SUMMARY:
- Stocks struggle with some negative headwinds but manage to overcome and post gains, albeit modest ones.
- FOMC’s Evans says more QE is needed, FOMC minutes confirm others lean his way as well.
- Case/Shiller shows the possibility of ‘setting the stage for stability.’ Wow.
- Consumer Confidence heads even lower.
- Money leaving Europe for the ‘safety’ of the US, and that shows just how bad it is in Europe.
- Gold gets more life gratis the Fed, Europe . . . you know, the usual.
- Close to the November peak and the first real test on this second attempt at a relief run.
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Right around this time last year, top hedge fund manager David Tepper told the CNBC audience “everything is a buy.” Tepper’s thinking was that you needed to own stocks and commodities going forward due to the environment. Tepper argued that if the economy strengthened stocks would be winners and yet if the economy weakened stocks would also be winners in light of the fact that the Fed was likely to stimulate the economy as a result of any weaker data. And while Mr. Tepper has not been on CNBC of late, it does appear that traders are treating the current environment as a case of déjà vu all over again.
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SUMMARY:
- No bad news from Europe to start the week, indeed some perceived good news, and stocks continue the relief rally.
- Consumer spending tops expectations as retail stocks drive higher.
- Pending Home Sales decline, but in line
- Obama hires another Princeton Keynesian as his chief economic advisor.
- Going big government does not solve the problems caused by big government. Going back to our roots does.
- November peaks draw near, just a session or less away.
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It is said that the markets travel in cycles that are driven by fear, hope, and greed. During the late-summer swoon, it was clear that the fear of what could be happening to the economy and to the global banking system was driving the action. However, it would now appear that traders have put fear aside and are functioning in a more hopeful mode in response to the commentary coming out of Jackson Hole over the weekend.
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SUMMARY:
- Bernanke passes on further stimulus, again punting back to Congress and the Executive, and the market can handle it.
- GDP weak, a bit lower than expected.
- Michigan Sentiment up for August but still very low.
- ECB, Fed initiate a new swap line.
- Stocks reverse off of post-Bernanke low, post solid gains, keep the relief bounce alive.
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SUMMARY:
- Buffett gives the country a ‘vote of confidence’ from the bathtub.
- Jobless claims back on the upward trajectory.
- Rumors say Germany to lose its AAA rating.
- Indices rally on Buffett news then reverse in a very non-bullish manner.
- World markets all turn to Fed Chairman Bernanke: to add liquidity or not add liquidity?
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SUMMARY:
- Not pretty, but relief bounce part 2 continues.
- Gold slammed for second day, but through all the selling it is at the 20 day EMA.
- Durable Goods orders nicely higher except for business investment
- Moody’s downgrades Japan debt. Start the investigation!
- France cuts its growth target. Are the big European fix gasping?
- CBO says debt to rise $1.3T in 2011, unemployment to stay at 8.5% through end of 2012.
- Not a lot of power so be prepared for a ragged move upside to resistance.
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Given that the quick 500 point rally in the stock market this week has taken place largely without an identifiable catalyst – or at least one that made much sense – we are left to wonder about the meaning of such a move. I fully recognize that in the age of HFT and levered funds, there doesn’t necessarily have to be a reason behind a big pop these days – especially after the market had fallen -17% in less than three weeks. However, in an effort to stay on top of the market’s driving forces, I do try to understand what is behind the market’s bigger moves.
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SUMMARY:
- No specific trigger, but market in position to rally posts an impressive move.
- Housing market malaise: New Home Sales fall again.
- Richmond manufacturing contracts.
- Obama talking with Buffett, so everything must be okay.
- Gold finally backs off a bit.
- Initial move looks good but at this point it is one day at a time for any upside.
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For about half of Tuesday’s session, I found myself wondering why on earth stocks were going up. After all, almost all news has been bad news lately and the market had been trading horribly of late. So, with a batch of news that could easily have been seen as a little on the weak side, I thought it was odd that traders had suddenly and without warning flip-flopped their approach.
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SUMMARY:
- The second bounce gave it a shot, lost its nerve.
- Libya conflict appears to be ending but oil doesn’t seem to care.
- Dollar/LIBOR ticks higher again as markets ponder whether Bernanke will or won’t at Jackson Hole.
- Still in position for a second relief bounce but Monday’s failure means it has to show it can make an advance stick.
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About the only positive one can take away from the current stock market environment is that we’ve seen this play before. And assuming that the market will continue to follow the script, there are two bits of good news to relay this morning. First and foremost, in the end, nobody dies. And second, based on what we’re seeing right now, it just might be time for intermission, which, of course, will be followed by Act II.
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Investor sentiment is certainly interesting these days. On one hand, you’ve got the glass-is-half-empty crowd telling us that the sky is falling. Yet on the other hand, the folks sporting the rose-colored Revo’s are equally adamant that this is the best buying opportunity we’ve seen since March 2009. So, who’s right? Will the nattering nabobs of negativity prove to be right for the third time in eleven years? Or will happy days return once the knights on white horses ride in and save the day again?
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SUMMARY:
- Good start to the week and the relief rally, but that bounce was rolled by more European and US economic worries.
- Friday finds stocks back down at the summer 2010 base highs and last week’s lows.
- JPM and Citi join the party, and MS, in downgrading the US economic outlook.
- Second test of Summer 2010 base: double bottom or a continuation of a new rollover?
- Ready to play a second bounce, but as a setup for more downside.
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It is said that one of the fastest ways to lose money in the markets is to utter the words “But this time it’s different.” While I am both cognizant and respectful of this adage, I also think it is important to recognize that times change and that as investors, we must be able to adapt to the changes. And perhaps the biggest change we’ve seen in the markets over the past few years is the explosion of HFT (high frequency trading).
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SUMMARY:
- Stocks blow early gains, still at the November crossroads
- Earnings remain mixed, some suggesting a solid consumer, others wondering where the consumer went. Consider WHO is getting the business.
- PPI higher across the board. No doubt inflation continues to heat up, but that is far from the Fed’s worry list.
- Bonds continue to ignore inflation worries for now. Anticipating a continuing weak economy, Fed action, or both as LIBOR rates creep higher.
- The new stimulus strategy is really a campaign strategy.
- Tuesday was a pause in the bounce. Wednesday started to look like a stall in the bounce.
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During the height of the recent summer swoon, there were lots of reasons to buy – for a trade, anyway. For starters, with the market having fallen something on the order of -16% in eleven days, the fast-money crowd knew that buying into such a debacle was an odds-on trade. In short, unless the sky was really falling, traders could bet that an outsized bounce was likely to be the next order of business. And with leaflets falling from the sky explaining the wonderful opportunity presented by such waterfall declines, traders were anxious to pull the trigger on the “big bounce” trade.
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SUMMARY:
- Stocks recovery from early weakness only to get slammed after the Franco/German summit, but even then they fight back again.
- Higher volume selling, but stocks do manage to recover decently.
- Housing starts and permits fall more than expected, but that is not necessarily bad news.
- EU GDP clinging to its guns, religion . . . I mean, to positive.
- Industrial Production and Capacity are a breath of fresh air.
- WMT selling tons of merchandise as URBN wonders where the buyers went in the last 10 days of the quarter. Not good signs re the consumer.
- Obama says ‘we know what to do’ in order to create jobs. Well, gee, why have you waited to now?
- Market at a crossroads as the relief bounce is tested.
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Whenever the market makes a big move that is followed by an enthusiastic move in the opposite direction, the key question to ask is, which one is real? As such, I’m of the mind that the market is currently searching for “the truth,” or the appropriate level for the moving target that is the current macroeconomic backdrop.
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SUMMARY:
- Market overcomes midmorning selling pressure, posts solid albeit low volume gains.
- Japanese GDP, M&A overcome more weak manufacturing data.
- Dollar and bonds sell, all other markets rise.
- Indices work through near resistance, head toward November peak.
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It’s always fun to watch the moods of commentators shift in the wind with whatever the market is doing at the time. In short, during a third straight day of green screens, the sentiment seen on the business news shows had gone from “the sky is really falling this time” to “everything’s fine now – what were we worried about?” Never mind the fact that the market is doing exactly what it usually does during a waterfall decline. Never mind that the indices remain down on the year. A third straight up day appeared to mean that happy days are here again.
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I know that I have mentioned this before, but I believe one of my favorite Wall Street-isms nicely sums up the current stock market environment. Long-time readers will undoubtedly recognize this oldie-but-a-goodie, so feel free to join in now… On Wall Street, if something happens once, it is considered a trend. If it happens twice, it is a tradition. And if it happens three times, well, it’s a commandment.
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SUMMARY:
- Stocks finish the week adding to the relief rally, but the move didn’t scare the sellers.
- July retail sales not bad considering the period it covered, but August Michigan sentiment considers more recent events and dives below expectations.
- Oil has bounced but looks ready to sell again. Doesn’t speak well for world economies, but works for lower gas prices.
- Market has nothing to seriously rally for without some kind of further economic change or aid.
- Private insurance mandate overturned by appeals court, setting up a summer 2012 Supreme Court date.
- Still looking for a continued upside relief rally, but for now looks only like a . . . relief rally.
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SUMMARY:
- Stock market attempting its best at a relief rally.
- EU considers a ban on short selling. Great. Attack the symptom, avoid the problem.
- Gold margin requirements increased, gold stumbles . . . but it closed well off of its lows.
- Unquestionably strong move, but volatility is not good longer term sign of market health.
- Same plan: ride a relief bounce to one of two logical resistance points, then prepare for more downside – - unless proven otherwise.
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To review, the primary purpose of our Daily State of the Markets report is to identify the drivers of the market action on a daily basis. As I’ve said a time or twenty, the thinking is that if we can stay in tune with what the market is doing on a daily basis we aren’t likely to be surprised by the action on a weekly, monthly, or even annual basis. But as anyone who has ever clicked the buy button can attest, this task isn’t always easy.
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SUMMARY:
- Tuesday’s bounce is Wednesday’s renewed selling: with nothing new in the world and just the old problems, stocks lose their bid.
- Rumors of a France downgrade raise the same old fears, and the sellers’ boldness, again.
- Goldman says “a greater than even chance” the Fed will reinstate QE by the end of 2011 or early 2012.
- Gold overcomes the topping signal, gapping higher on European worries.
- Some asking ‘where is the recession?’ The market is starting to provide an answer.
- SP500 50 day EMA crosses down through the 200 day SMA.
- Market CAN rally from this pattern, but after giving up the relief move it has to find a reason.
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During the credit crisis of 2008-09, the problem wasn’t about earnings, the economy, or even about banks having enough cash on hand. No, it was about financial accounting. The key to the entire disaster, which eventually led to the “Great Recession” and nearly brought the global banking system to its knees, was the fact that the banks didn’t have enough of the right kind of capital on their books. As such, just about all of them came very close to being shut down. And of course, once Lehman fell things got really ugly, really fast.
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SUMMARY:
- With the indicators all lined up, stocks bounce. They needed a carrot of sorts from the Fed, but the technical position won out.
- Gold may finally take a rest.
- Fed leaves rates at 0% . . . forever.
- Fed trying to punt past the election and leave the stimulus task to Congress.
- Indices show a big reversal bar suggesting more upside on this relief bounce.
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Traders came into Tuesday hoping that Bernanke & Co. would save the day again with some hint that another round of stimulus was forthcoming. Markets didn’t necessarily expect the Fed to actually announce a new round of quantitative easing or even the implementation of something called a “twist” operation (where the Fed sells short-dated bonds and buys longer-term bonds in order to push rates on the long end of the yield curve lower). However, there was a great deal of anticipation that, like last year, Bernanke would hint at the Fed’s next market-saving move.
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SUMMARY:
- Another massive selloff blamed on S&P downgrade, but again Europe is a key issue as well as it stages Financial Crisis 2.
- Obama speaks again, talking more on tax hikes and class war, and, of course, blaming someone else for the problems. Oh yes, and the market sells again.
- Secular US decline talk emerges as in the late 1970′s. Will a Reagan emerge again?
- Internal, and sentiment indicators reaching extraordinary levels.
- How low can it go? SP500, SP600 at 2010 summertime base peaks, giving back 100% of the QE2 breakout and rally.
- Again, plan to use a bounce if it comes, prepare for more downside.
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I got a call from a long-time client on Friday. I hadn’t spoken to Bob for perhaps a year but since we have a history, he didn’t mince words once I answered the phone. After exchanging pleasantries, Bob cut right to the chase. “So, tell me something good, Dave.” He then paused and waited patiently, and anxiously I might add, for my response.
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During the tumultuous battle in Washington over the debt-ceiling and budget deficit, I was probably not the only American thinking that the process had gotten ridiculous. And after all the biting, scratching, finger-pointing and name-calling, the powers that be came up with a whopping $2.4 trillion (give or take) in so-called spending cuts. This despite the fact that Standard and Poor’s had, in no uncertain terms, said that Congress needed to produce cuts of at least $4 trillion to avoid the country’s first-ever credit rating downgrade.
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SUMMARY:
- Jobs top expectations, but market response is less than welcoming.
- Stocks recover from morning selling, but the bid remains very weak.
- Economy so weak an ugly jobs report looks pretty.
- Economic ‘recovery’ a house of cards: stock market proves it with a crash after QE2 liquidity pump is turned off.
- Market is set to test breakdown, market should test the breakdown, but the action just does not seem right. With no QE3 market has no reason to rise. None.
- Use a bounce if it comes, prepare for more downside.
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SUMMARY:
- Reversal reverses as stocks resume the selloff on European crisis: if Europe cannot buy our exports, our export economy is not that helpful.
- Jobless claims at 400K or better for seventeenth week.
- Japan intervenes to undercut yen in a race to the currency bottom.
- Panic selling in the last hour as indicators start hitting some extremes.
- Some say more QE won’t help because QE2 didn’t help. They miss the point: it is liquidity, not economic improvement, that is QE’s weapon.
- Reaction to jobs report to tell a big part of the next move: sold out for now or just getting started.
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With the stock market in an out-and-out freefall lately, the question on everyone’s mind can be summed up in one word: Why? Why has the S&P fallen almost 11.5% since early July? Why is the index back to the levels seen before QE 2 was announced? Why are stocks diving when earnings are so good? And why is the dive so darned violent?
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SUMMARY:
- First bounce fails and fails big, but a big second bounce sticks as the downside streak ends.
- Market recovers, showing all the indicia of a reversal, but investors keep looking over their shoulder.
- ADP report bolsters hopes for Friday jobs report, but with this GDP rate job creation is difficult.
- ISM Services misses, falls closer to breakeven.
- Factory orders top expectations, falling ‘just’ 0.8%.
- Uncertainty is an issue no doubt, but the CERTAINTY of a continuing weak economy is much more negative for businesses.
- Was this a key reversal? Playing for a bounce but the market needs better data or the promise of some stimulus.
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While the market hasn’t been much fun to watch lately if you happen to be holding any long positions, the explanation for the carnage from those being interviewed on the business shows certainly has been. For example, I can’t tell you how many people have been talking about (and emailing me about) the potential head-and-shoulders top formation or the meaning of a cross of the 200-day moving average, or the violation of this or that.
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SUMMARY:
- Soft open gives buyers a shot, but the few who venture in are overrun by the sellers.
- Debt deal was playing defense, not offense.
- Geithner admits to a slower economy, doubts a double dip recession.
- Moody’s: US will keep its AAA rating but downgraded on the outlook as more cuts are needed.
- Personal income in line but spending contracts.
- SP500 hits a new post-April low, NASDAQ and DJ30 crash the 200 day SMA
- Seven sessions down, breaking support: ripe for a false breakdown reversal IF investors believe Bernanke will come riding to the rescue.
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For the better part of the last eighteen months, the pullbacks and corrections in the stock market have followed a now-familiar pattern. First there is the worry. Then the big dive, which is accompanied by lots of fear and the general feeling that its 2008 all over again. And then, just when it feels like the sky is actually going to fall, the Fed, EU, ECB, and/or IMF rides in on a white horse to save the day. So, based on where the indices closed Tuesday and the pervasive doom that is developing, it looks as if it might be time for the white horses to arrive again.
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SUMMARY:
- It’s a deal but it’s not that great and it cannot trump bad economic data.
- Stocks gap but cannot hold the gains. The indices did hold the 200 day SMA, however.
- ISM manufacturing report clings to expansion, hitting a 2 year low as UK, Russia, and Australia go negative.
- Commerce Department: Household spending hits a 2 year low.
- An upside gap lost, then a rebound from selling to support as the investors debate not the debt deal but the economy and stimulus. All, of course, inside the trading range.
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For what has seemed like an eternity, traders have maintained a singular focus. First it was the economy, then it was Japan, then Greece, then Italy/Spain, and now the 4-D’s in Washington (i.e. debt, deficit, default, and downgrade). But if I’m not mistaken, it looks as if the focus may be shifting again. And why not, the budget deal looks to be a sure thing (heck, they’ve still got 19 hours left to get the thing voted in) so what else are the A.D.D. children of Wall Street to do? That’s right, move on to the next thing.
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To the surprise of almost no one, Congressional leaders FINALLY came to an agreement with the White House on Sunday for a plan to increase the debt ceiling and to “cut spending” going forward. The plan is bipartisan in nature and has some interesting tidbits such as a balanced budget amendment provision, no new taxes, the formation of a special committee to find spending cuts, and a penalty if Congress dinks around with approving the committee’s cuts before Christmas. But now the fun really starts. And by “fun,” I mean the market reaction.
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