- Stocks extend gains into the long weekend.
- A sense of economic recovery even as earnings, economic data remain at best mixed.
- January preliminary Michigan Sentiment continues . . . Decembers dive.
- But at least China is on the mend. Can't trust it as CAT found out, but on the mend.
- Europe is shockingly bad.
- Fed truly had no clue in 2007, showing it has always been, and always shall be, reactionary. Well, not always; Geithner leak to banks of Fed action was proactive. And illegal.
- After a big week of inflows a big week of outflows takes it all back.
- Indices punching new highs so many naturally wringing their hands over another market bubble. Never made any money wringing my hands.
- Good rally to start earnings. Riding the wave, taking some gain, watching for the change in sentiment.
A continued ramp higher as earnings announcements surge, sporting mixed results.
When the market wants to move it moves regardless of the news. News can drive the action for sure. There are times, however, the market puts its head down and rallies even with less than great news. Sure all news eventually catches up with the market, but if a story is not immediately threatening, it can be ignored until a later time when the desire to rally ebbs.
Thus even though earnings are very much mixed (GE, MS beat nicely while INTC, AXP miss badly) and the economic data is shockingly mixed 4 years into a 'recovery,' stocks have it in their mind to continue the rally off the mid-November low. More than that they are breaking to new post-bear market highs.
It appears that once again a sense of economic recovery is present and helping drive stocks higher. Not to mention $85B/month from the Fed, and as we learned at the end of the week, some repo liquidity injections from the Fed as the regional manufacturing report misses were released.
It is a sense of recovery given the jobless claims dove lower from their 370Kish levels as well as improvement in housing numbers. Recall there was a sense of recovery in early 2011 and early 2012. Recall that both times the data did not really support the 'hope springs eternal' sentiments of a populace tired of facing bad economic action. Recall last week we showed Goldman Sach's chart detailing how the economic data reported is setting up exactly as it did the prior two years. Add onto that the 'just in case' excuses for poor economic performance in the future: Storm Sandy, Fiscal Cliff, the US Flu.
Sure there are those who believe, just as in early 2011 and just as in early 2012, that the economy is going to recover this time. It can and I hope it does. There are signs housing has bottomed and is trying to improve. Some on CNBC are talking about how strong our big corporations are . . . just as they did in 2011 and 2012. Yes they are making money; they are the only ones doing so. They are still not hiring, still not spending. Query: WHY ON EARTH hire anyone unless you simply cannot conduct business without the hire, if you have to buy a hefty priced insurance policy for them OR pay a hefty fine if you don't? Indeed, many of the big names, as seen the past two weeks, are back to laying off the hired help.
But . . . not hiring helps the bottom line, and the results thus far are good enough for a market that wants to rally and a Fed doing what it can to help that rally and further create that wealth effect it wants. Funny, the big companies have made billions in profits as a result of Fed and Administration policies, yet there is not much of a wealth effect. There is that first of the year hope by many that things will get better, but without substance that hope has faded the prior two years. At least the big names are keeping their money and THEY feel wealthy and their actions help the US economy limp along at 1.5% to 2% economic growth. That, coupled with the Fed liquidity, is enough to keep the stock market rallying as the action shows.
Indeed, Friday SP500, RUTX, SP400 all moved to new post-bear market highs. DJ30 moved to a closing high though just missed a new post-bear market high of its own. SOX faded Friday thanks to INTC's devolution, but it made an important move on the week, breaking through the August and September twin peaks. All in all another strong market week as the indices, without the help of many big name NASDAQ stocks, forge higher in the new year.
SP400 5.04, 0.34%
NASDAQ -1.29, -0.04%
DJ30 53.68, 0.39%
Dollar: 1.3321 versus 1.3376 versus euro. The dollar recovered some ground lost the prior week, making it to the 50 day EMA it gapped below two Fridays back. The dollar is chopping around below the 200 day SMA, the November and the early January high. It is trying to get out of a right shoulder to a year long head and shoulders pattern. Maybe it pulls off the recovery but the pattern is quite bearish. I was watching an old favorite show from 1974, 'The Eiger Sanction' with Clint Eastwood, George Kennedy, Jack Cassidy and others. Eastwood played your typical college professor/mountain climber/black market art buyer/assassin. A Pissarro is offered to him for $10,000. It was black market, but that still seemed very inexpensive by today's standards. I am told that the painting today would go for $1M to $4M and Pissarro is considered undervalued at those prices given his importance to the impressionists.
It's one of the better collections in the neighborhood . . .
The point: The dollar has lost HUGE value post-Volker (he was Fed chairman during the early Reagan years) as the Fed started, first in the early 1970's with the monetization of the oil crisis and then with Greenspan after Volker left, to print money at each economic bump. Our dollar is worth so little today compared to just 35 years ago and the Fed is still printing each month.
Bonds: 1.84% versus 1.88% 10 year Treasury. Bounced right back up after tanking on Thursday. All over the map as bond investors try to figure out what the Fed is doing with its repos, etc., and frankly the bond market is just tangentially driven by the whims of investors outside the Fed.
Gold: 1687.40, -3.40. A good week for gold and indeed a good two weeks, but all it could do was make the 50 day EMA. It has failed here the prior three attempts, and Thursday and Friday it was bumping the 50 day EMA and failed to hold breaks through it. Hanging in and still a good overall upside pattern.
Oil: 95.56, +0.07. Oil cleared resistance to start the year, drifted higher, and started to ramp Thursday and Friday. Now at the August 2012 interim high just before the September peak at 100. Perception of China recovery, weaker US dollar, stronger oil.
January Michigan Sentiment an encore of December's weakness.
Michigan Sentiment, Preliminary January (9:55): 71.3 actual versus 75.0 expected, 72.9 prior
Can you feel the anger?
What is going on in Michigan? Auto industry rebirth. Center of the nation's recovery? I know, it is not just Michigan citizens in the survey, but it is fun to style it so. The facts are not fun, however.
Biggest miss in 7 years.
Lowest reading since November 2011.
Holding the losses after plummeting the prior month. Where is the enthusiasm at the start of our President's new term? Hope may be a good thing, but it only goes so far.
But China is there to rescue our export economy.
Friday China's GDP was reported at 7.9%, topping the 7.6% expected. Industrial production topped expectations as well. Surely all is well. Surely we can trust China now that everyone challenged its results. It will now be forced to report clean numbers. You bet.
Export data questioned, loan creation virtually at a standstill. Empty cities. New buildings, never occupied, crumbling and falling down. Not exactly Great Wall quality.
The stock market has rallied 19.5% since early December, topping the 15% failed rally in early 2012, the last significant upside move. It looks as if it has turned though still well below the downtrend's down trendline. A darn good turn, however.
But, ask CAT about Chinese trustworthiness (as you ask yourself about CAT's due diligence). After hours Friday CAT warned that a company it bought in China was basically a total write off, cutting half off of CAT's Q4 earnings. Why? In a Hewlett-Packard like move, it appears CAT bought a basically worthless company that supposedly engaged in systematic year after year lying about its results. It is taking a $580M charge. If it is not Chinese hackers, Chinese spies here on visas, it is, apparently, intentional fraud. Oh, but you can still believe China's economic numbers.
EU Data gets worse and worse.
Remember the move 'Armageddon' when Bruce Willis' drilling crew was given a physical by NASA? Bear, played by the sadly now deceased Michael Clarke Duncan, was given his test results: "Your triglycerides are high and your bad cholesterol is shockingly bad."
'Check out this, baby'
Well, the EU data is not just bad, it is shockingly bad. It continues to top expectations . . . to the downside. Seems economists still think things are as bad as they can get. They are not.
Friday more bad news on a week of bad news. Spain's Industrial Orders -1.5% versus +2.5% same time last year. Italy chimed in with -0.5% versus +2.0% expected. How the heck they came up with POSITIVE expectations is a bit nutty itself, but it is just another case of hope disconnected from reality.
Any wonder why Germany wants its hands on its gold?
Geithner tips off banks of Fed action back in 2007?
After the Fed released its August 2007 conference call transcript along with a lot of other Fed transcripts, some shocking stories are coming out. The most shocking: outgoing Treasury Secretary Geithner, while on the FOMC and the New York Fed President, tipped off large banks of the initial Fed action the day before the action was taken.
According to the transcripts, all on the Fed agreed that the action should be kept quiet and the banks not told ahead of time. Geithner even said as much on the record.
But on 8/16 as the market was diving in its second SP500 30 point loss in short order, suddenly at 2:00ET futures rallied and SP500 surged 50 points in one hour. After the market close the Fed had another teleconference before the next day when the Fed would announced its action. That transcript reveals the following exchange:
Mr. Lacker: Vice Chairman Geithner, did you say that [the banks] are unaware of what we're considering or what we might be doing with the discount rate?
Vice Chairman Geithner: Yes.
Mr. Lacker: Vice Chairman Geithner, I spoke with Ken Lewis, President and CEO of Bank of America, this afternoon, and he said that he appreciated what Tim Geithner was arranging by way of changes in the discount facility. So my information is different from that.
Late last week as the NYT and other papers carried the story, Lacker told the NYT "my understanding was that President Geithner had discussed a reduction in the discount rate with these banks in connection with these initiatives."
How much did he make off of his apparent tip to top bankers?
This is incredible. It was not enough that we had to bail out the banks but our trusted officials who you would think have a fiduciary duty to the citizen's they are supposedly acting for tips them off to Fed action ahead of everyone else. Oh yes, the market surged when the announcement was made, giving those who got in, and they got in big, the afternoon before made an even bigger killing.
How screwed up are we now? Do you think this is isolated to the Fed. Congress, the executive branch, countless agencies and departments with millions of employees. And we cannot find ONE DIME TO CUT FROM THE BUDGET for waste or fraud? Unbelievable.
So much for the inflows.
Well, I guess it is fitting, then that the record inflows from two weeks back into stock funds was mostly bank deposits; that is what we are hearing. To add insult, the past week the inflows reversed to $4.2B in outflows. The net that went into US stock funds: $286M.
Stats: -1.29 points (-0.04%) to close at 3134.71
Volume: 1.865B (+7.25%)
Up Volume: 957.36M (-352.64M)
Down Volume: 820.92M (+404.73M)
A/D and Hi/Lo: Advancers led 1.1 to 1
Previous Session: Advancers led 2 to 1
New Highs: 150 (-9)
New Lows: 8 (-1)
Stats: +5.04 points (+0.34%) to close at 1485.98
NYSE Volume: 941M (+46.57%)
A/D and Hi/Lo: Advancers led 1.84 to 1
Previous Session: Advancers led 3 to 1
New Highs: 516 (-88)
New Lows: 46 (-11)
Stats: +53.68 points (+0.39%) to close at 13649.7
SP500. Putting a bit more emphatic stamp on the break to a new post-bear market high. Volume surged, but it was expiration so take that for what it is worth. At this point we enjoy the ride higher. Note MACD still lags; just note it and watch how the financials are working as the week wears on.
NASDAQ. Could not join the party, but it did fill the Thursday gap higher and recovering to flat. 3175 is next resistance then the post-bear market high at 3197, just 63 points away.
Russell 2000/SP400. New high here as well. Funds still engaged in the January effect.
SP400 midcaps showed the same action as the small caps, solidifying the break to a new high and a subsequent rally.
SOX. Faded on the day but just testing the Wednesday and Thursday run past the August and September peaks. Solid still and frankly down because if INTC.
DJ30/DJ20. Moved to a new closing high post-bear market and is just 12 points higher. MACD is rising and could take out that at the September peak. We will see. Not bad action, after all, given INTC.
DJ20. Sold early in the day, but yes another new high.
Summary: NASDAQ remains a laggard but just about everything else, including many tech stocks, are rallying through old resistance. Money is moving into the market still, big investors are happy enough with earnings, and continued liquidity does not hurt. Riding the run for now, watching to see if signs of a midseason earnings sentiment shift starts developing.
Big names. AAPL was down a bit more but clinging to 500; indeed closing at 500 on the button. GOOG is broke below the 50 day EMA; earnings are Tuesday. Thought about a new play, may still do it, but might get a better setup after as it could put in a double bottom at the 200 day SMA or something like that. EBAY held the Thursday gap; that is about all.
Financial. Back to the upside, at least for the most part. MS gapped up on huge earnings. GS was strong again. BAC is still testing but it is setting up a nice consolidation.
Drugs/Medical. Still mixed as some of the big movers early in the week gave more back, e.g. ARNA. SNSS looks as if it wants to join the party now. BMRN was still great.
Retail. BONT ran again. COH is putting in gains. CHS is trading in a range, recovering last week. WSM didn't recover from its gap lower.
Industrial machines. CMI working well. CAT getting slaughtered Friday; well, it was down 1.5 points.
VIX: 12.46; -1.11
VXN: 14.17; -0.9
VXO: 12.14; -1.28
Put/Call Ratio (CBOE): 0.75; -0.04
Bulls versus Bears
Bulls: 51.1% versus 47.8% versus 46.8% versus 45.7% versus 43.6% versus 39.3% versus 37.2% versus 38.3% versus 43.6 versus 41.5% versus 45.7% . On the run and heading toward that September peak that preceded a market decline. Still quite similar to the pattern in September when the market started a two month selloff, so bears watching. Background: Undercut 35%, the threshold for bullishness, in early June. As noted, hit 34% in early June. It did its job and the market is on the rally. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.
Bears: 23.4% versus 24.5% versus 24.5% versus 23.4% versus 25.5% versus 27.7% versus 27.7% versus 28.7% versus 27.7% versus 27.7% versus 25.5%. Fading but not cutting into new ground on the downside, matching the low set four weeks back. As with the bulls, it bears watching. Over 35% is the threshold to be really be a good upside indicator. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.
Monday is a MLK holiday. Closed.
There are two schools out there. Those wringing their hands over another bubble, this one in the market. New highs ALWAYS bring out this crowd. Sure there are economic issues, sure many citizens in the country still don't have any money to invest, and it sure doesn't look as if things will get any better.
But I can say I never made money wringing my hands over what others or I was worried about. The funds have money, the institutions have free Fed money, and that is being put to work. Maybe they are all buying assets that will plunge in value. If that happens we will see indications of that ahead of time. For now, as William O'Neil once famously said, if the market wants yellow dresses versus perhaps better made red dresses, don't fight it, go with the yellow dresses. That is a gross paraphrase but it clearly states the point: if the big money is buying, find what they are buying and get to the counter.
Thus even with the indices hitting new post-bear market highs, indeed in part because they are, we will continue to look for more upside as it presents itself. As long as there is leadership in position to run the rally has life. The key for us and new plays to enter is finding stocks that are still in position to move higher versus extended and needing a rest. There are both kinds out there, and we found some solid ones for next week.
Earnings make things a bit more dicey. We like playing after earnings, but we also have plays that can make us good money before their results are announced in February or March. We are looking at both now and as more reports are made we will have more of the post-earnings plays to make.
Earnings not only matter as to the stock's immediate reaction, but also in the market's overall move. Thus far the buyers willingly overlook any issues with earnings results; they want to rally stocks. Often the initial earnings move gets reversed at some point or at least sold some. An eye has to be kept on any changes in the market, i.e. if stocks start to falter overall even as some decent results are announced. Another layer to earnings season making it all the more touchy.
For this week there are some more plays we really like that we will look at for entries. If the market continues the run we will still look to take some gain. New highs on the indices beg to take some gain, and on a further push take some more gains, banking part of the profits on the plays because we know there will be a pullback, either just to test or something more virulent if sentiment turns over.
Support and resistance
NASDAQ: Closed at 3134.71
3171 is the October intraday high
3197 is the September 2012 post-bear market high
3227 is the April 2000 intraday low
3401 is the May 2000 closing low
3134 is the March 2012 post-bear market peak
The 10 day EMA at 3112
3104-3112 from August and mid-October peaks.
3101 is the August 2012 high
3090 is the mid-March interim high
3076 is the late April 2012 high
3062 is the December 2012 prior peak
The 2011 up trendline at 3057
3042 from 5/2000 low and several other price points
The 50 day EMA at 3046
3024 is the gap point from early May
3000 is the February 2012 post-bear market high
2999 is the bottom of the August 2012 consolidation
The 200 day SMA at 2992
2988 is the July 2012 high
2977 to 2980 is the bottom of the late October 2012 consolidation, July 2012 peak
2962 is the April 2012 low
2950 is the mid-April closing low
2942 is the mid-June 2012 high
2900 is the March 2012 intraday low
2858 is the late July 2011 peak
2847 is the mid-May 2012 low
2838 from the July 2012 lows
S&P 500: Closed at 1485.98
1499 from January 2008
1539 from June 2007
1475 is the September 2012 high
1471 is the October 2012 intraday high
The 10 day EMA at 1470
1466 is the September 2012 closing peak and rally closing high
1441 is a short term down TL from the September 2012 peak
1440 from November 2007 closing lows
The 50 day EMA at 1438
1434 from early November 2012
1433 from August 2007 closing lows
1427 is the August 2012 peak
1425 from May 2008 closing highs and the October 2012 low
1408 is the late October 2012 range closing low
1406 is the early May 2012 peak
1402.22 - 1400 is the closing low of the August 2012 lateral consolidation
The 200 day SMA at 1394
1378 is the February 2012 peak
1375 is the early July 2012 peak
1371 is the May 2011 peak, the post-bear market high
1363.46 is June 2012 high
1359 is the April 2012 low
1357 is the July 2011 peak
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
Dow: Closed at 13,649.70
13,557 to 13,662
13,653 is the September 2012 high
13662 is the October 2012 intraday high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak
The 10 day EMA at 13,497
13,413 from the late September 2012 low
13,300 to 13,331 is the August 2012 post-bear market high
13,297 is the April 2012, prior post bear market high
The 50 day EMA at 13,260
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
The 200 day SMA at 13,033
12,716 is the April 2012 closing low
12,524 is a range of support from early 2012 and summertime 2012
12,391 is the February 2011 peak
12,369 is the left shoulder low from May 2012
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
12,035 is the June 2012 base low
The June 2011 low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak
January 18 - Friday
Michigan Sentiment, January (9:55): 71.3 actual versus 75.0 expected, 72.9 prior
January 22 - Tuesday
Existing Home Sales, December (10:00): 5.10M expected, 5.04M prior
January 23 - Wednesday
MBA Mortgage Index, 01/19 (7:00): 15.2% prior
MBA Mortgage Purchas, 01/19 (7:00)
FHFA Housing Price I, November (9:00): 0.5% prior
January 24 - Thursday
Initial Claims, 01/19 (8:30): 355K expected, 335K prior
Continuing Claims, 01/12 (8:30): 3200K expected, 3214K prior
Leading Indicators, December (10:00): 0.5% expected, -0.2% prior
Natural Gas Inventor, 01/19 (10:30): -148 bcf prior
Crude Inventories, 01/19 (11:00): -0.951M prior
January 25 - Friday
New Home Sales, December (10:00): 387K expected, 377K prior
By: Jon Johnson, Editor
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