Posted February 8th 2010
Corrections and Recoveries
The market is still in the midst of its pullback as investors and traders decide their next move. They are confident that this is a correction but are undecided on its depth. For long term investors it’s an opportunity and for short term investors, the ones pushing prices around, they're deciding if the fall in prices is deep enough for them to step back in.
Either way this correction restores health to our market. Stock prices do no go in one direction without pause either up or down. The odds are good that we will see another leg up once the correction has shaken out the weak hands.
The earnings reports and more importantly the economic data is clearly showing an improving economy. With outsized government spending taking place, this year the economy should gain strength and that will mean strong corporate earnings for most of this year. The market will recognize that at some point.
At the moment, investors and traders are focused on debt. However, one way to trump debt is by a growing economy which will produce more tax dollars. Cutting spending is the only other way to control debt, but that will have to wait. It's not possible in this political environment, and maybe we shouldn't cut debt as the economy is very fragile.
Good Trading
Steve Peasley
Posted February 5th 2010
Jobs
The economy is gaining strength but that has not and is not translating into a stronger stock market at this point. Yesterday we had a stronger than expected retail sales report, up 3.3% when it was expected to be up 2.5% and factory orders were up 1%. That too was better than expected. However, it was the big productivity report that was truly surprising. It was up 6% and the work week increased.
Jobs are the focus this morning.
The stock market pressure seems to be coming from a stronger dollar because of the weakness in the Euro. This is a very interesting scenario. Our economy is now looking better than Europe's and because of that the dollar is gaining strength. The dollar bottomed at the beginning of December and much of that month the stock market continued higher though the pace was very slow. Then in January the market began to correct starting in the middle of the month as the dollar kept gaining strength.
Why this is so interesting is that history has taught us that a strong U.S. dollar means a strong stock market. That relationship has been turned around.
At some point the strong dollar will be viewed as a benefit by investors and traders. It makes sense because the dollar gains strength against other currencies because our economy is looking better than theirs. Of course today it is a world economy and that might be why it’s different this time. However, whenever you think it's different this time it reverts back to the norm.
This is a correction, one that was expected. It's a matter of degree.
Good Trading
Steve Peasley
Posted February 3rd 2010
Gaining Momentum
Out this morning is the ISM report for the nonmanufacturing sector of our economy which gave us a number for January of 50.5 from 49.8 in December. Earlier in the week the ISM Manufacturing report was well above 50. Above 50 is an expanding economy and below 50 is a shrinking economy. So, both the service and non service sectors are expanding.
Earnings season is winding down. 80% of all reported companies beat their expectations, but what is more important is that 60% of those reports beat their sales expectations as well. That is a sign that earnings growth may well be sustainable.
That is only true if the economy is expanding and the evidence is building that though the growth is not robust it is on track and gaining some momentum. This is a healthy background for the stock market but of course it does not ensure rising stock prices, only a strong probability.
Good Trading
Steve Peasley
