Buyers Try But Cannot Turn the Market
- 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.
Buyers try but cannot turn the market back upside yet.
Stocks tried to rebound from an oversold condition. They had some success, but it just could not stick. It was a very choppy session for the market overall. Things started low and then they came back. It was just that kind of day. Futures were up. They sold off on the GDP numbers and some news out of Europe. They recovered, then they sold off it was back and forth all day. They tried a late bounce off of an afternoon pullback, but it did not mesh and stocks sold off into the close.
SP500, -0.4%; NASDAQ, -0.07%; Dow, -0.46%; SP600, -0.71%; SOX, -1.25%; NASDAQ 100, +0.23%.
NASDAQ 100 managed a gain thanks to AAPL and AMZN bouncing back. There was nothing too impressive. The SP500 tapped roughly the same low as on Monday and rebounded. NASDAQ was very similar. It tapped 2500 again on the low and rebounded. It is holding that near, somewhat-interim support yet again.
The market looks as if it wants to bounce. Traditionally it does bounce into Thanksgiving and on the half-day session the Friday after Thanksgiving. In the past 10 years or so it has been hit or miss; roughly 50/50 but leaning a bit more toward positive. At least there have not been any major tanks. So what will happen? What CAN happen? Can there be any grand move on Wednesday and the half day on Friday that could bring the indices back out of the August-October trading range? Likely not. There is a lot of news out on Wednesday morning. It is all pushed ahead because on Thursday the market is closed and Friday is a half day. There will not be anything to vault the market to the upside. That is because there are issues out there, dear friends. A lot of them have to do with the U.S. economy, not to mention some other economies of the world.
On Tuesday we saw the GDP second estimate for Q3 come in at 2.0%. That was less than the 2.5% expected and the 2.5% recorded on the initial read of Q3 GDP. Nothing jumped out as a reason why it would drop. There were no major changes. It was just a situation where there were not a lot of exports. There were some imports that dragged things lower, but it was nothing major. All things considered, GDP was not bad. It was just not at the estimate, and that has people rightly concerned. Q4 GDP is popping along better than Q3. Things could improve just as they did in Q4 of 2010 just before things got bad in 2011. That is the way it is sizing up.
Barton Biggs is a pretty sage fellow when it comes to the markets and the economy. He says that the U.S. will not only have a slowing economy (as in the start of 2011 when there were such high expectations), but we will actually see a recession. That goes along with some of the other forecasts from some pretty sage people, one of those being the ECRI. It is calling for a recession, although things have improved over the last two to three weeks with its indicators.
The other news on the day dealt with Europe, of course. Spain had a 3 month bond action, and they had to pay two times the yield that the country paid just a month ago. A 90 day note bears an interest rate of over 5%. That is shocking. Of course that put a damper on the action for the market, but things kind of turned around in the afternoon.
Looking at the SP500, things turned and rallied back to the upside. Was it the FOMC minutes? No. It was the IMF saying that it put together a precautionary liquidity line known as the PLL that would be ready for use if needed by any of the European nations. That had the smell of a deal or some kind of bailout, and the market liked that so stocks rallied back to the upside. Again, they could not hold it, and they ended up faltering and dropping back toward the flatline. The FOMC minutes came out. Not a lot of surprises there. More of the board members said they wanted to use some kind of monetary stimulus. We have that in the pipeline, and that may ultimately be what they have to do down the road. Why? The way things are with our debt, they may have to monetize it and totally inflate the dollar and destroy our savings to get out. As many are saying, it will be a decision of saving the economy or saving the dollar, and they will throw the dollar under the bus.
WEDNESDAY
There is a lot of economic data on Wednesday. They pushed it all forward from Thursday and Friday. I appreciate them doing that; it makes some kind of sense. The Initial Jobless Claims are expected to be well under 400K again. Personal Income and Spending is expected to rise at least incomes are. There are the Durable Goods orders for October, and they are expected to fall a bit more. We will see. Then we get the Michigan Sentiment final for November. It is expected to hold steady at recession levels.
Will any of that move the market? Sure. Some of it could definitely move stocks. Is any of this data going to move stocks in a tremendous move a good surge of new bids that pushes stocks to the upside and back out of that August-October range? No. They will not do that. It is just not the setup for that kind of action. There have been Thanksgivings where things were set up nicely and we just cruised higher. There have also been Thanksgivings where the market has sold violently for a couple of days and then resumed a strong uptrend. It is just to the point where you have to look at the overall trend. Thanksgiving week will not change the trend. Although it did not help this week with the Monday plow lower, but there has not been the rebound back to the upside. The market tried to make the move from this little triangle. It failed to do that, and now it has to live with the consequences. It will be tougher to make any advance to the upside, although there are many stocks out there that can make us money on trades to the upside without necessarily having a new breakout and run higher.
There are so many questions out there. We saw a lot of what was going on today with the super committee. Yesterday we saw the super committee’s failure, and you got my rant about why on earth there is talk of people paying their “fair share” of taxes. These are the supposed millionaires and billionaires who make $200K a year. I do not quite think that is the case, but there is a campaign debate about this. The President was out on the campaign trail today, and he was not talking about the failure of the super committee or how bad the economy is. He talked about wanting to get one of his stimulus plans pushed through. His strategy is basically to try to break his “stimulus” package into pieces and try to get some of it passed. Then he can say, “Look, I did this. It would not have been done but for me.” Of course it will not make much difference. I have seen statistics of the number of jobs he has supposedly created out of his stimulus. The numbers are appalling even if they are correct. Even if they are correct with how many jobs they claim to have saved, the price tag is astronomical. It is hardly worth the effort to put us in such debt for it.
In any event, I did get a bit upset the other day with Congress making millions of dollars for decades on insider stock trading. We cannot do that; we would be in the jailhouse if we did what they did. But they tell us that they cannot cut anything out of the budget, and that it is perfectly legal for them to do what they are doing. They just want everyone else to pay more so they can fund their profligate ways and our President’s profligate ways. And it is not just this President I am talking about the one before him, and really the one before him as well. Even though we had surpluses, President Clinton was riding the coattails of something that started in the early 80′s. He was riding the very end of it, and all the extra programs we piled on top of it finally choked off that golden goose.
There is a lot of blame to spread around, but blaming will not get the job done. But I got a bit upset that Congress is pointing fingers (and we are pointing a certain one back, I’m sure), and the President is pointing fingers as well at all of the people who are just trying to make the economy work. I do not know about you, but people who make $250K, $300K, or $600K a year are not getting it for nothing. They are not just waking up in the morning and taking the check from the mail to the bank. That is not happening in 99.99% of cases. They are working their rear ends off for it. It is very upsetting to hear people who claim you are not paying your fair share. I have a lot of friends who make a lot of money, and none of them are sitting on their butts. They do not work 8 hour days; they work 12-16 hour days to make it happen. Especially right now.
It is very difficult to get things done right now. A lot of companies are not buying. We hear about all of the capital investment and how companies are just blowing and going and spending a lot. That is just not the case. Some of them are, but we know that was the bifurcated economy with export companies versus domestic companies that depend on U.S. demand. If they were able to export overseas, great. Then things were fine. Frankly, the administration set things up so it was easier for them to do that. They got a lot of stimulus dollars and protected their markets from any newcomers. It made it extremely difficult for small and medium sized businesses to make any headway during this period. That is why there are no jobs, and that is why there have been very few jobs coming around. They are slightly improving, but they should be so far ahead of where they are now based on any other recession and recovery we have had.
We are just in a bad situation, and it is not getting better because the powers-that-be in Washington are not really doing anything to resolve the problem. The deficit commission was a joke. It was not going to work anyway, and it would not make any difference with $1.2B a year. Give me a break. We are running up a debt of $4B a day. In 30 days, we are talking about them basically running up what they would save in one year from their “debt deal.” I am probably preaching to the choir, but you understand that it is a joke.
That is why it was kind of heartening today to hear that the Simpson-Bowles proposal was being trotted back out. Many in the Senate and in the House were saying they should vote on this thing and not just say it is dead. They want to have a roll call and see who will vote for it and who will vote against it. I think that is a great idea. That is what we need to do. We need to say that the emperor has no clothes and just do what is right. But I am digressing again.
We have better numbers in the U.S. Whether they are accurate is hard to tell. From my surveys from small and medium businesses, I do not see it. That does not mean there are not businesses out there that are doing well, however. There are businesses with a niche, and they are doing quite nicely. But the majority of the companies that we need in order to create more jobs are not doing well. There is too much uncertainty and absolutely no demand. Thus you cannot go out and spend money.
What will we do in the market over the next day and a half? We have some more upside plays on the report. In my estimation, we are in no position right now to play more downside. We could get that if we have a modest rise through the end of the week and to begin next week, and then a roll back to the downside. If that is the case, we will be watching the plays on the report to the downside, letting them move back up, and then playing them as they roll over. We can also play some of these moves to the downside on Wednesday and Friday. I have been known to make some very good trades during that time. But the question is, do you really want to get out there? Consider what is going on overseas and the fact that on Thursday we are closed but Europe is not. Do you want to hang it out there, so to speak?
If we see a great play (there are some really good setups) and if they make the move we want, we will probably take a few positions on it. That is just the way I am. If I see something that looks good, there is typically a reason that it is set up that way. Good things are going to happen. But it has to be good, and I am not going to put the full position to work on Wednesday or Thursday. If we see it, we will put some money to work. If we do not like the action, we will not. These two days will not make us or break us. We can just mind the positions that we have if we want to. It is perfectly normal and okay to just take care of what you have right now. We have been paring some positions and letting other positions run, taking some gain on some downside the other day. Just minding the store, and that is what you have to do sometimes. Mind the store, execute the plan, and let things unfold.
On top of it all, be patient. Let plays that are working work. They will move contra to you for a day or two after a big run. That is exactly what we have seen in some of the downside plays that we are engaged in. Big runs to the downside and on Tuesday they were rebounding some. That is totally normal. Let them work for you as long as the move you want to make money off of is working. As long as it is holding as it should be, you can let it work. That is what we will continue doing here.
I hope I have not confused the issue. The indices have fallen down into their August-October range. It would take a heck of a move to get them out of this, and it is probably not going to happen. The odds are that it will not happen on Wednesday and Friday. We just need to be patient. If the plays come, we can take some positions. If they do not, we can wait. If we get a bounce higher and a roll over, that is cool. We can play that again and make some great money.
There will not be a market summary on Wednesday. On Wednesday there will be summary tables and some continuing plays as well. On Friday there will be summary tables so you can see the changes. I am giving the staff a well-deserved break. We have had a great year thus far, and they need some more time off. That all folds into being patient and letting things come to us.
