David White

A Roller Coaster Market Ride

I'm not so sure everything is so rosy. The Durable Goods Orders appeared to shrink less than expected on first glance. However, another way to look at today's durable goods orders with respect to expectations is:

Expected -1.5%. Actual -.8%.

Now add in the February Adjustment given today:
Previously reported Feb. Durable Goods Orders: +3.5%
Revised Feb. Durable Goods Orders: +2.1%
Change: -1.4%

If you then add this to the Mar. result you get -.8% -1.4% = -2.2%
(i.e. -2.2% below the previously reported figure from Feb.)

In other words the total results today are -.7% worse than the position the market expected them to be in.

This is just a quick and dirty way of doing it, but it is an effective guage of reality versus expectations. I think you have to view this as an overall negative for the markets. This might tend to push the markets down after people see it for what it is.

Still one has to say the earnings news has overall been upbeat. I am not so sure how the day will go. We could easily get a sell off into the weekend. We are near the resistance point of about $87 on the SPY. Many people may decide they are better off being out over the weekend. This might give them time to decide how the markets are really going to react to the stress test data. Also it seems likely that some or most of the data will leak out over the weekend if not sooner.

Keep in mind that only one or two of the major banks have to be in trouble for there to be a serious problem. News of this sort could easily send the markets into a tailspin.

There has been a lot of speculation that the CEO of Citi will be asked to resign by the government. This is may be an indication that Citi did not do well on the stress tests. If so, news about a bank of this size being in trouble could easily push the markets downward quickly.

Indexes Up in Quiet Rally

Correction: 533,000 jobs. Also apparently the market was expecting some correction of last months number due to the discrepancy between the government number and the ADP number last month. That this did not happen makes market watchers think that the government's number this month may be much worse than expected.

At this point 2:19pm ET, the market is substantially off its highs (as I early mentioned it would likely be). It is unclear where it will go from here today (SPY $83.42).

Indexes Up in Quiet Rally

On my chart of the SPY, there is a pennant formation building. After being up today, Feb. 4 at about 11am ET, the market is at the top of the pennant formation. It can either break through, or it can go back down. At this moment it looks like it is trending downward. The bottom of the pennant is in the $82 area. We are currently at about $85. With the ADP employment number today, I am guessing that there is limited upside, even with Washington a big plus in the last few days. I have no real opinion on the end direction of the pennant.

There is one technical factor that is weighing to the downside. The Dow Jones Transports have set new record lows recently (below the Nov. lows). The Dow Jones Industrials have not. There is some reason to believe the Dow Jones Industrials will follow the same pattern as the Transports (i.e. set a new low). Since this hasn't happened yet, it just makes the possibility that the eventual direction after the pennant completes will be down.

On the negative news side, the S&P500 results have been much worse than expected. We just lost 522,000 jobs last month. The unemployment rate is supposed to be about 7.5% now. The petroleum stocks have risen for the 7th week in a row. Since the S&P500 is energy top-heavy, this seemingly good news is likely to make the S&P500 go down.

On the positive side the news out of Washington has been good. There is the stimulus package, which looms closer to approval. There is the "bad bank" proposal. There is the government backed low mortgage rate proposal. All of these things would tend to make the markets go up.

Be nimble and careful.

Market Reacts to Lower Consumer Spending

Visa, the credit card market leader, reports tomorrow after the market closes. This will likely be closely watched. It is supposed to grow earnings. It is a leader. However, other credit card issuers have been severely challenged lately. The result will be important, but the guidance will be critical. We have been losing jobs at an alarming rate. This means there is less spending (using credit cards) and a higher percentage of defaults. If Visa can put a positive spin on their outlook, it may buoy the market. If Visa has a very negative outlook (or refuses to give guidance for 2009 as many others have), this will likely have a very negative effect on the equities market heading into Thursday.

Market Reacts to Lower Consumer Spending

Of course, let's not forget that Ford may have a vested interest in saying they see the market stabilizing. Stabilization would make it more likely that Congress would find their plans for profitability in the near future viable. I am sure they have to make every effort; and they do seem to be making a huge effort. However, I am also sure the US needs to bailout the BIG3 automakers, even if conditions are extremely bad at the moment.

Market Reacts to Lower Consumer Spending

The markets just keep chugging higher today. It's odd because the automaker data was atrocious (worse than expected). However, Ford said they saw the market stabilizing (if at a lower sales level). The extra damage seems to have been done mostly by the car rental agencies. Perhaps the auto and equities markets are stabilizing. However, judging by the financials, retailers, and semiconductor markets, I tend to doubt that the equities markets are stabilizing. Everyone is laying off people. Tomorrow the ADP jobs data comes out at 8:15ET. I don't see how it cannot be bad. I don't see how people can buy things if they don't have jobs. Is this run up a setup for a huge down move, or is idle money just tired of sitting on the sidelines???? The hedge fund performance in Jan. was apparently fairly good.

Phillip Davis said he wasn't sure it was a bottom yet because he hadn't seen a rotation out of energy stocks. I am not sure I buy that argument, but a lot of people are saying oil is going to $30 or lower in the very near term. Since the S&P500 is energy heavy, this might mean the S&P500 is going down in the near term. Its a quagmire right now. The Congress is heavily in the mix in addition to all the confusing details. Still not too much good cna happen without the banks. They still are not doing well. Plus we have yet to really see the fallout from the loans made to emerging growth countries. They are starting to default. This will likely get much worse. Add the likely credit card woes of 2009 to this (unemployed people can't easily pay their credit card debt). I have to believe we are going to at least reach our former lows again soon. If any of you have some great input to add, please let me know.