Stocks Just Too Tired to Rally
- Some good news, some bad news, but stocks are just too tired to rally regardless.
- European bond auctions termed a success.
- China PMI contracts for the first time in three years.
- Jobless claims back over 400K.
- US PMI handily tops expectations.
- Same Store Sales good enough.
- The pattern this week is surge and rest. If the jobs report is pleasing Friday the market would be due another surge.
- Despite US improvement, Europe is still the gatekeeper.
Another day of rest after the second big upside day of the week.
There was some good news and some bad news on Thursday. None of it was enough to stimulate traders or investors to move the market higher. Not after a 3-5% gain on the indices on Thursday. The markets followed a pattern this week: rally, pause, rally, and pause. That would make Friday another rally day. A lot of it will depend on what how the jobs report comes in. ADP looks solid, but on Thursday the Initial Jobless Claims jumped back over 400K. They came in at 402K when 390K was expected. The prior week was revised up slightly to 396K from 393K. That will happen. You will have your up and downs. After three weeks below 400K, it popped up a built. That is normal. There is never a straight line move, whether it is in the market, in data, or a bird flying in the air. It does not matter. They are all natural systems, and they will go up and down. But they tend to maintain a trend until something makes it change.
It was a boring day. There was not enough to move the market to the upside. We had some European bond auctions in Spain and France that were heralded as something of a success. Spain was heralded as a success even though its rates were the highest it has paid since the EU came around. But they said they were below 7%, so that was apparently a positive. In France, yields actually fell from its prior auction, so that was a positive result. You have to be happy about that.
As with the market surging one day and pausing one day, the news on Thursday was some good news on one hand and not-so-good news on the other hand. The European auctions were considered good news. The Initial Jobless Claims were not so good. Same Store Sales were overall better than expected. M, COST, LTD, KSS and SKS all had good numbers that topped expectations. SKS was huge. 9.3% versus 5.3% expected. Very nice indeed. Same Store Sales were coming in quite nicely, thank you very much.
On the other hand there is China. Its PMI contracted, falling to 49. This is the first time in three years that it has been below 50 (the expansion threshold). Counterbalancing that, the US ISM jumped up higher than expected, coming in at 52.7 when only 51 was expected. Not bad at all. That is the best since June of this year. That is not bad action at all, and you have to be kind of happy about that.
It was this give and take, the yin and yang on the day that kept the markets from really stretching those gains. I will mention that auto sales came in rather robustly in the afternoon, and that is another positive. That also helped bump the Chicago PMI up to the 62.6 we saw on Wednesday. Auto and truck sales are performing quite nicely as some pent-up demand is released. Remember that the average vehicle age was an astonishing 11 years in the U.S. That is a long, long time or a very old vehicle. It just goes to show how people wanted to replace their vehicles, but the Great Recession was keeping them from so. Now they are. I am getting stuff in the mail that says if you are a business you can expense up to $500K of equipment if you want to buy a new fleet of trucks. It is somewhat enticing to do that. I could use a bigger truck to pull the trailer. We will see. My wife discovered she likes horses after 20 years, of course. But I digress.
There was some good news and bad news. But the important thing was that none of it was good enough to actually boost the markets. They were just tired. On Wednesday we got the kind of news that should impact the ECB basically more liquidity, and the markets love liquidity. Stocks surged huge and they had to take a breather on Thursday. Just a bit hung over. Of course with the jobs report coming out on Friday, no one really wanted to stick their necks out. That does not mean there were not any good moves out there. There were indeed some good gains on the day. And there were other solid setups that look ready to move to the upside. That goes along with our theory on Wednesday that there will be continued stimulus pointed toward the European economies and stock market, and that should help financials in general. Not all financials, of course. Why? Because as Europe is perceived to be in recovery mode or receiving aide. The dollar and U.S. Treasuries thus become less desirable.
Looking at the markets, SP500 was basically flat. It came in just below the March 2011 low that was hit just after the Japanese earthquake and tsunami. Looking at the intraday action, stocks were flat to down, and then they rallied nicely at the open. When they got the ISM number they spiked up a bit more, but that was the zenith of the run for the morning and the market. Stocks sold off, they traded negative, and they bounced back to positive. It was back and forth all day. SP500 closed out the session just under water.
SP500, -0.19%; NASDAQ, +0.22%; Dow, -0.21%; SP600, -0.8%; SOX, +0.53%; NASDAQ 100, 0.61%.
Note how NASDAQ 100 posted the best gain of the day. Stocks such as AAPL, GOOG, and AMZN had pretty good days, rebounding to the upside. GOOG had an outstanding day, rallying back up to its old high with a solid 2.4% move. We had some large cap NASDAQ stocks leading the market to the upside. That is not bad. NASDAQ should lead and tech should be ahead this time of the year. That is an overall good indication for the market, although the small caps were disappointingly lagging the market.
I heard a statistic after the close today that said there was more investment in the U.S. under Obama than under Reagan or either of the Bushes. The numbers are so grossly weighted and footnoted that it is like comparing apples to zucchini. It is not even fruit to fruit. It is absurd to come up with that conclusion. A lot of people ignore the bifurcation of the economy that I have talked about. Some of the large companies that sell overseas have had plenty of good times and they are investing. It is the small companies the ones that actually make all our jobs and where we grow all our wealth those are the ones that have not done anything. That is why we are getting hurt. These statistics are about cherry picking what they want to report. They do not look into the backbone of the U.S. economy which has always been the small business. So of course we get a different outlook just because someone wants to report gross totals and not even inflation-adjusted totals. Let’s face it, the dollar has dropped 40% against other currencies since 2001. Reagan’s growth was in the 1980′s, so we will not get anything close to comparable unless you adjust for inflation. Of course they did not do that, but I digress.
FRIDAY
As noted, it seems to be the day for the market to surge. We have had a surge and a pause, a surge and a pause. That would leave Friday to be the surge the rubber match, so to speak. It very well could be. We will have to see. Jobs will be the story. We had some good ADP numbers on Wednesday. We had not-so-good initial claims on Thursday, but that is more recent and not necessarily back in November.
Everyone will be watching and hoping for a number bigger than 123K as expected. After all, ADP came in well above expectations, so why not the overall jobs number? Why not, indeed? We will find out. I do not know how great it will be. It should be decent. Why? Even though employment lags, there have been enough months (three or so) of improvement in economic numbers across the board to support some better hiring. That is what we are seeing in ADP. I would not be surprised if we do come in at 125K or a bit more. That would be great. We need the jobs.
I will not get in this political area where I want the economy to be bad so Obama will lose or I want the economy to be good so Obama will win. I want the economy to get better so the 14M+ people (and that is grossly underestimating the unemployed people) can actual get jobs and get back to work. We need to be productive. The only way we are great is if we are actually starting businesses and coming up with new ideas. It has been tough. The government has not been conducive to small businesses and entrepreneurs. It does not mean they are not providing programs for them, it just means they are actively helping the larger companies put up barriers to entry that make it very difficult for small businesses. Thus the big companies that have been net jobs losers for 20 years are getting most of the money and making most of the money. The job creators the small businesses that are dreamed up in garages and then put into practice are having a tough time. We are not creating the number of jobs that we normally would at this point in a so-called recovery.
We are getting better. I can only hope it will continue. I am worried about 2012, but things look hopeful to end the year. As Hans Gruber said in “Die Hard” when his safe cracker said he would need a miracle to get through that seventh layer, “Relax, it’s Christmas. It’s the season for miracles.” I know I have used that recently, but it fits so well with the times and the stock market.
Jobs will be the leader tomorrow. It will hold the key as to whether we have a pause or surge. We will look at a few upside plays. It has been a wild week. You do not necessarily want to go diving into the end of that week with a bunch of new buys. But if they present themselves, if it is a good pullback and a stock that is not extended after this week of moves and we see a little chance to get in, we will take some positions. That is what we have been doing all along. We will not load the boat on them all, but we will take some positions when we have the opportunity to do so. We will not load a bunch of plays on the report for tomorrow. We will have a few. We will have some to the upside and a couple to the downside probably. We will just be ready to make the move.
Obviously the indices are not out of trouble. The key is, number one, the U.S. economy continuing to improve. Number two, it is the idea the hope, the dream by investors and traders that the action on Wednesday by six central banks with respect to making dollar credit swap lines more available is a precursor to more assistance for Europe. By assistance I am talking about more liquidity. If that is the belief for now, stocks should rise off of dips because money will be put to work off of dips under the idea that more liquidity will produce higher financial or securities prices.
With that in mind, that is how we will be playing it. We will be looking for opportunity to step into stocks that are well positioned to give us more exposure to that potential upside. We will not forget about the downside. There are plays that are classic setups to the downside. If they give us the moves, we will take them. After all, you have to go with the market and take what it is giving you. When we start thinking we are smarter than the market, then we miss moves and get clobbered. Because we think we know where the market will go despite what it is showing us through the vehicles that determine its movement. That is individual stocks, particularly the leaders. We will keep an eye on the leaders, and we will keep an eye on the laggards, too. We can make money off of those after they fall. We will see which direction it goes. If the bid remains, we will get plenty of buys and will take advantage of them.
We will see what happens with the jobs report tomorrow. It is always interesting. It is always something of a crapshoot with government figures as to what will happen. It is an election year. If there is any way that the administration can make themselves look better, you can bet they will do it. Can we really trust them? You can to a certain extent because they cannot fudge them that much.
Stock Splits & IH Alerts, Editor
InvestmentHouse.com
