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Economic data not robust enough

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There were few "surprises" from today's economic data as most reports came very much inline with economist's expectations.

The January ISM (formerly known as the NAPM) rose to 49.9% from December's 48.2% reading. The current 49.9% was inline with forecasts of 49.7%. The orders index, one of the forward-looking components came in at 55.3% vs. 55.5% in December. Construction spending rose a modest 0.2%.

The University of Michigan consumer sentiment index was 93.0 for January, just slightly less than expectations for a reading of 94.2.

Gold/Silver Index up 3.35%

The Gold/Silver Index (XAU.X) leads stock sector winners with a robust 3.39% gain, putting this index in the upper end of our retracement bracket. I believe the move may be a pre-emptive move from market participants on the belief that inflation is around the corner as the Fed has been pumping massive amounts of liquidity into the economy and some signs of economic stability are starting to present themselves.

Others argue that gold stocks are on the rise due to Japan and the Japanese buying "gold by the bagful" (as one subscriber says). Still others feel that the rising tensions in the Middle East are reason for concern.

My "denominator" for sorting out the "economic growth" or "further economic woes" to counter the rise in gold stocks is the bond market. The 10-year YIELD is stuck right near the 5.0% YIELD level I talk about constantly. Current YIELD is 4.979%. The slight dip has me leaning back toward the "bearish case" for stocks. While some may feel I'm "wavering" I want this to serve a point.

This "back and forth" action of the bond market is VERY INDICATIVE of what I've been saying for stock traders and their need to be taking profits (long or short) when they get them. The bullish percent charts are dictating defensive action near- term, but the economic data does hint of economic stability and that tends to put a bid under stocks after a decline.

If you "know" what is going to unfold in the coming months, then make your bets and stick with them. That's fine. The bullish percent charts support the case for weakness right now, as they are more bearish.

Current action

The broader market averages are all in the red with the Dow Industrials down 38 points at 9,881, S&P 500 is off 9.5 points at $1,120 and the NASDAQ-Composite is lower by 24 at $1,909.

Tech weakness is found across the board, with the exception being the Biotech Index (BTK.X) at $506 +1.37. Resistance should be firm on the BTK.X near the $550 level so short-term bulls only at this point.

The largest decline for sectors with a "tech" flavor is the CBOE Internet Index (INX.X) $123.29 -2.69%. This is a sector that usually shows gains when bulls are more aggressive. Not seeing anything here in recent weeks to signal that there are any aggressive bulls in the market.

Energy stocks are hanging tough. The CBOE Oil Index (OIX.X) is fractionally higher at $297 (+0.72%), Oil Service Index (OSX.X) near unchanged levels, while the Natural Gas Index (XNG.X) is down fractional at $167.85. Those monitoring the energy sectors against a scenario for economic growth see little change today. All three of these sectors have been trading relatively sideways at the lower ends of their ranges and perhaps mimicking a "stabilizing economy," but yet to depict one of "robust growth."

Jeff Bailey
Senior Market Technician
Option Investor

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