Buy on the Rumor, Sell on the Fact?
Saturday, September 22, 11:30 a.m. It was one of the scenarios analysts considered as the June rally continued, and corporate insiders must have been expecting, given their heavy selling into the strength of the rally. The potential that it will be selling on the fact has been increased by the lack of follow-through to the [...]

Saturday, September 22, 11:30 a.m.

It was one of the scenarios analysts considered as the June rally continued, and corporate insiders must have been expecting, given their heavy selling into the strength of the rally.

The potential that it will be selling on the fact has been increased by the lack of follow-through to the central bank actions, and the action of commodities.

First it was lack of follow-through in Europe to the big initial two-day spike-up rally two weeks ago in response  to the ECB’s announcement of even more aggressive measures than markets were hoping for. And this week in the U.S. in the lack of follow-through to the big spike-up rally last week in response to the Fed’s FOMC surprise of even more aggressive QE3 than markets had been hoping for.

Not that one week and a mild flattening is of great importance.

But so far the Fed’s action has not had the effect that was widely expected to take place, a new leg up in the stock market, and a jump in commodity prices on expectation of it being inflationary.

It can be seen most clearly in the sell-off in commodities that already completely reversed their initial spike up on the news:

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Other voices:

Financial Times: ‘Bernanke’s Gamble Is No Free Lunch’. “When Ben Bernanke announced last week that the Federal Reserve would embark on potentially unlimited quantitative easing , the markets rallied in celebration. But the party is already coming to a close. Investors are increasingly nervous about the unintended consequences of printing more money. Meanwhile, Brazil’s finance minister has accused the U.S. of starting a “currency war”.

Barron’s Michael Santoli: “Newsletter writers grow more bullish, but corporate insider sales outnumbers buys by six to one.’ “Corporate insiders, one group that’s often quick to harvest windfalls, have been active on the offer side, with sellers outnumbering buyers by more than six to one, says ISI Group strategist Bijal Shah. That weekly level has been reached just four times since early 2010. While this hasn’t always proved to be an urgent danger signal, it has tended to precede a softer period for economic momentum and the equity tape.”

MarketWatch: ‘Many S&P 500 companies forecasting third-quarter misses.’  “With revenue streams drying up and fewer places to cut costs, corporate America’s outlook for third-quarter earnings is looking grim. So far 103 S&P 500 companies have provided guidance for the third quarter. Of those, 80% have guided below Wall Street consensus estimates, according to John Butters, senior earnings analyst at FactSet. That’s the most negative outlook since FactSet began tracking the figures in early 2006.”

Four years of outflows from equities reversed to inflows last week?

In my books I have noted the hundred year pattern of investors getting excited about rising markets and piling in near tops, and then not knowing what to do when a serious correction or bear market hits, tending to hold on until losses have become so painful they bail out and “swear off the damned market for good”.

But then after the next bull market has been underway for some time, and they see the gains they have missed out on, they come back, again arriving very late at the party.

It’s been no different so far this time. Even though the 2008-2009 bear market ended and the new bull market began in March, 2009, investors have been pulling more and more money from stock and equity mutual funds, in 2010, 2011, and 2012, and pouring it into bonds, the situation reaching record proportions in the first half of the year.

And wouldn’t you know it, three and a half years into the bull market, this week’s reports are that investors have lately been pouring money back into global stock markets as the central bank actions have increased their appetite for risk. Weekly inflows into equity funds hit a four-year record high of $17 billion last week. Emerging markets were the biggest winners with $4.3 billion of inflows over the five-day period.

So, who is doing the additional selling then that prevented the additional inflow from creating follow-through strength?

To read my weekend newspaper column click here: If You Like QE3 But Stock Market Makes You Nervous – Buy Gold! Sept. 22.

Subscribers to Street Smart Report: In addition to the charts and information in the ‘premium content’ area of this blog, the new issue of the newsletter from Wednesday is in your secure area of the Street Smart Report website.

Yesterday in the U.S. Market.

A very high volume day, typical of quadruple-witching expiration days, with 1.8 billion shares traded on the NYSE, about 3 times recent normal volume.

But the market traded again with unusual low volatility, only 76 points between the Dow’s intraday high and low. The Dow was up as much as 51 points mid-day but lost it all in the afternoon, especially in a sell-off in the final minutes that closed the Dow down 17 points.

The Dow closed down 17 points, or 0.1%. The S&P 500 closed unchanged. The NYSE Composite closed up 0.1%. The Nasdaq closed up 0.1%. The Nasdaq 100 closed unchanged. The Russell 2000 closed up 0.5%. The DJ Transportation Avg. closed down 1.0%. The DJ Utilities Avg closed up 0.1%.

Gold closed up $5 an ounce at $1,773 an ounce.

Oil closed unchanged at $91.95 a barrel.

The U.S. dollar etf UUP closed down 0.1%.

The U.S. Treasury bond etf TLT closed up 0.1%.

Yesterday in European Markets.

European markets were mixed yesterday. The London FTSE closed down 0.1%. The German DAX closed up 0.8%. France’s CAC closed up 0.6%.

Global markets for the week.

A down week almost everywhere. Most noticeable, the further plunge in the DJ Transportation Avg., and China’s close at a new multi-year low in the bear market of the world’s 2nd largest economy.

It was two straight weeks down, and then two straight weeks up, the first due solely to the two-day spike up in reaction to the surprise of the ECB QE announcement two weeks ago, and the second to the 2-day spike-up in reaction to the Fed’s QE3 decision last week.

But no follow through this week. 


THIS WEEK (September 21)
DJIA13579- 0.1%
S&P 5001460- 0.3%
NYSE8377- 1.0%
NASDAQ3179- 0.1%
NASD 1002861+ 0.2%
Russ 2000855- 1.1%
DJTransprts4910- 5.9%
DJ Utilities471- 0.2%
XOI Oils1,281- 2.1%
Gold bull.1,773+ 0.1%
GoldStcks195+ 1.7%
Canada12409- 0.7%
London5852- 1.1%
Germany7451+ 0.5%
France3530- 1.4%
Hong Kong20734+ 0.5%
Japan9110- 0.5%
Australia4430+ 0.4%
S. Korea2002- 0.3%
India18752+ 1.6%
Indonesia4244- 0.3%
Brazil61318- 1.2%
Mexico40338- 0.9%
China2122- 4.6%
LAST WEEK (September 14)
DJIA13593+ 2.2%
S&P 5001465+ 2.0%
NYSE8458+ 2.7%
NASDAQ3183+ 1.5%
NASD 1002855+ 1.1%
Russ 2000865+ 2.7%
DJTransprts5215+ 2.8%
DJ Utilities472+ 0.1%
XOI Oils1,308+ 3.8%
Gold bull.1,771+ 2.0%
GoldStcks192+ 7.1%
Canada12499+ 1.9%
London5915+ 2.1%
Germany7412+ 2.7%
France3581+ 1.8%
Hong Kong20629+ 4.2%
Japan9159+ 3.2%
Australia4410+ 1.4%
S. Korea2007+ 4.0%
India18464+ 4.4%
Indonesia4257+ 2.8%
Brazil62058+ 6.4%
Mexico40692+ 1.6%
China2224- 0.2%
PREVIOUS WEEK (September 7)
DJIA13306+ 1.7%
S&P 5001437+ 2.2%
NYSE8234+ 2.8%
NASDAQ3136+ 2.3%
NASD 1002825+ 1.9%
Russ 2000842+ 3.8%
DJTransprts5072+ 1.3%
DJ Utilities472+ 0.8%
XOI Oils1,260+ 2.5%
Gold bull.1,736+ 2.7%
GoldStcks179+ 5.5%
Canada12268+ 2.7%
London5794+ 1.5%
Germany7214+ 3.5%
France3519+ 3.1%
Hong Kong19802+ 1.6%
Japan8871+ 0.4%
Australia4348+ 0.2%
S. Korea1929+ 1.3%
India17683+ 1.7%
Indonesia4143+ 2.0%
Brazil58321+ 2.1%
Mexico40043+ 1.6%
China2228+ 3.9%

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Next week’s Economic Reports:

Next week will be a quite heavy week for potential market-moving economic reports. They include the Chicago Fed’s National Business Index, New Home Sales, Durable Goods Orders, Chicago PMI, Consumer Confidence, etc.  To see the full list click here, and look at the left side of the page it takes you to. The quarter’s quadruple-witching expirations also take place on Friday.

To read my weekend newspaper column click here: If You Like QE3 But Stock Market Makes You Nervous – Buy Gold! Sept. 22.

Subscribers to Street Smart Report: In addition to the charts and information in the ‘premium content’ area of this blog, the new issue of the newsletter from Wednesday is in your secure area of the Street Smart Report website.

I’ll be back with the next regular blog post on Tuesday morning at 9:25 a.m.

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