The SPX declined 7.54 points yesterday to close at 1113.99. TOT daily traders came into the session 300% long and were stopped out at SPX 1112.
Since initiation of this service on September 30, 1993, our daily trader recommendations have gained 8280.14 cumulative SPX points compared to a gain of 655.06 points in the index itself over the same period.
The super long term perspective for the stock market remains bearish, and it’s unlikely anything will change that for several years.
The long model remains neutral, and the short term model remains bearish.
All things considered, the market acted remarkably well yesterday. Technically, it violated last week’s lows intraday, and then came back to close above those lows, retracing half of the day’s intraday loss.
Fundamentally, it did even better, in the context of how much bad news there was, almost in rapid fire succession. The market was first pummeled by the overnight decision of the Bank of England to raise rates by 25 basis points. That caused 1% to 2% declines in the European DAX, CAC, and FTSE indices. Crude futures approached $40 a barrel, reminding investors that rising oil prices act like a tax hike on the American economy. News that the International Committee of the Red Cross said that it had “repeatedly urged the United States to take ‘corrective action’ at the Baghdad jail” which abused Iraqi prisoners led to fears of greater scandal and hardened Iraqi resistance to American occupation. That raises the risk of longer and more costly U.S. involvement there, and indirectly, to a greater probability of President Bush’s losing the November election. In the morning’s financial data, unit labor costs unexpectedly rose 0.5 percent over the first quarter, raising fears of inflation increasing sooner rather than later, with the implication of higher interest rates along with that. Freddie Mac said the national average interest rate on a 30-year, fixed mortgage hit 6.12 percent for the week ending Thursday, up from 6.01 percent the week before. The SEC reported that it is investigating Citicorp’s accounting for its Argentina business in 2001 and 2002, and McDonalds reported that its new CEO underwent surgery for colorectal cancer. Both stocks slumped on the news. General Motors, faced with sluggish sales, beefed up cash-back and financing incentives, and the stock was the biggest point loser among the Dow 30 Industrials. Also, Wal-Mart came in with lower than expected same store sales, causing its stock to decline. Other retailers posted lower than expected gains, as well. And if that backdrop wasn’t enough, Fed Chairman Greenspan issued warnings against the dangers of a rising Federal deficit, protectionism, and the risk of foreign investors pulling out of U.S. markets. It’s almost a miracle that the market didn’t fall a lot more than it did.
As for today, the market will certainly be intensely impacted by the government’s release of the April employment report at 8:30 a.m. Quoting Jack Caffrey, equity strategist at JP Morgan Private Bank, “The equity market is likely to be terrified by the extremes: either a number well under expectations, which would make March look like a fluke, or something very strong, which would increase the fixed-income market’s perception of the need for the Fed to start acting.” Whether his perception is right or not, “terrified” is a word that one does not hear often in bull markets, and with the long term model neutral and the short term model bearish (since April 9), TOT’s position is clearly consistent with this not being a bull market.
Nevertheless, the resiliency of the market yesterday, coupled with quite decent internals, makes the directional component of the daily model bullish today. However, the risk component is very high, and the reality is that the news will be very significant. While there is a small possibility that I’ll issue an intraday recommendation after seeing how the market trades after the release of the employment news, for the time being, standing aside and awaiting a less risky trading environment makes the most sense.
Have a great weekend, thanks for the opportunity to be of service, and I’ll email you again in 72 hours – or sooner if circumstances warrant.
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