Despite
the fact that the economy created a spellbinding 113,000 jobs in January when
about 185,000 were expected, the S&P had it’s best day of the year, rising
1.33% and closing higher for the week.
While the number was a major disappointment, it wasn’t all bad. Higher paying construction and
manufacturing payrolls increased 48,000 and 21,000, respectively, making up for
the drop in those sectors in December.
The size of the labor force in January grew by 500,000 as more people
got jobs and started looking for work again. But even with those positives, the non-farm payrolls data
should have sent stocks to new lows for the year. But, there were a couple other factors in play this week,
which led stocks to rally back after hitting new lows on Wednesday. The lack of job creation is leading
economists and investors to believe that the Fed will re-evaluate its pace of
reducing its bond purchases, especially with mortgage-backed securities. I’m not under that opinion. I think the Fed will continue to pull
back $10B at a time, because overall, the data isn’t that bad. The weather has had a major impact on
consumer spending and corporate earnings are still coming in stronger than
expected. Just look at companies
like Michael Kors, Amazon, Macy’s, and Chipotle and you can see that consumers
are still spending away. The
economy is still expanding, inventories are up, inflation is low and mortgage
rates are still near historic lows.
This week’s rally was nothing more than the markets rebounding off of
key technical levels (which I will discuss later) after being significantly
oversold.
More
important than the fundamental data is the strength of the charts. Wednesday’s low of 1738 was a new low
for the year, a level not seen since last October, and was exactly a 6.5% sell
off from all-time highs made just 3 weeks ago. However, the most important thing to note is that the
S&P traded all the way down to a key uptrend line connecting the 52-week
low (1485 from 2/26/13) to the pullback on June 24 (1560) and the low on
October 9 (1647). If you draw a
line connecting all of those points, the S&P came within spitting distance
of hitting that key support level.
To prove the move even further, Wednesday’s move created a hammer (a bullish
technical formation when a stock opens, trades sharply lower, only to rally
back, thereby wiping out all the sellers). From there, the S&P rallied 2.5% Thursday and
Friday. And just to hammer (no pun
intended) home the strength of last week’s turnaround, Thursday’s close of 1773
was above the 78.6% Fibonacci retracement, and Friday gapped higher to close at
its highest level all month. Also,
look at the Nasdaq, which has been the strongest market of the three. On Wednesday, the Nasdaq traded down to
the 78.6% Fibonacci retracement and the previous November all-time high, where
it rallied back 3.8% by Friday’s close.
Just
looking at the stock market this week, closing higher, all indications are that
stocks should rally back towards new all-time highs. However, you can’t just look at the stock market
though. Gold and US treasuries
both traded higher for the week, which ordinarily trade inverse to stock
prices. Gold has been higher 6 of
the last 7 weeks and treasuries have closed higher every week this year. The old adage is the treasuries never
lie but stock prices do. I still
believe that gold and treasuries are the place to be for the next couple weeks,
as they will continue to outperform stocks. I continue to reiterate that until the S&P closes above
1825, it is difficult to be bullish the stock market. However, with that being said, at the beginning of the year
I said this year will be a stock picker’s market, and there are still stocks
that have and will hold up during this pullback. You need to have a shopping list ready for those stocks that
have sold off because of profit taking or because they are misunderstood. This past week, I bought Boeing, Macy’s
and Southwest Airlines. Boeing
fell into bear market territory on Wednesday, falling 22% from an all-time high
of $144.57. Although the stock is
up 6.7% from Wednesday’s low, it’s still a “strong buy” because of its
long-term prospects and the fact that every pullback in the stock has been a
screaming buy opportunity. Macy’s
corrected 13.3% from all-time highs because other retailers are reporting weak
numbers. Macy’s, Michael Kors and Amazon
are the best of the best and should not be treated the same as the likes of
Target, Walmart, or Coach. I want
you in Macy’s and Boeing on Monday.
This
market isn’t broken like a lot of people think it is. Stocks became oversold, very quickly, which led to great
bargains in the market. I still
believe you will have a chance to buy stocks lower as I see the market
re-testing the uptrend line and Wednesday’s lows, but I recommend starting to
build positions now and buy additional shares on pullbacks. If you are still in the gold or
treasury trade, stick with it, as both still have more upside.
My current positions: Long
Ford (F), Toll Brothers (TOL), Gilead Sciences (GILD), SunPower Corporation
(SPWR), Starbucks (SBUX), Anadarko Petroleum (APC), Visa (V), Macy’s (M),
Southwest Airlines (LUV), Boeing (BA), Apple (AAPL), Gold (GLD), long 10-YEAR TREASURIES, long CRUDE OIL.
Jeff Lewison
No comments:
Post a Comment