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January 12, 2013 – Weekend Market Comment

January 12, 2013 – Not a lot has changed from last week. U.S. stock finished mixed on Friday, with Wall Street not certain how much credence to give a dismal December-payrolls report, given just how far a field it was from expectations as well as other economic reports that have signaled an improving labor market. The Labor Department reported that non-farm payrolls increased 74,000 for the month of December, which was well below expectations and the lowest reading in almost three years. While clearly a disappointment as far as the labor market is concerned, keep in mind that this number is subject to revision and represents just one month.

Other recent economic data have painted a picture of a U.S. economy that is steadily improving. Exports hit a record level in November, lowering the U.S. trade deficit; businesses have ordered more manufactured goods and auto sales reached a six-year high in 2013. Analysts now estimate that the U.S. economy expanded at a healthy annual rate of three to 3.5% in the October-December quarter, up from earlier forecasts of a rate of 2% or less.

The Toronto stock market closed with a solid advance Friday, with strong gains from the gold sector as bullion prices advanced amid disappointing jobs data in both Canada and the United States.(more about gold below).

But really the reaction was not that great, in fact if you the charts, the S & P gained almost 10% since the fall of 2013, you know that cannot go on forever. So we find ourselves in consolidation. A sideways move that is neither positive or negative. Where we go from here is largely based on earnings season. We have so many earnings, especially financials, coming out next week, so Monday morning, that will the the topic. Financials will be the bellwether for how the earnings season is going to go. 

A Classic Consolidation
So after an amazing bull run the market takes a pause to see what earnings season will bring. Notice the TSI at the top of the graph squeezed sideways. Below the RSI is the Aroon indicator, notice both he red and green are dropping.

A Time of Strong Optimism.
We can see from VIX and the Primary  Sell Indicator that the pros are full invested. The bull has run hard. Again the indicators say, it is not likely to go much higher without a rest or a small pull back.

As I said before it is nice to see that OBV is not lagging like it looked like it was going to.

Also good news from Ford as it has a nice recovery bounce, as a said a few weeks ago a week auto sector is a danger sign.

NYSE High Low still looks strong, but the SPY version of this graph is not as strong. Logical, in times of indecision/consolidation move to the big stable guys,

The 50 day over bought shows that a new group of stocks is getting attention, again the bigger more stable plays the were out of favour in the run up. 

I was asked this week about gold, and yes it is true gold hit a nice double bottom about 1145. Yeah I saw that, but as I said before this is the crowd that believes in the magic limit at the new cost of production. Frankly I expect a typical sucker bounce until the end of January, followed by another HSBC vault dump of physical gold and down we go again, but there should be no “triple bounce”. Why the end of January? I expect this to coincide with more Federal Reserve tapering.

In any case look at this graph and tell me you are eager to risk your money on this investment?

Holly Break-Out Batman
Intercept Pharmaceuticals (ICPT_) is up 517% over the past two days. Dr. Yaron Weber, who leads Citigroup's biotech research team, said ICPT's obeticholic acid was so successful in its treatment of the chronic liver disease nonalcoholic steatohepapatitis that its trials were stopped early. He added that even his own sales estimates are considered conservative if the drug comes to market. Currently, he predicts sales of roughly $4 billion, making ICPT a potential merger candidate.

What Works Now
John Murphy pointed out that stocks tied to bonds also had a strong day on Friday. They include bond proxies like utilities and REITS. Homebuilders also had a strong day, as did dividend-paying stocks. So did gold and other precious metals. All had been hurt during 2013 by rising bond yields. Friday's action may have been an over-reaction to one month's report (most likely influenced by bad December weather). Portfolio rebalancing may have also played a role. Some money managers are suggesting, however, that some money earmarked for bonds might be better placed in stock categories tied to bonds. The reasoning is that "bond proxies" offer the possibility of capital appreciation if stocks continue to rally. Since those groups were underperformers during 2013, they may offer better value at current levels, and some protection against an over-extended stock market that is entering a dangerous year.

This is exactly why last week I said it was time to play dividend plays like DVY also large cap low beta stocks and of course broad market large cap ETFs like DIA. It still a bull just right now a little tired.


This is what the Dallas Cowboys cheerleaders do on their spare time it seems.