Here we are, just 16 trading days from 2015 and I must admit, I am on pins and needles regarding the market finish for 2014. Will the Dow go where no Dow has ever gone before – 18,000? As I write, the venerable index is but 31 points away from crossing over into that new frontier; yet, there are those technicians who look at the market numbers transposed on a chart and they arrive at a completely different conclusion than one who relies on the fundamentals to ascertain market direction.
- You know, while it’s still too soon to say the market’s absolutely poised for a pullback, I don’t mind telling you there’s been a suspicious lack of progress from the market of late, at a very suspicious level. One or two more small missteps from here could start a chain reaction nobody really wants to see headed into the holidays.
I believe the market is absolutely poised for a pullback, but so what; it is always poised for a pullback. It is always looking to balance itself out and that balancing act can come at any time. Me thinks, however, the “looming” pullback most likely will not come until after the 18,000 barrier is broken, which means, sometime early in 2015. Why do I think this?
- Nonfarm payrolls surged by 321,000 last month, the most since January 2012, the Labor Department said on Friday. The unemployment rate held steady at a six-year low of 5.8 percent.
- November marked the 10th straight month that job growth has exceeded 200,000, the longest stretch since 1994 and further confirmation the economy is weathering slowdowns in China and the euro zone, as well as a recession in Japan.
Along with the continuing rise in employment, there is pressure building for wage growth. This is just a matter of economics, basic economics. As the labor market tightens, employers pay more to both attract and keep good workers. Econ 101, I believe.
As well, Econ 101 teaches about supply and demand, market share, and consumer purchasing power. Market 101 teaches that when consumer purchasing power increases substantially the market will go up, as that increase in spending equates to more corporate profit, and more corporate profit equates to a higher market.
So, let us not forget what the market is looking at right now, aside from higher employment, higher consumer confidence, a lower trade deficit, improving manufacturing and services sectors, and continuing higher corporate profits – every $1 drop in gas prices equals $368 million spending power per day for the US consumer.
- State-run Saudi Arabian Oil Co. cut its differential for Arab Light sales to Asia next month to $2 a barrel below a regional benchmark, according to a company statement. That’s the lowest in at least 14 years.
- With U.S. output at a 31-year high and imports at the lowest level since 1995, producers seeking the best possible price for crude are straining at having to keep sales at home.
The latter is a likely contributor to keeping the oil-price war going because of the newly elected Republican Congress in the US. We should expect after the beginning of 2015, the US Congress will propose eliminating all export bans on US crude oil.
So, let’s go back to my point that the technical analysts and the fundamental analysts are at odds about the reasons for market movement.
- The market has made it pretty clear where the make-or-break levels are. For the S&P 500, it’s 2052. That was Monday’s close, Tuesday’s open, and where the 20-day moving average line is now. [It was also something of a ceiling two and a half weeks ago, making it a slightly more meaningful floor now.] If the S&P 500 should break under that floor, I can see it kick-starting a trade-worthy breakdown. That’s a big “if”, however. A break above the ceiling at 2075 could be a bullish signal to take just as seriously.
I guess hedging one’s bet is a surer thing than going out on a limb. Sometimes, though, you gotta make a call, so I am sticking with my fundamentalist call – the Dow over 18,000 in 16 trading days or less.
Trade in the day; invest in your life …
