Story Intact

Every time the market makes fresh high,  investors always want a reality check to see if what's happening in the market is in sync with what's happening in the real world.     This investor real world is comprised of Economic reports, Corporate earning outlook and investor sentiment.     So we made a fresh new high yesterday and today and perhaps next few days will be the period to check if this bull story is still intact.   How do we know if the story is passing the test?   Well, the easiest and logical way is to look at the price action of this market.

We started day with some not so bullish news.    IP (industrial production) reading came under expectation, TGT gave out a cautious outlook while HD simply issued a somewhat disappointing outlook.    In addition, we had strong USD action which should cause some pressure to the equity market.    At the end, market shrugged off the negatives and closed up a point.   How does that work?   Well, we think despite the somewhat disappointing news in the early morning, there's really nothing that important to change investors' sentiment.   Once again, a shallow pullback/ weakness was bought throughout the day (as yesterday after Whitney comments) and yes, we are somewhat amazed by the strength this market exhibits.    Unfortunately, after the buying on weakness, buyers aren’t chasing for more upside.  As far as our watchlist, it started the day with plays mostly in red and it ended the day with most of them in green.  Coals did well thanks to MEE’s acquisition and keep moving due to China's worst snowfalls in years.   As far as getting serious about the Ferts again (>5%) , a rumor of Buffett buying K+S, a ‘Euro’ is not very American of him and thus unlikely, other reason for the push was a report of a moldy corn harvest,  is just that ..one report.  Give it a few days to see if this is a turning point or not for the commodity sub group.

We have often talked about the importance of Financials plays in the past.   In the wake of recent strength of this market, it appears that one sector is sort of missing in action (along with the lagging mid-small caps).   Yup, the financials and this is one of the reasons the market does not feel very liquid as nobody is chasing the financials.   While it's okay to have technology giants such as MSFT, AAPL or other sectors leading the market, we often feel that financials are also an integral part of a healthy bull run.    We can't say that the financials have been behaving badly, they just haven't gone up relative to the overall market seemingly.    Now, can you imagine if some of our favourite financial names are 5% higher than where they are now?   We'd be seeing SPX at 1135 probably, already.  Maybe, Paulson's investor note citing BAC could double in next 2 years will wake up the big names Wednesday.

In about two weeks, we'd have a first glimpse of the strength of consumer market, the Black Friday sales.   This is often a sign of how the upcoming holiday season will fare for the retailers as this is used as an important gauge of US consumer confidence.  We noted a week or so ago, 5% corrections are likely over with this year.  The closer we get to TK and Xmas holidays, the more this is beginning to feel like a 'seasonal' trade is in effect and the likelihood of a big correction dwindles.