U.S. stock index futures are pointing to a slightly lower
opening on Wednesday. The focus is shifting toward Friday's employment
report and the upcoming earnings season.
Today's Economic Calendar:
- MBA Purchase Applications 7:00 AM ET
- Challenger Job-Cut Report 7:30 AM ET
- ADP Employment Repor 8:15 AM ET
- ISM Non-Mfg Index 10:00 AM ET
- EIA Petroleum Status Report 10:30 AM ET
- FOMC Minutes 2:00 PM ET
News For Thought
Senator Dorgan to step down after 2010. According to The Wall Street Journal: "US
Sen. Byron Dorgan (D., ND) said Tuesday he will retire from the Senate at the
end of 2010, after representing North Dakota in Congress for three decades." Speculation
is starting to rise that Dorgan may be the first of many and that the balance
of power in Washington will shift. If that's the case we could see some handicapping
of the potential for a change of leadership in Congress in the markets as well
as in the overall business climate. It's still early in the game, but as time
passes this year, the election will be increasingly important.
Senator Dodd expected to retire. According to The Washington Post: "Embattled
Connecticut Sen. Chris Dodd (D) has scheduled a press conference at his home
in Connecticut Wednesday at which he is expected to announce he will not seek
re-election, according to sources familiar with his plans. Dodd's retirement
comes after months of speculation about his political future, and amid faltering
polling numbers and a growing sense among the Democratic establishment that he
could not win a sixth term. It also comes less than 24 hours after Sen. Byron
Dorgan (D-N.D.) announced he would not seek re-election." Dorgan and Dodd joined
six Republican senators who won't be seeking re-election.
Review Study: Antidepressants may only be useful in severe cases of depression. A
new study which pools data from several other studies suggests that antidepressants,
the most widely prescribed medications in the U.S. may only be useful in severe
cases of depression. This finding is not really all that surprising, if you see
enough depressed people in a medical practice over years, where antidepressants,
in most cases prescribed by other physicians, often fail to work. The problem
with the study is that in some circles it may be taken as a signal that the medications
don't work. That means that health insurers and the U.S. government may use the
article to curtail payments for medications, especially in those patients where
the depression may not be deemed to be "severe" but the medication may actually
be helping.
Republican National Committee (RNC) runs low on funds. In what could be
a defining moment for current RNC chief Michael Steele, The Hill reports: A 2009
spending spree has left the Republican National Committee (RNC) with its worst
election-year cash flow this decade. The largest GOP party committee has $8.7
million in the bank heading into an election year with 37 governors’ races, a
dozen major Senate contests, dozens more in the House and an all-important redistricting
cycle on the horizon." Eyebrows are on the rise and there seems to be some inside
the box bickering. According to The Hill: "Steele has endured a series of questions
about the committee’s finances and his stewardship. The committee spent heavily
on a new website, and Steele has drawn heat for renovating his office, awarding
high salaries for close associates and accepting speaking fees. Earlier this
year, a group of RNC officials headed by Treasurer Randy Pullen presented Steele
with a resolution asking for more checks and balances on his ability to award
contracts and spend money." Wow, what a shocker; You put a political operative
in a position where he can move big money around and lots of it disappears.
How do we make use of these developments? For one thing they should be a warning
to us of more political issues and battles that are likely to surface over the
next 12 months. And given the level of where things are likely to develop, they
could have major effects on legislation, as well as shaping the election. 2010
looks to be shaping up as a very significant mid-term. Heads up!
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The S & P 500 (SPX) seems to have started one of those steady as she goes
periods where momentum investors put money to work for a period of time. These
periods, if indeed we are in one, often fuel rallies that last several weeks
to months but usually end badly as too many investors get bullish as time passes.
Chart Courtesy of StockCharts.com
It seems as if the more worries that appear, Iran, Yemen, rising oil prices,
a record setting winter, a wayward Congress and an increasingly unpopular president,
along with expectations of low economic growth and persisting joblessness, the
market just keeps on chugging higher. You can complain about volume, but it’s
picking up. You can worry about the market’s breadth, but the NYSE advance decline
line continues to confirm every new high in the major indexes. Even the threat
of higher interest rates is failing to scare traders.
Oh, sure, the employment report is due out on Friday. And yes, we take that seriously.
Yet, the market seems to be on a momentum run. This, of course is a double-edged
sword, for momentum runs are blissful for the bulls on the way up. The problem
is that when the momentum runs out, the market usually turns down in a mean way
and heads down for a while, whether it’s a 5-10% correction on something more.
Chart Courtesy of StockCharts.com
Those who are wondering about the employment report may start to cite some of
the pre-report data that has already been released. The Challenger report, which
measures layoffs showed that for the fifth month in a row the number of job losses
has slowed. This is a positive for those who are looking to find a job or are
worried about keeping theirs. Another report, the ISM index, which documents
the national purchasing managers' database had an employment subcomponent of
52 in December, the third consecutive month of growth. It was part of an overall
strong report.
If you look deeply into the December ISM report, you also notice that forward
looking metrics are strengthening. New orders, production, and supplier deliveries
are rising while inventories and backlogs of orders are falling. That means that
demand is rising and that merchandise is moving. Most interesting is that while
exports are still rising, imports are rising faster, as companies buy raw materials
and finished products to meet demand.
And the fact that two Democrat senators have decided to end their political careers
within 24 hours is also something to consider, as it seems that there is something
in the air in an otherwise out of touch and extremist Washington.
Conclusion
Something is clearly changing, at least statistically. The numbers tell us that
the economy is trying to improve. So far, though, we haven't seen the things
that normally mark a turnaround, such as rising traffic on the highways and streets,
or the For Lease signs coming down at the shopping malls as new businesses start
up.
So we may be in a transition toward that, or this so called recovery will be
different. One thing is clear, though, the market is betting on a recovery, and
statistically speaking, it may be getting one. So the current rally, especially
if it picks up steam, will be the validation part of the rally, where so far
we've been rallying on expectations of a recovery.
If you're an investor, this is a time when paying attention to your portfolio
is extremely important. News, economic statistics and politics will move markets
on a regular basis now. And as more money decides to become active, the moves
may be larger and last longer. That's not a reason to become overconfident, though.
It's a reason to be more vigilant.
As a citizen, a taxpayer, and a business owner, manager or employee, it's also
a good time to consider new initiatives and ideas. As things improve, if indeed
this is the case, this may be the time to put that expansion plan into some kind
of more active mode or to consider broadening alliances and to look for ways
to ensure the survival of the business or your job for when things get tough
the next time.
Still, this is a time when being a bit more bold, even conceptually makes sense.
Expect some bumps along the way, though, as earnings season is approaching, which
means that some bad reports and pre-announcements on Wall Street are likely.
What we’re saying is that unless something changes in the next few days, this
market could move higher over the next few days, and even weeks. Eventually,
even as early as Friday as the employment report hits, the leaders will start
getting a bit tired and market breadth will falter. When that day comes, at some
point in the future, we would expect even the staunchest worrywart to be as bullish
as all get out. And that isn’t very evident right now, which means that this
rally still has some legs.
The bottom line is that from a trading standpoint, it doesn’t pay to fight momentum.
Just remember that the moment that you start getting kind of giddy may be the
moment that you should consider taking some of your long positions off the table.
Know when to sell and how to make money when the market falls. Get a detailed
trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Shares of Wells
Fargo (NYSE: WFC) broke out of a cup and handle formation
on 1-5-10.
Chart Courtesy of StockCharts.com
CANSLIM fans may be getting a bit excited. Over the last
10 months this method of investing, which requires momentum,
has been fair at best. We know, we like it and have found
little use for it during the 2009 rally.
Yet, if you look through Investor's Business Daily, where CANSLIM was originated,
and where it lives, you can actually see a bit more life in some of their stock
chart sections, although, you're still not getting the opportunities to buy Go-Go
stocks as in bull markets past.
But, Wells Fargo did form a nice little cup and handle formation over the last
4-6 weeks, and it just broke above its 50-day moving average. Those are two bullish
developments for the stock, and possibly for the financial sector.
When a stock like Wells Fargo moves higher, it's almost certainly being bought
by institutions. These are the kinds of stocks that big mutual funds like to
own. The breakout is a good thing. But now we have to see if the stock picks
up steam.
If it does, then it will confirm that the big money is building a position and
that the move could last a while. A move above 29 would be a good first move.
We like it well enough to give it 4-stars right now, and 5-stars if it gets above
29. Dr. Duarte does not own shares in WFC. Dr. Duarte owns shares in the Financial
Sector ETF (NYSE: XLF).
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