Market Commentary:
One might say that good news today prevented the sellers from taking control – if only the markets could have closed an hour or so early.
The good news?
The Conference Board's Consumer Confidence report for April experienced a notable pickup from March, rising to 39.2 from 26.9. That was the highest reading since last November.
Talking heads said that the more than twelve point jump was much better than expected and could be a hint that consumers may shortly be on their way to the shopping malls as the economy continues to show signs of improvement. I think the new phrase is “green shoots”.
(Why don’t we have an experiment and count how many times a day we hear the phrase “better” or “greater” than expected?)
While a twelve point jump might seem like a good reason to celebrate, and the market recovered nicely from early selling as prices climbed most of the day, the hidden truth of this number needs to be shared.
This time last year the consumer confidence number was 62.8, nearly 24 points higher than today. And to give you a feel for where this number has been in the past, take a look at the chart below and note the high for this index was well over 180 several years ago and as high as 140 in 2007.
While the Consumer Confidence Index gets a lot of play in the press, the simple fact is that it does not correlate well with consumer spending and has little predictive value. Consumer spending correlates better with consumer income. With the jobless rates still very high the average income is down and remains low. More and more workers are working fewer and fewer hours, with new jobs scarce to non-existent. The shopping spigot is barely leaking.
During the recent rally I had several people write and ask me what to make of the frequent spike in prices near the end of the day. I took a couple of updates to discuss the program trading that occurs in many of the larger investment firms, with Goldman Sachs being the largest.
Well, it appears the reverse is now happening.
An article from Bloomberg revealed that “Executives and insiders at U.S. companies are taking advantage of the steepest stock market gains since 1938 to unload shares at the fastest pace since the start of the bear market.”
To help you see this more clearly check out the 5-day “minute” chart of the S&P 500:
As you can see from the above chart the “program trading symptom” is now in reverse. Four of the last five days have seen buying momentum for most of the trading day, as prices advance more than they decline throughout the larger part of the day.
But in late day trading, four out of the last five days, selling has reduced those advances considerably. This is typical of an intermediate topping pattern. As prices advance the early buyers are usually the big boys who start the upward momentum. When it looks like the buying starts to take on a life of its own then the early buyers wait on the sideline and simply “juice” the markets right at the end of the day to enhance the buying fever.
Sooner or later, though the buying slows down and the big boys stop juicing the market. In fact, they use the hard won momentum to reap profits by selling into each small rally. If they don’t want to destroy the goose that gives them their golden eggs, then they gradually sell rather than unload all at once.
This can often be seen in late day declines, as programmed selling kicks in. When the public finally figures this out, the big boys often unload heavily until there are too few buyers to pick up the new “bargain” prices – and then the whole process often repeats again, giving rise to the intermediate and long term cycles I have repeatedly referred to.
This is why you need to be careful right now. There are a lot of potential profit takers just waiting for a good excuse to sell. Don’t get caught buying their used up golden egg – it will turn into a rotten one for you.
We have time to enjoy a bullish trend, if one is in development. The clue for me is where the lower low settles on this current correction in prices.
Just for fun, here is another “better” economic release that got some play today:
U.S. house prices were down 18.6 percent in February from a year earlier. That was an improvement from the 19 percent decline recorded for the 12 months to January.
On a monthly basis, a composite index of 20 metropolitan areas fell 2.2 percent, more than expected but less than the 2.8 percent fall in January, raising hopes among some that the housing market might be approaching a bottom.
Rueters, April 28, 2009 (reporting on the Standard & Poor's/Case-Shiller Home Price Index).
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