The Up Day That Wasn’t – Do You Care?

Daily State of the Markets 
Wednesday Morning – January 5, 2010  

After having gone missing for the better part of two weeks, the “boys and their toys” (computer toys, that is) made a triumphant return to the corner of Broad and Wall on Tuesday. Just when you may have had yourself convinced that this game really IS easy and that all the predictions about big gains for stocks in 2011 were about to come true, some volatility (and not the good kind) made an appearance.

The major news services will likely talk about Tuesday being an “up day.” And to be fair, the venerable Dow Jones Industrial Average (which has exactly how many industrial companies in it these days?) did advance 20 points. However, the rest of the market was down and some areas were down hard. For example, while there wasn’t much damage done to the S&P 500, the NASDAQ Composite was off -0.4%, the S&P 400 Midcap Index was hit for -1.1%, and the Russell 2000 got clocked for a loss of -1.6% – ouch!

While Tuesday’s trashing could wind up being nothing more than computer-driven shenanigans relating to gold, oil, and the games people play with baskets of stocks and ETF’s, the problem, at least from where I sit, is three-fold. First, it is important to recognize that it was the leaders that were picked on yesterday. Second, while the dip-buyers did come in and do their thing for a while, they also may be finally showing some signs of fatigue. And finally, the ugly action in some of the market leaders occurred in the face of good news, which, as any technician worth their keyboards will tell you, is not a good thing.

With the way the market has been acting recently, it has become obvious that it is the “state of the economy” that appears to be driving the action these days. As such, this is one of those rare occasions where the market makes sense as good economic news is good and bad news, is, well, bad. Therefore, one might have expected to see another run for the roses Tuesday after Factory Orders came in with a plus sign instead of the negative number that had been anticipated and it was reported that U.S. Auto Sales rose for the eleventh straight month.

But instead of yet another celebration that blue skies appear to be ahead for the economy, we saw nothing but selling in the small and mid-caps. Sure, we could blame it on the rout in gold and/or the dive in oil, both of which are represented heavily on a sector basis in these indices. However, we can’t help but think that a report showing the historical tendency for January to be downright “sloppy” until about the 25th of the month may have had an impact.

I know what you’re thinking… Am I not making a mountain out of a molehill? Does one day really a trend make in this market? And might I be guilty of reading too much into some selling? Perhaps, yes, I might indeed be looking too closely at the tea leaves. However, my primary point this morning is that I’ll bet very few people even noticed the thrashing that occurred in some areas of the market. I’ll bet that even fewer took note of the negative breadth or that the volume relationship was upside down for an “up day.” And I’m guessing that fewer still even care because the bottom line is THIS is what a complacent market feels like.

Turning to this morning… Stocks are following European bourses lower in response to a lousy auction in Portgual and continued strength in the dollar. However, things have picked up a bit in response to the report from ADP.

On the economic front… ADP reported that the private sector job market expanded again during the month of December. The report shows that private sector jobs rose by 297K jobs during the month, which was well above the consensus expectations for a gain of about 107K. November’s report was revised lower to a gain of 92,000 jobs, up from the initial report of +93K.

Thought for the day: Try not to let success go to your head or defeat into your heart…

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell…

• Major Foreign Markets:
  • Australia: -0.59%
  • Shanghai: -0.49%
  • Hong Kong: +0.38%
  • Japan: -0.17%
  • France: -1.05%
  • Germany: -1.54%
  • London: -0.54%

   

• Crude Oil Futures: – $0.65 to $88.73
• Gold: – $2.20 to $1376.60
• Dollar: lower against the Yen, higher vs. Euro and Pound
• 10-Year Bond Yield: Currently trading lower at 3.409%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value): 
  • S&P 500: -2.55
  • Dow Jones Industrial Average: -33
  • NASDAQ Composite: -8.45

Wall Street Research Summary

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