Market Fights to Hold Gains
- U.S. economic data stumbles and stocks give up pre-market move then fight to hold gains.
- Jobless claims jump back to 399K.
- December retail sales show a late tail off in holiday shopping.
- Business inventories rise much less than expected as sales fall as well: the inventory build still remains elusive.
- Spain holds a decent bond auction, Draghi says the EU dodged a bullet.
- Grain supplies up, prices down, better for consumer.
- Home Depot to hire 70,000.
- Low to high intraday action continues the overall positive bias.
- Three-day weekend and earnings face the current rally.
Once again the stock indices have to recover from weakness, and they do.
Santa Claus rally/January effect move received a fairly significant challenge on Thursday. Stocks were rolling premarket. In the wee hours of the morning, the Dow futures were up 200 points. Why? Compared to recent auctions, there was a great bond auction in Spain. The country enjoyed twice the anticipated demand for its bonds and yields tumbled. That was great news for a beleaguered Spain, Italy, and Greece. Then things got a bit dicey. The ECB had a meeting, and it did not cut rates as some wanted. It is instead opting to see if the prior two policy accommodations would continue to work in the favor of the Europeans. That was not great for the markets, and they did pull back off of their highs in Europe and the United States futures. Then the ECB chairman Mr. Draghi said that the EU had averted a credit crisis thanks to its policies, and that was all part of the decision not to lower rates further. That had more of a negative impact, but a positive one as well. It did have its effect on U.S. markets such as the dollar and bonds, but stocks were still holding up fairly well heading into the morning economic data.
The Dow futures were down to about 60 points above fair value but still holding up positive. Then we had U.S. data. Jobless Claims, December Retail Sales, and later the Business Inventories came out. They were not that great. We also had some issues from companies cutting guidance. WSM is a perennial powerhouse retailer, and it said the Q4 would not that be great. It joined the likes of TGT, TIF, SKS, and BBY on the retail side, not to mention many stocks in other areas that have warned about this quarter. There is a dichotomy going. Economic data was improving steadily until today, but then companies were saying their quarter was not great. Then Thursday the economic data came out and the numbers were not that great either. Maybe the dichotomy is merging somewhat.
It had me worried, and I have talked about it for the past few evenings. Now we see some of the results for the data catching up with what some of the companies are saying. Will this be the death knell to the modest economic expansion enjoyed over the past four months? We will see. This is very much like 2010-2011. The economy finished pretty strong in 2010 with a nice GDP read, and they expect Q4 of 2011 to come in around 3% only to rapidly tail of in 2011. We will see if that plays out. That has been one of my worries going back five months or so, talking about what could happen after the first of the year.
Looking at the intraday chart, futures tumbled into the open and then the market sold off into the first hour, bottoming. It did bottom at that point, and stocks did recover in the afternoon. They never reached their session highs, but it was a steady recovery into the close. That is a solid positive, keeping the low to high. That is the bullish bias still in play even on a day when the market was knocked back on its heels due to the economic data.
SP500, +0.23%; NASDAQ, +0.5%; Dow, +0.17%; SP600, +0.54%; SOX, +1%
It was a day that leaned toward the growth indices, i.e. NASDAQ, SP600, and the SOX. That is a positive. NASDAQ and the semiconductors are trying to come back and get a share of the lead. The small caps are already there, participating in the move to the upside. If these other two indices continue to throw in as they have over the past few sessions, that remains a very solid positive from the market, continuing the rally we have been playing. Actually we were anticipating it into the end of the year and to the start of 2012.
Looking at the chart overall, you can see a steady upside move over the past month as SP500 eclipses the October peak. It is having a hard time putting together another serious upside session back-to-back, however. It looked like it would make two out of three big upside days early in the morning, but then it did not happen. That is the way this rally is. A few steps up, a few steps back. It is shuffling along, volatile but moving well. There are stocks exploding to the upside and stocks exploding to the downside. It depends in almost all cases on earnings. Definitely what stocks you are in right now makes a difference. We also still see the overall market moving higher with those series of different stocks in different sectors forming up good bases and making their breaks to the upside.
FRIDAY the 13th
It will be Friday the 13th, and it is the Friday before a three-day market holiday. Monday is Martin Luther King Jr. Day. The banks and the markets will be closed. Another three-day weekend as the market enters into the teeth of earnings season. We are already seeing the pre-announcements and the actual results sending stocks higher and lower sharply so.
Friday we have a bit of preliminary data. The Michigan Sentiment is out, and this is the preliminary for January. It is expected to rise. We have seen sentiment on the uptick. After all, stuff is getting better, right? Therefore you would think that people would be a bit more enthusiastic. They are, but it is just not overflowing. I do not expect it to, but it is a positive to see people feeling better.
Again we have a three-day holiday and earnings coming. Markets are in the midst of an almost four-week push to the upside. And we just had SP500 break above the October peak. At the same time, NASDAQ and the SOX are approaching their October and November peaks after pretty substantial runs. Looks like things could get tired. It is a bit worrisome, but there are plenty of stocks still in good patterns, making breaks to the upside. These are stocks with names you may not even recognize, but they are moving higher.
OFIX in medical appliances is breaking to the upside. These are all over the place stocks that you know and those that you do not know. It does not really matter; we are getting money put to work in the market. If you are getting money put to work in the market, it spreads out, and it lifts many boats as we see now. It should take the indices higher.
I still believe that we will get a push into the first serious two weeks of earnings. That would be next week and the following week. After that, I think the market could start running out of gas and start to sag. Why? It has had a good run to this point, and we are getting the January effect and an extended Christmas rally all together. We have had decent economic data. We have had decent consumer participation. Now we are seeing a bit of waffling in the data and a bit of waffling in the consumer. I do not think it will be enough necessarily for the rest of the economy to carry it, although it could. It is a necessary aspect. You have to have the business side of the economy going to work. It looks like it wants to do that. Construction, building, materials, and those areas related to that are all improving.
We have a very positive setup to continue the move near term. If it wants to go higher, we can make that play. If it does not go higher, then that is our plan anyway. And we have been taking positions with the idea that we get 2-4 weeks to the upside. We are a good two weeks into it right now, so we are looking at another couple of weeks to the upside to make some money. That remains our plan, and we will continue to play that to the upside. We will continue to look for those gains and pick up very ripe stocks that look ready to move such as NFLX. It is testing this nice race to the upside. There are a few of these here and there that we will still want to pick up, but we want them to be nice, juicy, dripping patterns that look ready to make the break to the upside and can make us money quickly. If we get these, we will continue to play them as we let our current positions run to the upside. Remember, if we get another good push up, we will look to take even more gain as we have been doing this week.
Have a great Thursday. I will see you on Friday the 13th and see if this market can give us some kind of breakaway move. I do not know if it will be able to hold any move through the close given the three-day weekend, but there is money coming into this market. There is some positive anticipation with respect to earnings, so we will see. Never underestimate the power of money wanting to be put to work at the first of a year or at the end of a year. It can do amazing things.
Stock Splits & IH Alerts, Editor
InvestmentHouse.com
