Good morning. Based on yesterday's up-and-down action, it would appear that the stock market is waiting on the outcome of next Tuesday's Presidential election. Or at the very least, traders apparently want to get a look at the no fewer than 8 economic reports due out this morning as well as the Jobs report due out on Friday morning before pushing the indices one way or the other from their current perch.
My take on Wednesday's action is that the bulls had a shot at changing the market's tone early. With Europe up nicely, most people breathing a sigh of relief that the devastation from SS Sandy wasn't worse, and it being the end of October (remember that a great many mutual funds have fiscal year-ends in October) nobody would have been surprised to see stocks move back above the 1420 level - a level that may have brought in some short-term short-covering. But unfortunately, our heroes in horns failed miserably once again and within 30 minutes, the early warm fuzzies had disappeared.
As has been the case for much of the past month and a half, the bears (or should I say, the bear algos) then quickly grabbed the ball. With near-term resistance now clearly established at 1420, our furry friends set out to explore the lower end of the itty-bitty range that has developed over the past week or so. Based on how quickly the bears were able to wipe out the early green on the screens, it looked to me as if the glass-is-half-empty crowd was going to try to make a run for the border and commence with a new leg lower. However, a rebound in Apple (NASDAQ:AAPL) and some algo work in the banks managed to save the day.
So, after a fourth consecutive day of give-and-take between our two teams, where does this leave us? I've long believed that the market likes to seek an equilibrium point in front of "big, bad events." And based on the bevy of economic data (we've got Challenger Job Cuts, ADP Employment, Weekly Jobless Claims, U.S. Productivity and Unit Labor Costs, Bloomberg Consumer Comfort, ISM Manufacturing, Consumer Confidence, and Construction Spending this morning and then the jobs report on Friday) the election, yet another Greek deadline, and the Fiscal Cliff, is is safe to say that there are certainly enough events in front of us to justify this type of behavior.
So here we sit, watching and waiting. My guess is that this morning's reports will likely produce a "theme" for traders to work from. If that theme is BTE (better than expected), look for the S&P to move up above 1420 and for the shorts to cover. But if the theme winds up being WTE (weaker than expected), watch the 1400 level closely as a break below will undoubtedly bring in additional selling.
However, based on the other two "big, bad events" that are still ahead (the election and the Fiscal Cliff), I'm not sure if either team is going to be able to make much more headway between now and next Wednesday.
Looking ahead, we should probably keep a few things in mind before plotting any strategy. First, the stock market tends to enjoy a post-election rally, regardless of which party wins. Second, our historical cycles have just turned positive. Third, the market also tends to enjoy a year-end rally. And finally, we are now in the strongest seasonal period for the stock market from an historical standpoint (November - April). On that score, we should also remember that the real key to maximizing the November through April period is to buy the low of October/early November.
So ... Unless the "big, bad, events" befall the favorable stuff I laid out above, one might want to be leaning toward the long side - assuming the frightful outlook gives way to blue skies at some point.
Turning to this morning ... Better than expected PMI data out of China has improved the mood in front of the flood of U.S. economic data this morning. Currently, the futures are pointing to a slightly higher open, which is an improvement from the overnight session.
On the Economic front ... We will get the reports on Challenger Job Cuts, ADP Employment, Weekly Jobless Claims, US Productivity and Unit Labor Costs, Bloomberg Consumer Comfort, ISM Manufacturing, Consumer Confidence, and Construction Spending this morning. In addition, US car manufacturers report vehicle sales throughout the day.
Major Foreign Markets:
- Shanghai: +1.70%
- Hong Kong: +0.83%
- Japan: +0.21%
- France: +0.63%
- Germany: +0.58%
- Italy: +0.55%
- Spain: +0.24%
- London: +0.52%
- Crude Oil Futures: +$0.08 to $86.32
- Gold: +$6.80 to $1725.90
- Dollar: lower against the yen, euro, and pound
- 10-Year Bond Yield: Currently trading at 1.708%
Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +1.20
- Dow Jones Industrial Average: +13
- NASDAQ Composite: +7.28