Media Calls It A Fake-Out Rally?
Thursday, January 3, 9:25 a.m. As I have been noting over the last month, the market was “holding up impressively as the new year and all its potential problems approached”, the market apparently less concerned than the media. The market finally showed some fear last Friday with the S&P 500 closing down 1.1% on concerns [...]

Thursday, January 3, 9:25 a.m.

As I have been noting over the last month, the market was “holding up impressively as the new year and all its potential problems approached”, the market apparently less concerned than the media.

The market finally showed some fear last Friday with the S&P 500 closing down 1.1% on concerns that Congress and the White House might actually fail to reach any agreement at all on the fiscal cliff.

But that brief lapse of confidence ended quickly, with the market closing out 2012 with a big rally on Monday, the Dow gaining 166 points, with confidence returning that the worst of the fiscal cliff would be avoided.

It then had another big gain yesterday, the Dow gaining another 308 points on relief that an agreement was indeed reached that avoided the worst of the cliff.

The financial media was skeptical about the big two-day rally from the start.

And the Internet and financial TV is full of stories this morning about how markets in Europe and the U.S. have “run out of steam this morning” on realization that serious problems remain. The Wall Street Journal says this morning that the “Rally Is Tinged With Caution”.

Really? A 474 point 2-day rally by the Dow, and the Nasdaq and Russell 2000 up another 3% yesterday alone, and on volume 30% higher than recent months, was tinged with caution?

The caution was certainly not in the market, but in the media.

However, the enthusiasm has left a potential short-term technical problem. It spiked the major indexes up to a short-term overbought condition above 50-day moving averages.

That will tempt short-term traders to take profits (which as it usually does, would bring a pullback to alleviate the short-term overbought condition). And not to put too much ‘archaic’ technical analysis on you, but the enthusiastic spike up at the open yesterday created a ‘gap’ open (the opening price was significantly higher than the previous day’s closing price). In the the old days anyway, technicians looked for that gap to soon be closed by a pullback to below the opening of the gap before a rally resumes.

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If that happens, the media will become even more skeptical of the staying power of the favorable season rally that began in November. There are certainly numerous remaining serious problems to support such a stance.

But will selling into the rally be the right way to go, or buying a dip if one develops? The financial media seems to have a definite opinion.

Other Voices.

Yahoo Finance: “Shake Hands With the New Year Rally, but Don’t Hug It.”

Wall Street Journal: “The cliff deal sent stocks soaring, but the rally belies the fact that fresh budget fights are brewing.”  [Actually the market has been soaring since mid-November, not just after the fiscal cliff agreement was reached.]

Financial Times: “U.S. tax deal rally for stocks fizzles out!”

MarketWatch: “Fiscal cliff resolved, but super cliff lies ahead.”

MarketWatch: “Equity Markets are dying.”

To read my newspaper column from last weekend click here:  It’s Only A Fiscal Slope Not A Cliff!

Subscribers to Street Smart Report: In addition to the charts and updates in the premium content area of this morning’s blog, there is a hotline in your secure area of the Street Smart Report website from last night, and the new issue of the newsletter will be there early this afternoon.

Yesterday in the U.S. Market.

The biggest rally in a year (following the big triple-digit gain by the Dow on Monday to close out the year) on relief that major drags on the economy from the threatening fiscal cliff were either avoided or kicked down the road.

And trading volume picked up significantly to almost 0.9 billion shares traded on the NYSE, impressive for the day after a holiday.

The Dow closed up 308 points, or 2.3%. The S&P 500 closed up 2.5%. The NYSE Composite closed up 2.2%. The Nasdaq closed up 3.1%. The Nasdaq 100 closed up 3.2%. The Russell 2000 closed up 2.9%. The DJ Transportation Avg. closed up 2.4%. The DJ Utilities Avg closed up 1.9%.

Gold closed up $12 an ounce at $1,689.

Oil closed up $.53 a barrel at $93.12.

The U.S. dollar etf UUP closed unchanged.

The U.S. Treasury bond etf TLT closed down 1.3%.

Yesterday in European Markets.

European markets also closed up sharply. The Europe Dow closed up 2.7%. Among individual countries, the London FTSE closed up 2.2%. The German DAX closed up 2.2%. France’s CAC closed up 2.6%. Greece surged up 3.7%. Ireland closed up 1.7%. Italy closed up 3.8%. Spain closed up 3.4%. Russia closed up 2.6%.

Asian Markets closed up Tuesday night and up some again last night..

The Asia Dow closed up 1.4% Tuesday night, and up 0.6% last night.

Markets in China and Japan were closed for extended holidays.

Among individual markets that were open last night:

Australia closed up 0.8%. Hong Kong closed up 0.4%. India closed up 0.3%. Indonesia closed up 1.2%. Malaysia closed up 1.0%. New Zealand closed up 0.4%. South Korea closed down 0.6%. Singapore closed up 0.7%. Taiwan closed up 0.7%. Thailand closed up 0.1%.

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Markets This Morning:

European markets are mixed this morning. The London FTSE is up 0.1%. The German DAX is down 0.2%. France’s CAC is down 0.5%. Spain is down 0.8%. Greece is up 0.7%. Italy is down 0.2%. Russia up 0.8%.

Oil is down $.51 a barrel at $92.61.

Gold is down $10 an ounce at $1,678.

This Morning in the U.S. Market:

In spite of it being another holiday-shortened week, there are a number of potential market-moving economic reports including the ISM Mfg Index, Construction Spending, the minutes of the Fed’s last FOMC meeting, and culminating with ‘The Big One’ on Friday, the Labor Department’s monthly employment report for December. To see the full list click here, and look at the left side of the page it takes you to.

Monday’s report was that the Dallas area Fed Business activity Index jumped to +6.8 in December versus –2.8 in November.

There were no reports Tuesday on New Year’s Day.

Yesterday’s reports were that the U.S. PMI Mfg Index came in at 54.0 in December, its highest level in 7 months. And the ISM Mfg Index rose above the critical 50 line to 50.7 in December from 49.5 in November. But Construction Spending declined 0.3% in November.

This morning’s reports are that the ADP Employment Report shows 215,000 new jobs were added in the private sector in December, much better than the 149,000 new private sector jobs that was the consensus forecast. And the previously reported gain of 118,000 new jobs was revised up to 148,000 after additional data became available. And new weekly unemployment claims rose by 10,000 last week to 372,000, while the more important 4-week moving average (which smooths out the week-to-week volatility) rose by just 250 to 360,000.

The important report will be the Labor Department’s employment report for December tomorrow morning. As you know we call it The Big One because it so often comes in with a surprise in one direction or the other that creates a one r two-day triple-digit move by the Dow in one direction or the other.

This morning’s positive reports have had little effect on the pre-open indicators, which have been fractionally negative all night and into the morning. 

Our Pre-Open Indicators:

Our pre-open indicators are pointing to the Dow being down 20 points or so in the early going this morning.

To read my newspaper column from last weekend click here: It’s Only A Fiscal Slope Not A Cliff!

Subscribers to Street Smart Report: In addition to the charts and updates in the premium content area of this morning’s blog, there is a hotline in your secure area of the Street Smart Report website from last night, and the new issue of the newsletter will be there early this afternoon.

I’ll be back with the next regular blog post on Saturday morning, as usual later than the week-day posts, probably around 11 a.m. eastern time.

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