Are you ready for a significant move up to begin in the stock markets this week? Why a move now?Here are five reasons for you to consider:
1. Because individual stocks continue to shake off negative news. Indeed some have even moved higher. Of particular note is that negative news seems to be producing little if any downward movement in individual issues.
Several examples this past week include:
- Intel (INTC), the Chip maker's net income dropped 90% from a year earlier.
- Sealy Corporation (ZZ), the bedding maker said fourth quarter sales fell 26%.
- Apple Corp (AAPL), whose leader Steve Jobs announces a leave of absence for health concerns.
2. Because disappointing news in the macro market is becoming nothing short of blasé. Stock markets are now numb to the bad news beats. News of more large bank bailouts and massive write offs did move stocks somewhat lower, but any actions were no match for the lows seen in November when the uncertainty of the extent of those bailouts was much greater. With even more large bank blood on the street, the market apathetically moved higher in its run into the weekend.
3. Because there is now a cease fire in Gaza. Stability in the region takes one more uncertainty off the market's table. Mid-east experts will be quick to show us why balance in that region has a calming effect in world markets.4. Because a signal for sea-change in economists' sediment may be indicated in the conference board's report due out this week. You'll remember that their November reading, (reported in December), already showed 4 of 10 leading indicators moving positive. With current reports already out that are used as reference by the board, it is likely you'll see a move to 6 or 7 out of ten readings staying or moving to the positive column.
5. But probably the most significant market mover over the next several weeks will be the Obama factor. One of the great orators of our times will inspire the world this week. It is likely that he will jolt confidence and innovation into action. In turn, Obamamania will stir consumer confidence. A one, two punch no less. One at the Inauguration on Tuesday and the other at the state of the union address in the next several weeks.So to recap: individual stocks are now shrugging off any negative news. The macro market is growing disenchanted with its gloom diet. A major mid-east conflict is now under the terms of a cease fire. The conference board report moves to a positive bias. And an international orator takes center stage with an inspiring message of hope.
I'm ready. You're ready. And so are the markets.
(Keep those stories coming. Thanks to those of you that have already sent in good news stories from around the country. I hope to compile the best of those in an upcoming post. Send your story to good.news.econ@gmail.com)
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Regarding Obama, I guess it's possible that his overt hostility to private enterprise will be more than cancelled out by the embarrassing media adulation. They'll do whatever they can to ensure Obamanomics isn't a failure.
ReplyDeleteGreat post, as always. Thanks for keeping things in perspective. Is it also possible the markets will keep mirroring 1974-1975, as you pointed out on January 2nd? (1975 was an upward movement!) -Joe
ReplyDeleteI suppose anything's possible but the likelihood that this will be a bear market rally outweighs any other interpretation of the scant statistics you have presented.
ReplyDeleteThe AAPL drop happened back in September
As for the Middle East situation, look that sounds all nice and good in a comfy macro setting but the correlation between the DOW and the USO is astounding and the answer is as plain as the nose on your face.
Peep this:
For the period of Jan08/Jan09 there is a .9 correlation between the price of crude (using USO ETF as a proxy) and the DJIndex
However for the period of the last six months (when the price of crude topped and began sinking) the correlation is a staggering .93!
Put bluntly, you won't see the DOW move up until you see the price of crude begin to move up again and that correlation should hold for about three to six months.
Thanks again for reading Joe.
ReplyDelete@Cuervos, always good to hear from you, although there really is no correlation at all between oil prices and the DOW. Again have a look at 1974-75 as a guide. (not the last six months) Poor Nixon didn't even light the Christmas tree cause oil was so "scarce" back then...
and the gasoline lines, what a pain.
em
I think you mean there is no causation.
ReplyDeleteMathematically, there is a correlation.
If you look here you can see that there was a negative correlation from June 06 to Jan 07 and then positive correlation up until a month ago.
In fact, the 22 day cycle broke (went below .5) starting on Dec 8, 2008 and there was no correlation until Jan 7, 2009 when when it popped up to .52
As of Friday, the USO/DJI correlation is sitting at .78
Also, if you look at the 10 day correlation, it is a leading indicator of the 22 day.
Using options as a tell, it appears that there is at least a $3-7 range drop in the price of USO so expect another drop in the DOW shortly.
Thanks Cuervos,
ReplyDeleteThere there is a great article on causation, correlation, and chance here...
http://plus.maths.org/issue31/features/stickland/index.html
em
With pension funds, 401(k)'s, IRA's, housing, and every other measure of household wealth down and unemployment on the rise, wishing for more consumer spending could further dislocate the economy. What America needs is a sustained period of saving and reinvigorated industrial output.
ReplyDelete