STTG Market Recap January 3, 2013

Stocks digested the large two day move in an orderly fashion Thursday.  Despite a large beat in the monthly ADP Employment data (+215,000 vs +133,000 expected) markets had come a long way in just two sessions and only reacted mildly.  Then late in the day the Federal Reserve minutes from the last meeting were released and the simple fact a few members had even broached the topic of ending “free money forever” more quickly than the market had anticipated caused selling; markets went from green to red in quick fashion.  The S&P 500 fell 2.1% and the NASDAQ 0.38%.

What is important to note is only 3 people matter in the Fed – Ben Bernanke (Chief), Janet Yellen (VP) and Bill Dudley (NY Fed).  So until one of them says things change, it doesn’t matter what the rest of the choir says.   The “Bond King” PIMCO’s Bill Gross said as much on CNBC after the fact.

Turning to the markets, here are the 1 year charts for both the S&P 500 and NASDAQ.  You can see the remarkable 2 day move has put these indexes both back into their ascending channels AND at the top of them no less.  This just ahead of the monthly employment data tomorrow along with the widely followed ISM Non Manufacturing release.  It will be interesting to see how the market reacts to these news items after such a large move.  The potentially bearish “head and shoulders” formation we talked about at the end of last week is now in doubt.  But if a new higher high (over September’s high) is not reached it could still be a possibility.

NASDAQ remains weaker as it has yet to even reach April 2012 highs.

It’s a good time to look at oil as well, as you can see yesterday’s move took crude to level’s we highlighted last week as important.  Thus far it has been rejected at old highs as seen by the horizontal line.

 

Both Ford (F) and General Motors (GM) hit 52 week highs as they released positive December auto sales figures.

Here are some stats from Wednesday’s huge move via Sentimentrader.com

Volume that flowed into positive stocks on Wednesday made up more than 90% of the total.  It did that on Monday too, marking one of the few times in 60 years we’ve seen such overwhelming pressure back-to-back.  Dating back to 1950, there were a total of 6 such cases… Impressively, during the next six months, the median amount that the S&P fell at its worst point was a measly -0.9%.  At its best point, however, the median gain was +19.9%. That’s among the most positively skewed risk/reward ratios we’ve ever seen, but again, any enthusiasm has to be tempered by the small sample size, which raises the possibility that the outsized returns are due more to randomness than an edge.

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