At least the bears can say that they broke the S&P 500 down below critical support at 1225, where the 50-day exponential moving averages lived along with the top of a gap up. A powerful gap up at that. Two powerful forces together that the bears were able to break through. Barely, but at least they broke it down. The bulls were not able to accomplish the same type of breakout when they embarked on the adventure of removing resistance at 1265, which is key trend-line resistance at that. Both are tough. Each side had their shot, and only the bears did something, at least. It’s nothing great, it’s not wonderful, but at least something. And now, with today’s close below 1225, that makes three days in a row. Again, no big move below, thus, it’s absolutely nothing to get excited about if you’re a bear, but the bears have something they can hang some hope onto for a change.
It looks like the bulls have little hope here, but the reality is that one piece of news from Europe could change everything. There doesn’t seem to be much in terms of something positive at the moment, but one never knows what could come down the pike. It’s happened before when good news out of Europe was unexpected.
For now, though, we’re a bit under 1225, and have been for three consecutive days. Maybe the bears can seize the opportunity and maybe they can’t. The action from this week, and the past several months is this: there’s no reason to be bullish here, and there’s no reason to be bearish. However, there’s every reason to be loaded up in cash. Neither side is in full control, and thus, getting bullish on up days and getting bearish on down days, makes no sense. Stay open. The market is nowhere. The market has been nowhere, and sadly, may remain nowhere for quite some time to come.
What a week it was all around as fed Bernanke played an important part when he came out with his once every six week update. This time it was different. No pumping money into the banks, who just abuse it anyhow. No QE program, at least for now. The bulls were not rescued this time, and he threw the commodity world under the bus. They hated it and imploded. There were lost massive support levels across the board. The carnage in that group was not pretty.
However, bigger market picture, the equity world held up decently well. No big crash down even without the promise of free cash. The market pulling off one of its usual surprises. While the commodity world fell, transports and retail stocks did extremely well. It’ll take one announcement on Benanke’s part regarding more free cash to turn the commodity stock world from a bear market to a bull market. So while it doesn’t look good for those stocks here, and it really doesn’t folks, it could turn in a heartbeat. The fear of the fed will have some ramifications on how aggressive the bears get. You can’t blame them either. For now, the weakest place to invest in is the world of commodity stocks, so buyer beware, please.
There are unique worlds out there for the stock market to follow. The United States and Europe/China/Japan/India. The United States is doing fairly well on its own. Economic report after economic report is coming in favorably. Key ones this week is the New York manufacturing activity report showing improvement in December for the seventh month, according to a report released by the Federal Reserve Bank of New York on Thursday, with the index of activity in the sector climbing by much more than economists had expected.
The Philly Fed said its diffusion index of current activity rose to 10.3 in December from 3.6 in November, with a positive reading indicating an increase in manufacturing activity. Economists had been expecting the index to edge up to a reading of 5.0. The activity index remained positive for the third consecutive month and reached its highest level since coming in at 18.5 in April. So, we’re looking at good numbers in the manufacturing sector.
Bloomberg Businessweek reports the fewest workers in three years filed claims for U.S. jobless benefits last week, indicating the world’s largest economy is strengthening heading into 2012. It appears that a reduction in firings is playing a part in the increase in employment, which will help consumer spending. Whether this is real, or not, remains to be seen, but for now, the numbers look good. Left to trade on its own, the U.S. would be doing very well for itself. The led weight from the rest of the world is stopping our market from performing better. The good news from our country is the very reason why we’re trading in the middle of our trading ranges, even though we’re a hair under 1225.
If Europe never gets its act together, and we do, the market in this country will probably do what it did this year, over the next twelve months. Trade has been mostly laterally. Some decent up moves and some very decent down moves. The lateral swings here for yet another year. If our numbers start to fade lower, then things could get very ugly for us. But as long as our economic reports keep coming in favorably, the bears will have a very difficult time bringing this market down. Be prepared for another nowhere year. Only time will tell.
Technically, we’re trading slightly below 1225, but the bears have been able to do nothing with the breakdown, especially when they had a close that was a drop more than one percent below 1225. The red flag that day was because the majority of the downward damage was done at the open. Nothing but churn after that, and in bear trends, you don’t churn. You gap down, and you stay down with pressure on stocks all day, and with a close on the lows. A gap and run day.
We didn’t get it, and although we’re trading down, the bears are showing nothing in terms of getting this market down aggressively. The bulls seem fearful of downgrades from Moody’s and Standard & Poor’s, and are therefore, not buying weakness with too much force. The bears seem fearful of everything as usual, and are showing no impulsive ability, even with the fed offering nothing to the bulls this week. They had the news they needed. Add in warnings from key leaders such as Intel Corporation (INTC), and it’s hard to make excuses for them.
So, with all of this, we sit in the land of nowhere, with cash your absolute best position for the foreseeable future. We’ll let the market tell us what to do when something can break with the appropriate force. Day to day. But take it easy here, folks.
Play with your kids, and enjoy your families. The things that really matter.
Peace,
Jack
