- Bad economic news, good economic news. The market gains some ground, loses some more. Familiar? Still in the post-Fed speak slump.
- Last minute end of month portfolio changes turn 0.5% losses into 1% losses.
- Personal spending and income disappoint as reality takes hold.
- Chicago PMI surges from contraction even as respondents still glum, almost morose.
- April Core Retail Sales cut by 2/3 in revisions.
- Americans have regained less than one-half their wealth lost in the recession.
- Best Buy founder hits the nail on the head as he identifies what is wrong with the economy.
- India economy posts its slowest growth in 10 years.
- Europe sets another unemployment record. The wrong way.
- Still in the taper-tantrum fade, but at least Friday helped move it along toward key support.
- New month, new money? A bit more downside then a reversal would be just right. Okay, so we are now quoting fairy tales.
To sell because of taper, or not to sell because of taper?
The Chicago PMI crushed expectations, but it was not enough to hearten a market that is in the throes of a 'to taper or not to taper' trading range/pullback. Or, perhaps it was too much for a market in the 'taper or not' throes. At this juncture, it is a bit difficult to determine what the market likes and what it dislikes. Too strong could be bad for keeping full-strength QE. Too weak could be bad for stocks if the Fed is hell-bound on starting the QE exit in three months as now three Fed officials have suggests.
Of course the difference this time is that it is clear that the Fed will start removing stimulus in August or September. As noted, three have said so, and last time I checked, three is still the charm. Thus the market, whether it is facing it now or not, will have to factor in a reduction in QE of SOME sort. There is discord on the Fed as just what to do, but Bernanke is on the record over a month ago saying removal of stimulus would consist of charging the banks interest. Heaven forbid; interest on borrowed money. How possibly could the banks survive?
That may sound wise-a**, but even with free money gratis the Fed many big banks STILL struggle to turn profits. That is HOW BAD their condition was and why I believe they should have been allowed to collapse via their own dead weight and bad decisions. Know what? They are STILL in bad shape as loan loss reserves have been siphoned off and are now reported as profits on recent quarterly reports. Indeed loss reserves are close to where they were pre-crisis as if no issues could possible develop again. With the Fed at your back, however, there is NO NEED to change your ways.
But I digress. So yes taper is coming to an end of summer theater near you, but just what will be showing on the marquee, i.e. what kind of QE pullback implemented, is the question. Friday the market was wrestling with its post-Bernanke/Dudley/FOMC taper issues. In the end the resolution was closer. Not there but closer.
Futures were lower even as Japan's Nikkei recovered with a 1.4% gain after dive-bombing over 5% Thursday. As is often the case, however, futures were on the mend as the open approached. Weak Personal Spending numbers relieved fears of any QE take-back anytime soon. As stocks opened they jumped upside and in the first 20 minutes were flat. A quick test and then by midmorning stocks were positive.
That was the last time they were positive for the session. Midmorning proved the recovery peak. Stocks faded into early afternoon, held, then dipped again just before the last hour. SP500 down 0.5%, NASD just negative. A bounce looked promising and carried stocks higher to the last half hour of trade.
Then the bottom dropped. SP500 lost 12 points in the last half hour, HALF of what it lost on the day overall. 1/2% losses turned into 1.4% losses on SP500. Ouch.
SP500 -23.66, -1.43%
NASD -35.29, -1.01%
DJ30 -208.95, -1.36%
SP400 -0.92%
RUTX -0.70%
SOX -1.22%
After hours we heard many spooked journalism majors turned financial anchors querying their imminently informed guests as to what happened. A bunch of pabulum was ladled. It was tapering. It was the weekend. It was the Hindenburg Omen. It was uncertainty. It was the time of the month.
What was it? Well, it WAS the time of the month. It was the end of the damn month and there was some serious position shuffling magnified by an index rebalance. It was not a good finish and volume surged. Was it THE start of THE selling? There were a lot of simultaneous new highs and new lows, something called the 'Hindenburg Omen,' but it is just a possibility. The indices hit new highs, they are struggling with the possibilities of a liquidity drain via the Fed, they are approaching an important test and that will tell the tale for this pullback.
Indeed the first part of next week we could very well see some money put to work. Yes, just because the Fed is talking taper and some are spooked, it does not mean that those running to the market now, late of course, after sitting out four years, are going to turn back now. Thus we could see some early month money come to market next week. The real question is what happens after it is spent.
Wait, wait! This bus has been on a four year trip and now I want to get on!
OTHER MARKETS
Dollar lower: 1.2995 versus 1.3042 euro
Bonds struggled: 2.16% versus 2.13%
Oil fell right back down: 91.7, -1.64
Gold sold off after a rebound: 1393.70, -18.10
THE ECONOMY
Quote of the Day by Jim Rogers: "You are not supposed to take money away from the competent people and give it to the incompetent so that the incompetent can compete with the competent people with their own money."
The data showed a wildly divergent split in the economy. This time it was not just the consumer's feelings, but the Chicago PMI blasted higher even as income and spending faded and retail sales were revised lower.
Personal spending and income disappoint as reality takes hold.
Personal Income, April (8:30): 0.0% actual versus 0.1% expected, 0.3% prior (revised from 0.2%)
Personal Spending, April (8:30): -0.2 actual versus 0.1% expected, 0.1% prior (revised from 0.2%)
I
It appears the consumer feels the sting of increased payroll taxes after all. Taxes do not rise and go quietly unnoticed.
Just look at disposable income, heading negative again. This is the most telling figure. Jobs restructuring to part-time versus full-time and the resultant less hours worked in order to meet the strictures of the healthcare law.
It may very well be that we continue to see a taper in spending (to use Fed parlance) as the summer doldrums hit.
Chicago PMI leaps out of contraction but those surveyed are not happy.
Chicago PMI, May: 58.7 actual versus 49.3 expected, 49.0 prior (no revisions)
The numbers were good in about every category. Weirdly strong. Statistically massively outside norms (a sigma of 8).
Production: 49.9 to 62.7. Absurd. I don't mean to belittle it and wish it was correct, but it is simply not in sync.
The comments were in stark contrast:
-Three months of declining sales in a core product line though some are hanging in.
-Business activity should be picking up and stronger at this time of year, but is delayed.
-New orders light since March, but sales reps remain optimistic.
-Months start good but end bad.
You make the call. The numbers are the numbers, but the comments are the comments.
Core Retail Sales Revert back in Line.
Perhaps the Chicago PMI will revert. Why do I bring that up? Because in mid-May when April Retail Sales ex-autos fell 0.1%, the core sales (ex-gas as well) rose 0.6% after a prior -0.1% showing and an expected 0.3% gain.
Today the Census Bureau released a revision down to 0.2%, one-third of what was originally reported. What was a big beat is now a miss. Makes you continue to wonder about the validity of data.
The irony of confidence versus reality: Michigan Sentiment hits a six year high similar to Consumer Confidence. This as wealth remains lost, disposable income negative.
Michigan Sentiment - Final, May (9:55): 84.5 actual versus 83.7 expected, 83.7 prior (no revisions)
Michigan Confidence and the Conference Board's Consumer Confidence both soared the past week to multi-year highs (84.5 and 76.2, respectively). It is often said that consumers say one thing and do the other. Perhaps they are feeling, as they have from time to time in this failed recovery, that things have to get better.
Problem is, reality is not matching expectations or more accurately, hope.
As noted earlier, the tax increases are hitting consumers with less take home pay, i.e. less disposable income. Indeed, negative disposable income in April. Moreover, the -0.2% in spending reported Friday was the first time in a year consumers cut their spending.
The Washington Post reported Thursday that according to the St. Louis Fed, US citizens have on average regained LESS THAN HALF of what they lost in the recession. Four years of so-called recovery and less than half of the wealth lost recovered. Shocking.
Indeed the Fed stated "A conclusion that the financial damage of the crisis and recession largely has been repaired is not justified."
$16T lost. $7.2T recovered despite four massive QE gambits from the Fed on top of the $900B in stimulus and TARP. Bang for the buck? Hardly. The right kind of stimulus works. History shows it. The wrong kind exacerbates the problem. History shows it: Great Depression, 1970's, 2008-2013 (and still counting).
Best house in a bad neighborhood?
India just reported its slowest growth in 10 years.
Europe just set another record in unemployment at 12.2% for April.
Our 2.4% in Q1 suggests they should try QE as well, right?
Best Buy Founder Speaks Wisdom.
Friday morning the Best Buy founder Anderson was on CNBC. Sage comments that our leaders should listen to and then try to understand. With their Keynesian backgrounds (if even that), it would be hard to grasp, but it is true wisdom.
In discussing the difficulty startups and small businesses are confronting in this economy, he noted BBY could have been stopped or could have failed many times from many different things during its infancy.
Anderson compared today to then and sees today's environment much more hostile to small business or startups. Today's regulatory schema and higher costs for small businesses creates an environment in which they cannot compete with the larger companies.
This is EXACTLY what we have said about this recovery all along: geared toward the large multinationals and established businesses from the original stimulus to the regulations. Those trying to start a business are hampered by the regulations and resultant costs, the latest being rising employee costs thanks to the Healthcare act and the inability to raise prices: they cannot raise prices but they have rising employment costs that threaten their ability to stay open. They are caught in an unworkable trap, and many have failed and many will fail.
It is axiomatic this scenario is NOT good for the jobs market as no new jobs will be created by the typical jobs engine for the US and recoveries. This only exacerbates the poor jobs situation we currently suffer from and it is not improving.
TECHNICAL SUMMARY
NASDAQ
Stats: -35.38 points (-1.01%) to close at 3455.91
Volume: 1.878B (+6.16%)
Up Volume: 400.36M (-999.64M)
Down Volume: 1.54B (+1.16B)
A/D and Hi/Lo: Decliners led 2.56 to 1
Previous Session: Advancers led 2.19 to 1
New Highs: 125 (-28)
New Lows: 28 (+13)
S&P
Stats: -23.67 points (-1.43%) to close at 1630.74
NYSE Volume: 777M (+22.17%)
A/D and Hi/Lo: Decliners led 5.08 to 1
Previous Session: Advancers led 1.47 to 1
New Highs: 171 (-46)
New Lows: 238 (+121)
DJ30
Stats: -208.96 points (-1.36%) to close at 15115.57
Volume: Jumped 6% NASDAQ and 22% NYSE but a lot of that was a rebalance that occurred on the day and those are manifested late in the session just as this one was.
A/D: Heavily downside on NYSE at -5:1. Now that is negative, but it is starting to get in the realm of extreme, and that is a positive for the upside. If things get bad enough you are ready to bounce; that is the theory. A better signal would be -8:1 or worse.
THE CHARTS:
Still working through the post-Bernanke taper talk but picked up speed downside as measured by the close. The silver lining: the sharp selloff puts stocks in a better position to complete this pullback similar to February . . .
SP500. Diving to the downside but closing in on the November up trendline marking the bottom of the uptrend channel. Huge volume but there was a rebalance. The bottom of the range will tell more of the tale. Note that MAC is solid, hitting a higher high on this higher high in the index, a confirmation that momentum remains good.
NASDAQ. Gave up the upper channel line but it has passed through that line this week as much as fecal matter passes through a goose so it doesn't, in terms of a barrier, mean much right now. It does show NASDAQ continuing to struggle after breaking the channel and hitting a new rally high. Still looks as if it has more to fall, but as with SP500 the MACD is solid and it was much more resilient than the other indices.
SP400. Hanging on at the 20 day EMA as it did all week. Not bad consolidation action but sure looks as if it wants to fall a bit more. 1160 looks likely (closed at 1184).
SOX. Down but still strong, closing above the November up trendline. Good relative strength on the week; very good. Maybe a bit topped out for now, but hard to say it is ready to roll over based upon the pattern other than just saying it is at the 2011 peak and that is acting as some resistance.
LEADERSHIP:
Big Names. AAPL down slightly, holding up very well in a down market. GOOG was fine, closing flat and at the same lows from Wednesday to Friday. A solid pullback. NFLX gapped and held some of the gain. PCLN remains solid.
Energy. Refiners still look good, e.g. MPC, VLO. Service companies are struggling maybe a bit but could form up nicely after a bit more testing, e.g. HAL. Still, there is some worrisome look to a few: SLB, WFT.
Financials. A good week, a strong week on the interest rate rise. Friday was off, giving some back after a very solid run. JPM, BAC. V is at an important level, bumping the 20 day EMA all week.
Retail. Taking it on the chin a bit as some leaders sold. KORS lost 4.3% after a great week to the upside. COST was hammered. TJX is trying to turn back up after a problematic midweek. LULU still looks good as does DECK.
Chips. Still solid, e.g. KLAC, ANAD.
Some sectors to consider as the indices hit new highs the past two weeks:
SP500 versus commodities: Commodities diving since February as SP500 soars starting November. The two started their divergence that same month.
THE MARKET
SENTIMENT INDICATORS
VIX: 16.3; +1.77
VXN: 15.99; +1
VXO: 15.82; +1.7
Put/Call Ratio (CBOE): 1.19; +0.33
Bulls versus Bears
Bears held steady . . . at a low level while builss faded a couple of points. Bulls are still at relative highs that have set off minor selling bouts over the past year, suggesting the market is set for a pullback. BUT . . . the market is in a pullback now.
Bulls: 52.1% versus 54.2% versus 52.1% versus 47.9% versus 44.3% versus 47.4% versus 50.5% versus 52.0% versus 49.5% versus 47.4% versus 50.00% versus 44.2% versus 46.3% versus 48.4% versus 52.6% versus 54.7% versus 54.3% versus 53.2% versus 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.
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: 19.8% versus 19.8% versus 19.8% versus 18.8% versus 19.6% versus 20.6% versus 20.6% versus 19.4% versus 19.6% versus 18.6% versus 18.8% versus 21.1% versus 21.1% versus 22.1% versus 21.1% versus 21.1% versus 22.3% versus 22.3% versus 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%.
Summary: 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
Given the commentary to end the week after that last hour nosedive you would likely approach this coming week with a safety harness, flak jacket, helmet, survival kit, extra toilet paper, and extra batteries.
Maybe bad things happen. At least we likely see the result rather quickly given how SP500 closed near its November trendline, ditto DJ30. Always look at the bright side of life . . .
Jack Nicholson in 'As Good as it Gets.'
There are still quite a few of solid stocks in good position, e.g. GOOG, AAPL, PCLN, NFLX. Of course that can change with horrifying rapidity in a stock market that suddenly sells off after realizing it has floated on air provided by the Fed for the past 4 years.
It is the start of a new month. New money is going to come to the market. Last month it took a session but it got there. That would be pretty perfect: another downside move to the trendline and then new money to push it back up off support.
There is also the jobs report on Friday to add to the mix: Fed taper speculation, mixed economic data, sharp Friday selloff, and again jobs. Depending upon what happens early in the week, the jobs report will have more or less meaning. If things hold support, then it means more. If stocks are diving it won't matter a damn bit.
This pullback may be different this time around given the Fed and a lot of talk about starting to remove stimulus in three months. All the prior pullbacks since November were with the confidence, more or less, that the Fed was not 'there' yet in terms of removing stimulus. It is 'there' now in terms of deciding it needs to get out of this game.
Indeed, late Friday allegedly embargoed Fed Advisory Panel minutes were released and the language was, for the Fed, shocking:
"There is also concern about the possibility of a breakout of inflation . . . and of an unsustainable bubble in equity and fixed-income markets given current prices."
Further:
"Uncertainty exists about how markets will reestablish normal valuations when the Fed withdraws . . . It will likely be difficult to unwind policy accommodation, and the end of monetary easing may be painful for consumers and businesses . . . The Fed may now be perceived as integral to the housing finance system."
Holy crap. This is the Fed. At least it IS cognizant of the issues. Cold comfort for a market mainlining on its stimulus.
Okay, the Fed is on board. I say the next question is how much and what method, but with that statement does it matter? Sure; the Fed won't go all at once. It is, based upon these stated concerns, terrified of screwing up but at the same time it knows that it will likely cause damage. Kind of like the Iranian President who believes the world will come to an end soon and he wants to help it along. He knows damage will be done, but it is for the ultimate greater good. Gracious.
'And when the fire rains down from the sky and destroys the earth, that will be a beautiful wonderment.' Oh yes, and he is the President of a country.
Worrisome words from the Fed, worrisome end to the week. I still don't like the feel of the market here as stated several times the past week. But, alas, that is my gut, my hunch and it can be right or millions of other investors and traders can overpower whatever my gut suggests.
It does, however, appear clear the indices will meet support early on and we will see how they react along with some seriously quality stocks (e.g. GOOG, AAPL, NFLX, PCLN, DDD, PCYC, GMCR). Perhaps it is different this time. We will see soon enough. Keep good stops on current positions and jump on stocks ready to move, up or down.
Support and resistance
NASDAQ: Closed at 3455.91
Resistance:
3485 is the upper channel line for the November 2012 to present uptrend
3521 is the August 2000 low.
3532 is the early May high
Support:
3422 is the prior May 2013 low
3401 is the May 2000 closing low
3389 is the November 2012 up trendline
3371 is the early May 2013 upper gap point
The 50 day EMA at 3358
3321 from April 2000
3227 is the April 2000 intraday low
The 2011 up trendline at 3225
3197 is the September 2012 post-bear market high
3171 is the October intraday high
The 200 day SMA at 3147
3134 is the March 2012 post-bear market peak
3130 from some January 2013 lows
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 and the 1/2013 low after gapping higher
3062 is the December 2012 prior peak
3042 from 5/2000 low and several other price points
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
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 1630.74
Resistance:
1687 is the May high and post-bear market high
1692 is the upper trendline in the channel
Support:
The November up trendline at 1623
The 50 day EMA at 1605
1598 is the April 2013 high and former all-time high
1576 from October 2007, the prior all-time high
1556 from July 2007
1541 is the April 2013 closing low in that pullback inside the uptrend
1539 from June 2007
1531 is the recent high
1499 from January 2008
The 200 day SMA at 1490
1475 is the September 2012 high
1471 is the October 2012 intraday high
1466 is the September 2012 closing peak and rally closing high
1440 from November 2007 closing lows
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
Dow: Closed at 15,21.30
Resistance:
15,542 is the May 2013 high
15,645 is the upper channel line for the trend off the November low.
Support:
The November up trendline at 15,057
14,888 is the April peak and prior all-time high
The 50 day EMA at 14,892
14,198 from the October 2007 high
14,149 is the February 2013 high
14,022 from 7-07 peak
14,010 from the early February 2013 consolidation
The 200 day SMA at 13,816
13,784 is the late February 2013 closing low
13,692 from 6-2007 peak
13,668 from 12-2007 peak
13662 is the October 2012 intraday high
13,653 is the September 2012 high
13,557 to 13,662
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
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
12,716 is the April 2012 closing low
12,524 is a range of support from early 2012 and summertime 2012
Economic Calendar
May 28 - Tuesday
Case-Shiller 20-city, March (9:00): +10.9% actual versus 10.1% expected, 9.3% prior (no revisions)
Consumer Confidence, May (10:00): 76.2 actual versus 72.5 expected, 68.1 prior (no revisions)
May 29 - Wednesday
MBA Mortgage Index, 05/25 (7:00): -9.8% prior
May 30 - Thursday
Initial Claims, 05/25 (8:30): 354K actual versus 340K expected, 344K prior (revised from 340K)
Continuing Claims, 05/18 (8:30): 2986K actual versus 3000K expected, 2923K prior (revised from 2912K)
GDP - Second Estimate, Q1 (8:30): 2.4% actual versus 2.5% expected, 2.5% prior (no revisions)
GDP Deflator - Second Read, Q1 (8:30): 1.1% actual versus 1.2% expected, 1.2% prior (no revisions)
Pending Home Sales, April (10:00): 0.3% actual versus 1.5% expected, 1.5% prior (no revisions)
Natural Gas Inventories, 05/25 (10:30): 88 bcf actual versus 89 bcf prior (no revisions)
Crude Inventories, 05/25 (11:00): +3.0 mln actual versus -0.338M prior (no revisions)
May 31 - Friday
Personal Income, April (8:30): 0.0% actual versus 0.1% expected, 0.3% prior (revised from 0.2%)
Personal Spending, April (8:30): -0.2 actual versus 0.1% expected, 0.1% prior (revised from 0.2%)
PCE Prices - Core, April (8:30): 0.0% actual versus 0.1% expected, 0.1% prior (revised from 0.0%)
Chicago PMI, May (9:45): 58.7 actual versus 49.3 expected, 49.0 prior (no revisions)
Michigan Sentiment - Final, May (9:55): 84.5 actual versus 83.7 expected, 83.7 prior (no revisions)
June 3 - Monday
ISM Index, May (10:00): 50.9 expected, 50.7 prior
Construction Spending, April (10:00): 1.1% expected, -1.7% prior
Auto Sales, May (14:00): 5.1M prior
Truck Sales, May (14:00): 6.8M prior
June 4 - Tuesday
Trade Balance, April (8:30): -$41.1B expected, -$38.8B prior
June 5 - Wednesday
MBA Mortgage Index, 06/01 (7:00): -8.8% prior
ADP Employment Change, May (8:15): 157K expected, 119K prior
Productivity-Rev., Q1 (8:30): 0.6% expected, 0.7% prior
Unit Labor Costs, Q1 (8:30): 0.6% expected, 0.5% prior
Factory Orders, April (10:00): 1.5% expected, -4.9% prior (revised from -4.0%)
ISM Services, May (10:00): 53.5 expected, 53.1 prior
Crude Inventories, 06/01 (10:30): 3.0M prior
June 6 - Thursday
Challenger Job Cuts, May (7:30): -6.0% prior
Initial Claims, 06/01 (8:30): 347K expected,
Continuing Claims, 05/25 (8:30): 2960K expected,
Natural Gas Inventories, 06/01 (10:30): 88 BCF prior
June 7 - Friday
Nonfarm Payrolls, May (8:30): 164K expected, 165K prior
Nonfarm Private Payrolls, May (8:30): 174K expected, 176K prior
Unemployment Rate, May (8:30): 7.5% expected, 7.5% prior
Hourly Earnings, May (8:30): 0.2% expected, 0.2% prior
Average Workweek, May (8:30): 34.5 expected, 34.4 prior
Consumer Credit, April (15:00): $13.5B expected, $8.0B prior
By: Jon Johnson, Editor
Copyright 2013 | All Rights Reserved
Jon Johnson is the Editor of The Daily at InvestmentHouse.com
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