Taking the Market One Day at a Time
I’ll be honest; I was not a happy camper at about 8:30 am mountain time Wednesday morning. Stocks were reacting badly to a renewed stream of negatives from across the pond and frankly, it felt like the bad old days had returned. Deep down, I knew that we had enjoyed a respite from the news-driven nightmare during Santa’s visit to the corner of Broad and Wall last week. But it was still discouraging to see the market tick to fresh new lows after each and every miniscule bounce in the early going yesterday.
Although the optimist in me hoped to see some follow-through from Tuesday’s jaunt to the upside, I also saw that the news flow didn’t favor the bulls. You had a report that Spain was in talks to borrow directly from the EU/IMF, which meant that the contagion had claimed another country. You had Italy’s big bank, UniCredit being forced to discount its capital offering by 43% in order to attract buyers. You had Hungary cancelling their auction after rejecting all bids from their prior auction due to the fact that rates were over 9%. You had a lukewarm auction in Germany. And you had a host of reports talking about Greece leaving the Eurozone. So, my guess was that the bears were going to have a field day.
However, a funny thing happened on the way to the wipeout (or what I felt could quickly become a very bad outing). Just about the time things were getting ugly, Ford reported that they had sold more cars and trucks than analysts had expected. Oh and a few minutes prior to that, the U.S. banking index made a u-turn and started to move higher. Just like that, the nastiness started to dissipate. And by lunchtime, the DJIA had clawed its way back into the green.
So, what should we make of this? Should we assume that the bears merely ran out of reasons to sell Wednesday morning? Or should we recognize that despite the rebound, the bulls were unable put up any kind of follow-through from Tuesday’s rally? Or should we assume that mutual funds were reallocating funds at the beginning of the year into weakness or that the fast-money was waiting on the results of France’s auction? (Yes, I actually heard all of these arguments bandied about yesterday.)
While we won’t know for sure until the next really bad thing happens in Europe, it appears that the U.S. stock market was able to brush off the sovereign debt worries for another day. And in my humble opinion, each day we don’t get trashed on account of Europe’s woes is a day closer to the end of the crisis. So, I’m of the mind that we just need to take it one day at a time right now and recognize the good stuff when we see it.
Finally, I will note that the technical picture is exceptionally muddy right now and that there is a chart for just about everyone these days. For example, if you’re feeling bullish, you will likely enjoy the chart of the DJIA. The Dow appears to have broken out and is embarking on a new leg higher. However, if you prefer to dress in fur these days, you will want to focus on the NASDAQ where the chart is still less than positive. Then the midcaps go to the bears while the smallcaps look to be siding with the bulls. And as for the S&P, well, it appears to be doing its best Switzerland imitation right now and remains neutral.
So, which team has it right here? Frankly, I’m not sure and since my investing strategy isn’t based on the use of a crystal ball, I’m going to keep an open mind and continue to, yep, you guessed it; take it one day at a time.
Turning to this morning… Although demand was considered strong at France’s latest bond auction, yields did rise (to 3.29% from 3.18% in December on the 10-year). In addition, Greece’s PM announced that the country could default in March if unions don’t agree to pay cuts. In addition, there is more talk of downgrades in France, big problems in Hungary and hefty losses on stocks in Italy and Spain. Finally, Chinese stocks continue to fall. All of the above have combined to push European markets and U.S. futures lower.
On the Economic front… ADP reported that the private sector job market expanded by 325K jobs during December, which was well above the consensus expectations for a gain of about 179K.
Next up, Initial Claims for Unemployment Insurance for the week ending 12/31 fell by 15,000 to 372K,which was below the consensus estimate for 375K and also last week’s revised total of 387k (from 381K). Continuing Claims for the week ending 12/24 came in at 3.595M vs. consensus of 3.617M and last week’s 3.617M.
Finally, we’ll get Bloomberg Consumer Comfort at 9:45 and most importantly, the ISM Services report at 10:00 am eastern.
David Moenning
Editor: The Daily Decision
