Buyers Enter on the Dips
- Stocks still pensive even with some very solid, credible US economic data.
- Europe still a cloud cover over the US, but Friday’s jobs report likely had a bit to do with the sluggish action.
- Modest gains yes, but once again very constructive intraday action.
- Jobless claims beat expectations.
- ADP at 325K blows away the 180K anticipated.
- Same Store Sales rise 3.3% with some great beats AND some pretty surprising misses.
- Dollar, bonds start acting as they should with an improving US economy.
- Growth stocks quickly move into the lead Thursday.
- Jobs report could break this next move free and up into the last range before the post-bear market highs.
- Plenty of stocks still showing up and looking to pitch in to lead higher.
Not much in terms of a strong session, but again the action was constructive as buyers enter on the dips and more stocks set up for upside moves.
Once again the U.S. posted solid, credible economic data. Once again the stock market seemed reluctant to act positively on the data. Futures were lower. Stocks did rally when Initial Jobless Claims came in better than expected, but futures then faded heading into the open. The stock market had to struggle much of the day to get back to positive. After a slower open, stocks bottomed about an hour into the session and worked their way to the upside. It took until the afternoon, however, for SP500 to turn positive. The Dow wanted to wait the whole session before it could make a positive move, and it could not hold it in the end.
SP500, +0.29%; NASDAQ, +0.81%; Dow, -0.02%; SP600, +0.72%; SOX, +1.49%; NASDAQ 100, +0.83%
For once this week, it was not just the large cap techs leading the move to the upside. Note the growth bent toward the session. NASDAQ, SP600, and SOX were all up nicely. The large cap NYSE, the stodgier group, was not up as much. Something of a reversal for the week, although I do note that SP600 has been strong all week. It was more of a growth climate on Thursday. Why was that? Even with problems in Europe, there were people looking to growth.
Looking at the economic data for the day, Initial Jobless Claims were very credible at 372K. That was better than the 375K expected and the 387K revised a bit upward from the prior week. ADP screamed higher, logging 325K private payroll jobs versus the 180K expected and 204K in November. That had people buzzing, but apparently there was not much belief in the number because futures were not able to advance on it. Still a positive read.
Same Store Sales were quite interesting with some widely varied numbers on the day. There were some really solid winners. JWN posted 8.7% sales over 5.1% expected. Very solid and credible. ZUMZ had a 10% sales growth rate and BKE posted an 8.9% sales gain. Both of those topped estimates. LTD beat at 7% versus 5.7% expected. M beat nicely. It guided higher for the quarter and for the entire year. A new high for the past 12 months.
Some very nice beats, but there were also some surprising misses. KSS declined 0.1% versus a 2.2% expected rise. That did not do the stock a lot of good. A very surprising miss was TGT. The posted a modest 1.6% gain versus 3.1% anticipated. Not looking good. AEO missed as well. Overall a 3.3% gain or thereabouts for the holiday sales. That was not quite as good as hoped. Perhaps that was acting as a governor on the early action in stocks.
I did mention Europe, and that is the usual problem. Regardless of what we do, we have to live with Europe every day. Italy’s 10 year bond yields topped 7%. That is the magic percentage point that everyone deems bad. France had a decent auction, but it had to pay at the top level of the yields it wanted to pay. At least they did not have to pay more. That did seem to act as a governor on the stock market, but stocks it did recover. They pulled to the upside in the afternoon and, to a certain extent, they fought off an afternoon fade and managed to bounce a bit late into the close. A modest bounce into the close put a decent finish on the day.
Despite lackluster numbers, the intraday action remained positive overall. There was the low open followed by the rally to the upside. Low to high is more bullish action. It means buyers and traders are coming in on the dips to buy and push stocks higher. A low start and higher close is exactly what happened on Wednesday. There is low-to-high action, and that is always nice to see in an advancing market. Particularly one that you anticipate will move higher. I was more than please to see the action even though the move was not impressive.
A week or even two weeks ago I said that the market would rise, in my opinion, into the New Year, but it would not be a huge move. It is coming in fits and spurts, and there is a little volatility intraday over the past two sessions. We had a big move on Tuesday. Perhaps the market is still hung over. Maybe. It is still showing good action, though with that low to high. It is reaching down, testing the rising 10 day EMA and bouncing back. Very solid. Consolidating the move, digesting the gains, and setting up to break higher again. A lot of stocks are in good position to move. I noted that quite extensively and often in last night’s report, and it remains the same. They started breaking to the upside on Thursday yet again.
Good action, but maybe a little muted because of the Friday jobs report. Good news out of the ADP. Decent news out of the weekly Jobless Claims, which I think is the most important number. But there is still the reality of the jobs report. It has to follow through, and maybe some investors were a little hesitant ahead of what is turning out to be an important number. It is important given the positives we see in the stock market move as well as the continued advance in economics.
It simply makes sense that the jobs numbers are improving. We have had four months of improved economic data. If you get that kind of improvement, the lagging employment numbers will start to catch up. The only thing I am concerned about is whether this is, as in 2010 and early 2011, a head fake and false plateau. In 2011 we saw a turn back down, and I am very concerned we may see the same thing this year. For now, we have the rally we want based on the data we are getting. We will have to see when more earnings come out. That could be the turning point, but that is still probably a couple of weeks away. That puts the market in the range to rally back toward that April and July high. That is the higher playing ground that we want stocks to be in so we can reap good gain and good reward after this move. As the sheriff parroted back to Kevin Costner in the movie The Postman, “Stuff is getting better.” Maybe it is. I sure hope so. People in this country could sure use a little better stuff, wouldn’t you say?
FRIDAY
It is all dominated by the Nonfarm Payrolls Report. Actually, it is the entire jobs report. The unemployment rate has held the most interest with that big drop from 9% down to 8.6%. It is expect to bump up modestly, but that is all semantics. I talked about Rick Santelli last night and his blurb on CNBC about how to change the unemployment rate. That is exactly what we are seeing here. The numerator (the number of unemployed) is changing relative to the job pool overall, so we are seeing the number drop. There are not a lot of new jobs, but there are some new jobs. There is no doubt about that. We will see what happens tomorrow and if we get any improvement in the average workweek. That will tell us a lot, too. We have not had the kind of improvement we need, and that has me worried about how long this improvement in the jobs data can last.
What will we do on Friday? We still have plenty of good plays on the report. We are looking for several of them to make the break. If they do, we will not shy away even though it is Friday and not my favorite buying day. We can pick up partials on them. A lot of it depends on what happens with the jobs report. The market could finally decide that it has hit were it wants to hit and it had the news it wants to have, and it could continue this Tuesday break in a big way. Let us face it, it already had a good consolidation going into Tuesday. That was just one day up. It does not really need to consolidate. This just shows a pensive view toward the Friday jobs report. If it comes in good, I think it will release buyers to push stocks higher, maybe clearing that October high on the SP500. That will just push our current positions higher.
We have many upside positions in play. Indeed, I closed some downside positions today that were questionable. It could have gone either way, but I did not want to get caught out. They broke higher, tested, and broke higher again on some volume. I do not want to just sit there and let them get hammered. I was getting some questions about it in the office, and they were saying it is at resistance. But some of them I closed and some I did not. We will see what happens.
There is a move to the upside in progress. A little lateral test. If the jobs market comes in big, I think it will free the market to rally. It will probably put in another good day and culminate this leg of the move upside following this consolidation. If it gets over the October peak, it will want to test that level. That is cool. We will have had a good run to the upside and then a little test. Then a little bit higher.
We still look to get close to the top of the range before this puppy calls it a day. I know they were talking about the Santa Claus rally coming to an end on CNBC. I talked about it yesterday afternoon and this morning. Typically it ends right now. If you waited around long enough and stuck with it and were watching stocks, you saw that they turned off the lows and, again, rallied higher intraday. That is the bullish action they continue to show. It is coupled with the continued good-looking patterns we are seeing of new stocks coming into good patterns and wanting to break higher. By “new stocks” I am referring to stocks that have not participated to this point, not new issues. They are coming to participate now, and that is the fuel that keeps the rally moving to the upside. We will keep looking for those stocks to add to positions. We are seeing more come around, as I noted in leadership. We will have a few of those on the report tonight, and I will put more of them on for the weekend to continue to participate in the move.
If we get a strong move upside tomorrow, we will take some, but it will be harder to take more positions without getting some kind of test first. We have good ones, and we do not want to chase the bus. We like to be positioned ahead of it. We have great stocks in great position right now. If we get a surge to the upside, we do not need to buy a bunch of new ones. We can just let what we have run to the upside.
Stock Splits & IH Alerts, Editor
InvestmentHouse.com
