The indices (DJIA 10058, S&P 1070) had a good day though stocks remain in a trading range with an upper boundary of 10725, 1150 and a probable lower boundary of 9645, 1009. Last night I focused on the very short term down trend off the January 2010 highs in which both Averages and many stocks find themselves. In particular, I looked at the upper boundary of those down trends. I did so because (1) if stocks break back above that down trend, it will give strength to the notion that stocks are in the trading range defined above; (2) because if they don’t, then there is likely further downside--which I want to quickly stress isn’t necessarily a terrible thing. Remember in yesterday’s Morning Call I pointed out that if the support levels for the DJIA and S&P are 9645 and 1009 respectively, then they still had downside (263 points for the Dow and 47 for the S&P) from the close Monday.
So back to the down trend line: at the close last night, the upper boundary of the down trend for the DJIA was at 10145 and for the S&P 1084. Interestingly, for our internal indicator, of 164 stocks, 32 are still in their March 2009 to present up trend, 71 have broken their March to present up trend but have established a support level and of those 71 stocks, yesterday 13 closed above their upper boundary of their January to present down trend. That is pretty positive in my opinion.
Other factors in yesterday’s trading: volume was quite low, breadth improved but not as much as I would have expected, the dollar was down (scoreboard: stocks up, gold up, oil up) and the VIX was down--but like Monday, it wasn’t down nearly as much as a DJIA 150 point up day would suggest.
Bottom line: The Market remains in a trading range. I see no signs that it wants to break to the downside and a hint that its internals are improving; and I would feel much better if prices can break through the minor short term down trend off the January high.
The latest from TraderFeed:
(1) there was movement on the Greek sovereign debt problems. First, Jean Claude Trichet, President of the European Central Bank, cut short a trip and flew back to Europe. Traders interpreted this as a sign that he would put together some sort of Greek bail out. Second, European Union and German officials made sounds like they were considering provisions for a bail out if the Greeks get their budget under control [‘control’ being the operative word]. Third, the Greek public unions made sounds like they may agree to some wage/benefit reductions [‘some’ being the operative word; those ‘concessions’ are far short of what is needed to solve the Greek deficit problem. Note; public employee wages and benefits consume about one half of the Greek federal budget.].
That all sounded very positive and clearly investors interpreted it so. Again I have to rely on guys smarter and more familiar with the intricacies of sovereign debt markets for leadership on this issue. Their bottom line is that the bail out, if anything like what is being bandied about, will be meaningless.
Now I don’t know if these guys are right; if they are right, I don’t know how long it takes the rest of the world to figure it; I am not even sure that it matters because as I have said before, the insolvency of Greece, in my opinion, means little in the scheme of things. What matters is that other larger countries either are or are about to experience the Greek disease. Greece would simply be the spark that ignites the tender. So my bottom line is that buying stocks because Greece is going to get bailed out is probably not a good bet.
Another perspective (medium):
Note: I have included a lot of data/opinion on this issue because it is important I think as to how the Market trades over the next 6-9 months. You should read all of the above.
(2) the Senate refused to approve the appointment of a liberal union lawyer to the National Labor Relations Board. It was generally agreed that if appointed, this gentleman would tip the balance of power within the Board and that would virtually guarantee the approval of ‘card check’ [the unionization of the labor force of a business without a secret ballot]. Score another point for the Scott Brown election. This clearly has little near term economic/stock market impact; but its significance is that it is another sign that our governing bodies are moving back to the political/social/economic center and reinforces my conviction that the long term secular growth rate of the US economy will be higher than I thought a month ago.
This Week’s Data
The International Council of Shopping Centers reported weekly sales of major retailers up 1.4% versus the prior week and up 1.8% versus the comparable period last year. Redbook Research reported month to date retail chain store sales rose 2.0% on a year over year basis.
December wholesale inventories fell 0.8% versus expectations of a 1.5% increase; as has been the case for the last six months, wholesale sales rose 0.8% again driving down the inventory to sales ratio.
The December US trade deficit rose to $40 billion versus estimates of $35 billion and November’s reading of $36 billion.
Weekly mortgage applications fell 7.0%.
How the taxpayers got stiffed in the financial crisis (hat tip to subscriber W Browne):
More analysis of private versus public employment and their costs (medium):
Rail traffic was flat in January (short):
Commodities survey shows increasing inflationary pressures (short):
China is becoming increasingly adversarial (medium):
Wednesday morning humor (short):
02-10-2010 8:34 AM