Michael Evans
1/4/2006, 09:07 PM
The market went up and looked the recent S&P 500 peak of 1276 right in the eye today and decided, fuggitaboutit. The next move will be down.
Of course hitting a resistance level isn't the only reason the market will now reverse course for a while. If the economy were strong enough to support further gains, it would test that level a few times and then move decisively higher. But the economic fundamentals are negative.
Some traders got so excited Tues about the release of the FOMC minutes saying the tightening cycle is "almost" over -- which we all knew anyhow -- that they have neglected the weak economic news out this week in the form of the ISM report, new orders excluding aircraft, and holiday department store sales. As far as the latter is concerned, some of the chains are trying to put a spin on it, saying that because so many more people bought gift certificates, the shortfall of sales in Dec will be offset by a bigger than expected rise in Jan. Yeh, sure.
The employment report, out on Friday, used to be more important than it is now, since the monthly figures have become increasingly erratic. The consensus forecast, based primarily on virtually no change in seasonally adjusted weekly unemployment claims over the past month, calls for an average gain of 200,000. I don't know precisely what number BLS will decide to publish -- and revise next month -- but the general impression I have, based on weak retail sales and the slowdown in the housing market, is that the figure will be a bit on the low side, and the market will react negatively to that development. That is why I said earlier this week you want to take your profits before the close on Thursday.
Of course hitting a resistance level isn't the only reason the market will now reverse course for a while. If the economy were strong enough to support further gains, it would test that level a few times and then move decisively higher. But the economic fundamentals are negative.
Some traders got so excited Tues about the release of the FOMC minutes saying the tightening cycle is "almost" over -- which we all knew anyhow -- that they have neglected the weak economic news out this week in the form of the ISM report, new orders excluding aircraft, and holiday department store sales. As far as the latter is concerned, some of the chains are trying to put a spin on it, saying that because so many more people bought gift certificates, the shortfall of sales in Dec will be offset by a bigger than expected rise in Jan. Yeh, sure.
The employment report, out on Friday, used to be more important than it is now, since the monthly figures have become increasingly erratic. The consensus forecast, based primarily on virtually no change in seasonally adjusted weekly unemployment claims over the past month, calls for an average gain of 200,000. I don't know precisely what number BLS will decide to publish -- and revise next month -- but the general impression I have, based on weak retail sales and the slowdown in the housing market, is that the figure will be a bit on the low side, and the market will react negatively to that development. That is why I said earlier this week you want to take your profits before the close on Thursday.