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Saturday, April 20, 2024

Which Way Wednesday – Beige Book Boogie

The futures were boogying "all night long."

THIS is why we love being born-again bulls. China’s Hang Seng down 578 points on the Hangs Seng (2.5%) – It doesn’t matter! Shanghai down 3.1% – It doesn’t matter! Europe down half a point – It doesn’t matter!  Germany’s economy contracted 5% in 2009, the worst decline since WWII (the big one) – It doesn’t matter! ABC Consumer Comfort Poll drops 11% with just 9% of Americans rating the economy postively – IT JUST DOESN’T MATTER – because WE are those 9% of Americans, right! OUR economy is just fine and we don’t know what that 91% contingent of babies is whining about do we? 

Yes, it’s been a while since I dubbed us in a Meatball Market.  The last market I labled as such was November 30th, 2006, when the Dow broke through 12,000 on the way to 14,000.  Our bullish picks that day included BA, CAT, COF, DOW, GE, HD, JWN, QQQQ, TIE, TIF, XLE and XOM.  Those were all, of course, fantastic picks but what I want you to do is read the October 2nd, 2007 article, where I began to turn cynical on the "Meatball Market" and I made the following statement:

Superman ReturnsUp, up and away – it’s Super Market!  It’s bugdet proof, oil proof, terror (threat) proof, housing proof, inflation proof and pullback proof – 3 weeks in a row!

This is truly a Market of Steel (and the recent movement of X underscores that) and looking at the movement of the past week we really do have to believe it can fly…  Is the US consumer (driver of 2/3 of the economy) really impervious to harm?  What, if anything, is our stock market Kryptonite?

Unstable currency, runaway commodity prices, spiraling inflation, low savings rates, hedge fund collapses, declining home values, banks writing down their virtual portfolios, hundreds of thousands of layoffs, millions of foreclosures — it simply does not matter as long as they are LOCAL problems for the US as we are a smaller and smaller cog in the great global economy, one day we may even be granted emerging market status by our Chinese masters!

Doesn’t sound like much has changed in 2 years does it?  Unfortunately, that also happened to be the day that Alan Greenspan (now working for PimpCo) decided to call China, with the Hang Seng then at 28,199, (gasp!) a bubble.  "If you ever wanted to get a definition of a bubble in the works, this is it." he said, at the end of a third quarter in which the HSI gained 45%.  We don’t have to worry as the Hang Seng is only up 15% since early September, now sitting just under support at 21,748 and down 23% from that October morning, just over 2 years ago

Our own market is up over 30% since July of last year and Northern Dancer, over at Seeking Alpha, points out that: "Since March 9th, 2009 closing low at 6,547.05, the Dow Industrials have had 30 up Mondays (or Tuesdays after a Monday holiday) out of a possible 43, in other words, have been up 70% of the time. Further, 16 of the past 18 Mondays were up days, (89% up days). 80 percent of all the dollar gains from March 9th, 2009 came on those 30 Monday up days. I don’t know about you, but I find that bizarre. Why? Because only 58 percent of all trading days since March 2009 were up days. We should not have seen this many up Mondays, and further, we should not have seen 80% of all dollar gains for the rally from March 2009 on just 30 up Mondays..We’ve seen 80% of all gains since March on only 14% of the available trading days, and all of them were Mondays. (30 up Mondays out of 213 available trading days = 14%). And to top it off, of those 30 up Mondays, 16 of them occurred in the past 18. That’s darned near 18 in a row. C’mon… that just ain’t normal."

Not normal at all, niether is the action you see in the futures, or the regular market for that matter where yesterday’s trading opened (in the futures pictured here) at 10,540 and then rocketed up to 10,600.  Note the 2 black lines I drew through the volume to illustrate how little of the day’s total went into the up move.  The rest of the day was selling until the volume died down at 1:30 (which is how we knew to flip back to bullish ahead of the stick save in Member Chat) but another sudden move took us up from 10,540 (again!) to just under 10,600 (again) on a similar slice of volume.

If one didn’t know any better, one might assume some computer program was executing these moves in order to paint a pretty picture for the human guinea pigs so they will keep pushing the BUY lever every time the little line on the chart turns green at which point the bots begin their relentless "sell to the bagholders" program.  Our job as bulls is easy, buying into the afternoon dips but we’re not brave enough to ride out the overnights yet as we sadly, still have some nagging doubts

Our biggest nagging doubt is "Why can’t Super Market break our levles?"  It seems a simple enough goal, just finish the day above the targets we’ve been listing for over a month:  Dow 10,549, S&P 1,135, Nasdaq 2,314, NYSE 7,389 and Russell 638.   They’ve all been individually broken but we are still waiting for the day when all 5 of our indexes finish above their marks on the same day.  Until then, we proceed with caution. 

As I mentioned above, Asia sold off sharply, as we expected yesterday, due to the change in Chinese banking policy.  The big news out of China today is Google announcing they may be exiting the Chinese market.  This has sent shares of BIDU up 16% after hours to over $450 as GOOG has about 1/3 of the Chinese search market and BIDU effectively has the rest. 

In theory, this is about censorship and hacking but perhaps it’s simply about Google wanting to cut costs in an unprofitable market and coming up with a good reason to stop indexing 1/4 of the World’s web pages (not to mention the translation and storage) and walk away from that expense.  Google has been very bottom-line oriented lately and we will be looking to buy into them if they have a nice sell-off

Over in Europe, nothing really matters there as German GDP contracts 5% for the year and Moody’s adds Portugal to Greece and warns that the economies of the two EU nations "may face a “slow death” as they dedicate a higher proportion of wealth to paying off debt and investors demand a premium to hold their bonds."  Portugal, with a negative outlook on its Aa2 rating, has more time “to reverse this trend” while Greece “has significantly less time.” Moody’s cut Greece’s rating to A2 from A1 on Dec. 22.  The premium that investors demand to hold Greek debt instead of German equivalents is six times more than it was two years ago, and the spread has doubled since 2008 in the case of Portugal.

In a damning report issued yesterday, the European Commission condemned Greece for falsifying data about its public finances. The EC says figures coming from Greece are so unreliable that its budget deficit may be even higher than the 12.5% of GDP previously estimated.

Despsite all that and despite a profit warning from Societe General and despite increased speculation that the BOE will be forced to tighten rates (driving the dollar down against the Pound), the EU markets are trading flat ahead of the US open, up considerably from their own sharply lower opens, no doubt cheered up by the US Futures spectacular recovery just as the EU markets opened at 3am.    

We’ll see what happens in our own markets today as the Financial Crisis Inquiry Commission grills Top executives from Goldman Sachs Group Inc., Morgan Stanley, Bank of America Corp. and J.P. Morgan Chase & Co.   The 10-member board was created by Congress in the wake of the financial crisis and is tasked with getting to the bottom of what caused the near collapse of global financial markets. We’ll see if the 2-days of testimony inspire confidence or a new round of panic – the XLF barely recovered $15 yesterday, which is a key watch level for us.  MBA Mortgage Applications were up 14.3% this week as rates ticked down from 5.18% to 5.13% so that will be our green shoot for the day.

10:30 we get oil inventories (I expect builds that won’t sustain $80) and at 2pm we get the Beige Book so stay tuned for that fun.  As usual, we’ll be day-trading the Dow around the Book, which is one of our favorite trades to make.  If the dollar does stage a comeback (it’s down 2% this week) that could be very bad for commodities and the commodity sector, which will likely be bad for the markets. It’s unclear how far, on the other hand, we’re going to be able to push things on a weak-dollar rally.

So the wild ride continues!



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