If one is so inclined, one should see the market as teacher these days. Actually, it is always a teacher, but since January, it has excelled in teaching about the relationship between data, price-action, and expectations in the market – on the surface it seems inconsistent, but underneath …
- U.S. stock index futures ticked higher on Thursday ahead of labor and factory data, while developments in the Ukrainian crisis kept traders on edge.
So, the indexes did open higher this morning, but one could presume they would do so only if labor and factory data came out looking good. Well, labor came out okay. Jobless claims fell and planned layoffs dropped, but the weak factory data only added to yesterday’s not-so-good ISM report.
- Factory Orders fell by -0.7% in January, which was below the consensus for a drop of -0.5%. Looking back, the December number was revised lower to -2.0% from -1.5%
On balance, the data as a whole suggests the economy is still tepid, at best, and when you throw in the Ukrainian “crisis,” one has to wonder why the market opened strongly in the green. This is where expectations come in. Aside from any immediate fear-based price-action volatility, the market looks ahead, some 6-9 months, or so goes the general analytical thinking.
- The effects of the severe winter snow are evident throughout the economy, says the Fed Beige Book, but nevertheless, the expansion continues. Eight districts reported improved levels of activity, although New York and Philadelphia experienced slight declines because of the weather.
Thus, the Beige Book report suggests that even though the recent manufacturing and ISM data were not stellar, the US economy, although suffering from extremely harsh winter weather (drought in the west, cold and snow in the east), is still moving forward. It is not in decline, so the market sees, as the weather warms, an increase in economic activity.
Remember, the market has already factored in US consumer confidence rising, Europe inching higher economically, and retail sales of big-ticket items hanging in there, even in the cold and wet of a harsh winter.
- Total retail sales of new vehicles increased 4% year over year to 21,987 units in Feb 2014.
My point is this: putting aside the inconsistency of the news-driven price action, which is usually short term, the market is fairly consistent over the longer term. This we have seen for some five-years now. The talking heads call this a five-year bull market (and it is), but the implication is that because it has been going in so long, it could end at any time. I don’t see this.
What I see is the market simply looking ahead 6-9 months and, for the past five years, it has seen what it sees today – an improving economy. True, the improvement is slow and it comes in fits and starts, but is still going forward. There is no recession in sight. As long as this is the environment, absent the news-driven reactions, the market will continue to be favorable, meaning the bias is up with some down days thrown in to keep it balanced.
In my opinion, this is the best market for trading, at least my style of trading.
Trade in the day; Invest in your life …
