of the range, showing good momentum, apparently anticipating good economic results. Now we see if stocks remain range-bound or try a breakout.
Another upside session with a late fade.
The same issues driving stocks higher of late were again present Wednesday morning, and they had stock futures revved up. Industrial production beat expectations in the EU. Slovakia passed the bailout proposal, removing the last holdout to the new plan to make a new plan. That wisp of positive news was good enough for stock investors yet again. The market is in bounce mode and it will grasp any positive to further its move.
Never mind that this bounce in Europe’s industrial production is equivalent to a bump on an elephant’s butt. That bounce is similar to the US economic data bounce the past few weeks after a long downtrend this year; it is bouncing off the lows in pretty technical action as nothing trends in a straight line. Nothing has changed for the economy. Same anti-growth regulations in place and still written every day by the myriad of agencies staffed by unelected officials.
Same policies that hammer small business in favor of the FOB (Friends of Obama) in the solar industry and mega-non-jobs producers such as GE. GE’s Immelt is on the President’s laughable ‘jobs panel’ and yet GE moved many of its jobs to China. It didn’t simply not create any jobs in the US after all of its subsidies received from the first Obama spending bill, it moved US jobs to China, in effect firing US citizens then hiring Chinese citizens for those jobs. NOTHING has changed to help the economy recover, and contrary to the President’s daily dogma regarding his second spending bill, more of the same is not going to change the economic track.
Indeed, the nonsensical statement that both democrats and republicans have supported the items in the bill shows the depths of the hypocrisy. Perhaps SOME misinformed RINO republican at SOME time in the past supported SOME of the elements in the bill; that does not mean the ideas are supported by republicans. More importantly, even if republicans do support items in the bill, that DOES NOT make them ideas that will create jobs. The former AXP CEO just said tonight that the bill won’t create jobs, that growth is how jobs are created. You cannot create growth by taking tax money from productive members of society and paying to keep a fireman on the payroll or hire a worker to put new bolts in a bridge. Those actions do not create growth; once the job is over or the money runs out the job runs out. End result: no further growth and indeed LESS growth because the productive entity or person the money was taken from likely suffered negative economic impacts and is contributing less to the economy. Just look at how much each job cost EVEN IF the President’s jobs creation goals are met: $200K per job! Why not just GIVE the people the money and let them have 100% of the funds to spend and ‘prime the pump’ as that is the purpose behind this Keynesian transfer payment.
Okay, okay, off the beaten path early on, but the point is worth noting: many are talking about how this is ‘the’ bottom in the market. That presumes a bottom in the economy is in the works. Again, there is nothing to suggest this, and indeed the BEST human-based indicator of recessions and recoveries, ECRI, says that a recession is baked in the cake.
That does not mean there cannot be improvement. UPS helped out in the morning, raising its Q3 and Q4 estimates (after slashing them before), stating the economy is ‘somewhat stronger than assumed.’ High praise. Recall that stores have not started stocking their shelves for the holidays when they traditionally do. Now that things may be a bit stronger they are starting to do so and a lot of those carriers bemoaning the lack of the pre-holiday rise in freight may now see that rise. That is great but it does not mean the economy is about to pull out of oblivion. The 2009 holiday season started very late as well and it certainly didn’t mean the economy was surging. It was a case of consumers tired of the bad news and deciding to spend a bit more then. Problem this year: with more unemployed for a longer period of time there is less money to spend. Do the math.
Back to the market. Stocks started higher on the solid futures and then continued higher as they have for the past week and more. Nice gains into midmorning that held into the afternoon with the indices even posting new session highs in the early afternoon session.
This time, however, stocks sold back late and could not recover. They tried to recover, just could not hold the move. That still left the indices with nice gains close to 1% or better, but they gave up over half of their session gains by the close.
SP500 +0.98%. NASDAQ +0.84%. DJ30 0.90%. SP600 1.61%. SOX 0.95%.
That happens after solid moves as the markets have enjoyed. Especially so when the indices get close to resistance. In this instance the rally has taken the indices from the bottom of the range (even below it in SP500′s case) back close to the top of the range. Given the indices are in the range and remain in it until proven otherwise (e.g. a breakout) then you watch to see if the range asserts itself, even anticipating that.
Wednesday SP500 tapped 1220 on the high, a key resistance point, and faded. Still below 1227 marked by the November 2010 peak and the August and September highs. NASDAQ tapped at the September high, moving again through the March and June lows. It gapped, rallied close to the September high, then faded to a tight evening star doji. That is an indication it is ready to fall back. Given it occurs at the top of the range that is a pretty solid indication of a pullback near term even if it is just a test say toward the 50 day EMA.
THURSDAY
Lots of news with initial claims, trade balance and treasury budget as the scheduled data. After hours a few more tidbits. China reveals its copper stockpile is 1.9M tons versus the 1.0 to 1.5M widely believed. Copper has rebounded the past two weeks. As with the other economic indicators, some are saying copper is showing the economies are recovering. Dream on. Copper has rebounded from a massive selloff. It has bounced to key resistance and is showing a tight doji. It looks ready to roll over and this news is not great for pricing though can you believe China? It WANTS prices lower so it can stockpile more . . .
Europe will likely have some story out, but earnings are now the primary news . . . unless another European story comes out. GOOG is out Thursday after the close, and it could be the microcosm of the market. It has rebounded nicely after falling, intraday, through the August lows. Just as the indices it reversed and rallied straight to the top of the range. Wednesday GOOG gapped upside to an evening star doji very similar to NASDAQ. Will it gap lower and form an island reversal? Will earnings send it lower or break it out from what could be a double bottom base formed spanning that August and early October low? Yes GOOG could very well tell the market’s story for this move to the top of the range.
It is the time of year for techs and indeed all stocks to move higher. As noted last night, however, these are not normal times. The economy is bouncing from lows in a trend and some read that as a sure recovery and no second recession. That may occur but there is really no basis for that other than hoping the bounce is more than a bounce in a downtrend. As noted tonight and before, there is no change in policy, regulation, etc. that would result in the substantive change needed to rebound the economy for a serious run.
That said, if the market breaks out you have to listen to the market. We will listen, but we will hold judgment until we see how the breakout holds a test. If successful, yee ha. If not, we play the downside in the range once more. Definitely an important inflection point in the market’s path.
Thus we prepare for the potential for a selloff after the gaps to doji and the fades off the highs that tapped resistance. We watch for a breakout, letting our upside run, and then a test and how it holds. That tells us whether to bank the rest of the gain on some solid upside and take some more downside, or play more upside off a successful test. IF the market sells from here off of these evening star doji on NASDAQ and key stocks such as GOOG, we can play some downside from here.
