News Moves the Market Lower then Back Up
- News moves the market lower, news moves it back up. Next news is . . .
- EU wears on markets fearing a France downgrade, but then it bounces the markets on another story of a bailout deal.
- Rebound off early selling puts indices right back up to last week’s highs.
- PPI getting quite warm.
- Money poured into US assets during the most recent throes of the European crisis.
- Nice rebound has the indices still looking upside as more earnings are released: AAPL or INTC controls the Wednesday action?
Stocks acting as if they just don’t want to stay down, finding upside news in every story . . . thus far.
Volatility remains the operative word describing the market. Some words that people are using to describe the market are not suitable for this video, but there are other adjectives that describe decent action as well. Over the last three sessions, we have seen 2% up days, 2-3% down days, and then right back up. The news of the day appears to be driving the market as the indices test the upper end of the range that formed following the July-August selloff. Depending upon the news story, the market programs and the lemmings associated with them run one way or the other. Again, there is a theme and there is a bias that appears to be shaping up.
On Tuesday there was more news. It started with something somewhat negative. Out of Europe, Moody’s said it may take France to a negative outlook. That was a negative from the market. China reported a 9.1% growth rate, and that was less than expected (oh, to have that problem.) The PPI came out, and it was actually quite hot at 0.8% on the headline versus the 0.2% gain expected. That put the year-over-year growth at 6.9%. Ouch. The Core rose 0.2%. That is twice the 0.1% tick up expected. That put it at 2.5% year-over-year. Just a few months back it was at 2.0%. It is moving into the unacceptable range for the Fed, but until it gets over 3% on the Core, Bernanke will not care.
That set a rather negative mood for the market. Futures were down. Stocks opened and sold off rather aggressively, but that did not last. After a very sharp initial selloff that saw many big names drop significantly, stocks reversed and rallied nicely. Looked like they might be getting tired in the afternoon, and then another news story hit. This came from The Guardian in Europe. It said that France and Germany had reached a deal where they would inject another 2.2T euro into the bailout package. That spiked the market to the upside. It really revved up stocks, and they blasted to the upside. SP500 moved over 1227, the top of the November range.
Then a new story came out from a more reputable source than The Guardian, saying that the 2.2T figure was totally wrong. Stocks came right back, but they did not stay down. They figured where there is smoke there is fire. There had to be some kind of deal here; we have been talking about that for several weeks. Indeed, much of the rally is based upon the thought that there is some kind of deal. Stocks rebounded into the close. On the high, we saw SP500 hit 1233 again, topping the 1227 November peak. It could not hold it on the close, snuggling right underneath it.
SP500, +2%; NASDAQ, +1.6%; Dow, +1.6%; SP600, +2.7%; SOX, +2.25%.
Very impressive gains after a worrisome start (at least for the bulls) to the Tuesday session. The indices are right back to where they were as of Friday. SP500 bumping up against 1227. NASDAQ holding a break over its September peak. A rebound off the 10 day EMA to do that. SP600 posted a decent recovery as well. Still below last week’s highs and, again, below the August peak. We had gains. We had a recovery. That was positive for the upside, but they still have not done away with that August, September and October trading range. They have not put the nail in it yet to get rid of it.
WEDNESDAY
Wednesday will obviously be an important session. We start off with some important data. After the PPI came out extremely warm on Tuesday, we see the CPI. We will see whether consumer prices are rising as unexpectedly as producers’ prices. Typically there is not the same 1:1 correlation, so I do not expect to see that kind of bump. It has called for a 0.3% rise on top of a 0.4% move in August. The Core is expected to rise 0.2% as it did in August. That will still put the CPI at a pretty hot 2% level year-over-year based upon my calculations. We will see how that comes out.
Housing starts and building permits are out. Starts are not that important in my view at this juncture because the market is still poor. Mitt Romney said we have to let the housing market fall, which is what we should have done at first. Let it do a quick dive and then recover. As it is now, we are dying in housing values. They would be on the rebound, la Iceland, if we had just let those that needed to be flushed out flush out. Let the institutions that had the bad loans and mortgages fail. I know that is tough. It sounds like a horrible thing, but these protracted, “underachieving” recoveries bleed our wealth dry.
Quick fall offs and quick recoveries are what create new wealth. That blows out the dinosaurs and gets the new businesses coming in. It brings more efficient ideas, new technologies, new ways of doing things, and the new wealth creation that puts us on the road to the next generation of jobs. As it is, we are not getting there. We are creating no jobs because no one has any money to invest. We have old dinosaurs such as GE and some other big plodders leading the economy. That is not creating any new jobs, and it is definitely not creating any new technologies. But I will get off the soapbox for awhile.
We will have some news. There are two other very important stories. Number one, will Europe have anything else to say about the story that came out with France and Germany putting up another 2.2T euro into the fund? We will find out if there is anything to that. Number two is earnings. Will AAPL and its plunge after hours mean anything to the market overall? Or is it just a temporary AAPL story that is already rectifying itself with the advent of the iPhone 4S and the massive number of phones being sold? We will find out. During channel checks a couple of weeks ago, someone did say that AAPL was not buying as many. The conclusion of the soothsayers was that AAPL was just sourcing them elsewhere like in South America and what-have-you. Looks like there were some problems, though. There may be some issues, and we will see how the market handles it.
In my view, it will be a Tale of Two Stocks. There is AAPL and its miss the first since 2004. And then you have INTC with a very strong quarter where it beat handily. $0.69 versus $0.61 on the bottom line, and $14.3B versus $13.8B in revenue on the top line. Its gross margins were a bit light, but its guidance on revenues, the midpoint went to $14.7B versus the $14.3B originally included. A very solid report, and it was rewarded after hours. But it does not go up a lot simply because there are billions of shares out there. It is a Tale of Two Stocks. I have to say that INTC seems to be more important simply because its products go into many more areas than AAPL’s do. AAPL has dominated the market in cell phones and notepads, but INTC puts chips into just about everything. I think INTC is somewhat more important.
The futures have been struggling, but they are not tanking. It has gotten interesting. A little pennant has formed after hours in futures. I think that is instructive as well. We may not get a sharp blow down on the Wednesday session. As noted, that leaves us with the indices in a pretty decent position. They have been up, down, and right back up. They look as if they want to make the breakout. SP500 with that higher MACD, holding at the 50 day EMA, and making a higher low inside of its trading range. That typically presages a breakout.
We are going to continue to look upside. We bought into some downside plays on the early selloff. BIDU is one we picked up. HAL came back and it may hurt us. SOHU still looks like it will fall. I think it has broken as well. Some of the others that we did not buy into that rebounded, they may fall anyway. They may be broken. They may not join the move higher because they have had big runs, they have sold off, and they need to base. In this kind of market, you can get these other patterns that we are seeing moving to the upside even as these other former leaders fall back. LNCR is making a break to the upside from that rounded pattern, forming the handle and making the move to the upside. THS made a nice rally, cleared some resistance, and now just tested it. We have great little patterns that have formed up bases or have already had good pullbacks that are not overbought. They are in position to move. If the market does break higher, these are the stocks that will be moving, so we will move into more of those.
Pretty clear right now. If we get the break, we will go with it. This is an inflection point. It has not made the break yet, no doubt about that. NASDAQ is trying to pull SP500 with it. It looks like it wants to make a break. We will be ready to make that play. We also have downside, of course. If it makes the break, we have to make adjustments with those. Here’s the rub: Do not get caught looking somewhere else when that ball comes flying out of right field and nails you. SP500 has not broken out yet. We have 2-3% moves up and down every day. Beware, beware. Do not get complacent with this kind of action in the market. It is a market that is driven so much by news stories and big computer trading programs.
Stay on your toes. Stay with the good plays and do not load the boat on anything. We did not load the boat on the downside today. We will just take good, solid positions that have very good risk/reward. That is why on these downside plays, even though they came back on us, we still have a good risk/reward on them. We have good support and resistance, so we have good plays that are still in play for us.
We will see what happens with Europe and the AAPL versus INTC story in the morning.
