I will admit that the title of this morning’s missive may be a little clichéd and perhaps a bit over the top. But then again, with the very future of the Eurozone on the line, maybe “To be or not to be?” is an appropriate question after all – well, for the ECB anyway. You see, with all the talk about whether or not the Euro will implode in the coming weeks (there were reports in the market yesterday that banking regulators are currently running tests to see if their systems can handle a rash of new – er, old – currencies), it appears that the situation has come down to whether or not the European Central bank wants to be (or not to be) the lender of last resort.
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SUMMARY:
- Holiday sales open big, helping trigger a big oversold bounce.
- Stocks take back what was sold off during the Wednesday and Friday worries over Europe.
- SP500 and NASDAQ bounce back from the middle of the August/October range. Room to run, but not that much.
- Fitch lowers US debt outlook to negative.
- Will the stocks that refused to break down now lead back upside?
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I’ve been writing a fair amount lately on the subject of how difficult this market has become to try and work with, and I believe that Monday’s action was a perfect example of why. In short, if you are one of those folks who likes to ease into the week come Monday morning with some water cooler conversation and/or a leisurely cup of coffee with colleagues, you missed the day’s entire move.
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Perhaps the story of the year in the stock market isn’t about the trouble in the Middle East, the triple tragedy in Japan, or even the European sovereign debt crisis. Understand that I’m not talking about market-moving stories because obviously Europe has been the driving factor for much of the past 18 months. No, I’m referring to the way the market has been moving. Dubbed a “risk on/risk off” environment, the big story is the record level of correlations between stocks as well as asset classes to the S&P 500.
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SUMMARY:
- Stocks attempt an oversold bounce but the bids are not enough to turn the market.
- A new IMF ‘precautionary fund’ is not enough to satisfy investors.
- Q3 GDP revision downgrades the growth.
- Spanish 3 month bonds require 5+% yield to attract buyers.
- Stocks look sluggish ahead of Thanksgiving, and even a ‘traditional’ move higher would have to be a heck of a move to make a difference for the upside.
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Investor sentiment is one of the key ingredients to understanding the stock market at any given point in time. Put simply, if investors are feeling confident about the outlook for the economy, the market, and the stock they are about to purchase (assuming anyone still invests in individual stocks these days), they are more willing to pay up for the company. If investors are confident, they will pay a higher multiple for earnings and will make additional purchases of their favorite positions if and when those stocks pull back.
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SUMMARY:
- Debt Commission failure diverts attention, momentarily, from Europe, but the effect is the same.
- Stocks sell hard, manage to bounce off the lows as NASDAQ holds some support, but it will take more than holding support.
- Moody’s eyeing France for a downgrade.
- US bond sale garners highest demand ever as US house is the best on a bad block.
- October Existing Home Sales 1.4%, reversing 3.2% September decline.
- Gold sells as stocks dive: liquidating for gains to offset margin calls.
- Stocks down but even so many quality stocks still holding nice patterns. Interesting carrot for the upside, but they have to show they can make the moves.
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Here’s a question or two for you to start this fine Tuesday morning… How many of you wanted to throw a stapler through your computer screen or T.V. at some point yesterday? How many of you have had it with the 2% moves in the markets that take less than 5 minutes to complete? How many of you have heard quite enough out of Europe? How many of you would like to have a “chat” with your elected representatives in Washington? Oh, and how many of you are convinced that the sky may actually be falling (again)?
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With the end of the year now in sight, I’m guessing that more than a few investors and/or fund managers have reviewed their efforts for the year and are likely frustrated with their overall performance thus far. The bottom line is that 2011 has been a very difficult year for investors seeking growth of capital as a great many methods of management are not working well. So, my question comes down to this: Is 2011 a one-off or the new normal?
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SUMMARY:
- Not much of a relief bounce from the Wednesday and Thursday selling, certainly not recovering NASDAQ’s and SP500′s patterns.
- Europe bounces on ECB bond buying but it now appears Germany is not going to go along with any ECB bailout.
- US data continued up for the week but thus far it is not enough to hold the market higher in the face of EU issues.
- The ties between stimulus spending and MF Financial’s collapse.
- Some key breakdowns but also many stocks minding their own business.
- Small caps, DJ30 trying to hold the line for SP500 and NASDAQ, but if the market is going to resume the upside it has to overcome the odds.
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SUMMARY:
- Thursday was not that bad, but on top of Wednesday it was just piling on.
- SP500, NASDAQ break lower from their pennant patterns. Now any upside is in the Missouri mentality: show me
- US economic data continues its decent performance, but earnings guidance and debt issues in Europe overrun the buyers.
- Jobless claims below 400K again.
- Housing starts down, but just a fraction of what was expected.
- Philly Fed hangs onto positive in November though it missed its expectations.
- Expiration may be playing a role, but regardless, the indices now have to show us they can rebound and continue the upside move.
- Still some very good looking stocks, but will they hold and pull the rest higher or will they be dragged lower?
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Although I will likely be accused of making the understatement of the month here, the primary driver of the stock market at the present time is the same as it has been for the past four months – fear of what the credit contagion in Europe will do to both the world’s economies and banking systems. As such, it is little surprise that stocks took a turn for the worse on Thursday in response to rates moving up to Euro-era highs in France. Yes, France.
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SUMMARY:
- Market shakes off more European problems and turns positive, but this time it cannot hold the move as ECB efforts are not turning the tide.
- Dominoes falling in Europe?
- Fitch states the obvious during the afternoon session and the market says ‘enough,’ at least for the day.
- Mixed retail earnings causing some cracks in the market strength.
- CPI falls for the first time in four months as gasoline prices decline.
- Production and capacity continue their rise.
- Job cuts still coming in the financial sector.
- After hours earnings not helping the mood for Thursday as indices try to hang onto their nifty little consolidations.
- Longer term outlook versus the nearer term.
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SUMMARY:
- European data is again quite bad, but solid US data acts as a counter and stocks gain.
- Growth leads, NYSE large caps lag, but the indices and stocks continue to work on good patterns.
- Italian bond yields spike again, EU GDP a whopping 0.2%.
- Retail sales lower but top expectations.
- New York PMI edges back to positive.
- Disappointing finish for NYSE large caps, but stocks continue to build for more upside.
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In Monday’s report, we concluded that due to things like the move to decimalization, the elimination of the uptick rule, program-trading, sophisticated hedging strategies using futures, the evolution and proliferation of ETF’s, and HFT (high frequency trading), the market simply does not “trend” as well as it once did on a daily basis. However, I did promise to present a couple ideas that actually do work in helping investors actively manage the risks of the stock market and that are also easy enough for the average investor to use on their own. So, let’s get to it.
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SUMMARY:
- Europe again weighs on the market and stocks fall, but all in all a modest loss and still a nice setup for continued upside.
- European industrial production lowest in 2 years.
- Now Spain’s bond yields are surging.
- Retail earnings continue supporting a solid sector as stores plan more holiday hiring this year.
- Plenty of leaders still in great position after the Monday pullback.
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In Friday’s report, my main point was that the character of the market changes over time and that traditional indicators of the market’s strength and directional bias are no longer as valuable as they once were. I pointed out that while it may be surprising to some; many tried and true trend indicators such as the 20-, 50-, 100-, and 200-day moving averages have become lousy entry and exit signals during the current secular bear market period.
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SUMMARY:
- ECB buying keeps Italian bond yields lower, gives stocks cover to continue the rebound.
- Michigan sentiment up for three months . . . to still terrible levels.
- Once again when the European intrigue is removed, stocks move higher.
- A new trading range or a steady trend higher to year end?
- Still plenty of solid patterns to keep the indices moving higher.
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SUMMARY:
- Italian issues subside, French downgrade not real, stocks manage some modest gains.
- Jobless claims below 400K, again for the ‘first’ time.
- US bond sale demand tepid, another economic issue raising concerns for 2012.
- Moving higher but a tepid low volume rebound does not instill upside confidence.
- The outcome of this second test of the August/October range will tell the year end market story.
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A colleague and I have a running discussion that I believe warrants mention this morning. To set the stage for this discussion, you first need to understand that I am not a true-blue, died in the wool, chart technician. Nor am I strictly a fundamental or value guy. And no, I am also not a “pure” quant. In short, I consider myself a “market environmentalist.”
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To hear the bears tell it, we should expect the stock market to embark on the long-awaited implosion process. The argument anxiously provided by our furry friends this morning is that all is lost in Europe with yields on Italian debt now over 7%. Now toss in a situation in Greece that just won’t ever go away and Team Merkozy’s talk yesterday of a “new Eurozone” (which presumably kicks out the PIGI’S), and well, the glass-is-at-least-half-empty gang just doesn’t see any way forward.
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SUMMARY:
- Second upside session as buyers again return after an early session dip.
- Italy a drag and then a catalyst as PM is to resign. The grass is always greener . . .
- Small business confidence is up for second month, but index authors say nothing is really better.
- Oil reaching another important resistance point.
- Indices moving back up to challenge the next resistance and late October peaks.
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SUMMARY:
- European worries weighed on the market last week and try to do the same to start this week with Italy again having issues.
- A slow, sluggish session but constructive for the upside.
- Despite the European issues and negatives, the market holds its bid, sets a higher low.
- New market leaders still holding their tests, setting up for the next move.
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Given the drama that we’ve seen in Greece over the past week (which is yet to be resolved this morning, by the way) and the corresponding market reaction to each and every headline, the bears would have us believe that we should now turn our attention to Italy. In short, if you have enjoyed the way the stock market game has been played recently, then you ought to be in for a treat now that Italy’s Prime Minister Silvio Berlusconi is in the spotlight.
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It is said that the toughest trades to make tend to be the most successful. So, let’s start with a simple question this morning: What would be the toughest call you could make right now in the stock market? And yes, you will need to present some supporting evidence for your “call.”
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SUMMARY:
- Jobs report is better but not, and the market takes it as not.
- Stocks off, finishing the week lower, but modestly so.
- G20 meets, agrees it accomplished nothing, wishes EU good luck.
- Europe already in recession even as US data improves. ECRI still says US will follow Europe.
- Down Friday but many stocks are in position to rally.
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SUMMARY:
- US economic data okay but the ECB rate cut is the big news of the day.
- Greece PM purportedly to cancel any referendum vote.
- Jobless claims slip below 400K.
- ISM Services misses expectations on mixed internal data.
- September Factory Orders rise versus fall.
- Down 5% in two days, up 3.5% in two days: that kind of volatility does not last.
- Stocks on the road to year end gains . . . one more time . . . if jobs report gives them a pass.
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First there was word of the referendum. After breaking to new highs in celebration of the fact that the EU leaders had finally gotten their act together enough to develop a credible plan to at least try and fight the contagion that was spreading across Europe, the announcement that Greek Prime Minister George Papandreou had arbitrarily decided to let the public vote on whether or not they really wanted the EU bailout sent the markets into a quick 5% tailspin. Suddenly, the fear of a “messy” Greek default was back on the table and it looked like the politicians were going to muck everything up.
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Here’s a question. If you absolutely had to (meaning that there might be money or pain avoidance on the line), could you list off three reasons to be negative about the stock market in the next 30 seconds? How about five reasons? Ten? Do I hear twelve? How about fifteen? Okay, coming up with fifteen reasons to hate the stock market might be a challenge for even our most dedicated friends in fur. However, my guess is that just about everyone reading this little missive could come up with three to five good reasons to be a nattering nabob of negativity when it comes to the future outlook for equities.
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SUMMARY:
- On, off, and on again Greece referendum leaves market down hard for second session as outside influences continue to override end of year trends.
- China PMI less than expected, adding to the day’s angst, but at least it was still expanding.
- US ISM, as with China, lower than expected but hanging on to expansion.
- Markets are voting against the sovereign fixes.
- It is not just overseas: President, Congress, agencies push new financial transaction tax, $100 flight departure tax, and yes even more regulations.
- Stock indices back down to the top of the August/October range.
- Down but some areas showing good intraday recoveries and relative strength.
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Just when you thought it was safe to start analyzing market metrics again (you know, looking at the advance/decline data, the volume relationships, trends, moving averages, company earnings, valuations, etc.) Mr. Papandreou comes along and hijacks the market – AGAIN. So now, instead of being able to play the odds and keep yourself on the right side of the risk/reward relationship of the market, we’re right back in a headline-driven/HFT hell again.
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SUMMARY:
- So much for the belief Europe has it all together.
- Bank of Japan jumps back into currency market, devaluing the yen.
- Chicago PMI less than expected but not atrocious.
- Others pick up the notion the Fed may just get involved in more QE as part of Administration’s tactics.
- JPM raises its Q4 GDP target back up. Sign that it won’t happen?
- Ugly day but the market has logged gains even with Europe issues. Seasonal patterns likely still there, new money can come in, hedge funds still want to come in.
- Despite the downside many stocks are testing the break from their bases just as we wanted.
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After celebrating the fact that the European Union leaders had come up with a plan to make a plan for a few days, the ugliness returned to the corner of Broad and Wall yesterday. Perhaps traders were simply getting into the Halloween spirit a little early. But just about the time many investors felt like it was safe to get back into the water, the market got slapped upside the head on yep, you guessed it; another surprise headline out of Europe. To which, one of my colleagues remarked, “Here we go again.”
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