12/2/10…toothless

TB’s Quote of the Day: “ I’m still curious about why not extending the Bush tax cuts for the upper income tax payers is bad because it will reduce their spending but not extending emergency unemployment compensation is good (because it will reduce their spending). Just one of the many puzzlements floating around Washington these days.” –an economist friend who TB highly respects! Anyone want to challenge it? Not TB!

…that is what this ‘powerful’ rally was: toothless! Why were so many people asking why? Why was every major index up 2%+? There was no differentiation of stocks:

Dow Industrials: 30 up, 0 declining – 10 stocks added 10+ index points, 3 were up 20+

Dow Transports: 19 up, 1 declining – 3 added 10+ points

Dow Utilities: 15 up, 0 declining – very rare! Up over 1% on a day when stocks are up??

S&P 500: 483 up, 16 declining, 1 unched – no breakdown available

Nasdaq Composite: 1768 up, 815 declining – led by MSFT w/nearly 5 points???

Nasdaq 100: 96 up, 4 declining – AAPL +7 points, MSFT/QCOM +2

Russell 2000: 1658 up, 280 declining, 30 unched – no breakdown available

Rallies of this magnitude are on days where truly significant things happened. That was not the case yesterday, not by a farsight! True, some of the economic data was positive but most wasn’t and we are about to see a huge number of people…200,000 in California alone lose unemployment benefits…thanks to the budget cutting GOP. By year end that number will soar as the extended benefits expire…what will that do to the economy? Perhaps those billionaires will spend more and offset it…you know, lavish gifts like personal jets for their friends…who are also undoubtedly wealthy. What a joke and a bad one at that. If the minorities ever figure out they are now the majority and find a leader you had better look out.

Let’s look at the Dow intraday: up 130 or so on the opening, then another 60 over the next 45 minutes after which it flatlined for nearly two hours before spiking another 50 points and then going more or less sideways for the rest of the session…THAT is how you got the 250 point pop on the day. What possible new information was there over that time period? Actually the later news was worse than the early news:

  1. ADP sees 93k new private sector jobs for Nov. True, better, but a pittance and government will likely reduce that amount…we need 400k jobs each and every month to get us out of this…and companies aren’t hiring here except part-time for the most part, most hiring is outsourced. Good news??? Estimate however is for 145k jobs for the month while unemployment is stable at 9.6% BUT that is only caused by discouraged workers leaving labor force…good news??? Reminiscent of who’ll buy my lavender – song.

  2. Productivity rose while Labor Costs flatlined…again is this good news for a sustainable recovery? How was that productivity gained? By lowering costs!

  3. Construction spending rose in contrast to consensus for a decline. How? Residential housing…but permits are down…so this is a lagged effect. Is the housing market really improving enough to want to build new homes when we have huge inventory…and shadow inventory out there?

  4. ISM Manufacturing Survey rose but only slightly…where is the boost?

Does this warrant a broad 2% rally? NO!!! Then how to explain it. TB quipped to those who asked that it was the first of the month…new month and last of the year…a year in which stocks are up but thanks to the last two months no great shakes.

It apparently caught the eye of others and www.bespokeinvest.com researched it and found that in each and every month of this year (and this is not a phenomenon) subtracting the first day of trading of EACH month lowered the return! Furthermore, with the S&P 500 up 8% or so ytd, it would be DOWN 3.5% without the first of the month rally! Marketwatch.com also reported the same over a radio station but added that this is true in almost all years…and can last 3-4 days before correcting…obviously it is correcting if without it the market would be down, right? So it is not a day to be a buyer.

But why is this true? The only answer is 401(k) buying on the first of the month but the magnitude of yesterday’s move defies any kind of logic…here’s why:

Yesterday TB pointed out that Tuesday’s big drop was on big volume (especially over the last six months) of 1.54B shares, not only the first above average volume day since 11/18

and to beat it you have to go back to 9/17! Meanwhile Wednesday’s volume was a wimpy 1.12B shares which only becomes an average day in this environment…normally it would have to be 1.25B or more shares. 11/18 was a 175 point up day but following a big selloff while 9/17 was a gain of just 13 points on the Dow, so the trend is intact that higher volume days are associated with SELLOFFS. Volume was concentrated in just three stocks, more than 900M: Citi, BofA, and Ford. Now for more details of yesterday:

Advance/declines were a strong nearly 4:1 and Breadth on the NYSE was about 15x positive and 6x on Nasdaq. But then the volume comes into play and minimizes it. 52 week highs on all exchanges soared by 526 while there were just 57 new lows.

Judging from the overnight markets we will be up again today and then Friday’s payrolls may set the stage for tomorrow. Weekly jobless claims were up about 25k while continuing claims rose by 53k but that is seasonally adjusted…unseasonally they rose by 135k! Now look at extended jobless claims: +92k!!!...and emergency +143k and the total receiving both rose by 370k to EIGHT MILLION SEVEN HUNDRED SEVENTY ONE on a non-seasonally adjusted basis…this is pathetic and to call this a recovery is insane! Now watch as the GOP succeeds in caring more about not extending jobless claims than raising taxes to anyone…by they way that is a misnomer as reversing a tax CUT is NOT a tax hike…especially when it was to be TEMPORARY and immediately the GOP and their supply-side colleagues screamed to make them permanent. God help America while the GOP pursues this scorched-earth policy. What fools they are…and we are!

. . . - - - . . . . . . - - - . . . (S.O.S.)

Hope you have a great day!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries...as he sees it...and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Copyright TBD Capital LLC, December 2, 2010.

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