- Good earnings not enough as stocks lose the Thursday rebound.
- Q4 GDP disappoints and even the silver lining has full of cheese.
- Sentiment soars with 50% of workers on disability. US now adjusted to a new normal with no opportunity but a phone, food, and a 0% auto loan?
- US rig count tumbles along with good jobs and the economy's bright spot.
- VIX showing trouble signals, the real ones.
- Trading back down in the range for a definitive test.
Friday continued the stock market's thrashing about as it attempts to price in life, in the form of prices, post-FOMC and post a surging oil and gas industry that produced the bulk of any recovery in the US the past six years. On the day the stories took their toll and stocks closed uniformly lower, still in a major struggle to start 2015, closing January lower same as 2014.
SP500 -26.26, -1.30%
NASDAQ -48.17, -1.03%
DJ30 -251.90, -1.45%
VOLUME: NYSE +39%; NASDAQ +6%
A/D: NYSE -2.1:1, NASDAQ -3:1
Stock investors definitely had more to consider Friday concerning the Fed and Energy, along with less than great economic data regarding Q4 GDP.
The Fed: Bullard appeared on Bloomberg giving yet another of the many Fed interviews, one of the serious negatives of a 'transparent' Fed. Apparently transparent is defined as the FOMC members planning for their 7 figure salaries with Wall Street post their 'service' on the Fed. Bullard noted a 0% Fed Funds Rate is 'not right for this economy.' As for oil, Bullard said the price plunge was 'contaminating' the TIPS market in terms of inflation expectations, and that this was, he noted gravely, no 'ordinary oil shock'. Of course it isn't. Oil shocks are almost universally from higher prices.
Economic data showed a primary miss on GDP (2.6% versus 3.2% expected) while Michigan Sentiment remained elevated and the Chicago PMI rose to 59.4 from 58.8. Even the silver lining in GDP, was misdirection.
Specifically, Consumption rose 4.3%, topping expectations of 4% and 3.3% in Q3. Bravo. Apparently consumers were spending the wage gains that a rising employment cost index (ECI) seemed to project given the ECI rose 0.6% on top of Q3's 0.7% gain.
Whoa there big fellow. Headlines, as six years of manipulation tell you, can be deceiving. Thing is, there is no manipulation here; it is just the facts telling the story below the headlines. But as the State of the Union showed us, it is a headline world; facts are for those who want furrowed brows and worry lines.
Consumption: what was the cause of the rise in Q3 and Q4? Forced healthcare acquisition under the ACA. In Q3 GDP would have been 3.9% but for the force purchases relating to the ACA. Q4 showed another huge outlay, dwarfing all other expenditures:
GDP growing because the government forces young people to buy insurance they typically would not buy because it is not needed. Now how has this made healthcare cheaper to the person who 1) would not have bought it yet given his/her young age, or 2) forced those with insurance to lose their policies they had and liked in favor of what are unequivocally higher priced policies with much larger deductibles?
Inventories: Surged $113.1B to the second highest quarterly increase since the turn of the century. Why are inventories up if we consumed so much? Because we didn't consume goods, we were forced to buy healthcare.
Employee costs: up 1.3% combined the past two months. Wages finally rising, right? Wrong. Two factors drove up the ECI and neither were wages.
First, worker benefits costs surged, posting the biggest year/year gain since March 2012. What was it? Again, it was the cost of proving more expensive healthcare.
Second, one of the reasons for the rise was increases in the Natural Resources Industry. That seems rather incongruent given the surging layoffs in the weekly jobless claims the past two weeks in the shale oil producing states (75K each week). Either these costs were pay raises (not likely given everyone saw the handwriting on the wall that layoffs were necessary; why hike pay and then layoff?), OR they were severance payments as workers were laid off in December. We then saw them show up in the jobless claims in January as they had to find jobs again. Thank goodness for all of those hourly jobs at fast food emporiums and the like. Surely a safety net to those losing the only breadwinner jobs this economic recovery has produce.
Michigan Sentiment jumps as 50% of the US workers collect disability.
With all of this less than 'great recovery' news, however, Michigan Sentiment remained at relatively high levels. 98.1 in January versus 93.6 in December. Why wouldn't investors cheer given the consumer is so confident and ready to spend on healthcare and the like?
Perhaps it is the sick realization that confidence is so high when 50% of the working aged Americans are on disability, 92.9M are out of the workforce, and 52% are on food stamps. What conclusions can be drawn from that? That US citizens are now happier unemployed and collecting government benefits? I truly believe many have given up, concluding it beats working at a burger joint or similar job for minimum wage. If they can make some extra money in cash for jobs here and there, all the better. Still that doesn't seem to correlate with higher confidence, but a lot has changed during the Europeanization of the US. Give us a phone, some sports and movie stars, 50 or so 'reality' shows, some food stamps, and a 0% rate auto loan (fancy cars, the opiate of the middle class) and we don't care what you do.
Russian cuts, EU prices, US and Canadian rig counts
There was also Russia cutting rates after raising them, EU CPI flopping, and the US rig count plunging the most in any week since 1987. That rig count collapse, and the bigger one still to come is once again due to Saudi attempting to wrest back control of the market from the revived US industry that surged on the heels of the 1974 OPEC oil embargo. The theme is so much the same I wonder why it is hard for people to grasp: Saudi pushed prices lower in the early 1980's to make US oil uneconomical to produce. The US industry collapsed and took decades to recover. Saudi is doing the same thing today and the early results for the US are on the same path: HAL -7,000 workers, SLB -9,000; BHI -6,000. Friday CVX announced it was suspending its buyback. Ah, THAT is where the buybacks are going as we queried Thursday night.
The indices all faded in their ranges, failing to resolve anything on the week as they still trade back and forth above the January and December lows. Thus the indecision of the prior 10 weeks continues.
SOX was worrisome: it broke its lower trendline in the channel and put in a lower closing low for this 10 week range. A key sector has some main components dragging it lower, e.g. INTC, KLAC, MU.
On the positive side: the indices are holding their ranges, consolidating laterally after recovering from the big October selloff when the Fed ended QE. If they can trade out this range without breaking, very positive.
On the negative side:
The big names have reported some blowout earnings but the market is not reacting well to those results. Is it the preponderance of so-so results causing the drag?
SP500 has given up its 2012 QE3 uptrend channel. Makes sense given QE is over, but does that mean it has to crash? If the economy was really working, no. SP500 continues to gyrate, now on its fifth fade from the channel in four months.
VIX is flashing a warning. At times stocks and the VIX set up a harmonic pattern with VIX rising to a certain level, stocks falling to a certain level, then they bounce away from each other similar to pushing the same poles of two magnets together. They are set up to do that again and perhaps the market bounces; the indices are near the bottom of the range again and the setup is there. The problem is, over the past four months VIX has shifted its range higher on average versus where it has traded since early 2013, just after QE3 was launched. At the SAME TIME, stocks have continued to rise. History shows that a simultaneously rising stock market and VIX results in major tops, e.g. late 1999 to early 2000. 2007 is another classic example. This sympathetic move can continue for quite some time but it is always bad news if it does continue.
So, it appears the negatives outweigh the positives in number and degree of importance. That is big picture and it does not look good at least not right now. The indices can bounce right now; they are set up with VIX to do it. They trade up in their range and they either breakout or roll back over. The more they fail and this condition of rising VIX continues, the risk/reward of the upside diminishes and that of the downside waxes.
The economy was so strong going into 2000 until it wasn't. From 9% GDP growth to negative in two quarters. The Fed totally missed the slowdown and indeed aided it with its draining of the liquidity pool and jacking up rates. Now the Fed feels it has to move up rates and end such easy money (to a degree) and with this faux 'great' economy, that could be devastating. It, alas, waited too long to hike rates. Should have done it a year ago; now with the world fading and the US seeing the last play out of the QE money, it is at risk.
Sounds gloomy, but with the polices in place in Washington on so many areas and the talk of wanting to raise taxes at least $250B, the recipe is all wrong. Record tax revenues yet that is not enough money. We are setting up to repeat history in 2015.
The year's hole card?
That said, there is one final statistic: Years ending in 5, particularly in the second year of presidential terms, are almost always higher. These VIX/market confluences can remain for quite awhile as I noted. Perhaps for 2015?
Broad divergence in big names: AAPL, AMZN, GOOG, BA, BIIB surge. MSFT, INTC, PG flop.
Retailers: Not necessarily crashing but lining up for consolidating some gains, e.g. TJX, ROST. RH decided to get it going faster, selling through the 50 day MA Friday on rising volume. Retailers look as if they are going to test and consolidate, taking away one of the market's leadership groups.
Financial: Continuing their dives as GS hits a lower low on the selling, JPM as well.
Energy: A laggard that still looks ready to put in more of the oversold bounce: SLB, PTEN.
Leadership still has some great names but even they are under pressure, e.g. CMG, BWLD. Definitely not the quantity of stocks with quality patterns ready to shove higher.
Stats: -48.17 points (-1.03%) to close at 4635.24
Volume: 2.171B (+6.32%)
Up Volume: 541.29M (-878.71M)
Down Volume: 1.69B (+1.024B)
A/D and Hi/Lo: Decliners led 2.9 to 1
Previous Session: Advancers led 2.03 to 1
New Highs: 51 (+10)
New Lows: 105 (-11)
Stats: -26.26 points (-1.3%) to close at 1994.99
NYSE Volume: 1.2B (+39.03%)
A/D and Hi/Lo: Decliners led 2.12 to 1
Previous Session: Advancers led 2.06 to 1
New Highs: 172 (-4)
New Lows: 113 (-35)
Stats: -251.9 points (-1.45%) to close at 17164.95
VIX: 20.97; +2.21
VXN: 21.59; +2.11
VXO: 20.97; +2.23
Put/Call Ratio (CBOE): 1.14; -0.01
Bulls and Bears:
Bulls: 53.1% versus 49.0% versus 48.0% versus 50.5% versus 56.4% versus 52.5%. Leapfrogs over the past three week's readings, now close to the early January and November peaks. With the back and forth market you anticipate this will fall.
Bears: 16.3% versus 17.4% versus 16.3% versus 15.2% versus 14.9% versus 15.8% versus 14.9%. After a solid rise upside bears slipped back. Need the bears to ramp up some more.
Theory: When everyone is bullish and has put all their capital to work, where does the ammunition to drive the market come from? There is always new money to start a new year. After that is used will more money be coming? That is the question.
Note the low short interest as well, an indication of some complacency.
49.0% versus 48.0% versus 50.5% versus 56.4% versus 52.5% versus 49.5% versus 51.5% versus 53.4% versus 56.5% versus 56.4% versus 55.5% versus 54.6% versus 47.0% versus 35.3% versus 37.8% versus 45.5% versus 47.5% versus 48.0% versus 52.5% versus 57.6% versus 56.1% versus 52.5%
Background: Last undercut 35%, the threshold for bullishness, in early June 2012.
17.4% versus16.3% versus 15.2% versus 14.9% versus 15.8% versus 14.9% versus 14.8% versus 13.9% versus 13.8% versus 14.9% versus 14.8% versus 15.1% versus 16.3% versus 18.2% versus 17.3% versus 14.1% versus 15.1% versus 15.3% versus 15.2% versus 14.1% versus 13.3% versus 15.1% versus 16.2%
Background: Over 35% for bears is the threshold to be really be a good upside indicator. The best indication is when bears cross up through bulls as the two merge. Right now bulls are coming back down from the 60 level that has consistently marked market tops over the past two years. The rapid decline in progress is pushing the bulls/bears lines toward one another. Still far from a cross with bulls falling faster than bears are rising, but bears are warming up to the notion of market weakness.
Bonds (10 year): 1.67% Screaming higher once more as money pours into US Treasuries.
1.76% versus 1.73% versus 1.81% versus 1.82% VERSUS 1.80% versus 1.88% versus 1.86% versus 1.79% versus 1.83% versus 1.76% versus 1.84% versus 1.91% versus 1.91% versus 1.95% versus 2.02% versus 1.97% versus 1.94% versus 2.04% versus 2.12% versus 2.17% versus 2.19% versus 2.21% versus 2.25%
Oil: 48.17, +3.72. Strongest surge in ages, taking out the 10 day EMA and landing just below the 20 day EMA on the close. Higher MACD on the second bottom. As we said, oil is ready to bounce for a bit to relieve some of the oversold condition.
Gold: 1278.90, +24.20. Sharp bounce off of Thursdays flop to the 200 day SMA.
$/JPY: 117.40 versus 118.30 versus 117.54 versus 117.88 versus 118.45 versus 117.78 versus 118.49 versus 117.80 versus 118.82 versus 117.52 versus 115.928 versus 117.33 versus 117.77 versus 118.29 versus 118.50 versus 119.69 versus 119.43 versus 118.39 versus 119.62 versus 120.50 versus 119.81 versus 119.51 versus 120.67 versus 120.31 versus 120.48 versus 120.79 versus 119.99 versus 119.49 versus 118.83 versus 118.86 versus 116.81 versus 117.61 versus 118.75 versus 119.07
Still working laterally along the 50 day EMA, breaking lower Friday. Very toppy near term pattern and THAT is not good for the US stock market.
Euro/$: 1.1290 versus 1.1318 versus 1.1287 versus 1.1375 versus 1.1263 versus 1.1204 versus 1.1366 versus 1.1590 versus 1.1550 versus 1.1543 versus 1.1609 versus 1.1789 versus 1.1764 versus 1.1832 versus 1.1842 versus 1.1789 versus 1.1839 versus 1.1890 versus 1.1934 versus 1.2002 versus 1.2099 versus 1.2156 versus 1.2143 versus 1.2183 versus 1.2203 versus 1.2171 versus 1.2223 versus 1.2225 versus 1.2284 versus 1.2345 versus 1.2509 versus 1.2448 versus 1.2462
Overall the outlook for stocks is not that great in our view given the action since QE was pulled and the faux economic strength in the headlines that we feel unfortunately has many fooled. That, however, is our opinion of what the market will do and not what the market has done, at least yet.
With that in mind, the indices are still in their trading ranges. Toppy overall patterns on SP500, DJ30 and NASDAQ, but they are above the range lows. With the selling getting a bit stretched near the bottom of those ranges that could very well produce a rebound near term as the indices continue the price calculations post-Fed.
This 200+ Dow point daily volatility is wearing if you let it get to you. On these days you keep your eyes on the bigger pattern versus the intraday gyrations. If you get scared or act rashly either way, you can get rolled when the market goes back the other way. Thus we watch where stocks close more than open, and if patterns hold, that works as we ride out the price-matching volatility.
In this scenario we will do what we do, i.e. take what the market gives. This trading range is not as fun as they usually are given the large amount of false moves up and down. Thrashing about is a good description. Thrashing about but perhaps wearing itself out as the past week showed. How it bounces off support, if it can, and then how it reacts to the top of the range will tell its strength. We will use a bounce to make money upside, assess the strength when the move, if the move, closes in on the prior highs, then take it from there. That is how you have to approach it. Don't get wrapped up in it or you will succumb to the back and forth. View plays on a basis of whether they fit the play criteria. If they remain, great. If they break and cannot correct by the close, goodbye. It's not personal, its business.
It's business Tom, nothing personal. -- Michael Corleone, 'The Godfather' (1972)
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4635.24
The 50 day EMA at 4674
4751 is the January 2015 lower high
4774 is the January high
4811 is the November 2014 peak (intraday)
4815 is the December 2014 market peak
4631 is the October 2014 upside gap point
4610 is the September 2014 post-bear market high.
4566 is the lower gap point from late October
4563 and 4567 are the January lows
4547 is the December low
4545 is the 38% Fibonacci retracement
4486 is the July 2014 high
The 200 day SMA at 4469
4372 is the March 2014 high
The August low at 4321
4316 is the lower gap point from October 2014
4289 is the July 2000 recovery high
4277 is the March lower gap point
4246.55 is the January 2014 peak
4185, the May lower gap point
4131 is the March 2014 low
4104 is the lower gap point from 12/20/13
S&P 500: Closed at 1994.99
2011 is the September prior all-time high
The 50 day EMA at 2031
2073 is the lower trendline from 11/2012
2062 is the January 2015 lower high
2076 is the all-time high from November
2079 is the intraday all-time high from November
2137 is the December 2012 up trendline
1991 is the July 2014 high
The 200 day SMA at 1974
1972 is the December 2014 low
1905 is the August 2014 low
1902 from early May was the intraday all-time high.
1897 is the prior all-time high hit in April 2014
1883.57 is the early March high.
The December and January highs at 1848
The April 2014 low at 1814
1808 is the November and December 2013 twin peaks
1775.22 is the October prior all-time high
Dow: Closed at 17,164.95
17,351 is the September 2014 all-time high.
The 50 day EMA at 17,542
17,923 is the January 2015 lower high
17,991 is the early December interim
18,104 is the December all-time high
17,152 is the mid-July post bear market high
17,068 is the early July 2014 peak
17067 is the December 2014 low
The 200 day SMA at 17,062
16,970 is the June 2014 former all-time high
16,946 is the June 2014 peak
16,736 is the penultimate all-time high from May 2014
16,632 is the April 2014 all-time high
16,589 is the December 2013 all-time high
16,506 is the March 2014 peak
16,341 is the May low
16,334 is the August 2014 low
16,257 is the January 2014 low
16,179 is the November 2013 peak.
15,855 is the October 2014 low
15,739 is the December 2013 low
January 30 - Friday
GDP-Adv., Q4 (8:30): 2.6% actual versus 3.2% expected, 5.0% prior
Chain Deflator-Adv., Q4 (8:30): 0.0% actual versus 1.0% expected, 1.4% prior
Employment Cost Index, Q4 (8:30): 0.6% actual versus 0.5% expected, 0.7% prior
Chicago PMI, January (9:45): 59.4 actual versus 58.0 expected, 58.8 prior (revised from 58.3)
Michigan Sentiment - Index, January (9:55): 98.1 actual versus 98.2 expected, 98.2 prior
February 2 - Monday
Personal Income, December (8:30): 0.3% expected, 0.4% prior
Personal Spending, December (8:30): -0.2% expected, 0.6% prior
PCE Prices - Core, December (8:30): 0.0% expected, 0.0% prior
ISM Index, January (10:00): 54.7 expected, 55.1 prior (revised from 55.5)
Construction Spendin, December (10:00): 0.8% expected, -0.3% prior
February 3 - Tuesday
Factory Orders, December (10:00): -2.0% expected, -0.7% prior
Auto Sales, January (14:00): 5.9M prior
Truck Sales, January (14:00): 7.9M prior
February 4 - Wednesday
MBA Mortgage Index, 01/31 (7:00): -3.2% prior
ADP Employment Chang, January (8:15): 230K expected, 241K prior
ISM Services, January (10:00): 56.5 expected, 56.5 prior (revised from 56.2)
Crude Inventories, 01/31 (10:30): 8.874M prior
February 5 - Thursday
Challenger Job Cuts, January (7:30): 6.6% prior
Initial Claims, 01/31 (8:30): 290K expected, 265K prior
Continuing Claims, 01/24 (8:30): 2375K expected, 2385K prior
Trade Balance, December (8:30): -$38.0B expected, -$39.0B prior
Productivity-Prel, Q4 (8:30): 0.2% expected, 2.3% prior
Unit Labor Costs, Q4 (8:30): 1.2% expected, -1.0% prior
Natural Gas Inventor, 01/31 (10:30): -94 bcf prior
February 6 - Friday
Nonfarm Payrolls, January (8:30): 235K expected, 252K prior
Nonfarm Private Payr, January (8:30): 225K expected, 240K prior
Unemployment Rate, January (8:30): 5.6% expected, 5.6% prior
Hourly Earnings, January (8:30): 0.3% expected, -0.2% prior
Average Workweek, January (8:30): 34.6 expected, 34.6 prior
Consumer Credit, December (15:00): $15.0B expected, $14.1B prior
By: Jon Johnson, Editor
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