European Data is Again Quite Bad
- 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.
Market fights more bad European data with some better US data and stocks post gains.
If the stock market wanted to sell off on Tuesday, it had the opportunity to do so. The news out of Europe was not good. Even some of the early news out of the U.S. was not so good. Wal-Mart reported its earnings before the open and it missed. It seemed to be okay with sales, but it was having issues with the bottom line. It gapped lower but held the 20 day EMA on the low. Some stories out of Europe were a bit worrisome. The Italian yields on the 10 year bond moved over 7% today. They were not back up to 7.4%, but they are heading in the wrong direction once more. German investor confidence fell to a three-year low. The EU GDP came in at a whopping 0.2% for the quarter. That matched the prior quarter’s 0.2%. There was modest growth, but no real acceleration in growth. That was a big disappointment.
Some good news on the U.S. front acted as a counterweight. Futures were down early in the session; the news out of Europe was not good. Then the U.S. PPI came in quite solid at -0.3% versus the -0.2% expected. That was versus 0.8% in September. Retail Sales were better than expected at 0.5% versus 0.4%. That was off the 1.1% in September, but they were still solid. If you take out autos, they were a better at 0.6%. That was much better than expected because they thought autos would lead the move higher. If you take out autos and gasoline, they rose 0.7%. We had some decent sales overall. Again, Retail Sales are not a function of units but of dollars spent. It may look like we are spending more dollars, but they are weaker dollars so we are not really buying anything new. That is the inflation. The PPI was down, and tomorrow we will see whether the CPI was down. Inflation was not biting in that much for November, so Retails Sales were actually pretty good.
The New York PMI came in positive just barely at 0.61. It was expected to decline by -0.8. That was also better than the -8.48 in October. There is a bit of improvement in the manufacturing. At least it is positive again. Business Inventories were flat. They did not grow the 0.2% expected, and they were down from 0.4%. There were a bit of sales. It really was not that great of news in front of the Business Inventories. Let’s face it, there is no ramp up ahead of the holidays, so I wonder where all the sales they are talking about will come from. But the data was not bad. It was good enough to bounce the futures back to the upside. Indeed, futures had almost turned positive by the open. It did not take long before stocks were rallying to the upside and actually posting real gains on the day.
Looking at the SP500, after a bounce at the open it was sold. It was rather disappointing to see it sold midday, but we just took it easy and did not panic. Sure enough, the market turned back up and rallied nicely into the last hour. There were some problems on the large cap NYSE indices (SP500 and the Dow). They gave back quite a bit at the end of the day. There is that leveraged ETF action once again playing havoc with the last 15-30 minutes of the market. If we have a good move up, then they are going to take out profits on those. Those are the programmed trades on the ETFs. It is a problem. It does move the market to a certain extent. Overall it did not damage the action on the day, however. SP500 did give up a pretty good gain. It only ended up at 0.48%. That was much higher than that rising all the way to 1264, but it only closed at 1257. It gave back quite a bit in the last few minutes.
SP500, +0.48%; NASDAQ, +1.09%; Dow, +0.14%; SP600, +1.37%; SOX, +1.47%.
This means that stocks continued the build with the little pennant patterns on top of the August-October range. These are still working and setting up. Many individual stocks are showing the same kind of action. This suggests there could be a run to the upside toward the end of the year. That continues to be the thesis because we are still looking at individual stocks that are setting up nicely. A bunch of indices are doing the same. We still have the possibility of a good run to the upside.
WEDNESDAY
The economic data continues tomorrow, and likely in Europe as well as the U.S. We have the weekly MBA Mortgage Index. We will have the CPI for October. That PPI was pretty tame. I want to add that the PPI numbers year-over-year were a bit hot. 5.9% overall number of the core. Strip away food and energy, it is 2.8%. Still pretty hot, but we have not seen that translate over in the CPI. We will see what happens there. Looking down the road in the PPI, it does not look bad. What do I mean? Crude goods fell 4.3% core crude goods ex food and energy, of course. That does not sound like inflation, does it? That would not put any pressure on consumer prices if crude good prices are falling. But why would they be falling? That would be problems with the economies around the world. Very interesting data, and we will see how it plays out.
We have the CPI. We have the Tick information that is the investment in U.S. stocks and bonds. We also have Industrial Production and Capacity. That will be out before the open as well. We will have the Housing Market Survey and, of course, Crude Oil Inventories. Crude has been on the run up to 100. We may see this number give the buyers a reason to take some profits and knock it back toward 95. Then we will see if it can break out over 100 after that test. Those who want to play a trade: When it goes back to 95, you can play that trade and see if it will break out and make a run of 10-12 points for you. Not bad action.
That is what we have in the mix as far as news at least scheduled news for the market on Wednesday. Going back to the patterns on the indices, you can once again see that triangle. This fits in with the theme that I have been harping on and driving people insane with. While there is a seasonal trend to move higher and some catch up by some mutual funds to move the indices higher, it will be more of a tortoise move. A tortoise on a highway that gets knocked around a bit, but it is not squashed by some of the passing vehicles. You can see it has been knocked around somewhat but not squashed. It has not broken down. Indeed, the indices are building into a higher low in this triangle or pennant. Bad news coming out on Monday and Tuesday from Europe did not stop the stock market. Indeed, the U.S. data help offset the move and registered gains across the board.
It was not a huge breakout by SP500, but it is working on it. Some of those industrial patterns MMM, UTX, TEX they look solid. After they finish this lateral consolidation, they are in a position to make a break to the upside. That will help SP500 move to the upside as well. It can follow in the footsteps of NASDAQ that is trying to make the break right now. It has not made it either, so we still have to have these moves consummate themselves. Otherwise they are just pretty pictures. But they are decent pictures. We have some decent stocks that are in the reports and that we are ready to move in. Actually we did move into some more on Tuesday. That is the way this market is. There are many stocks setting up, and they are breaking higher in waves. They have not exploded out of those patterns yet, but we are breaking higher in waves. That is a sign of health, and that helps bolster the thesis that the market wants to rise toward the end of the year. That is barring any major collapse out of Europe.
It seems like our market is dealing with the news out of Europe and is able to advance even with the negatives that have shown up this week again. If there is a major collapse out of Europe where we have defaults and countries saying “No mas” and throwing in the towel, that is a totally different story and could be a problem. For now, it does not look like that is the case. The market is swallowing the bad news. It is doing the tortoise move, but it is doing a move to the upside. And it is one that looks playable versus the back-and-forth, herky-jerky moves we saw when this pennant got underway.
We will continue to look for those plays to the upside. We are looking for a move back toward the top of this range near the April peak. I do not expect a breakout. If you do not expect anything, you are never disappointed. If we do get a breakout, that will just be icing on the cake. I am not counting on it for now. We will just play this move, take it for what we can, and then we will let things happen as they happen.
