- 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.
Soft morning session on the same old worries followed by an afternoon recovery.

The futures were off but started a steady climb ahead of the open. Looked as if the market was going to turn last Friday’s weak finish and an early dip into an upside bounce. It did, for the first half hour. Then sellers hit and abruptly sent the market into negative territory.

Europe was still on the burner, and while it looked as if stocks would overcome problems with Italy by the open, that didn’t happen. Italy is, once again, regarded as the next Greece. Half the G20 didn’t want to help Europe and the other half couldn’t help Europe if it wanted to. Basically Europe got a vote of confidence from the G20; you know the kind a coach gets just before he or she gets fired.

When Italy tried a bond auction afterward it found the going a bit daunting. The Italian PM is under fire after a bond auction surged Italian rates to EU-era highs. At the same time LIBOR continues creeping higher: the ‘deal’ struck a couple of weeks back has not stopped its climb. Higher LIBOR equates to less trust among financial institutions. There is a lot more stress in the financials than many see or admit to.

The early recovery tanked through the morning. At lunch, however, US stocks again caught a bid. The bid held, and the afternoon session turned into a steady climb back to the morning highs and indeed new session highs by the close. The move received a boost from the EU and IMF saying Greece would receive its next briefcase of cash IF the two political parties would agree to the austerity the PM, who by the way resigned over the weekend, agreed to.

Okay, the PM was forced to resign because he was pushing an austerity package that the Greek people do not want. The IMF comes in and says we will give you the money needed to stay afloat if you do what the PM you just forced out wanted to do but was forced out for trying to do. Follow? Do you think THAT will fly in Greece? The ‘cradle of democracy’ is being robbed by a financial crisis. Sure Greece had a lot to do with its own troubles but that is its choice. If it wants to overspend itself into financial ruin then it has the right to do it. Who else do we know like that? Us? Funny how we have something of the same issues here as Greece and we have others trying to force us to give up our choice, right or wrong.

The irony of robbing the cradle of democracy didn’t seem to occur to the stock market as US stocks picked up even more upside impetus on carrot dangled in front of Greece. By the close most stocks sported gains. Modest compared to recent moves, but gains after early weakness. Low to high action, indices holding a higher low, the leadership holding their nice tests. Not bad.

NASDAQ 0.34%. SP500 0.63%. DJ30 0.71%. SP600 -0.10%. SOX -0.16%.

TUESDAY

No economic data Tuesday and the earnings flood is now more of a quiet meander. Still important, however, as PCLN announced after hours and reported lower than expected guidance. Didn’t seem to hurt the stock. It sold off on the news then recovered to gain 10 points after hours.

PCLN showing the same comeback attitude of the overall market Monday. Okay, kind of corny but the idea is there. The bid keeps coming back. It is not a roaring run higher and indeed we are not expecting one. This is a trend toward the end of the year; if it was a rip the market would be there in a few sessions. We expect more of a tortoise move to the year end and into the last range below the April rally peak. The patterns of those stocks taking the lead are solid and the moves thus far have been a break higher followed by a week or more test. We expect more of that and thus we picked up some positions last week as stocks were testing and some more today. Plan on doing it again.

As you can tell, nothing fancy here. Just seeing higher lows, good patterns, and a bid that shows up even though it takes awhile to appear sometimes after the Europe situation flares. There is a feeling that the US data is such that no second recession occurs (hmmm) and that China has engineered a soft landing. Whether correct or not, that notion likely holds through year end as the data is not likely to crash before then. That is where the upside move has its roots.

I say it won’t hold up. I am hearing more and more from businesses that are cutting costs and quite drastically so. If things are so good why are some food companies telling their transport sectors to cut $30M in expenses? Why are financial companies, e.g. banks, who are getting free Fed money, buying bonds and drawing a guaranteed yield, laying off huge chunks of their staffs? After hours RBS (Royal Bank of Scotland) announced it is cutting 30% to 35% of its workforce tied to fixed income. That is a specific area, but it shows that companies still see the need to cut versus load up for a return to a strong economy.
The consumer has seen incomes negative for the past three months and flat for the past six. They are moving in the wrong direction. Last month consumers spent from savings even as retail sales grew. Why were they up? As I said last week, prices are up on things they must buy every day, e.g. fuel and food. They are not buying more units, they are just paying more for the same or less amount thanks to inflation on those items. Overall dollars are up that is because prices are up. Incomes are falling, consumers are tapping savings to keep up. That CANNOT go on.

Okay, kind of a downer to end the report, but nearer term the market is showing that upside bid with good patterns in position to move. While I do not believe the economic and thus stock market future is bright in 2012 that won’t keep me from making money on the move that has set up.