Is It The Action or Something Else?

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Good Morning. Yesterday's headlines certainly sounded encouraging: "Stocks gain on U.S. Economic Data." At first blush, there are two positives in that headline. First, the "stocks gain" part is certainly welcome to anyone owning equities in their brokerage accounts, 401(k) plans, or mutual funds. And what's this, "positive economic data?" Is that even allowed in this dour, the-world-is-coming-to-an-end environment? But hey, it certainly sounds like a good thing.

In all honesty, the data was good. In fact it was good across the globe. China's Flash PMI (the preliminary report done by HSBC) came in above expectations and looks to be threatening to move back above the all-important line in the sand at 50.0. Ditto for the Eurozone. Well, scratch that, the "above expectations" part was true for the Eurozone PMI's. But at 46.9, the manufacturing PMI for the monetary union countries shows that there is some work that needs to be done before anybody can talk about these economies growing again. But closer to home, there was no denying that the news was good.

For example, Jobless Claims fell again and are now comfortably below 400k - and yes, that's a good thing. Next up the Empire Manufacturing Index, which is designed to indicate the state of the manufacturing sector in the New York region, came in at 3X the consensus estimate and at the best level since May. And finally, there was the Philly Fed Business Outlook. While there were some issues in the underlying indices, the headline index came in at double the expected level and was the best reading since April.

I know what you're thinking - what about Europe? Wasn't there a downgrade or something negative happening? While there were indeed some downgrades, the key is there weren't any calamities occurring across the pond. And what's more, interest rates in Spain actually went down (a lot) at the 5-year bond auction. So, while there are surely still plenty of "issues" to be dealt with, for Thursday at least, things appeared to be stable(ish).

If you had handed me this combination of data at 5:00 am yesterday morning, I would have done my happy dance and told you that the stock market was likely in for a good day. I would have likely guessed that the venerable Dow Jones Industrial Average would have tacked on at least a couple hundred points as the news was good all around.

Well, okay, Christine Lagarde - the IMF's new chief - did come out with a fairly downbeat statement or three at Hillary Clinton's conference yesterday. And yes, she did reference the "1930's Depression" in her speech, which caused a momentary hiccup in the stock market's move higher. But other than that, things appeared to be pretty good on Thursday.

But instead of a sea of green on my screens, yesterday's market gains appeared to be a struggle. Heck, the Dow was only able to put up a gain of 45 measly points and the NASDAQ finished with a gain of 0.07%. So, this was not exactly your prototypical "pop" on good news. No, anyone versed in the art of tape reading will likely tell you that yesterday's action was just plain lousy.

After a day in which the market traded poorly, the technicians are quick to point out that such an event is usually indicative of more red days to come. And I cannot disagree as the breadth was weak, the volume was light, the leadership was non-existent, and the day smacked of distribution.

On that note, I'd like to offer up one possible excuse for the pathetic showing by the bull camp. You see, I was hearing an awful lot of chatter about hedge fund blow-ups and forced liquidations. And given how insanely difficult this market has been to work with this year; this is not surprising at all. From what I've seen, anybody trying to actively manage this bucking bronco has surely been kicked a time or two in 2011. So, with the average hedge fund having the second worst year on record, logic would dictate that at least some of the fast-money crowd may be having difficulty. And if this is the case, there might be some liquidation happening intraday.

How will we know for sure, you ask? The answer is we won't. But if the market suddenly - out of nowhere - starts to perk up and trade positively in the next couple of days (and without the benefit of a major catalyst), this would be an indication that the liquidation has ended and that yesterday's lousy action was due to "something else." So, while the holidays are coming, it is probably a good idea to continue to pay close attention to the market action. Because if it wasn't a liquidation, then the action would seem to suggest that the bears just might be back.

Turning to this morning... Despite another round of downgrades by S&P and Fitch, word that U.S. lawmakers have reached a deal to avert a government shutdown as well as reports that yields are falling in Spain and Italy have combined to put some green on the screens in the early going on this quadruple witching expiration Friday.

On the Economic front... The Consumer Price Index for November was unchanged, which was a tenth better than the consensus estimates for an increase of +0.1%. When you strip out food and energy, the so-called Core CPI came in with a gain of +0.2%, which was above expectations for +0.1% and October’s +0.1%.

Thought for the day... Best of luck on this Friday and be sure to enjoy the weekend!

Pre-Game Indicators

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

• Major Foreign Markets:
  • Australia: +0.50%
    
  • Shanghai: +2.01%
    
  • Hong Kong: +1.43%
    
  • Japan: +0.25%
    
  • France: +0.05%
    
  • Germany: +0.03%
    
  • Italy: +0.88%
    
  • Spain: -0.09%
    
  • London: +0.55%
  
  
• Crude Oil Futures: +$0.36 to $94.23
  
• Gold: +$19.90 to $1597.20
  
• Dollar: higher against the Yen, lower vs. Euro and Pound
  
• 10-Year Bond Yield: Currently trading at 1.922%
  
• Stock Futures Ahead of Open in U.S. (relative to fair value):
  • S&P 500: +10.95
    
  • Dow Jones Industrial Average: +94
    
  • NASDAQ Composite: +17.91

 

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The opinions and forecasts expressed are those of David Moenning, founder of StateoftheMarkets.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented