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December 8, 2006

Ho Ho Hum

Santa Claus isn't creating a rally, but he certainly seems to be putting bids under stocks. The tape of the last few days has had a very heavy feel, giving the market an atmosphere of a bear market. Yet every time I glance at the S&P 500, it is still above 1400. Unreal. Coming into today's session with yesterday's lows in hand, I expected that no matter the initial reaction to the employment number, stocks would find their way lower. Early into the regular trading session, this assessment appeared accurate, as stock began tumbling at a rate matching yesterday's pace.

Then, for whatever reasons the market gods deemed pertinent, equities ratcheted upward, sending the SPX up a half percent at one point, and the NDX up more than 1% before pulling back to the closing levels. As discouraging as the upward reversal was to witness, and despite the fact that the indices closed higher, we bears were left with positives for the day, diminutive as they may be. No major index managed to best yesterday's highs, and they all broke yesterday's lows. In fact, the high of the SOX barely pierced yesterday's low, showing that the revered semis are struggling. Volume also tailed off on today's gains. These are small feathers, and we will need new lows on Monday to begin to establish momentum.

Metals played out a mirror image of yesterday by breaking higher in the early going and then falling. On net, the PMs lost ground for the two-day period, as did miners. However, we see below that yesterday's lows were held and nice positive divergences have shown up on the intraday chart.

stock chart

I think a large part of today's strength in equities and weakness in metals can be attributed to the blast off in the dollar on the heels of the employment report. The stronger-than-expected payroll number certainly bolstered the case for another rate hike or at least a further delay before a cut. Nevertheless, there are burgeoning signs that the economy is not only slowing but melting down, and as soon as the facts shed their veil, the Fed will cut like mad.

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