BigTrends

Eat it (click to play)

One group that has been outperforming lately is the casual dining/restaurants.  Ironically, this group is risky when the consumer gets buried...and hasn't that been happening over and over?  Stocks in the group have fallen hard since April as the market was pricing in a potential double dip recession.  Some data now seems to point to this not being the case so money has been flowing to these names.  Some of the better ideas include CMG, DRI, EAT, YUM, PFCB, CAKE, CPKI, RRGB and BWLD.  The latter is my one favorite of them all.  It certainly didn't hurt to see BKC receive a strong buyout offer from private equity, which helped boost share prices of JACK, MCD, and WEN.  If it's true that the consumer still has some $$$ left to spend then these names have a long way to go....higher!

Bulls cutting it up Footloose (click to play)

What number do you think will be significant tomorrow?  You know, the jobs report.  Estimates are far and wide - from a minus 160K to a positive 100K - certainly the real number lies somewhere in between.  The bigger question is whether the market has discounted a bad number, and if not will that put yesterday's rally in jeopardy.  The market has been moving on sentiment lately, and we couldn't have seen much more bearishness earlier this week.  In fact, some sentiment numbers showed as much/more bearishness than at the market's bottom in March 2009.  Is it warranted?  Certainly players have been removing $$$ from the equity markets and plowing it into bonds - yields are still low at 2.6% - but when the 'risk on' trade is back for longer than a day or see we could see some nice trending action.  Perhaps tomorrow's job report is the first day of it.

[Todd Rundgren - Bang on the Drum ]

Just a couple of more bad news items on Friday to pile on from earlier in the week, but enough was enough for the bulls as testing an old support/resistance level at 1040 got buyers engaged.  More so, the bears were leaning too heavily in the downward direction, and why not? Markets had been down 5/6 days and when it seemed like it would be a rout after the Intel warning, well...that was fuel to reverse.  I spoke yesterday in the charting session about some dreadful looking charts...not just the indices but most stocks.  Oh, there are some with good patterns such as MELI, CRM, VMW and a handful of others..but only a handful.  Today probably sets up more stocks to retest their bear trends next week if they haven't already done so.

I'll respect the oversold rally for now but clearly the markets won't be making too much upward progress past 1085 on SPX and then 1100 after that.  The VIX is still elevated even though it had a big plunge.  With next week all about jobs and then a long weekend to boot there could be some good activity.

No denying it, the market is reacting now to subpar economic data.  We shouldn't be surprised, though.  Are buyers supposed to step up and buy stocks when it appears the economy is falling backwards?  Of course not.  In fact the course of action is to sell/short the rallies, which we've been doing lately.  As the market heads for an intermediate oversold signal (which means bearish action to come), we also have that Hindenberg to deal with.  Exhaustive selling is highly probable at any point (and might have occurred on Wednesday) as we correct off the negative condition.  Jobless claims, revised GDP and then some job numbers next week may put a lid on any rally.  This week's housing data, far worse than expected...and weaker durable goods may have cemented this quarter into a negative number.  Support on the SPX lies about 4% below, or the July lows at 1010.  If that is a firm bottom it needs to be tested.

Many years ago I used to work in retail, and we all knew what the holidays represented.  Even in regular years the time between Thanksgiving and New Years was likely to make/break a store's year.  Indeed, 35-50% of sales occur during this period.  Preparation must be made, inventory decisions and popular item choices are considered.  This normally happens in July/August.  Stores are going lean once again for 2010, probably no surprise at all.   The economy is softening, jobs are not plentiful and the housing market continues to get battered.  All this means stores will not be discounting the 'goodies' as much this year, rather letting the shoppers peck at 'older' stuff that will be marked down further.  Expectations are low for the holidays even with so much time ahead of us.  With all the negative trends in place how can retailers take a chance on the consumer?  They won't!

Many years ago I used to work in retail, and we all knew what the holidays represented.  Even in regular years the time between Thanksgiving and New Years was likely to make/break a store's year.  Indeed, 35-50% of sales occur during this period.  Preparation must be made, inventory decisions and popular item choices are considered.  This normally happens in July/August.  Stores are going lean once again for 2010, probably no surprise at all.   The economy is softening, jobs are not plentiful and the housing market continues to get battered.  All this means stores will not be discounting the 'goodies' as much this year, rather letting the shoppers peck at 'older' stuff that will be marked down further.  Expectations are low for the holidays even with so much time ahead of us.  With all the negative trends in place how can retailers take a chance on the consumer?  They won't!

I don't think there is anyone out there who is bullish on bonds other than the Fed.  Of course, they announced their renewed effort to reinvest their prior purchase agreements into a new round of buying (aka stimulus) to keep rates down.  Is everyone smarter than the Fed?  I don't think so, and while they tend to be late they do control the chess board pieces, so be wary if you decide to fade them.  What value could the Fed believe is there with 10 yr treasuries yielding something like 2.6%?  Annualized .25% is quite low, isn't it?  However, rates can go 'much lower' according to the Fed.  Yet everyone under the sun is getting short bonds, talking bond bubble.  I think we've been there before, haven't we?  Much was the same talk a few years back with yields at 5%, then at 4%.  Everyone seems to forget that with low inflation and low growth rates can STAY low for quite some time.  Don't believe me?  Look at Japan.

Been away for several days but the market is about 4% lower than when I left.  That was the day of the Fed meeting of course, and while they went out of their way to state the obvious - poor economy, high unemployment and more accommodation on the way - the market did not take that message as a positive.  I'm a bit surprised by the quick reaction but the market had been lingering for some time, waiting for some catalyst to help sellers get going.

While I was gone we saw the Hindenberg Omen flash a sign.  I think that term set an internet record for searches on markets!  Anyhow, I'm at odds with it.  Oh sure the signal is negative, no question.  The criteria all met, too.  But the last time we saw this was during the market meltdown of 2008, in fact twice that year.  Catalysts abound:  Bear Stearns, Lehman, housing, AIG, the kitchen sink, you name it.  And the Fed behind the curve.   What do we have this time around?  Potential economic slowdown? Another recession, which is rare indeed.   The market is right smack in the middle of a wide range, but threatening to go LOWER before it goes HIGHER.  Take a look at the chart below and see if you don't agree.

Tuesday is a one-day Fed meeting where I expect very little to happen in the meeting.  Bernanke and Co. pretty much gave us all the game plan the last few weeks;  steady as she goes.  So, regardless of what is said/done the reaction should be expected.  Oh, we know there will be some jostling, uneasiness and fireworks - that's what makes our country great!  -  agree to disagree.  Sentiment and momentum still rule this market at the moment and that should not change with the Fed.  The VIX is solidly under 23, showing us the market is sanguine at the decision.  Complacent?  Not really, in fact the VIX could go much lower here.  Don't expect much harm from the Fed, but is the market 'ready' to make that next move up past the June high?  We'll see about it.  Remember the TRUE reaction to the fed decision is felt in the day or two afterward.

The BLS released the July jobs report and it mostly discouraging. We're in this 'gray area' of the economy right now where some areas point to growth while others are flat or contracting. The push/pull being provided by sources such as the Fed and the Government are not having the desired effect. With an election on the horizon you can be sure this result could be a caution for those in power. We'll see if the market can recover from this setback.