Market Comment: Happy Winter

It's winter in New York with a wind chill of -5F. The best news is that the days (amount of daylight) start getting longer which is enough reason to start feeling good.

Last Friday, I was technically correct in thinking the market would end down. However, the internals (A/D and volume) were positive. The averages are below their 50MA but in the climb from their lows of 11/20, lower lows have not been made. This is good. A lower low would be a close below 851 for the S&P (I like to use the intra-day lows - it's a more decisive statement) and 8347 for the Dow.

Today Will Be Interesting

All the major averages failed to close above their December high and closed below the 50MA. Short-term, this is not a good sign and normally I would say that the November lows look like a good target. However, over the past few months down days have been HUGH down days particularly when looking at the advance/decline line. Yesterday, the A/D was only modestly negative. It was not a blow out everyone-to-the-exits negative like we have been seeing. Also, as of right this moment, we are waiting to hear what Bush has to say about a possible auto bailout. I'm sure they will be doing something but I have no idea what. Yesterday he said something about a managed or prepackaged bankruptcy. All that said, I think the market will end down for the day.

Indecision

Yesterday was completely indecisive. The averages are still above the 50MA, did not break the December high and closed down a bit. The advance/decline lines were slightly positive but more neutral than anything. The biggest movement was the dollar which continued its fall which can be good for exports if anyone is buying. The economy may suck but there is a lot of money sitting in cash and historically low-yield treasuries. Someday that money will be looking for higher returns and head to the stock market.

Saved by Zero

I guess there is some irony in the Fed using a jingle from a Toyota commercial to save the economy. The market clearly liked it. See the above chart for the Dow. We closed above the 50MA but neither the Dow nor the S&P could eek out a close above the December highs (See B.) This is the next resistance level and after that, a good chance we go to the November highs (See A.)

A bit more about the Feds actions: The New York Times printed this sub-head today on the front page, "Agency Vows to Print as Much Money as Needed ..." Obviously, the long term risk here is runaway inflation. On the other hand, from a deficit point of view, the government is borrowing money at 0% and will pay back that debt with highly inflated dollars.

Waiting

Yesterday was rather indecisive. The Fed makes a move today and it should be a non-issue. Still waiting to see if the 50MA can be broken to the upside.

Southern Cars

Call it the revenge of the south. Eight foreign automakers have established major presences in the American south and have transformed the local economies. Daniel Gross writes about this in Slate. As you read this article it should come as no surprise to you that the Senators that lead the anti-bailout brigade were all from these same southern states. Were they making a stand on principal or self-interest?

Ponzi Schemes

Henry Blodget outlines why Bernie Madoff had just about the perfect Ponzi scheme. This raises questions: Does every Ponzi scheme eventually get discovered? Are some so successful that they keep going on and on? Has anyone successfully wound down a Ponzi scheme?

Market Up or Down?

Friday was a resilient day for the market. It sank on news of the failed Congressional bailout of the auto industry and then managed to eek out a gain for the day. This chart is of the S&P for the past few months. The overall trend of the market is obviously down (green arrow). However, short term, the market is attempting a small rally (white arrow). The 50 MA is still resistance for the market. The Dow looks the same. If the 50 MA fails again then the down trend will likely continue. If not, them we could see a more sustained up trend, maybe to S&P 1000 or Dow 9600-9700.

Dimon and Rust

The market was hanging in yesterday until Jamie Dimon spoke in the afternoon and told us all that business was worse than he expected. (Was he talking his book?) This morning the futures are way down on news that the oxidizing US auto business is not getting a bailout - at least not yet.

The chart of the S&P shows how the 50 MA stopped the advancing action. Before hitting the 50MA, the market had advanced 20% off its recent low. The futures this morning are giving back less than 50% of that. For the S&P, a 50% give back is 830. The question going forward is how much pain and misery is priced into the market. Will bad news on the auto front drive the market to new lows.

A Force Field

Yesterday I wrote about the 50 day MA (moving average). I said it could act as a wall or a minor impediment. After yesterday it's looking like a force field. This chart is of the S&P and the red bold line is the 50 day MA.

This morning, more bad news on the employment front and Chinese exports fell like a rock. Will the market slough this news off or retreat? Retreat seems more likely.

Are You Happy?

Justin Wolfers debunks the Happiness is Contagious theory. He argues that there is a big difference between causation and correlation.

I made similar arguments awhile back concerning the market. Read here.

Two Views of the Market

Has the market bottomed - not according to the Q Ratio.

But, just maybe.

These two views, in reality, are not far apart. The Market is undervalued but not enough undervalued for it to be a real bottom.

That Moving Average

As I mentioned yesterday, the 50MA was overhead resistance for the market. This chart is of the Dow. The bold red line is the 50 day moving average. It can act as a wall or a minor impediment. Over the previous 11 days the market was up 20%. It doesn't feel like much but that's a big move. A lot of bad news came out during that time and the market sloughed it off. Yesterday we saw hordes of money going into short-term treasuries at 0%. I guess that is the definition of "flight to safety." We'll see today if traders are willing to bet on the market.

Strong Day

Yesterday was a strong day for the market. A big gap opening in the morning and the market held its gains all day - no late day sell off. The S&P closed above 900 but gave some back after hours. The Dow did not close above 9000. If the market moves up today, the numbers to watch are 930 for the S&P and 8941 for the Dow. These are the 50 day moving averages. The 50MA is often a point of support or resistance for the market.

Today's Market

See what I wrote last week. The pre-market is showing opening levels above 900 for the S&P and above 9000 for the Dow. If we close today above these levels then the Nov. and Oct. levels will be challenges (~1000 and ~9700). Two things look likely now, Obama spoke this past weekend about a major public spending program on infrastructure and it looks more likely that the automakers will get enough of a bailout to allow the Obama administration to make their decisions.