Stocks Show the Old Low to High Again
SUMMARY:
- Finally a Greek deal. Where is the parade? That is Friday in the tear gas induced haze in the streets of Greece.
- Stocks show the old low to high again.
- Jobless claims still improving as continuing claims bump higher in a bit of a peace offering by the statisticians after last week’s jobs report.
- Wholesale inventories predictably rise.
- The market rise is now akin to holding a tiger by the tail. Go with him until he figures out you are there and tries to swat you.
Earnings good enough or just the lack of any bad news right now prompting the steady, albeit very slow, upside move?
Hallelujah, a Greek deal is in the offing. With much fanfare and yawns around the world, it was announced that Greece had come to an agreement with the creditors that the EU and ECB could stomach. They did not cut pensions as much as they wanted to. As a matter of fact, there are riots and protests scheduled by the unions for Friday. We will get to see beautiful pictures of Greece on our screens once again, only they will be partially obscured by the haze of tear gas in the streets.
The Greeks did have to give up some things, and I guess there is reason for them to riot. We will likely be doing the same over the next few years when we have to make cuts in our entitlement programs, but that is a different story. They are lowering their minimum wage or “slashing” it, I believe the headlines said. They are cutting 150K government workers. Before you scoff and laugh at 150K, we have to put it in terms of the U.S. Being arrogant Americans, all we think of is how things relate to us, and we would be laying off the equivalent of 5M government workers.
A good start to fixing the problems in Washington might be laying off 5M government workers. Although that is not the fix I would propose if I were king or in Obama’s situation since he is effectively King George right now with all the powers he has. When you think about it, a lot of things being done by the government today are just what we went to war with King George over. It was not the Stamp Act, but we have the same themes with the sneak and peeks under the Patriot Act, with the suspension of due process if you are deemed a terrorist where they can just take you away in the middle of the night to a place like Guantanamo without representation and without telling anyone. Our ancestors went to war over this, and now we are just taking it. As they said in Animal House, “Thank you, sir, may I have another?”
But I digress. If I were leading this country, my solution would be to roll into Washington, DC and knock down half of the Federal buildings there. Then I would cut their budgets across the board 20% and tell them that I do not want to see any decrease in services whatsoever. Then the next year I could knock down half of the remaining buildings and cut their budgets again and say I do not want any decrease in services once again. That is basically what the private sector has had to do during this last great recession. What is good for us surely would be good for them. From what the government tells us, the economy has come back, and it is led by the companies rather than the government. At least that is what they tell us. But can you really rely on that given the kind of numbers we see out of the Washington with respect to jobs? I do not think so. It just goes to show the state we are in, and the state we need to claw our way back up to.
The deal Greece came up with helped markets. Futures actually moved to the upside early on the news, and then they started to tumble back down. There were other things that helped. Draghi did not lower interest rates in the ECB. He said he had fears that the situation could worsen even though there has been some improvement in the eurozone economy. Really? I have not seen that. He just stood by the Ben Bernanke script. He is still considered about the future and will perhaps, maybe, cut rates if things do not improve.
Jobless claims were better than expected at 358K versus 370K expected. But the continuing claims rose to 3.5M from 3.45M. Maybe they are throwing a bone out after the jobs report last Friday (that no one believed could possibly be true) and saying there may be a few more continuing claims out there. Just goes to show that we are no more trustworthy in our economic data than the red Chinese. Wholesale inventories were higher as well at 1% versus 0.4% expected and a 0 rise in November. That means that the GDP revision will have some upside to it because the December number came in stronger and inventories are added to GDP.
That is the perverse effect. Why are inventories rising? Our economy is not taking off. We are not producing a lot of new goods and expecting to sell them like crazy. Business and private sector spending and consumption fell, and thus sales declined, piling up inventories more rapidly than companies thought. That is not a positive even though it has a positive impact on GDP. It is just one of the things that the GDP assumes are always positive. We are making a lot of good stuff, but then again, GDP is really not a measure of the health of the economy. It just measures output. At the extreme low, output would be low so it would be correct in a macro sense. But often when we are bouncing around in a recession or recovery or in between, you get rises and falls in inventories that have different meanings in the nearer term than on a macro level. For what it is worth, inventories are up and the GDP will be better as a result of it. That does not give you a true look at what is going on.
That was a long ramble to get a feel for the day, but that is what drove the market. That as well as some earnings. We did get nice results out of some stocks we know and love. SCSS moved higher. ARAY reported nice results and exploded higher almost 15%. Thank you for more money in the bank. We love that. We did not take any more before the earnings bout, and I am glad. We did take some off from NUAN, and I am glad since it is down after hours. That is just the way it goes sometimes. It has been a day were earnings continued to drive the story. V was another; it gapped to the upside and produced a nice gain as well.
Earnings are driving the story along with Europe and the excitement generated by the Greek deal. Let us look at the market itself. The NDX rose 0.7%. That was much better than any of the rest of the indices. Why? Were the tech stocks surging? No. AAPL was surging. AAPL rallied +3.5 points, up over $16 on the session. It closed off the high. The news gets bigger and better for AAPL. The iPad 3 is coming out. The move is getting interesting, and it has the tiger by the tail. It is rallying higher and higher, and the move is turning ballistic. It is concerning, but as I said in the afterhours alert, it is a good problem to have with this little position we were playing for a rally back up to the old highs. We picked it up and were playing for a rally back up to 425. Now it is pushing on 500, trying to catch up with GOOG in a hurry. It is a blow-off top? Way too early for that. If we get up around 575-600 over the next couple of weeks, that would be worrisome. But again, that is a good worry to have because we would make an utter fortune on the options we have on AAPL. I might just have to quit and go home. It would be like the old days with QCOM when it announced a split and rallied for hundreds and hundreds of dollars. I held options forever and let them run. Finally decided to sell them one day when it looked like it had peaked out. Unbelievable, but you will have a juggernaut every once in awhile. It used to be DELL, and now it is AAPL.
That is why the market was up. It did show that good old-fashioned low-to-high, but it took awhile to get there. It started a bit higher and then rallied. The futures were going up. You could see it before the open. They waffled a bit and then faded. The indices turned negative. It was a hard-fought day to get back to positive before the day was over. The small caps could not hold positive. Kind of a lackluster finish, but it was on the upside.
SP500, +0.15%; NASDAQ, +0.4%; Dow, +0.05%; SP600, -0.5%; SOX, +0.33%; NASDAQ 100, +0.72%
It was a big cap day a big cap named AAPL that helped drive the market to the upside. But it was very lackluster outside of Cupertino. SP500 is still moving in on that July peak. The Dow is still holding near those old highs. The only one who is really clearing them is NASDAQ, and that is thanks to AAPL, of course.
We have a breakthrough. The market is still moving up. It is still doing that old drift higher, but it is definitely not racing to the upside. If you take out AAPL the indices were flat at best. There is a continuation to the upside. It is a drift, but not a drive upside. As noted, good earnings are helping to keep those fires lit, and that is lifting things to the upside. There are not any negative European issues to douse that fire, so we get the upside movement. The concern is that at some point we will get a bad story and this light-volume rise turns into something uglier.
What do you do? Do you get out of the market because things are getting better or because your positions are rising higher? That is what you want them to do is it not? It always kills me to hear people say it is time to sell out of the market when it is still moving to the upside. I have been known to take partial profits and take some gain off of the table, but there is a reason for that. You get enough gain built in, and you should lock in some profits. But you do not engage in picking tops or bottoms in the market. When you do that, you are wrong most of the time. It is easy to pick stocks that are going to move up or move down. It is a question of how much they are going to move up and down before the trend changes. I can pick stocks that will move in a direction all day long; it is about picking stocks that will move to a level that you want them to make you money without having to trade constantly. That is the trick. If you are getting out now and the market continues to the upside, you have to keep finding new stocks coming up. That is not as easy to do right now as it was two months ago.
It is best to take partial profits let good positions run higher. We do not know when this will end. We were talking about AAPL today in the office and other stocks that have been moving higher and higher. You would think ARAY has seen its best days and is over and done with, but it is not. It rose 15% today on earnings, and that is after the stock has moved from 362 in December and late November. It closed on Wednesday at 629. It basically doubled into earnings and now it is shooting higher again. If you are picking tops and bottoms, then you are in a losing game. Generally, in a macro scene, you can look at stocks and figure when times are bad or good and things are turning. Stocks continue to move higher. We do not see many breaking down so, as I said before, it is a situation that is worrisome. You know it will end at some point and you want to preserve as much gain as you can. But it is a good problem to have if you are counting your money and do not want it to disappear.
That is why we take partial profits on the way up. We bank gain at logical positions at logical times, and it takes the pressure off of you. You do not feel that you have to pull the trigger to get entirely out of the market. If you also tend to your positions that are not performing well, then you do not get hurt buy those and get the compulsion to kill your winners. Just get rid of those losers. We have been ruthless in cutting away those that are not performing. I am not talking about stocks that are losing money; I am talking about stocks that are just not making us money as fast as we want them to. We have gains on them but we are getting rid of them because we want to concentrate on stocks that are moving faster. That is how you make money. That is how you continue to ride advantages such as this and have that tiger by the tail. You do not have to worry about it much and can just be happy that you are in that good position where you have a chance to play with that tiger.
FRIDAY
The answer to that question is no, we do not know the answer. That is our theme as we look to Friday. You do not know when the market will top. Everything in your body could be screaming that it will top, but the market just has its head down and is moving higher, reading positives into everything it hears. Ultimately it will get to the point where it starts getting scared of its shadow. Then it will get rattled by the stuff that is not even phasing it now. That is the way it works.
What do you do in the meantime? Hold that tiger by the tail. As long as it is heading the way you want it to, you let it go with as little pressure as you can. In other words, do not get in its way. Do not let it know you are there. Keep making the smart plays. You can make the play if you see a good stock setting up and moving and if it has the risk/reward that you need and require out of your plays. If it is a good play in this market, you can make that play. Just do not load up with 100%.
For example, say you have a tractor supply that you have been eyeing. It broke higher the other day but you missed it. You can get it as it comes back and tests as it is doing now. Look at this nice break up on volume and then a low-volume test. It is just finding its footing. It was in this lateral range for quite some time, and then it broke higher. Now it is just getting its footing. Looks like it wants to continue. You could make the play on this stock because it was a positive gap, a nice consolidation, and it is moving again. We have other stocks like BTU that has been a laggard in coming back up, but it looks good to move. SLB is setting up from another break to the upside.
You see stocks that set up and you play them, all the while understanding that the indices are way up at the prior highs and you could have trouble. Markets tend to want to come back. We do not want to be loaded up. We can take new positions because we do not know when the top is coming. You know it will be here, but you do not know exactly when it comes. There are a lot of companies out the there a lot of funds putting money to work. There has been a long time where they have not put any to work, and they actually have a little money inflow over the last couple of months and they are buying. So they put the money to work and they could keep things moving higher.
We play those positions, but we do not play them full strength. We just enter with a bit here and a bit there, knowing that we could get a pullback. We should be ruthless in taking care of positions. We may have cut off a bit of gain by some stocks that just were not performing well, but we do not want them to get out of hand on us. We do not want a lukewarm play to turn into one that makes us want to cut our wrists. We play them but we take care of positions. We let the winners run because we have great padding in them and they can make us great money. But on those we have entered more recently, we have to be careful if things go south.
Have things turned south? Obviously not. The market continues the low-to-high intraday action. This has been characteristic of this market. It has been low-to-high for the last three days, and that is the way it works. That is healthy for the market. Eventually it will not do that. Eventually we will start seeing some high-to-low days mixed in, and then they will start to become predominant. That will likely mean the test is on the way, and at that point we will lighten up. We will then be looking for a downside play. If we want to play calls on our stock positions, we can do that. Sell some calls and buy them when the stocks fall. That is how we make money.
We have the tiger by the tail. It is going the direction we want, so we are letting it go. We are picking some berries here and there along the way while we let everything run with us. If that tiger starts getting twitchy and tries to take a swipe at us, we will get out of the way. We will pull out the guns and start shooting. We are not there yet, but that is where we are heading. We just do not know how much further down this trail we will go with that tiger. For now, we are still sticking with him
Stock Splits & IH Alerts, Editor
InvestmentHouse.com
