The Bulls ran it up into year-end and ran it up after the calendar shift. Many of the things I look at suggest at least a little more momentum - let's call it 1500 on S&P 500. Last year's big winner, XLF, is already leading the way, blowing through its 2012 high and near its post-recovery peak set in 2011 of 17.20. The things I look for in this type of scenario are resistance spots (there isn't much) and price momentum extremes or overextension. We are good on the latter - just coming out of consolidations so this isn't an issue until early March. The only thing that worries me is that we left a gap behind. While it seems very likely we could backfill (this would be good actually), last year we didn't. The S&P 500 jumped on 1/3 by 1.55% and just kept running. In the first four days, it ended up rallying 1.64% and never, ever crossed the zero-line again all year (a real statistical oddity).
Another parallel that I find interesting is that we had a solid payroll report yesterday, with the number of jobs a little more than expected and good but certainly not great and a surprise strengthening of hours worked and hourly earnings. The Nominal GDP tracks income growth to a great degree and more workers and higher wages working longer is a positive. For most of last year and the year before, when jobs would go up, the other components would shrink. When they would go down, typically the other components would be stronger than expected. I think that this is becuase employers are slow to hire and end up paying more over-time when there are temporary blips up. So, I am very encouraged to see now a couple or a few months where all the components are to the upside of consensus (though still too weak). Last year, payrolls were supposed to rise 150 and they came in at 200. The average hourly earnings were flat when they were supposed to rise 0.2%. The workweek was 34.4, which was ahead of the 34.3 hour forecast. This year? Payroll was modestly above expectations (and last month was revised higher), but avg hrly grew .3% instead of the expected .2% and the workweek extended to 34.5 (as expected). The bottom-line: The glass is 5/8 full.
Here are the price momentum levels:
- SPY 0.43
- IWM 0.62
- DIA 0.32
- QQQ 0.01
For yucks, I plugged 150 in on SPY: It would rise only to 0.76. Where to get to the 1.0 that seems to constrain rallies? 152.60. That would be a 4.2% rally. The beauty of last quarter's flat (slightly negative actually) return is that it might have been the pause that refreshes. It's not so surprising to take a rocket ride into the first couple of weeks of the year. 1500 would be a 5.2% return, while 1525 would be 6.9%. Not ruling it out..
Keep in mind that this rally could run into a wall - the debt ceiling negotiations. This ties in well to my idea that the lows of the market could take place in March/April. That is pretty much my standard call by the way, and it seldom plays out that way. Last year's low came in June (when it came real close to going flat for the year). The previous year in October, and it was July in 2010. If I am right about this entire year being a 17% price gain or so, I think we will see the low come earlier rather than later. One last data point to suggest caution: Only 8 stocks below the 10dma.
Speaking of the Watchlist ( Download Watchlist010413 ), there were no 10% losers over the past week. In fact, only four stocks declined. FDO was the worst at almost down 10%. Winners? Not surprisingly, with the S&P 500 up a stunning 4.6%, there were several, most rather random. AVP led the way, up 15% on the back of a couple of upgrades. MPR was close on just too cheap before. HRL spiked 12% on the Skippy deal. I am selling it out of CG/B because it is 2 units overbought and just 21% to my revised one-year target. It won't go down much, if at all - this deal was the real thing. IRBT and IIIN were the other two - no clue. It's not surprising to see Small-Caps bounce hard.
Note that there were a ton of trend improvements, mostly due to deep consolidations getting back above their one-year average price (going from Topping to Up Consolidate). DGI fixed its "black 1". We have some new subscribers, so I will remind that black is a trend of 10dma>50dma>150dma that is more than 13 weeks old and a sign of potential reversal. ABC, APOG, and MIDD remian black 1, while RAVN is a black 5 about to turn to a 4. There are only 4 stocks now offering 40% or more (again, these are the stocks in light green - the bold symbols means that they are in one of my model portfolios and not necessarily even at >40%). It wasn't too long ago that we had many stocks >50%. Now, only CRK and XEC are there, and I am nervous about oil/gas prices and also interested in finding new names to evaluate (companies in between - production growth like CRK but balance sheet like XEC!). The other two stocks above 40% are SCVL and VOLC. VOLC is 1.65 oversold. The only other name significantly oversold is FDO, at a massive -3.0. I think I called the support right there. With my reduced one-year target of 72, it's not bad here. I am not looking at the peers though - ROST/TJX/DLTR could be even better.
Looking at the positions in the model ( Download Positionwatch010413 ), I just want to point out a few things. First, new year so the "YTD" column suddenly is very different. Don't underestimate the importance of focusing on this number - it's the way the pros look at stocks. So, all of our 2012 losers are suddenly not such losers. Some of the stocks that were up a ton in 2012 suddenly don't jump out as "too high" - thinking CHS, for instance. Second, in this rally I will be focusing on the price momentum a lot. I already said that HRL is at 2X and goobye and thank you very much (>18% in four months on a stock that was marginal). CSCO and MPR are both a little overbought. Only MAKO is oversold more than one unit. MAKO will be pre-announcing Monday - good luck to us.
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