Good and Bad Market Data Battling It Out
I fully recognize that unless you are a member of the fast-money set, drawing meaning from something that has occurred only two consecutive times in the stock market can be dangerous. And while I have been publicly accused of being a little too optimistic in my morning missives of late (the shame!), I will have to say once again that the action so far this year hasn’t been half bad.
You see, for the past two days we’ve seen the exact same pattern. Stocks open a little lower and in line with the way the futures had been trading before the bell. Then within a few minutes, the big-bad sell programs show up and things start to look ugly as the indices begin to fall off of a cliff. But after taking the punch, the bulls have been able to then wobble back to their feet and proceed to start moving prices steadily higher. Yep, don’t look now fans but for two days in a row (and remember, on Wall Street, if something happens once it’s a trend, twice is a tradition and three times is a commandment!) the bulls have proceeded to snatch a moral victory from the jaws of what appeared to be certain defeat.
So what’s going on here? Have we actually decoupled from Europe? Are the upbeat economic reports we’ve seen in the U.S. finally sinking in? Are traders buying into the idea that the U.S. stock market is going to continue to be the best place to invest in 2012? Could we be seeing the start of a new bull leg?
Before we get too carried away, it is probably best to remember that there have been big events to deal with this week. We’ve had some auctions in Europe, the ISM data, the preliminary jobs reports in the U.S. and then finally, this morning we get the Big Kahuna – the Nonfarm Payroll numbers for December. As such, it is easy to understand that there are those traders who may have wanted to cut back their exposure into these market-moving numbers. And then given the never ending stream of negative headlines out of Europe, it hasn’t been terribly surprising to see a little selling at the open.
However, there is still the question of how the bulls have managed to avoid getting mauled by their opponents this week. Stocks are overbought. There are plenty of negatives and plenty of folks talking about all the bad stuff. And there HAVE been sell programs run. So why haven’t we seen the usual trash job?
My working theory is that there are opposing forces battling it out right now. On one side of the aisle, the macro bears are looking at the morning’s laundry list of ugly data points out of Europe and doing some selling into the opening bell. But on the opposing sideline are the mutual funds who may have a buck or two that needs to be put to work. So, when stocks go down, the buy orders have been coming in.
There is also the theory that at least some of this week’s upbeat attitude is tied to short-covering in the banking sector. With Mr. Bernanke’s White Paper on turning foreclosures into rental properties comes the hope that there might be a plan percolating that could give the housing market a boost. And if home prices could start to see a bid, better bank balance sheets would surely follow.
So, while the game could easily change at the drop of a hat, headline, rumor, or downgrade, the battle right now seems to be between the good data here in the U.S. and the bad stuff from across the pond. And right now at least, the good data seems to be winning. But of course, now the question becomes, can it last?
Turning to this morning… Things were fairly quiet ahead of the jobs report. However, another stronger-than expected report on the U.S. economy has put some green on the screens both in the U.S. and in Europe.
On the Economic front… The labor department reported that Nonfarm Payrolls rose by 200K in December, which was above expectations for a gain of 153K and November’s increase of 120K. The Unemployment Rate dropped to 8.5% and average hourly earnings increased by +0.2. Finally, private sector job growth saw an increase of +212K jobs.
David Moenning
Editor: The Daily Decision
