Daily Market Commentary

Stocks Negatively Reverse After Encountering Resistance

03 Dec

Thursday 12.03.09

Market Commentary:

The major averages negatively reversed (opened higher and closed lower) after a the European Central Bank (ECB) held rates steady and disappointing economic data was released. Volume, an important indicator of institutional sponsorship, was mixed compared to Wednesday’s levels; higher on the NYSE and lower on the Nasdaq exchange. As a result, the NYSE indexes marked a distribution day as they fell on higher volume but the Nasdaq avoided one since volume receded. Advancers led decliners by almost a 2-to-1 ratio on the NYSE and by over a 2-to-1 ratio on the Nasdaq exchange. There were 44 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, lower than the total of 46 issues that appeared on the prior session. Leadership among high-ranked growth stocks had dried up in recent weeks, so the expansion in new highs this week has been a welcome improvement. New 52-week highs solidly outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

Jobs & The Economy


Before Thursday’s open, the Labor Department said that 457,000 jobless claims were reported last week which was just under the Street’s estimates. Before Friday’s opening bell, the Labor Department is slated to release November’s jobs report. The latest estimate on Wall Street is that employers slashed -100,000 jobs last month and the unemployment rate held steady at +10.2% which is the highest level in 26 years. If the report shows that the economy lost 100,000 jobs in November it will be the smallest monthly decline in payrolls since March 2008.
Elsewhere, the Institute for Supply Management (ISM) said its service index fell below the boom/bust line of 50, to 48.7 last month. The reading was below economists’ estimates of 52 and signaled contraction for the first time in several months. Bloomberg.com defines the ISM non-manufacturing index as: “The ISM surveys nearly 400 firms from 60 sectors across the United States, including agriculture, mining, construction, transportation, communications, wholesale trade and retail trade.” Since the service sector compiles a large portion of economic activity, this index is a great proxy for the underlying health of the economy.

Bernanke On Capital Hill

Dr. Ben Bernanke spent the day defending his job, and the Federal Reserve, on Capital Hill as congressmen spent hours asking him questions about the financial crisis.  One of the most controversial topics, was when Bernanke denounced a congressional audit of the Fed. Most analysts believe that he will easily get approved for a second term but the jury is still out whether or not the Fed will maintain its immunity from congressional audits. Congress wants the ability to audit the Fed and review the Fed’s monetary policy to ensure the central bank does not succumb to political pressure. Last month, the House Financial Services Committee voted to approve a proposal to audit the Fed backed by Ron Paul.

What’s Actually Going On- Price & Volume

Looking at the market, the action remains mixed to slightly positive as the major averages continue consolidating their recent move just below resistance. Each of the major averages are having a difficult time trading above important resistance levels in recent weeks as the market continues building its latest base. Leadership, a critical component of a healthy rally, has narrowed sharply in recent weeks as the market continues consolidating.  Currently, the three areas of strength are: large cap technology, gold, and small and mid cap China-based stocks. Ideally, one would like to see the market break above resistance as a new batch of high quality leadership expands. Until that occurs, expect sideways to lower action to continue.

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Older Investors Digest Economic Data; Stocks End Mixed

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05 Dec
Blog

Jobs Report: Why Does It Matter?

I was asked a very important question Friday morning by a very intelligent person: Why does Wall Street care about the employment report? This question inspired me to write this article because so many people simply do not understand how Wall Street works.

Jobs Report- What is it?

The first Friday of every month, the Labor Department releases its nonfarm payrolls report which illustrates how the labor market (and the broader economy) fared over the past 30 days. Bloomberg.com does a great job defining this report:

“The employment situation is a set of labor market indicators based on two separate surveys in this one report. Based on the Household Survey, the unemployment rate measures the number of unemployed as a percentage of the labor force. Other key series come from the Establishment Survey (of business establishments). Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation’s business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls.“

The monthly employment report is one of the most anticipated economic reports released each month because it gives investors a look on how all major sectors of the economy are performing. Furthermore, the report is released at the beginning of each month and is comprehensive in nature. The report looks at the health of the jobs market and shows what happened to income and productivity during the past 30 days. As a result, investors are able to get a good read on the economy from which they can draw their own conclusions on what other economic reports will look like for that month.

Why Does Wall Street Care?

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01 Dec
Daily Market Commentary

Dow Hits New 2009 Closing High As Dollar Falls

December 1, 2009

Tuesday’s Market Commentary:

Stocks rallied across the globe as the dollar fell and the Dubai World concerns eased. Volume was lighter than Monday’s levels as the major averages advanced. Advancers trumped decliners by almost a 4-to-1 ratio on the NYSE and by a 2-to-1 ratio on the Nasdaq exchange. There were 45 high-ranked companies from the CANSLIM.net Leaders List making a new 52-week high and appearing on the CANSLIM.net BreakOuts Page, higher from the 13 issues that appeared on the prior session. New 52-week highs reported outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

Dubai Fears Ease:

Stocks closed higher on the first trading day of the month as news spread that Dubai World entered talks to restructure nearly half its debt. Dubai World is trying to restructure $26 billion as its deadline for repayment approaches. Last week, news broke that Dubai World might default on its debt which rattled capital markets. However, the bulls quickly showed up and defended support as the initial fears subsided. Since the credit crisis began in 2007, the financial world has lost over $1.7 trillion. Therefore, if Dubai World defaults it will be the latest high profile default which will hurt investor’s psyche.

Economic Data:

Elsewhere, HSBC said its index, which measures China’s manufacturing, rose in November and echoed the Institute for Supply Management (ISM)’s U.S. manufacturing index. The ISM said that U.S. manufacturing rose in November for a fourth consecutive month which is a healthy data point for the global recovery. Chinese manufacturing experienced its largest increase in five years as the global economy continues to “recover.” Turning to the housing market, the National Association of Realtors said the number of contracts to buy previously owned homes in the U.S. unexpectedly rose +3.7% in October.

Gold Hits A New All-Time High As The Dollar Falls:

The weaker dollar sent stocks and a slew of commodities higher on Tuesday. Gold rallied for the 11th time in 12 sessions and hit a fresh all time high above $1,200 an ounce as investors continue buying the yellow metal. Gold stocks have benefited handsomely from gold’s impressive rise in recent months. Gold stocks continue to be a strong area of strength in this market. Other leadership can be found in Chinese stocks or large cap US technology names. Unfortunately, outside of those areas, leadership has largely dried up which continues to be the bane for this rally.

20 Nov
Daily Market Commentary

Stocks Negatively Reverse; Dow Ends Slightly Higher

Week In Review:

The major averages rallied during the first half of the week but the bears showed up in the latter half and erased the gains and sent stocks lower. The Nasdaq, NYSE composite, S&P 500 and small cap Russell 2000 index negatively reversed (open higher and close lower) for the week which is an ominous sign. A negative reversal is a subtle sign that a change in trend may be upon us.

Monday:

Stocks enjoyed healthy gains on Monday which helped send the benchmark S&P 500 index above near term resistance (1100) and to fresh 2009 highs! The US dollar fell after Asian government’s pledged to standby their economic stimulus packages. The 21-member Asia-Pacific Economic Cooperation group, which currently comprises over half of the global economy (approximately +54%), announced that they will maintain their massive economic stimulus packages well into 2010. The greenback fell to a fresh 15-month low which sent a host of dollar denominated assets higher: mainly stocks and commodities!
Turning to the economic front, the US government said retail sales grew +1.4% in October. Several of the country’s largest credit card issuers rallied after reporting charge backs (i.e. bad loans) fell for a six straight month. Elsewhere, Federal Reserve Chairman Ben Bernanke gave a speech to the Economic Club in New York and said economic “headwinds” remain in the economy. He also said that, “Significant economic challenges remain” He went on to say, “The flow of credit remains constrained, economic activity weak and unemployment much too high. Future setbacks are possible.” He also noted that we are in a much better place in Q4 2009 then where we in the same period last year.

Tuesday:

On Tuesday, stocks opened lower but closed higher even as the dollar rallied. Inflation concerns eased after the government released a weaker than expected producer price index (PPI). The headline reading increased +0.3% last month after sliding -0.6% in September. October’s reading was lower than the Street’s estimate of a +0.5% rebound. However, the “big” news in the report was that the core rate, which excludes food and energy, unexpectedly fell -0.6%, following a -0.1% decline in September.
A separate report showed that the country’s manufacturing sector continued to grow, albeit at a very slow rate. At 1:00pm EST, the National Association of Home Builders released their housing market index which was unchanged at 17 in November.

Wednesday:

The bears showed up on Wednesday and spent the rest of the week sending stocks lower. A slew of economic data was released which led many to question the health of this recovery. The Labor Department released a stronger-than-expected consumer price index (CPI) which ignited inflationary concerns. Headline CPI rose +0.3% which was higher than the Street’s forecast for a +0.2% gain.  Core CPI, which excludes food and energy, was unchanged from last month’s reading of a +0.2% gain. However, core prices also topped the Street’s estimate for a +0.1% gain and is the component of the report that the Federal Reserve tends to focus on. The uptick in consumer prices sparked concern that companies will have little room to raise prices this holiday season (which curbs earnings) due to the fact that unemployment is at a 26-year high of +10.2% and wages fell -5.2% in September from the same period last year.
The Commerce Department released a separate report which showed that housing starts unexpectedly tanked last month. Housing starts (a.k.a registrations for new construction for residential housing units), slid -10.6% in October which was well below estimates. Permits for new construction slid -28.9% from the same period last year which led many to question the sustainability of the housing recovery.

Thursday:

On Thursday, stocks got smacked as the dollar continued to rally after the Labor Department said jobless claims (a.k.a the number of Americans filing claims for unemployment benefits) was unchanged at a 10-month low. Stocks also got hit after a report was released that showed mortgage delinquencies surged. So far, since the financial crisis began in 2007, writedowns (a.k.a losses) of mortgage-backed debt has surpassed $1.7 trillion at some of the world’s largest financial firms. The spike in mortgage delinquencies was due to a 26-year high in unemployment and a down tick in wages.
The Mortgage Bankers Association said that out of every six home loans insured by the Federal Housing Administration there is at least one late payment and +3.32% of those loans were in foreclosure last quarter. This was the highest reading for both measures in at least 30 years and bodes poorly for the troubled housing market. Elsewhere, the Organization for Economic Cooperation and Development (OECD) doubled its growth forecast for industrialized nations in 2010 to +1.9%. However, the group said that record debt levels may burden future growth. Separately, the Federal Reserve Bank of Philadelphia released its general economic index which topped estimates and suggests a slight improvement in that region.

Friday:

On Friday, European Central Bank (ECB) President, Jean-Claude Trichet signaled that the ECB will begin curbing its efforts to aid ailing banks. Those of you who have read this commentary over the past 5 years know that we like to analyze the news, yet we pay a lot more attention on how the market reacts to the news. That said, the market has reacted and continues to react rather well to the latest round of economic and earnings data. The vast majority of third quarter earnings are now behind us and the major averages remain perched just under fresh 2009 highs! Barring some unforeseen event, earnings were down for the average company in the S&P 500 for the ninth straight quarter but managed to exceed the average estimate, which is one reason why the markets have reacted so well to earnings. That coupled with the notion that the “worst is behind us” explains the market’s collective “take” on Q3 earnings. In addition, economic data, although not impressive, has improved markedly from this time last year which suggests the global government stimulus packages are working.
The benchmark S&P 500 has surged a whopping +64% from its 12-year low in March as global GDP has rebounded. The two primary concerns regarding this rally is the dearth of high quality leadership triggering technical buy signals and that volume has waned in recent weeks as the market rallied. Most liquid leaders are still holding up well which bodes well for this rally. The universe of high ranked stocks remains very thin which is exactly how this market has performed since the lows in March.