Market Alert - The Close

Stocks finished last week on a bit of a flat note, unable to push the Thursday upside break. Monday was a new week and the bids started early, held into midmorning, held into the close. All indices moved higher, but the theme was a bit different: instead of the NYSE large caps in the lead, growth was back in vogue as NASDAQ, SOX,, RUTX, SP400 all made clear upside breaks to higher highs, either all-time or in the recovery move.

SP500 6.10, 0.28%
NASDAQ 29.13, 0.56%
DJ30 59.58, 0.32%
SP400 0.73%
RUTX 0.98%
SOX 1.36%

VOLUME: Higher on both exchanges on an upside day, a nice positive for the gain. On the other hand, trade was still well below average on both exchanges so it was no groundswell of strength.

A/D: NYSE 1.9:1, NASDAQ 2.2:1. Solid, not huge, but it matches solid gains in the indices.

The driver? Surely great economic news. Not quite. The Empire State Manufacturing report flopped back to negative (-4.21 vs 0.55 July). Japan's GDP dropped to zero from 0.5%. Factory Orders, productivity, retail sales. If investors still see the economy as strong, they are pinning an awful lot on that July jobs report.

The result that is readily ascertainable from the data is the Fed Funds Futures contract. After the Friday retail sales report the odds of a rate hike in 2016 fell from 49% to 42%. The manufacturing data Monday did not give the odds any boost.

Perhaps that data, and indeed the efficacy of further central bank action, has many billionaires nervous about a big market drop. Monday a DB analyst joined the group as he called for a 50% drop because the central banks would ultimately fail in their economic management. The rub: it could still take 'years' before this happens.

The interesting point in the theory: ultimately the markets have to correct. The central banks can print money continually, but at some point it will not be enough to offset the forces that have built, forces all the more stronger BECAUSE of the central bank action trying to fend off what the markets want to do. When the power to hold assets higher dissipates, what was held at bay breaks loose and the outcome is typically violent. In the end, the markets ultimately have their say.

Nonetheless there are those who see 'things' are better and 'things' will continue to get better. That is what a Raymond James analyst was saying this morning. There. All is just fine.

As usual, you have two sides to the market. Quite a few newly vocal billionaires and their companies talking bearish versus the usual bulls that are bulls until the market is down 50%. I remember one fellow who was a bull during 1999, during 2000, and remained bullish until no one invited him onto the shows anymore. Then during the recovery he was now bearish. He was bearish no matter what, and they used him as the counterpoint to everyone else who was, of course bullish. I think he finally just retired. Hey, if he had waited around another 4 years or so he would have caught the massive 2008 plunge. Just wonder if he would have turned bullish before that.

For us, the market is doing what the market is doing. It was time for a break higher after the past two weeks, and Monday the indices yielded that move. RUTX jumped higher from its lateral consolidation, NASDAQ as well. SOX was toying with the July high through Friday; Monday it blasted on through. SP400 midcaps were solid enough with a higher high. SP500 and DJ30 lagged the move, rallying, but a comparatively weaker move. No issues really: the market often splits out into growth versus NYSE large caps, and the prior week it was the NYSE large caps that enjoyed more money.

With good leaders breaking higher of course we let positions run and we also picked up some new ones from several different sectors: HAR, MRVL, KITE, PII. Big Name NASDAQ were again quiet and even lower in some cases, though AAPL scored another good gain. Chips were solid enough, biotechs slower after a stronger Friday, oil actually looked pretty decent with, of course, CWEI surging up another 6.5%. In short, good enough leadership action to keep the rally going again, even if on lighter overall volume.

Have a great evening!

Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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