The market fell off the highs as selling picked up in the last 30 minutes of trading but, overall, market players remain surprisingly sanguine. The jobs report on Friday has been shrugged off, European sovereign debt issues are being ignored and no one seems particularly concerned about Ben Bernanke's rather pessimistic view of the economy.
Market players are seeking safety in precious metals and commodity names, but there isn't any major selling in key sectors right now. Breadth ended slightly negative and regional banks lagged a bit. Oil, retail and technology all come back from some early weakness.
The S&P 500 continues to flirt with its highs of the year but can't quite seem to push through. The market is a bit extended, and that makes it difficult to take out resistance. However, a bit more churning will probably give the market a sufficient base to make the new highs. When we are this close to a new high, we usually push through before the sellers become more aggressive.
There is a large number of extended stocks out there and we really could use a rest if we are going to finish the year on a strong note. However, the lesson this market has taught us is that if you wait for dips, you will likely become a bit frustrated.
There are plenty of bearish arguments out there, but they just don't matter right now. The trend is our friend and it continues to point upward. We are walking the high wire, and the risks to the downside are increasing but there are no signs of any rushed sales at the moment.
Monday, December 6, 2010
Friday, December 3, 2010
Thoughts
Uncle Ben to the rescue once again!
The market has rallied because Fed Chairman Ben Bernanke, who is appearing on 60 Minutes on Sunday night, will not rule out bond purchases beyond the initial $600 billion.
I'd have a number of concerns about owning retail stocks.
The ISI report revealed that (a) the average of its two retailer surveys dropped (from 51.1 to 46.9), (b) its specialty retailer survey moved lower (from 51.7 to 46.7), (c) the pricing power within the surveys fell (31.8 to 30.2) and (d) their broadline retailers sales survey weakened (from 50.5 to 47.0).
A Positive Data Point
The ISM non-manufacturing report comes in line with other growth signals we have seen.
The non-manufacturing ISM was better than expected, the highest reading in six months and in line with the generally more unambiguous signals of economic growth we have seen recently. The components of the report were good, highlighted by strength in orders and employment (best in three years).
Don't Kid Yourself -- the Report Is Terrible
No use trying to sugar-coat the jobs report. It's bad.
I am reading the post-mortem from the jobs report, and, quite frankly, I find it filled with a bunch of excuses from the bullish cabal as to why it was way off mark.
Words like "aberrant" and "inconsistent with other data points" are some of the most common. And "continued fear and uncertainty of policy" is another rationale for the big disappointment.
That said, average weekly hours and average hourly earnings were flat.
That is downright horrible.
Ever the optimists, the bullish folks are spinning the report to say that it will ensure the likelihood of an extention of the Bush tax cuts, reduce the debate over quantitative easing and stop the recent interest rate rise -- all market-valuation constructive developments.
In reality, as Tony Crescenzi relates in his commentary, "The jobs data loudly remind investors that very strong structural headwinds such as deleveraging and global competitiveness stand in front of today's gusty cyclical tailwinds and that this will limit economic vigor."
Structural changes are aplenty in the "new normal," not the least of which is the "Decade of the Temporary Worker," which was manifested in strong temporary employment gains in November. (Though, again, the wrong-way bulls spin it as positive, as it has historically been a precursor to payroll growth).
Poor Jobs Report
The employment news is unequivocally negative.
Up there (in Canada), the monthly employment figures disappointed.
Are we, as a nation, without fiscal restraint? What is the downside to not addressing our fiscal imbalances? And when will the adverse effects be felt?
The market has rallied because Fed Chairman Ben Bernanke, who is appearing on 60 Minutes on Sunday night, will not rule out bond purchases beyond the initial $600 billion.
I'd have a number of concerns about owning retail stocks.
The ISI report revealed that (a) the average of its two retailer surveys dropped (from 51.1 to 46.9), (b) its specialty retailer survey moved lower (from 51.7 to 46.7), (c) the pricing power within the surveys fell (31.8 to 30.2) and (d) their broadline retailers sales survey weakened (from 50.5 to 47.0).
A Positive Data Point
The ISM non-manufacturing report comes in line with other growth signals we have seen.
The non-manufacturing ISM was better than expected, the highest reading in six months and in line with the generally more unambiguous signals of economic growth we have seen recently. The components of the report were good, highlighted by strength in orders and employment (best in three years).
Don't Kid Yourself -- the Report Is Terrible
No use trying to sugar-coat the jobs report. It's bad.
I am reading the post-mortem from the jobs report, and, quite frankly, I find it filled with a bunch of excuses from the bullish cabal as to why it was way off mark.
Words like "aberrant" and "inconsistent with other data points" are some of the most common. And "continued fear and uncertainty of policy" is another rationale for the big disappointment.
That said, average weekly hours and average hourly earnings were flat.
That is downright horrible.
Ever the optimists, the bullish folks are spinning the report to say that it will ensure the likelihood of an extention of the Bush tax cuts, reduce the debate over quantitative easing and stop the recent interest rate rise -- all market-valuation constructive developments.
In reality, as Tony Crescenzi relates in his commentary, "The jobs data loudly remind investors that very strong structural headwinds such as deleveraging and global competitiveness stand in front of today's gusty cyclical tailwinds and that this will limit economic vigor."
Structural changes are aplenty in the "new normal," not the least of which is the "Decade of the Temporary Worker," which was manifested in strong temporary employment gains in November. (Though, again, the wrong-way bulls spin it as positive, as it has historically been a precursor to payroll growth).
Poor Jobs Report
The employment news is unequivocally negative.
Up there (in Canada), the monthly employment figures disappointed.
Are we, as a nation, without fiscal restraint? What is the downside to not addressing our fiscal imbalances? And when will the adverse effects be felt?
Bullish Day
After two big days of gains, many market players were looking for a pullback. We even had a downright ugly jobs report, but the bears could not dig their claws into this market. They tried a couple times in the morning to push us down, but they finally gave up late in the day and we went out near the highs of the day with some decent gains.
The S&P 500 came within a couple points of a new high for the year but couldn't quite manage it. Breadth improved steadily all day, and by the close, only retailers were still in the red. Gold made a late charge and many of the metal stocks closed very strong.
Today was a very good illustration of the power of momentum. Market players were more fearful of being left behind than they were of top-ticking the market. They were concerned that if they didn't jump in, this market would never pull back and allow them to buy.
We've seen that sort of thing time and again over the past year and half, and it has produced these stunning "V"- shaped moves. The market simply won't let you in and there is little choice but to chase if you want to put capital to work.
There are lots of great reasons that this market should not being acting so strongly. The bears can give us some very compelling arguments, but the price action tells the real story -- and this action is telling us that buyers want in and they aren't worried about anything, including some dismal employment numbers.
With the senior indices so close to highs for the year, there will be very strong pressure to make at least a nominal high in the near term. It is the sort of goal that the bulls have a hard time resisting, so they'll make it happen ... and then the real battle will begin anew.
The S&P 500 came within a couple points of a new high for the year but couldn't quite manage it. Breadth improved steadily all day, and by the close, only retailers were still in the red. Gold made a late charge and many of the metal stocks closed very strong.
Today was a very good illustration of the power of momentum. Market players were more fearful of being left behind than they were of top-ticking the market. They were concerned that if they didn't jump in, this market would never pull back and allow them to buy.
We've seen that sort of thing time and again over the past year and half, and it has produced these stunning "V"- shaped moves. The market simply won't let you in and there is little choice but to chase if you want to put capital to work.
There are lots of great reasons that this market should not being acting so strongly. The bears can give us some very compelling arguments, but the price action tells the real story -- and this action is telling us that buyers want in and they aren't worried about anything, including some dismal employment numbers.
With the senior indices so close to highs for the year, there will be very strong pressure to make at least a nominal high in the near term. It is the sort of goal that the bulls have a hard time resisting, so they'll make it happen ... and then the real battle will begin anew.
Thoughts From Thursday, 12/2/2010
Goldman Sachs raises 2010 and 2011 S&P profit estimates to $84 and $94 a share.
Thus far, retail same-store sales are dominated by upside surprises.
Rumblings of Global Inflation
We're hearing expectations that Chinese exports will be more expensive in 2011.
Insurance Stocks Are Ramping
Static for Apple TV?
Apple Insider reports that some Apple TV users are having problems.
Fed's Plosser Speaks on the Recovery
Philly Fed President Plosser sees consumer spending as determining the speed of the recovery.
Philly Fed President Charles Plosser in a speech today is referencing the uneven and slow economic recovery. He sees the speed of the recovery a function of consumer spending, and he doesent see an acceleration from current growth rates without an improvement in payroll growth. He sees unemployment rate between 8% and 8.5% by the end of 2011.
Plosser expects cap spending improving, banks easing credit terms and housing/commercial real estate remaining weak.
Sustained deflation is not a concern of his but he remains skeptical that there will be much value added in QE2.
Here are some thoughts from Dan Greenhaus of Miller Tabak on tomorrow's important payroll report:
* Total payrolls should increase in November by 130K.
* Net firing at the state, local and federal level should total about 20K.
* The unemployment rate is likely to hold steady at 9.6% while hours worked should increase.
* Average hourly earnings should rise as well.
* Seasonal adjustments may put upward pressure on reported data.
Stock Traders Whistle Past Rising Oil
I find it remarkable how few are fearful of rising commodities prices.
Crude oil, at $88 a barrel, is but one example, and I find it remarkable, as well, how quickly the animal spirits have been revived for stocks.
Thus far, retail same-store sales are dominated by upside surprises.
Rumblings of Global Inflation
We're hearing expectations that Chinese exports will be more expensive in 2011.
Insurance Stocks Are Ramping
Static for Apple TV?
Apple Insider reports that some Apple TV users are having problems.
Fed's Plosser Speaks on the Recovery
Philly Fed President Plosser sees consumer spending as determining the speed of the recovery.
Philly Fed President Charles Plosser in a speech today is referencing the uneven and slow economic recovery. He sees the speed of the recovery a function of consumer spending, and he doesent see an acceleration from current growth rates without an improvement in payroll growth. He sees unemployment rate between 8% and 8.5% by the end of 2011.
Plosser expects cap spending improving, banks easing credit terms and housing/commercial real estate remaining weak.
Sustained deflation is not a concern of his but he remains skeptical that there will be much value added in QE2.
Here are some thoughts from Dan Greenhaus of Miller Tabak on tomorrow's important payroll report:
* Total payrolls should increase in November by 130K.
* Net firing at the state, local and federal level should total about 20K.
* The unemployment rate is likely to hold steady at 9.6% while hours worked should increase.
* Average hourly earnings should rise as well.
* Seasonal adjustments may put upward pressure on reported data.
Stock Traders Whistle Past Rising Oil
I find it remarkable how few are fearful of rising commodities prices.
Crude oil, at $88 a barrel, is but one example, and I find it remarkable, as well, how quickly the animal spirits have been revived for stocks.
Market Thoughts For Thursday, 12/2/2010
It is always nice to see follow-through after a breakout move, and that is exactly what we saw today. It wouldn't have taken much to trigger a little profit-taking after yesterday's surge, and we even saw a weak unemployment report, but housing was strong and investors appeared to shrug off jitters over Europe. The market ended up seeing steady buying all day, and no real dips of which to speak. Volume could have been better, and some of the big-cap technology action was poor, but banks and oil made up for it and retail managed a strong intraday reversal to the upside.
After today's session the major indices are a bit overbought, and there are plenty of extended stocks, so it wouldn't hurt at all if the market consolidated a bit. Because stocks have moved so far, so fast, we are likely to have a good supply of dip buyers to support us. I'm not looking for this market to suddenly collapse unless it's hit with some surprise news.
Speaking of news, we will see the monthly jobs report in the morning. Expectations are fairly high, so I wouldn't be surprised to see it serve as an excuse for some profit-taking, but I don't expect the dip buyers to let it last for very long.
Stocks are within a stone's throw of taking out the highs of the year, hit in early November, and it looks as though we have a very good chance of breaching that level, given the strong momentum.
After today's session the major indices are a bit overbought, and there are plenty of extended stocks, so it wouldn't hurt at all if the market consolidated a bit. Because stocks have moved so far, so fast, we are likely to have a good supply of dip buyers to support us. I'm not looking for this market to suddenly collapse unless it's hit with some surprise news.
Speaking of news, we will see the monthly jobs report in the morning. Expectations are fairly high, so I wouldn't be surprised to see it serve as an excuse for some profit-taking, but I don't expect the dip buyers to let it last for very long.
Stocks are within a stone's throw of taking out the highs of the year, hit in early November, and it looks as though we have a very good chance of breaching that level, given the strong momentum.
Wednesday, December 1, 2010
Thoughts
On the Banks
Regulators are reportedly telling banks to estimate their potential mortgage putback liabilities.
According to a Journal piece, regulators are instructing banks to produce an estimate of their potential mortgage putback liabilities.
The U.S. and the IMF
The U.S. will probably not help further with the European bailout. Expect stocks and gold to sell off a bit.
Reason for the Ramp
The U.S. would reportedly be ready to back larger European financial stability through increased IMF commitments.
The November ISM headline was slightly better than expectations -- the new orders/inventory spread narrowed. As well, the production component, thought still strong, dropped by a fair bit from the prior month.
Some slowdown in new orders might be in the wind. Residential construction activity still is bouncing along the bottom. While spending beat expectations, prior months revisions were negative.
Marc Chandler had a good nose in his remarks yesterday, as euro futures seemed buoyed by Trichet's comments that he might be rethinking the end of ECB bond purchases.
More Good News
The ADP number continues a series of unambiguously better economic figures over the last two weeks.
I continue to believe that our economy will surprise on the upside in the months ahead.
Our improving stead (over here) is in contrast to the growing and recognized abyss in certain regions in Europe.
While capital spending remains subdued and housing (plagued by mortgage-gate and a large phantom inventory of unsold homes) still resides in the basement, most indicators are improving -- including the regional district growth indices (Chicago's National Activity Index, Richmond Fed Manufacturing Survey and the Kansas City Fed Survey) -- the capacity utilization rate is well off its bottom, the ISM and ECRI's Weekly Indices are moving higher, personal income/spending growth is expanding, jobless claims/labor market trends are improving, inflation is quiescent, and other key barometers of expansion such as an upwardly revised third-quarter 2010 GDP of up 2.5% are better than consensus forecasts.
-- Doug Kass, The Edge
I continue to believe that our economy will surprise on the upside in the months ahead.
The wild cards? They seem recognizable, contained and controllable:
* The Korean situation is a clear wild card and presents headline risk, but, in all likelihood, the crisis will be resolved before long and will not impact the markets.
* China's growth rate is a short-term wild card for the markets, but, in the near term, I don't expect a surprise much beyond a slight deceleration in the country's growth rate.
* Politics, too, looks relatively predictable. Gridlock is the likely outcome, as neither party has expressed a willingness to move to the center and compromise.
* Nor does a major surprise appear likely from the Fed. Short-term interest rates are anchored at zero, and the Fed will move uninterruptedly on its stated QE2 journey.
While it remains uncertain whether the recovery will be self-sustaining and smooth, I recognize that no market is an island and that our improving stead (over here) is in contrast to the growing and recognized abyss in certain regions in Europe.
Meanwhile, as evidenced by PMI's released in India and China last night, the emerging world continues to emerge.
Away from the fundamentals, the technicals of our market also seem to be improving as the oversold condition builds up, put-buying continues, retail investors continue to flee domestic equity funds and the S&P has held at critical points on three separate occasions recently.
Regulators are reportedly telling banks to estimate their potential mortgage putback liabilities.
According to a Journal piece, regulators are instructing banks to produce an estimate of their potential mortgage putback liabilities.
The U.S. and the IMF
The U.S. will probably not help further with the European bailout. Expect stocks and gold to sell off a bit.
Reason for the Ramp
The U.S. would reportedly be ready to back larger European financial stability through increased IMF commitments.
The November ISM headline was slightly better than expectations -- the new orders/inventory spread narrowed. As well, the production component, thought still strong, dropped by a fair bit from the prior month.
Some slowdown in new orders might be in the wind. Residential construction activity still is bouncing along the bottom. While spending beat expectations, prior months revisions were negative.
Marc Chandler had a good nose in his remarks yesterday, as euro futures seemed buoyed by Trichet's comments that he might be rethinking the end of ECB bond purchases.
More Good News
The ADP number continues a series of unambiguously better economic figures over the last two weeks.
I continue to believe that our economy will surprise on the upside in the months ahead.
Our improving stead (over here) is in contrast to the growing and recognized abyss in certain regions in Europe.
While capital spending remains subdued and housing (plagued by mortgage-gate and a large phantom inventory of unsold homes) still resides in the basement, most indicators are improving -- including the regional district growth indices (Chicago's National Activity Index, Richmond Fed Manufacturing Survey and the Kansas City Fed Survey) -- the capacity utilization rate is well off its bottom, the ISM and ECRI's Weekly Indices are moving higher, personal income/spending growth is expanding, jobless claims/labor market trends are improving, inflation is quiescent, and other key barometers of expansion such as an upwardly revised third-quarter 2010 GDP of up 2.5% are better than consensus forecasts.
-- Doug Kass, The Edge
I continue to believe that our economy will surprise on the upside in the months ahead.
The wild cards? They seem recognizable, contained and controllable:
* The Korean situation is a clear wild card and presents headline risk, but, in all likelihood, the crisis will be resolved before long and will not impact the markets.
* China's growth rate is a short-term wild card for the markets, but, in the near term, I don't expect a surprise much beyond a slight deceleration in the country's growth rate.
* Politics, too, looks relatively predictable. Gridlock is the likely outcome, as neither party has expressed a willingness to move to the center and compromise.
* Nor does a major surprise appear likely from the Fed. Short-term interest rates are anchored at zero, and the Fed will move uninterruptedly on its stated QE2 journey.
While it remains uncertain whether the recovery will be self-sustaining and smooth, I recognize that no market is an island and that our improving stead (over here) is in contrast to the growing and recognized abyss in certain regions in Europe.
Meanwhile, as evidenced by PMI's released in India and China last night, the emerging world continues to emerge.
Away from the fundamentals, the technicals of our market also seem to be improving as the oversold condition builds up, put-buying continues, retail investors continue to flee domestic equity funds and the S&P has held at critical points on three separate occasions recently.
Big Day
Our pattern of gapping in the opposite direction of the prior day's close continued today, but this time the market was strong enough to push the S&P 500 through the 1200 level, which has been resistance for a couple weeks. Volume declined quite a bit, primarily due to some giant macro trade that hit at the close yesterday, so it was not a technical accumulation day. Breadth, however, was solid and the bulls held us steady all day.
After the initial gap up this morning, the market managed to get another leg higher on talk that the U.S. would provide aid for the European bailout. That was reported to be untrue by Dow Jones, but we held the gains and finished at about the same levels we hit at 12:00 p.m. EST.
While there were obviously some big point gains, it wasn't a day of crazy momentum. In fact, I don't see too many key stocks finishing at their highs, and many of the high-beta favorites such as NFLX, CSTR, BIDU and AMZN acted quite sedately.
The big question now is whether this pattern of suddenly reversing the prior day's close will continue. We are going to have some news overnight out of Europe as bailout discussions continue, so the risk is there. But the good thing about action like today's is that it creates a supply of underinvested dip buyers who are interested in jumping in on weakness.
I would have liked to see better volume today, but the ability of the S&P 500 to move back above 1200 is a positive. We should have some underlying support, and that is going to be very helpful as we encounter the positive seasonality that occurs in December.
long NFLX
After the initial gap up this morning, the market managed to get another leg higher on talk that the U.S. would provide aid for the European bailout. That was reported to be untrue by Dow Jones, but we held the gains and finished at about the same levels we hit at 12:00 p.m. EST.
While there were obviously some big point gains, it wasn't a day of crazy momentum. In fact, I don't see too many key stocks finishing at their highs, and many of the high-beta favorites such as NFLX, CSTR, BIDU and AMZN acted quite sedately.
The big question now is whether this pattern of suddenly reversing the prior day's close will continue. We are going to have some news overnight out of Europe as bailout discussions continue, so the risk is there. But the good thing about action like today's is that it creates a supply of underinvested dip buyers who are interested in jumping in on weakness.
I would have liked to see better volume today, but the ability of the S&P 500 to move back above 1200 is a positive. We should have some underlying support, and that is going to be very helpful as we encounter the positive seasonality that occurs in December.
long NFLX
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