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Daily State of the Markets Good morning. It was a tough day for the S&P 500 on Wednesday as the blue chip index gave back 1.43%, which wiped out the entire gain seen over the prior five sessions. I’m told it was a “90% down day” as down volume swamped up volume by more than 14 to 1 and that the all-important 50-day moving average was breached to the downside. Other harbingers of bad things to come included the Euro (FXE) diving to lowest level in two years, gold (GLD) and the dollar (UUP) surging, commodities (DBC) plunging, the VIX (VXZ) spiking, and the yield on the U.S. 10-year note falling to the lowest level ever. And remember, ever is a very long time. The data in the U.S. once again showed that the BTE (better than expected) theme that was all the rage in the first quarter is now officially history as Pending Home Sales stunk up the joint (this after Consumer Confidence and Case-Shiller had come in on the punk side on Tuesday). And the reports were no better across the pond as confidence in the Eurozone continues to falter (shocking, I know). Traders with a technical bent are quick to point out that yesterday’s action was not good. The chartists suggest that the “retest” (remember, the indices traditionally revisit the lows of a move after meaningful corrections before a real rally begins) is on and that if the S&P breaks through 1292, it might be a quick trip down to 1205. Super. But never fear bull-campers as we’ve got a boatload of important data that will hit the tape over the next 24 hours or so including Challenger Layoffs, ADP Employment (private sector jobs), Weekly Jobless Claims, the first guesstimate – oops, I mean, revision – to Q1 GDP, Bloomberg Consumer Comfort, Chicago PMI, HSBC’s China PMI (which is usually diametrically opposed to the country’s official reading), ISM, and the Big Kahuna – the Nonfarm Payrolls report. And it can’t ALL be bad, can it? Since the primary purpose of my meandering morning missive is to identify the drivers of the market action on a daily basis, the better question to ask at this stage of the game is if any of the above really matters? After all, with Greece’s anti-bailout gang gaining ground in the polls, Spain’s banks apparently getting weaker by the minute, yields rising in Italy, and lots of talk but absolutely no action from EU/ECB leaders, it is clear that the European debt crisis is back. Sure, the market is not nearly as volatile as last May’s Greek drama as I’m told that we have seen nary a single 2% move so far this year in the SPY. And the VIX (so many ways to play this one these days: VXX, VXZ, VIXY, TVIX etc.) is only about one-half the level seen in the summers of 2011 and 2010. But the bottom line appears to be that unless you are willing and able to guess how the market will react to the next rumor or headline, then this market remains VERY difficult. What about the incessant chant of “QE3! QE3! QE3!” heard emanating from the corner of Broad and Wall, you ask? While Ben Bernanke does seem to be bent on doing everything humanly possible to avoid a deflationary spiral in this country, there are a couple of issues suggesting that those betting on another QE fix may go home with the shakes. First and foremost, there is the issue of inflation. Remember, when Bernanke not-so sneakily mentioned the idea of QE2 from Jackson Hole in the summer of 2010, there wasn’t any inflation. And in fact, this point was used as justification for the next trillion dollars worth of bond buying as Bernanke said that inflation was too low. But now inflation is either at or above the Fed’s target level. The second problem is the fact that QE has a heavy cost that just about everybody but traders are forced to pay (as in rising food and fuel prices). And finally, the bottom line is that QE hasn’t been terribly effective at helping the economy grow. But again, does this argument really matter? After all, as long as Europe’s leadership continues to let this fire burn, there is little doubt that our stock market will struggle. However, rest assured that if and when a credible solution is found, “buy ’em” will be the phrase of the day. And until then, we will continue to search for the things that matter to Ms. Market. Turning to this morning… Although Asian markets were down and there is ongoing difficulty in Spain, European bourses are bouncing. But with all eyes on the slew of economic data (Retailers’ Same Store Sales Comps, Challenger Job Cuts, ADP Employment, Jobless Claims, GDP, Bloomberg Consumer Comfort, and Chicago PMI), today’s trade will likely be dictated by the data. On the Economic front… Challenger, Gray and Christmas reported that there were 61,887 planned job cuts announced in May, which was above April’s figure and the highest level seen since September. Next up, ADP reported that the private sector jobs rose by 133K jobs during the month, which was below the consensus expectations for a gain of 154K. Also on the jobs front, Initial Claims for Unemployment Insurance for the week ending 5/26 were reported at 383K which was above the consensus estimate for 368K and also above last week’s revised total of 373k (up from 370k). Continuing Claims for the week ending 5/19 came in at 3.242M vs. consensus of 3.255M. Finally, the government’s first revision (which includes all the data for the reporting period) to the nation’s GDP during the first quarter of 2012 shows the economy grew at a rate of +1.9% during the January-March period. This was below the growth rate first reported of +2.2% and also below the fourth quarter’s growth rate of +3.0%. In addition, we’ll get Bloomberg Consumer Comfort and Chicago PMI later this morning.!========> Thought for the day… There is a great difference between knowing and understanding: you can know a lot about something and not really understand it — Charles Kettering Pre-Game Indicators Here are the Pre-Market indicators we review each morning before the opening bell…
Positions in stocks mentioned: UUP For more of Mr. Moenning’s thoughts and research, visit StateoftheMarkets.com The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment. Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided. The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed. The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer. Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice. Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results. |
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