Monday, November 24, 2014

Seasonal Pattern is Still There


- China rate cuts! ECB asset buys! Market jumps then says 'so what?'
- It's the US versus everyone else.
- Stocks surge then don't. Seasonal pattern is still there and should hold.
- Why you don't over think the patterns. Listen to them for sure, but don't over think them.
- Thanksgiving week often not great, but often doesn't change the trend.

The best of times and the worst of times?

Global: It's the US versus everyone else: The US data last week was not all strong, but some of it was blowout, e.g. the Philly Fed posting its strongest reading since 1993. Of course the New York PMI missed expectations, but it did rise. Industrial production and capacity slid, housing starts fell 2.8% versus an expected rise, and food prices surged even as inflation is purportedly tame (+3.3% in 12 months). Hey, you shouldn't eat all of that pork anyway; Michelle Obama would not like that. Of course shelter, airfares, household furnishings, medical care, recreation, personal care, tobacco, and new vehicles all jumped as well, but be calm, because the Fed says there is no inflation. All of those gains are offset by falling TV and computer prices, so simply go buy some more computers and TV's and save yourself some money.

Still, compared to 'over there,' the US is considered bulletproof. Japan triple dips into recession in its ongoing depression, forcing Abe to dissolve his cabinet and put off sales tax hikes until 2017. Not to worry, because Brazil, France, Italy, Russia are also in recession.

Chinese and European PMI and consumption data was terrible, all sliding lower when expected to gain. The inflation mongers were so disappointed.

On Wednesday the FOMC minutes did more than suggest the US central bank isn't going to worry about what it styled weakness in the rest of the world but was focusing on the US economy and labor market, both of which the Fed deigns in solid recovery mode.

The rest of the world apparently bought in. Friday China cut interest rates 25BP. Not the tax cuts we heard rumor of last week. Nope, sticking with monetary policy versus fiscal policy, apparently thinking it 'worked' for the US so why change fiscal issues?

Friday also saw the ECB finally allow Draghi to make good on his 'QE is coming' wolf cries as the ECB actually bought some assets as Draghi implored the ECB to get that inflation rate up to its targets. How can you be economically sound without inflation at 2%? Oh yes, look at the US in the 1980's; one of the most massive recoveries in our history and . . no inflation.

So, the US' ability to outrun massive debt by printing more debt (thanks to its now tenuous reserve currency status) has finally convinced, or should I say forced, others to do the same. Now we are all in the money printing business and currency war business (outside Iceland and a few other sane places), and it will be a money printing race, at least until markets finally balk, realizing the emperors have no clothes.

I love the smell of monetary stimulus in the morning . . .

Markets: Stocks showed the best of times/worst of times action as well. Of course the talk of more monetary stimulus in China and QE in Europe jumped US stock futures. Big pre-market gains, but we warned in the pre-market alert that these kind of moves, particularly on top of expiration Friday AND a market that is a bit weary, could prove deceptive.

Stocks of course opened sharply higher but immediately started to sell. We used the upside open to bank some gain on November options, racking up 400+% on BWLD, 139% on TGTX, etc. After that higher open, 'the slide' took place with stocks falling to noon central time. There was recovery, but it was just a modest move, a handful of upside ticks, into the close. DJ30 lost 85 points (gained 91 on the session) high to close. NASDAQ lost 38 points (up 11 on the day), SP500 coughed up 8 points, faring better as it managed an 11 point closing gain.

SP500 10.75, 0.52%
NASDAQ 11.10, 0.24%
DJ30 91.06, 0.51%
SP400 0.45%
RUTX 0.14%
SOX 1.02%

VOLUME: NYSE +51%; NASDAQ +11%. Expiration, so don't go reading too much into these volume increases.

A/D: NYSE 2:1, NASDAQ 1.1:1. Pretty paltry for such grand news.

Not dog food, but some major reversals from high to low in the indices. Basically it was potential unrealized as some good moves that could have really done the indices good were given back. Maybe the indices were not ready to continue higher, though RUTX put in a great Thursday move and was in position to really cement a recovery.

Nonetheless, I suppose we shouldn't complain. The indices did hold onto some gains, and that vaulted SOX to a new post-bear market high, SP500 and DJ30 as well. SP500 tapped the upper trendline on the high and faded, however . . . but, all in all you cannot complain. It's Christmas and the time of good cheer (at least according to Wal-Mart, and if you can't trust the nation's largest employer, who can you trust, the NSA?), so I suppose we will just take the move at face value: not great with the givebacks, but by golly some new highs and a continued year end run.


Thanksgiving week and that has a mixed history. It is often a week where stocks that are in a run have some troubles on the week. They often correct themselves once the week is over, but it is something to watch for and not to get too rattled by if you see it occurring. As always, looking at the stocks holding good patterns, i.e. many that we have on the report, will guide you through. If they start breaking down and no others are improving, that could be trouble.

Again, this week can show weakness but it can also show good moves. We are going to look at some more upside plays because that is clearly the trend and the year end upside move is well-entrenched this year. Doesn't mean it can't or won't change, just that we need to see some more trouble before we bite on that.

What we want to do is let good plays run. If there are some in trouble and cannot improve and worsen, then of course we want to close them out. If they are holding, however, given the seasonal move that is working well this year, we really want to let them run if we can as they should return even more by the year end.

As for the reports, we always give everyone, including me, a break. Monday and Tuesday reports as usual, Wednesday a summary and play tables, market stats and play tables after Friday. The idea is to have good positions as we have and may add to on the week, and let them work with the seasonal trend in place. Of course if anything changes, we will be there to try and help determine what has changed, what it means, and what we need to do about it.

By: Jon Johnson, Editor
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Jon Johnson is the Editor of The Daily at

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