• President Obama isn’t taking the Scott Brown victory lightly.  He has just announced some stunning measures to curb bank risk taking.  The news is taking Wall Street (myself included) by surprise as stocks tank on the news.  The measures appear to be an early move back towards the Glass-Steagall Act.  Specifically, Obama said no banks will own hedge funds or private equity funds.  The details are few at this time, but that is stunning, must sell stock news.  We continue to believe the secular bear market is with us, and such policy action creates a sense of uncertainty that is simply staggering.   I would use strength in the coming days and weeks of earnings season to reduce risk until some of these clouds clear.  Stocks cannot and will not rise substantially when the government appears to be on the attack against Wall Street and that appears to be the only response from the White House after the Brown win.  While this is likely a very positive measure in the long-run, it has the potential to cause a great deal of near-term volatility.  The combination of uncertainty in the Eurozone, China’s liquidity restraints, and this new policy reform in the United States creates a three pronged reason to avoid owning stocks in the near-term.  While I hate to sell into downturns it’s best to take the meager gains since the beginning of the year and look for a better entry point.  Uncertainty is a markets worst friend and there is a growing abundance.
  • Earnings continue to come in quite robust.  Goldman Sachs crushed analysts estimates and Ebay reported a solid quarter last night.  Unlike previous quarters, investors are largely ignoring the earnings season as the above three macro themes dominate the headlines.  A continuing concern is a lack of strong revenue growth.  Corporations are still largely relying on cost cuts to generate their better than expected earnings growth.
  • This morning’s data is compounding matters.  Jobless claims spiked to 482K vs expectations of 440K and the Philly Fed surprised to the downside.  A Labor Department analyst says the week’s gain is “not economic, but administrative” and due to under-staffing at the Labor Department over the holiday weekend.  Continuing claims improved to 4.59MM and continue to point to the likelihood of job gains in the first quarter.  Philly Fed data also surprised to the downside at 15.2 vs estimates of 18.  Despite the downside surprise, the 15.2 reading is not the negative many are viewing it as.  New orders and the employee index were both higher on a month over month basis.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • chris

    i went from 10% cash to 70% cash this morning; kass was right about the populist attack on wall st that is now unfolding

  • Eric

    Not to be the wise guy but as many were pointing out the risks on this blog after the INTC sell the news reaction…they never ring a bell at the top.

  • TPC

    Good call. On the other hand, I don’t think anyone foresaw this response by the White House. If you had asked 10 people how the markets would have responded to a Republican victory 9 of them would have said stocks would surge.

    Intel wasn’t the tell for this. Nothing was.

  • DanH

    Your charts told you the President was going to drop the hammer on the banks today? Get real.

  • Octopus

    With current technical set up I feel that chances to test 1030 area (S&P) in next couple of weeks are not so slim.

  • TPC

    In Eric’s defense, there were plenty of warning flags in recent weeks. Weak volume, poor breadth, sell the news earnings reports, the recent Merrill survey, the complacency in the VIX, etc.

  • TPC

    We’ll see. 3 major distribution days in 4 will result in a very cautious approach over the coming weeks. As SS said, we could certainly see a relief rally in the coming days, but if these strong earnings can’t keep the market up I don’t know what can.

  • DanH

    Charts dont predict future moves. Anyone who thinks their charts predicted this WH liberal backlash knows a lot less about the markets than they think.

  • van

    something feels different this time…

  • Edna Rider

    I think sentiment changed a week or so ago (mentioned it on this site). If stocks don’t have any catalyst for going up (and earnings that meet expectations and revenue that doesn’t is hardly a catalyst) then stocks will be sold. There are some near term benefits: the banks will be good stocks to own once they sell off a bit, note the KBE today. After all it’s not like that idiot Bernanke will raise interest rates so banks will still make a lot of money. I also think the sell off will prompt more populist “job stimulus” programs which will stabilize oil (for a while) and commodities (esp gold).

  • http://deleted VCC

    With the benefit of hindsight, it appears the ER was spot on, but that does not necessarily mean the market will react to earnings positively.

    To me, the Brown election is a debacle for the economy. Pressure will mount to ween the economy off stimulus, and that will be a sure sign of market upheaval. Republicans can now block additional ‘wasteful stimulus’ and without that juice, we’re screwed.

    What no one is yet talking about but what will be evident in a few months time is the historic nature of that 1150 top. How disappointing to have the market top out less than three weeks into a year all the pundits see as a bullish one. what a joke..

  • chris

    politics is driving economics/markets now; usually other way around. take obama’s revved up attack on fat cat bankers, add today’s repeal of mccain/feingold limits on corporate/union election spending, and you are looking at a year that will be roiled by political craziness; think fox vs msnbc writ large; i just raised even more cash and i am going to do some observing for awhile…as yogi said, you can learn alot by watching.

  • http://deleted VCC

    You’re right about charts not predicting future moves. But understand that there are a boatload of market participants that base buy/sell decisions purely off charts. To ignore the actions of those people (and their charts) is quite unwise.

    The reality is that the technicals have been teetering for some time. Investing isn’t about reading the president’s mind. It’s about getting out of the way when divergences abound.

  • Leo

    A removal of prop desks? That would be incredible. Goldman made, what – 57 billion in revenues last year trading the markets. Destroying their prop desk would eliminate a huge chunk of that. I actually think the market is responding quite bullishly to this news.

  • van

    these charts might help; look what happened when the weekly MACD went negative (P.S. I don’t do targets):

  • TPC

    You absolutely can’t ignore the charts. Pardon the bad example, but that’s like taking down the list direction on google maps and not printing out the actual map. Yeah, you’ll still get from point A to B, but it’s much easier if you can visualize it.

  • Eric

    I think many myself included saw the Republican victory as a huge negative to the stock market in that the current incumbents are all on watch and americans are sick of the bailouts, currency debasement, etc the only people benefiting from the current policies seem to be the top 5% and bottom 5% of americans, leaving the other 90% mad as hell….zerohedge had a great piece on the negative implications for the market shortly after the election ended on Tuesday nite. The guy from Neuberger the other night speaking of how he was negative on AAPL and AMZN as he claimed everyone fund manager owns the names already was spot on I thought.

  • Eric

    Would like to hear if Granville is turning bearish after the 3 big down days, although I cannot stand the guy, he has been dead on for the length of this rally.

  • TPC

    You were dead right Eric. There is no denying it. My only point is that I think it’s unfair to blame this on the earnings picture. Earnings have been very strong and we have seen plenty of huge rallies (Ebay comes to mind) in addition to the sell the news effect.

    All in all, I think the earnings picture remains robust which is the main reason why I don’t think this will materialize into a severe sell-off, but more likely one in the -10% range….

  • jt

    TPC weren’t you the one claiming just a few days ago that regulatory changes were more important than QE and FED’s actions in cleaning the mess (which they wouldn’t anyway as the collapse in aggregate demand would simply cause depression if the government demand wouldn’t step in and it has absolutely nothing to do with the regulatory environment). Now you say that it creates a staggering uncertainty? And supposedly you advocated it a year ago so what would be the market reaction then to regulatory changes?

  • TPC

    Exactly. That’s why I said this is a positive in the long-term, but will create a great deal of uncertainty in the near-term. The details on this are practically nil. So far, it’s just tough talk from the White House.

    Hopefully, it’s a step in the right direction. We’ll see.

  • TPC

    And there is no “supposedly….a year ago”. I was a very vocal advocate of regulatory change and an RTC type/Swedish approach. I have even written to the Fed about these necessary actions. They were largely ignored.

  • Jon

    While I didn’t see the press conference. I’m told that the only other government major government person in the room was Paul Volker? Is this true? And do you think this is laying the ground work for clearing out Geithner, Bernanke, Larry Summers and Robert Rubin?

  • Eric

    buffet hitting the wires talking his book in GS, given people a final chance to get out, up 3 since he started talking.

  • B Ferro

    The past two days absolutely nothing to do with Obama nor his leftist ways vis a vis the banks….it has everything to do with the reality that the market is a discounting mechanism 6-12 months out and the realization that “normalized” earnings in 2011 are a myth…it doesn’t matter how good 4Q numbers might be….

  • TPC

    How many people do you know who were making market moving trades today based on a 12 month time horizon?

    This market doesn’t discount past the next few months.

  • Henry

    now it’s populists attack on the banks. So in your opinions, we shouldn’t go back to Glass-Steagall Act where the investment banks stay investment banks? We shouldn’t go back to sustainable leverage instead of 40-1 leverage with speculation?
    If Obama does something against the banks risky behavior, it’s populists attack. If he doesn’t do anything, it’s a bail out..Damn if you do and damn if you don’t…And nobody see the warning of sell on the news for INTC and IBM? People keep talking about market going up because of the fed liquidity to the banks. Now they talks about some control and getting blame too…Which way do you propose to solve the current problem? More leverage, speculation and bonus to the banks?
    And yes that populists attack did control the banks from risky behavior since 1940 until 1987.

    I am still waiting to see the Republicans dealing with solving the banks problems…Right now, it’s just all talks from both party.

  • Henry

    It’s about the damn time Obama listen to Volkner.

  • Henry

    actually charts does predict the strength of the move, support and resistance. I know some millionaire traders using chart successfully. They have gone short market couple days ago and also short IBM, INTC, EBAY

  • Henry
    Friday, January 15, 2010
    2 Distribution Days in 4 Sessions
    By: Scott Redler

    Checking in from the road today, I see that we now have two distribution days within four sessions. This is not a good sign for the market. A third distribution day within a seven day period puts the uptrend in jeopardy. Intel (INTC) reported blowout earnings, yet the stock opened and traded lower. JP Morgan’s (JPM) earnings were a nice beat, but the revenues came in short. The negative reaction to the earnings in both key market stocks indicates a larger sentiment shift. The market came into earnings season with high expectations.

    When a company like Intel handily beats and cannot trade up, you know that something important has changed in the market. We said just the other day that it is now time for a cautious approach and the market continues to confirm that notion.

    Couple this development with other technical factors, and the market looks very vulnerable in the short-term. Google (GOOG) is once again below its 50-day moving average. Apple (AAPL) opened higher and not only could not hold onto its gains, but sold off aggressively. Support in the S&P’s from Tuesday’s sell-off stopped the bleeding for now, but let’s see if that continues to hold.

  • csodak

    Paul Volcker saves the day AGAIN!

  • Henry

    LOL 3-5 years? thanks Barney….what a joke
    I will be supportive of this with a time frame of no less than 3 or 5 years before it gets done,” said House Financial Services Committee Chairman Barney Frank, D-Mass., on CNBC TV.

  • csodak

    btw…THREE THINGS I THINK I THINK was a bit self serving.

  • prescient11

    I read an interesting pieceo n Volcker by Martin Armstrong. Says he was way off base and all he accomplished was doubling the national debt in 5 years through his goofy interest rate policy.

    If we want to defend our currency, then balance the F’ING budget.

    Simple as that really.

  • VCC

    Joe Saluzzi was right: the stock market is a lagging indicator. It cannot possibly discount the future when, especially on days like today, it helps shape the very future it is supposed to predict.

    The only time it acts as a leading indicator is when somebody knows something they shouldn’t know for their trading purposes.

  • jt26

    This is minor relative to the short selling ban in Jul08 (remember this is just a presidential “proposal”). But it does tell you something about market psychology. We’ll see over the next 5 days. The only way this is major is, as a previous commentor noted, if it means Volcker-think is in … it’s about the Fed and China … the all-in trade is Fed loose, China consuming every known resource and asset on the planet … when that trade reverses …

  • jt26

    BTW … we’re seeing inflation … we have 3 “thinks” this week … 50% week-on-week … time for the Fed to tighten.

  • gb

    that is a load of bullshit chris. we should have let GS, BAC, C, ML, JPM and WFC go bankrupt in the fall of 2008, thrown all of their management out and stripped the fed of all power. The fed has been raping America to subsidize the oligarchs on wall street for the last 20 years and its gone exponential the last 10. 99% of America is better off if we stop the fed’s raping of America.

  • Mike


    This is what I wrote on Jan 11 in the Alcoa earnings thought. Timing wasn’t too bad:

    “Interesting TPC…My timing is similar to yours but with a slightly earlier time frame. Probably top within the next 3-4 trading days so it is likely that we may continue to power up and fade back into OPEX then have a 10-15% sell off to get the bears excited again. Most likely we may ping the 1000 and bounce hard..Shake off weak bulls and kills stubborn bears..Not unlike July or Oct sell-offs. Incidentally your calls for problems in H2 coincide with MS’s chart on Secular Bear Market in which the rally from the low last roughly 17 months or so before we roll over for 25-30% from the turn…”


  • Rob


    Do you still believe that the market ends the year 2010 more or less where it ended 2009? i.e. at 1115. (Where the market is today.)

    Wasn’t the move on the first day of trading insane? Markets up 2% or more in one day. Then a pause and then 1% more over the rest of the first week. (High beta moved more).

    The equities I own (or owned – I sold a few positions on Tuesday) is basically were it started the year. (No net gain or loss.)

    We have seen this many times during the rally. A 4-7% pullback followed by a sharp move higher.

    Earnings were good in October and there was a sharp sell off followed by just as sharp a move up in early November.

    If the market will essentially go nowhere in 2010, then the only way to make money is through the volatility.

    If the SPX pulls back to 1085 or so that would be a very typical move, which in the recent past has been followed by a move to new highs. Bearish sentiment climbs, new short positions are taken. First the market wouldn’t top 950, then 1000, then 1100, then 1120 (50% retracing), now 1150.

    Consensus seems to be for the market to get to 1200 by year-end 2010 which is just under an gain 8%. (just 0.6% per month, but the market usually doesn’t move in a straight line.) The move in the first week of January was 40% of the projected annual gain. A pullback at least to 1100 had to have been expected by everyone. A bigger correction will probably come as a surprise to most.

    The big question is was 1150 the top (for the month, quarter, half, year)? or just an interim top? Is this really the start of a major decline or just a giveback of the irrational jump up in the first week of the new year? Also remember that the market never got past 1120 until the very light trading in December.

    Maybe this is the start of a bigger correction or maybe it is a bear trap.

  • Rob

    One other thought. After rising strongly into the new year and hitting 1150, it seems that the market had to either slow down (i.e. inch up sideways) or correct. Wednesday looked like a correction of the previous day’s exuberance with buy the dip into the end of the day. The market ended near Friday’s close. Up 1%, down 1%.

    Another issue is the the Euro weakened from 1.50 to 1.40 against the dollar and the market went sideways and then rose sharply into the new year. Are the markets acatching up with the currency move? The dollar is now weakening against both the Jen and Euro

    Yesterday seemed to be more like a message to the president. “Look buddy, if you want to restrict us, just seem what will happen to the markets. Please reconsider.” If the market had fallen 0.5% instead of 2% then the message taken would have been different.

  • James Taylor

    Thank god for Paul Volker!! Last time around I was a Professor in the California State University System and my pay was shrinking 20% annually. I owe Paul big time.

    If you want to understand what is going on right now and want a decision tool about when to re-enter the stock market, take a look at http://thegreatrecessionconspiracy.blogspot.con and be sure to vent your spleen about what you read.