IS THIS MARKET RESILIENT OR COMPLACENT?
Today’s market action has been odd to say the least. Futures were up well over 100 points heading into the retail sales and jobless claims data. The strength has been attributed to strong international markets, good GDP figures from Europe, the John Paulson bank purchase and the IEA report of higher demand for oil.
In case you missed it retail sales came in at -0.1% and -0.6% ex-autos. Analysts were expecting 0.8% and 0.1%. When the market learned that retail sales were an utter disaster and that jobless claims jumped up to 558K the market temporarily cratered. Econoday reports:
The rate of layoffs is heavy but steady as first-time jobless claims were little changed in the Aug. 8 week, at 558,000 vs. 554,000 in the prior week. The numbers, in a plus, are a little bit below the four-week average, which is at 565,000. Continuing claims fell steeply, down 141,000 for data in the Aug. 1 week to 6.202 million. But the decline is hard to read, reflecting either new hirings and/or the expiration of benefits. The economy may be in recovery or at least is steady but the outlook for the jobs market, and how far it lags, is a serious concern for the economic outlook and for policy makers.
The futures fell 70 points or so, but remained positive. The market then opened and immediately tanked. S&P futures dropped as far as 998 before rebounding miraculously on no news. If you had told me the retail sales figures would have come in negative I’d tell you that the S&P would have at least retraced all of yesterday’s gains. In an economy that is 70% consumers you have to begin to wonder how long the market can ignore these incredibly weak retail sales figures. And more importantly, is the market resilient or just downright complacent? This late into a rally I am more inclined to side with complacency. This market should be down well over 200 points today on this news that puts a mighty large dent in any v-shaped recovery theories. Efficient market? Keep dreaming….
Supercomputers don’t read the news.
This quote came to mind from one of your previous posts:
“While I’m a staunch advocate of higher education, there is no training — classroom or otherwise — that can prepare for trading the last third of a move, whether it’s the end of a bull market or the end of a bear market. There’s typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. The only way to learn how to trade during that last, exquisite third of a move is to do it, or, more precisely, live it — a sort of baptism by fire.” PTJ
To me, the biggest question is how Financials fit into the macro picture. If, like Paulson, you believe in the reflation trade, they are still undervalued. However, if we’re near the end of a bear market rally, these guys are absolutely toast and will lead the next leg down whenever it resumes.
VCC, it’s funny how everyone gets bullish AFTER the fact (or 2/3rds of the way into the move). They chase performance buy higher and sell low. My email box is filled with people who say I’ve missed the last 2%. Yes, but I was in on the first 90% of the move which is the crucial portion. Missing the first two thirds of a rally is the killer. As I mentioned yesterday, 80% of this 50% run occurred during 6 weeks. Being in the market during the other 14 weeks was like being in cash. If you bought in the rally a month after the fact you’re up just 12% (in a FIFTY % move). Buying high and selling high is more often than not a pipe dream that never results in good long-term risk adjusted returns.
I am perfectly comfortable missing the last two thirds of this move. At this point the market has a “the higher she goes, the harder she’ll fall” feel to it.
There were more important economic news last night from Europe that few expected.
http://www.bloomberg.com/apps/news?pid=20601085&sid=adV23zP9jjtU
We are seeing a synchronized global recovery with self reinforcing feed back loops.
Remember the strength of last year’s synchronized global down turn with self reinforcing feed back loops? We are seeing the reverse happening with similar strength.
Foreclosures surging
Inventories still drying up big-time
Imports decelerated faster than expected
Retail sales plunging and way off the mark
Initial jobless claims higher than anticipated
Hi TBC, will above news go along with your outlook?
Well put TPC. Dr. Doom is my favorite example. At 780, he called it a “dead cat bounce.” I think we were in the 900s (and Meredith Whitney had already spoken) that he conceded the recession will soon be over but weak recovery.
My biggest concern is missing the market turn. I finally shorted financials around S&P 1010 today. If we don’t turn today, it will inevitably come in the next 3-10 days. I always have a hard time trading in the middle of a move b/c of potentially large retracements (especially in this mkt). Tops and bottoms are so much easier to define stop/loss points.
Sillythings, sounds like you’re referring to Soros’ reflexivity theory. I think that’s precisely what’s happening now. The current move has been self-reinforcing but will eventually become self-defeating b/c there’s a flaw in the conventional logic. The idea that the american consumer is healthy enough to take on more debt to spend our way out of this malaise is beyond absurd. As additional data comes out in the coming months, this flaw will further be exposed and lead to the next leg down. Just my two cents..
http://en.mercopress.com/2009/08/13/soros-optimistic-about-recovery-of-the-us-economy-in-third-quarter
If we have positive GDP growth, (stress, IF) as Soros commented on this week, where does that leave us? Is Soros’ statement taking into account his own theory?
My guess is that GS, BAC,JPM,WFC has free money and they play with the market. I was thinking that with retail number that is horrible, market would drop but behold, it went up…since all the banks are ok now…the government should stop all free interest loan to investment banks especially GS. Just like the violent move from the bottom when it drop too fast…The drop from the top will be equally painful.
What works best for the stock markets when it comes to news: mixed news, both good and bad.
Good news is good news. Bad news says the Fed won’t be withdrawing liquidity, which is goods news.
Bottoms line: this rally has little to do with the news; what counts is liquidity. With low volume, insiders selling, a consumer driven economy on crutches . . . none of it matters. There is simply plenty of play money in the hands of the primary dealers. They can move this market at will . . . up to a point. Sure, there are limits to how high it can go, but that depends (at risk of sounding overly simplistic), on much speculative liquidity is flowing. When that begins to recede, then the market will turn down.
The Fed bringing an end to QE is one step in the direction of an end to easy liquidity. But for now, the markets can read that as a sign the economy is healing, or the Fed would have extended the program. Come October, the primary dealers are going to have to step in and up their purchase of Treasuries, absent the Fed’s participation. This will take some money off the table.
But, in the meantime, what is there to stop the market from going higher?
Got me, except perhaps . . . once it is clear that all the buyers ready to step in have been exhausted.
From the perspective of the Deutsche Bank Chief Economist Norbert Walter, interview linked below, things could get real interesting next year.
http://www.cnbc.com/id/32396144
TPC – can i ask you what would make you bullish, or get back into this market?
TPC;
I like your site. Nice blend. Pragmatic is a great word. Very helpful when trading. Have a view but separate opinions from daily actions.
Today’s number was 9:56, as in am.
Only thing that counted. I have been keeping track of the turn times for counter intuitive spikes over the last several months.
It is amazing to watch. Whether it’s PPT, “da Boyz”, primary dealers, govt stand-ins, I don’t know who, but absolutely positively there is an unseen hand. I watch about 50 stocks graphically and by tape and it’s gotten so I can pick today’s chosen bunch for popping up or popping down.
The entire universe of US stocks is grossly undervaled at this instant using any typical sane smoothing or DCF analysis. 6.5 billion people will wake up, eat, live and do it again the following day. And the world will add a net 1%+ (about 75-80 million per year) for the forseeable future. This is the source of all economic growth. People.
There are many political theories as to what happens in our world and why. My only comment here is that what happened last September simply made the market cheap for a knowledgeable inside crowd to pick up a lot of great deals. That is why we have a runaway bull right now. In fact, on a smoothed and inflation adjusted basis, March 2009 was a 15% discount to the 1967 value. Talk about a deal.
However, the inside crowd needs to make money along the way. That is why things go up and then things go down. Take a hard look at the July 1-2 intraday across the chosen bunch and you’ll see why the inside group pushed the likes of IBM and CAT and others into the cellar so the scooping the following week was their combination of covering their early June shorts and setting up the bottom buys for their mid late August sells.
I know. I bought 2k IBM at 102 (fool, should have waited until the obscene level of 99.50) and 5k CAT at 33 (same thing, should have waited for 30, ouch). No, not calls, straight out buy da block. Then, I’m stupid enough to figure that 110 for IBM was “fair value” and 42 for CAT the same. Sell and short.
Oh s–t. Because I did not follow TPC’s rock solid advice on polygamy and taking the small loss so you can set up the bigger gain, I’ve been waiting. Refusing to buy up.
Oh s–t. Oh s–t. and one more Oh s–t yesterday when as Don described it above the QE as officially being put out to pasture and by God, doesn’t the $TNX have to move up. Just a little. C’mon.
No. Folks the charts have to look right. Need a few more days with S&P5k “topping” at 1k and change and then first the commodities platter gets yanked and then everybodys’ favorite mouthpieces will bleat, “oh, well, its better that this market correct a little”.
No. It won’t make the 95 Aug SPY’s do anything if it happens before next Friday that I’m sure about. As for a wee bit later, maybe.
My reason for not just buying and waiting is to get turnover in my favor. However, the two P’s work hand in hand with the 6 P’s.
Panic and Patience are best managed by Proper Planning Prevents P–s Poor Performance.
Unfortunately, I think that probably 5 mg Valium is the active trader’s best friend given the way the deck gets stacked. Thanks again for your fine site and if you offer some premium access, I’d pay, which I rarely do.
X,
I’d become bullish if sentiment changed or if a major catalyst were on the horizon. Both are unfavorable as of now….
Chaser,
Thanks for the kind words.
NOTE: 2ND POST; MAYBE SOMETHING I SAID THE POWERS THAT BE DON’T LIKE??
I like your site. Nice blend. Pragmatic is a great word. Very helpful when trading. Have a view but separate opinions from daily actions.
Today’s number was 9:56, as in am.
Only thing that counted. I have been keeping track of the turn times for counter intuitive spikes over the last several months.
It is amazing to watch. Whether it’s PPT, “da Boyz”, primary dealers, govt stand-ins, I don’t know who, but absolutely positively there is an unseen hand. I watch about 50 stocks graphically and by tape and it’s gotten so I can pick today’s chosen bunch for popping up or popping down.
The entire universe of US stocks is grossly undervaled at this instant using any typical sane smoothing or DCF analysis. 6.5 billion people will wake up, eat, live and do it again the following day. And the world will add a net 1%+ (about 75-80 million per year) for the forseeable future. This is the source of all economic growth. People.
There are many political theories as to what happens in our world and why. My only comment here is that what happened last September simply made the market cheap for a knowledgeable inside crowd to pick up a lot of great deals. That is why we have a runaway bull right now. In fact, on a smoothed and inflation adjusted basis, March 2009 was a 15% discount to the 1967 value. Talk about a deal.
However, the inside crowd needs to make money along the way. That is why things go up and then things go down. Take a hard look at the July 1-2 intraday across the chosen bunch and you’ll see why the inside group pushed the likes of IBM and CAT and others into the cellar so the scooping the following week was their combination of covering their early June shorts and setting up the bottom buys for their mid late August sells.
I know. I bought 2k IBM at 102 (fool, should have waited until the obscene level of 99.50) and 5k CAT at 33 (same thing, should have waited for 30, ouch). No, not calls, straight out buy da block. Then, I’m stupid enough to figure that 110 for IBM was “fair value” and 42 for CAT the same. Sell and short.
Oh s–t. Because I did not follow TPC’s rock solid advice on polygamy and taking the small loss so you can set up the bigger gain, I’ve been waiting. Refusing to buy up.
Oh s–t. Oh s–t. and one more Oh s–t yesterday when as Don described it above the QE as officially being put out to pasture and by God, doesn’t the $TNX have to move up. Just a little. C’mon.
No. Folks the charts have to look right. Need a few more days with S&P5k “topping” at 1k and change and then first the commodities platter gets yanked and then everybodys’ favorite mouthpieces will bleat, “oh, well, its better that this market correct a little”.
No. It won’t make the 95 Aug SPY’s do anything if it happens before next Friday that I’m sure about. As for a wee bit later, maybe.
My reason for not just buying and waiting is to get turnover in my favor. However, the two P’s work hand in hand with the 6 P’s.
Panic and Patience are best managed by Proper Planning Prevents P–s Poor Performance.
Unfortunately, I think that probably 5 mg Valium is the active trader’s best friend given the way the deck gets stacked. Thanks again for your fine site and if you offer some premium access, I’d pay, which I rarely do.
Sorry ’bout dat chief…
I did not see the first one. A big whoopsie-daisy.
And how about that Dollar Index today, the commodities punch bowl and our famous 3:44 PM spike?
Bet you dollars to doughnuts that we gap open Monday ala March 30, April 20, May 11, June 15, June 22… maybe August 17?????
Hmmmm. Let’s see, on cue today none other than the Big Larry himself was telling all those righteous viewers that and I quote,
“Well its actually one of the better things to happen in this market is to correct itself”
How about dem apples? It’s good for you little people to get bopped on the head or wherever with some frequency to keep you in line.
I mean, God knows, I virtually never un-mute unless it’s for the goodies and by gosh, this was one for the ages.
Right on cue they had it lined up this am like it was on the bloody channel guide or something.
“tune in for today’s episode of The Hot Poker”
Fortunately I DCA’d a few k shares on the short yesterday so I am just a little bit closer to nirvana. I reckon that we get the hiccups but good all the way to Labor Day, flatten somewhere around 935 and take off for “can you hear them now” on the Anniversary of Lehman Bros we are blah, blah, blah, blah…
S&P 500 = 1125 year end. guaranteed…. but look out for the Turkey Day rumbles, year end runup and the ever popular nasties of mid Feb 10, because the picture they’ll paint is “SLOW RECOVERY AHEAD, LOOK OUT FOR FALLING ROCKS”
heck of way to make a buck or trillion, depending on one’s position
have nice weekend
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