Stocks logged a rare loss this week, with the averages posting their worst performance of the year on some weak economic data. For the week, the Dow fell 1.2%, the S&P 500 was off .5%. The NASDAQ led with a .4% gain. Thank you Apple.
There were a few major forces driving the market this week. The first was some weaker than expected data, with international manufacturing numbers down and housing coming in soft. That had stocks on the down swing early in the week as investors took quick profits on last week’s new 4-year high.
Buy the Dip Back in Play
But by the end of the week the mood began to rise. That’s what they say about bull market’s, they climb a wall of worry. We’ve seen that so many times over the last three years when the market has defied the bears and kept climbing.
We saw that on Thursday and Friday when a lot of fund managers saw the Dip back to Dow 13K as a chance to buy. You can see clear bounce on the chart below. That enabled the averages to close above their key levels, most definitely a bullish signal.
Dow 13K
But longer-term here is the bigger question. Who wants to keep buying at the recent high to go for another leg higher?
Those are the questions the fund managers are asking themselves, and they are the ones who control the action. A lot of these bigger players have been too bearish this year and missed out on a lot of the rally from having too much cash or being too hedged. So missing more gains would be painful for these guys.
But it’s not easy to send a bunch of cash into the market. Especially this market.
Let’s think about it. We’ve got all this crazy stuff going on in the world, and the market doesn’t seem to be too concerned about any of it. If that changes, if sentiment gets a little more bearish, any new money that gets sent in will be deeply in the red.
So any fund or money managers who haven’t been fully long are in a tough position.
Looking forward, the averages are still hovering around the recent high. The green close on Friday was a bullish signal. We’ll get got a decent amount of economic data that will be in play this week. The consumer data will be important because of higher gasoline prices.
- Monday-Pending Home Sales, Manufacturing
- Tuesday-Case Schiller Housing Index, Consumer Confidence
- Wednesday-Durable Goods
- Thursday-GDP
- Friday-Consumer Sentiment
Other than that the story remains the same. 2012 has been a great year for stocks as the market prices in a lot of good news.
Updates:
With the market posting a rare loss, stocks were fairly weak across the board. As you would think, certain sectors suffered more than others.
Energy was one of the weaker areas, a group that was sitting on big gains over the last few months. With money rotating out of the group, Baker Hughes, Inc. (BHI) fell 11%. Although the general mood weighed on shares, there are larger forces in play here.
There is a very strange dynamic happening in energy. Particularly natural gas. We have so much natural gas that prices have been crushed into the ground. Simple over supply. I guess the big picture story is that the infrastructure doesn’t exist to support natural gas. If that’s the case that’s a real shame. Because the world and the United States in general could use some cheap energy.
But the other factor that is weighing on Baker Hughes is this highly politically charged conversation surrounding “fracking.” The technical term is hydraulic fracturing, or pressure pumping, but it’s the basic process that energy companies use to extract gas from the ground. Well long story short it has become highly controversial because there are concerns about its impact on the environment
So with some negative sentiment hanging over the natural gas industry, these stocks have been under pressure.
Tranports also suffered, with rail shipper Kansas City Southern (KSU) down 5.7%.
But it wasn’t all red, other stocks gained in the weak market.
EZCorp, Inc. (EZPW) the pawn and lending specialist, tacked on an impressive 3.8%. Bearish sentiment always brings out the pawn and lending bulls.
And with technology strong, VeriFone Systems, Inc. (PAY), posted an outsized 2.4% gain. The maker of electronic payment systems is now hovering above the key $50 level, setting the stage for another leg higher is the market stays strong.
That’s all for this week, but until next time here is a good article discussing how China and India are affecting the commodity markets, particularly gold and oil. Enjoy!
China and India Rock Oil and Gold
Your Investment Partner,
Mike
