Yesterday was another day of churn--which did nothing for the technical strength of the Averages (DJIA 10194, S&P 1092). No retracement back into the prior up trend; no DJIA trading back above the November to January lows (10238). So the indices remain in a trading range with a known upper boundary (10725, 1150) and an unknown lower boundary (10238/9645, 1084,1009). Volume was low (bad), breadth deteriorated (bad), the VIX was off strangely enough (good), and the dollar was up (scoreboard: stocks down, gold up, oil down). Most important despite being a basically flat day, a surprising number of stocks in our Universe broke their March to present up trends--that is definitely not good.
Bottom line: the deterioration of our internal indicator has me feeling much more negative about the near term prospects for the Market.
The Market leadership (down) suggests a cyclical correction not a new bear market:
Percentage of stocks above their 50 day moving average (chart):
Bill Gross (Pimco) latest strategy piece (long, but today’s must read):
One thing is becoming increasingly clear; earnings are not driving stock prices:
The congressional budget office revised its forecast for the 2011 fiscal budget deficit from $1.4 trillion to $1.35 trillion (whew, what a relief, only 9.2% of GDP). That’s $1.35 TRILLION in FY2011 ALONE; and puts into prospective how insignificant is Obama’s proposed $250 billion cost saving over 10 years.
China popped back into the forefront, acting to further tighten monetary policy--which investors are interpreting as a negative for US stocks because of the pressure that rising Chinese interest rates puts on the Fed to raise US rates. I have noted several times that I think that slowly rising US interest rates are a positive signal that the Fed is acting to shrink its bloated balance sheet, which I consider a positive. Alas, Mr. Market for the moment disagrees; so further Chinese tightening moves (which are likely) will put additional pressure on stock prices.
Testimony begins today before the House Oversight Committee on the AIG bailout and has the potential of being explosive. I have linked several times to articles that allege a Fed cover up of events that led to the bailout. By the close of the hearings, we will likely know the extent of any shenanigans that transpired and, more important, who the major participants were. The point here is that Geithner and Bernanke are the most likely candidates to be damaged by revelations of misconduct. Geithner would be no loss; last Friday’s pin action (down big) tells you how investors would likely react in the wake of the exposure of significant Bernanke transgressions.
And of course, we have the first Obama state of the union tonight. These affairs are generally much ado about nothing; and the good news will be if He is satisfied with a similar performance. Watch for partisan harangue or some new cosmic mission that will cost a lot of money; that would be the bad news.
An up date on the misery index (unemployment + inflation) and what Obama can do to improve it (good luck):
Bottom line: today has the potential for lots of volatility.
This Week’s Data
The International Council of Shopping Centers reported weekly sales of major retailers fell 2.5% versus the prior week but rose 1.9% versus the comparable period a year ago; Redbook Research reported month to date retail chain store sales declined 1.4% versus the similar timeframe last month and increased 1.0% on a year over year basis.
The January Conference Board’s index of consumer confidence came in at 55.9 versus estimates of 54.0 and December’s reading of 52.9.
Weekly mortgage applications fell 10.9%.
More on the distortions to employment made by the government stimulus (medium):
The Case Shiller Home Price Index continues to improve (chart):
Another look at the coming debacle in commercial real estate (long):
The global outlook continues to improve (short):
A graphic look at the Obama spending cut (short):
01-27-2010 8:28 AM