President Signs Tax Cut.
And Phillip Morris (MO) gets smoked. But as has been typical for this market in recent weeks, neither mattered. The tax cut was a foregone conclusion and the Phillip Morris $3 bln jury verdict award to a lung cancer victim will be appealed and likely reduced by HUGE amounts.
The real news was in the economic reports. On the jobs front, initial unemployment claims came in at 432K filings, slightly above the expected 418K. Not long ago, above 400K would have scared the bejeebers out of investors and set off sirens that effectively wailed, "Hey, the economy aint that great. That's 432K more consumers that will not be consuming as much. Buckle up!" Now it is hardly a surprise. The first reading under 375K when it happens will likely be a nice surprise. In the meantime, get used to +400k on a regular basis.
Wholesale inventories rose 0.3%, nervously above the 0.1% consensus estimate. That says that inventories are still rising and goods are not moving as rapidly out of the manufacturing plants. Again, no surprise to anyone that can fog a mirror, except "experts" who do not really know (see Monday's Traders Corner).
And while the markets slowly slid this morning in listless fashion, the afternoon saw the indices bouncing back. But it certainly was not in response to retail sales news. With the exception of Wal-Mart, K-Mart, Target, and Costco, department store sales were mostly down with thinner margins. Notice a theme in the first four mentioned? If you noticed that business must be picking up at stores with cheaper price points, please pass "Go" and collect $200. This says consumers can only be thinking one thing (yes, the same ones who borrowed themselves rich): "I cannot earn more, so I have to spend less".
So much for consumers spending us safely out of recessions reach.
I think that I shall never see earnings as lovely as a tree.
Nor shall I see decent numbers from Intel (INTC) worth more than the dead tree they are printed on. At the end of the day, INTC offered up their "state of the state" address, or mid-quarter update on their business. They said that revenue and earnings would be on target essentially at the lower-middle of the range. It was not the "warning" that some had expected, so was instead taken as "good" news. Investors promptly piled in the buy orders - over 2 mln shares worth - and skipped INTC up over $1.30 from its close to $32.45. Apparently they bought into INTC's further comment that they expected a seasonably better second half.
No kidding, and not a big leap when we note that second half sales have always been historically greater than the first half. That begs another question: How does INTC know? I will tell you this. They do not have a crystal ball - they have no clue and merely offered up wishful/hopeful thinking following HWP's warning yesterday. They have refused to be specific on the conference call.
Their comments are especially silly when you stop to consider a comment from Lattice Semiconductor (LTCC) that went largely unreported today in LTCC earnings announcement. Ready? "As we have no visibility, our current outlook assumes no near term improvement in business levels." That is probably the most honest and well thought out CEO comment I have heard in ages - make no commitments until the market proves itself. Cypress Semi (CY) CEO, T.J. Rogers said the same thing earlier this week too.
Anyway, none of that seems to matter as the Fed continues to print money in hopes of floating the economy with an inexhaustible supply of rate cuts. That is why markets typically do not fight the Fed - even if fundamentals are lousy. The pen may be mightier than the sword, but the Fed is mightier than any authors' pen, including mine.
As much as I am convinced this market should be dropping its lofty valuations on lousy fundamental news, the fact is that the market is willing to support those prices. And as Molly points out, "The market can remain irrational longer than I can stay solvent". Thus, it behooves us to remember that the market is not right or wrong. It just "is", and we need to play what we are given. So how do we divorce our emotions collectively evolved over thousands of years from that which would make us a bit more successful with our trading accounts? The technical picture, or course! Let us begin with the Dow.
Dow Industrial chart (INDU):
The oscillators tell the story well. The daily/60/30 charts all have a stochastic pointed north. The daily chart shows bullish divergence with a lower stochastic and higher price. Note too the support at 11,000, which had been resistance in the past. The 60/30 oscillators began their march back up today too. That leaves the daily trend still firmly intact even if the 60/30 cycles down again. The danger is that 11,000 gets tested and fails. More likely though is further bullish movement if we are to trust the charts.
NASDAQ 100 chart (NDX):
Pop quiz - find the hidden weakness in this chart! I frankly don't see any, much as I want to based on fundamentals in the technology business. The only thing that my qualify is slightly upward and sideways narrow trading range on the weekly chart, which could be a little bear flag that might eventually break down. But the daily chart has found support twice at 1750 and is showing slight bullish divergence from its last reversal. The daily/60/30 charts are all pointed up.
OK, one other danger. . .the 60/30 chart candles have hit their upper Bollinger band suggesting an extreme. Once those oscillators get to overbought, they could cycle down again, but it would be against the daily trend. Looks like dip buyers rule for now.
S&P 500 chart (SPX):
OK, last one. The weekly chart has a bearish stochastic cross, but has yet to fall from overbought (barely). However, the daily trend while showing the formation of a head and shoulders pattern has yet to complete the right shoulder formation. Meanwhile we see a bullish divergence from the last upward reversal on the daily charts where a lower stochastic has coincided with a higher candle. Oscillators on the daily/60/30 are all pointing up. Any downward reversal on the 60/30 would be contrary to the daily. Again, dip buying rules until proven otherwise.
What about tomorrow? Earlier in the week, I thought we would be subject to a pullback by Friday. While that is still a possibility, the charts do not suggest that. And with the Intel news tonight, right or wrong, investors appear to be happy with the outcome, which could easily rub off on the whole market.
But there is always a fly in the ointment. Just like Nurse Diesel or Frau Blucker ready to poke us with a huge syringe, it is only a matter or time before the VIX pokes the market with a well-deserved heavy dose of fear. The VIX at 21.61 is down at historically optimistic levels. Just as sure as the sun comes up in the east, human nature will collectively decide the market is not as rosy as once believed, and the sun will again set on market optimism calling the bears from their caves.
In the meantime, bulls are getting traction over the bears' objection. While I love to be fundamentally right about the market (I think it ought to crater), I would rather make money. That means betting with the bulls right now.
See you at the bell.