SUMMARY:
- Indices bounce off the trading range, fade ahead of the FOMC decision, then get pretty ugly afterward.
- No Europe on the headlines but it sure appeared as if a European issue was in the background as dollar and bonds surge.
- November Retail sales disappointing, but some price drops are part of the decline.
- FOMC leaves everything status quo as should have been expected.
- SP500 and NASDAQ cracking the top of their ranges. DJ30, SP600 look just fine. SOX, however, is a problem.

All quiet on the European front but the market doesn’t act as if that is the case. 

It was a session that started off stronger, but then it had a hard time closing the deal. Stocks sold off on Monday following that down Thursday and an up Friday. It is that back and forth kind of action that you see in a consolidation. It looked like they were going to start the session to the upside, and they did indeed. Futures were up and rallied nicely ahead of the open. Unfortunately the zenith of the move was at the open. After that, stocks sold off to mid-morning, still holding a gain, and then moved laterally into what I guess was the “big news” of the day. It was the FOMC decision, and it was no news at all.

It was a meeting that snuck up on everyone because no one expected the FOMC to do anything. Or did they? The action after the meeting suggests that perhaps investors thought the Fed would come out with (or at least talk about) some Quantitative Easing. That was not the case, and I think it was foolish to assume that. Maybe I am totally off in saying that it had anything to do with the afternoon selloff. However, it was rather marked that stocks folded, broke below the close, bounced up to test the closing price from Monday, and then rolled over sharply to close out the session with some fairly resounding losses.

SP500, -0.87%; NASDAQ, -1.26%; Dow, -0.55%; SP600, -1.8%; SOX, -2.36%.

Note that the Dow was down just a half percent. It continues to show relative strength in this market. It is holding above the 200 day EMA and is well above the August to October range. The stoic, the staid, the steady blue chips. They are acting just that way. They could provide the leadership for the market that the semiconductors are not.

Do we really care about the semiconductors? You could say it is a relatively small group of stocks, but darn if they do not tend to lead the market up or down. And right now they are diving (not just sliding) back into the August-October range. There are the peaks in August and September, the interim lows in October, and the gap down point in November. Now they are back in the dirt. Who leads and who wins? The Dow or the semiconductors? In the past it has been the semiconductors, but the Dow may have a bit of help in holding up. It may be able to make the difference, but it will have to work at it. Nothing comes easy, as I guess some of the Republicans are finding out.

Rick Perry keeps opening his mouth, and off of the commercials he puts his foot in. He has wonderful commercials. Whoever does those for him is outstanding; he just cannot speak. It must be a Texas thing since George Bush had a similar problem. I am from Texas, and sometimes people would say I cannot speak either.

Looking at the news, Retail Sales were out with a big report for November. It was not that stellar, coming in at 0.2% when expectations were 0.6%. That is what it scored in October. Retail Sales without autos were supposed to come in at 0.5%, but it came in at 0.2%. Autos had no impact. This was the slowest reading in five months. But it had some help. Electronics were up 2.1%; and that is in sales. Electronic prices are down. They are actually deflating, so when they rise 2.1%, you know people are buying more stuff versus just paying higher prices for it. Gasoline fell 0.1% versus being down 0.4% prior. It continued lower. Food and restaurants also fell.

We had some downward sales in these areas. Perhaps we had a little bit of weakening. Overall, the price of gasoline has been dropping, so that does not necessarily mean that this was a decline in the amount of gas we are buying. A decline in buying is always worrisome. If people stop buying gas, that means they have to pull back. They are hoarding their money to perhaps spend it on food. We do not have to worry much about it being down this time because prices were down as well. We could have bought the same amount and just paid less. That is always good.

There were some earnings out as there have been every day. The big one on the day was BBY. It missed. It is having a problem. It has a great set up, but there is just the idea that BBY is having a hard time competing with the online sites. People like to look at stuff at BBY and then buy it elsewhere like AMZN or other retailers that sell electronics. There are some great ones in New York and on the west coast. I have to admit I have bought some of that as well. It is hard to beat the pricing. A lot of people do not want to pay shipping, but if you get shipping thrown in along with no taxes and a great price, you are going to buy. That is all there is to it. BBY is having some struggles with that. I often go in to buy music or movies, but then it does not have what I want. You spend the gas at $3 a gallon and then only get half the things on your list. It is not cost effective or a very satisfying trip. If you go on the web, you can always order it and it will arrive. That was just my commentary, so take it for what you will.

The real importance of the day was Europe. There were no real headlines out of Europe. There were no real negative headlines, and that was interesting. Why? Because the market action seemed to reflect that something is going on Europe like a downgrade, a sovereign default, or a bank collapsing. Why do I say that? The dollar LIBOR rate moved up to 0.55. No headlines out of Europe, and yet it moved up. This even with Spain and Italy having fairly good bond auctions. They had to pay less yield, and that is good. It is 1% less than a month ago. That was an improvement, yet the euro was clocked versus the dollar. U.S. bonds jumped up, helped also by a very strong U.S. bond auction. Indeed, the dollar moved to an 11-month high versus the euro. The U.S. 10 year bond auction showed the best demand since April of 2010.

We had all of these undercurrents here as money leaves the continent and comes to the U.S. even as there were no major headlines with respect to Europe. That is quite worrisome. Coupled with the selloff in U.S. stocks midday into the afternoon session, this suggests something was in the background impacting the pricing of the dollar, of U.S. stocks, and of European stocks. It may come out to rattle some cages later in the week. We will have to see how that turns out. The news of the day was not bad at all. U.S. Retail Sales were not that great. Business Inventories were up as expected at 0.8%. Bond sales were okay in Europe. So what was the problem? I guess we will find out. We will look at more of that when we look at the technical picture with respect to the U.S. stock market. We will see just what we can expect from our stocks for the rest of the week.

WEDNESDAY

There is some economic data on Wednesday. There is the weekly mortgage index. We have import and export prices as well. It will be interesting to see whether we are importing more inflation or not. With the dollar rallying, we are not importing as much inflation. That is always nice. That is what helps out the little guy. A stronger dollar helps all the people who have to buy energy or anything from overseas.

I get so ticked off when I hear someone like Steve Liesman on CNBC saying the average citizen should not worry about whether the dollar is strong against other currencies because we are buying stuff in the U.S. That is hogwash. We buy a lot from China, and China’s currency is starting to float more against the U.S. We do not have that cushion as China’s currency moves up against ours. While that may help out with the labor situation, it also forces us to pay more for those Chinese goods. At the same time, oil products are priced in dollars. Every time the dollar declines, it costs us more to import that barrel of oil.

When the dollar is stronger, it takes fewer dollars to buy those barrels of oil. That helps us out as consumers. It is utter nonsense when you hear these ivory towered nitwits saying that it does not matter what your dollar does. Just look back in history. Every time we have dollar devaluation our economy stinks. I am not just talking about democrats in charge. George Bush I was into this nonsense, and George Bush II was into this nonsense because he was listening to James Baker in his first term. Ronald Reagan was a strong dollar person. We had Robert Rubin during the Clinton years. He was unwavering in the strong-dollar policy, and that really helped. Of course it also helped having the Reagan boom. Reagan was able to enjoy a strong dollar because the boom was so strong. That drives the price of the dollar up. Clinton benefited from that as well.

That just goes to show you that we want to pursue policies that foster strong U.S. growth. That means small businesses and getting our innovation going versus the export economy that only benefits the multinationals who want a weaker dollar. They want the dollar to fall. If it does, their exports are cheaper to other countries, and they can sell more. There is a dichotomy of purpose between a weak dollar and a strong dollar. If you want us to be an exports nation, then you want a weak dollar. But we will then be weak everywhere. If we want to be a strong nation that leads the world in innovation, we need a strong dollar so we can support our businesses at home where the innovation and all the new jobs come from. How many jobs has GE created in the U.S. in the past 20 years? Right. Take a look at any of the big exporting companies; they are still shedding jobs over here. They will not help us much We need to support a strong dollar, and the way to do that is to grow the economy. No doubt about that. But I will get off my soapbox.

There was some downside action. We picked up some downside positions such as CERN. It has made us money to the downside before. There was also ANN. It has turned over some. We are just playing the downside as it presents itself in individual stocks.. The question is what will happen now that the FOMC has left things as is and Europe is trying to piece together a deal? It may just be up to the U.S. to figure it out. It may be up to our indices to break higher or lower. They are trying to hold. They look like they want to break to the downside, but watch for reversals when that happens. A lot of stocks look to be very volatile and choppy, but they actually may be coming down to support where there is some constructive action. Then they can make a bounce and we will look to play some of that action. There could still be a bounce to the upside. We still see plenty of stocks moving upside. If we see a stock break downside convincingly, we will participate in that. You have to hedge a bit and play what is there. Now we see if there is a bounce back up.

We are back at the top of the trading range. This is the euro zone. Are we going to fall back into the euro zone (i.e., problems with Europe driving U.S. stocks down), or can we make the break to the upside? I say there is still plenty of support to push stocks higher if they can get the catalyst. The FOMC was not the catalyst today. Retail sales were obviously not the catalyst. The lack of any news out of Europe obviously did not provide a catalyst at least a lasting catalyst as stocks sold off after an earlier higher move.

We are still at support and still looking for a catalyst, but we have the support of good bases to move higher if we just get some reason to do so. We will keep watching. As stocks that are leaders make the break upside, that will be our indication that there is going to be a move upside. If it does not appear, it does not appear, and then we have to get rid of plays to the upside. But we will do that. We will see how the indices battle it out tomorrow as they look back at the euro zone but try to move ahead to the next few weeks or a month perhaps dominated by some U.S. recovery.