The battle for Dow 13K slanted toward the bears on Friday, with the industrials unable to hold gains above the key level into the weekend. For the week, the Dow Jones fell 0.4%, the S&P500 rose .3% while the NASDAQ led at .4%.
There has been a very epic battle going on at Dow 13K and NASDAQ 3K. The bulls were strong out of the gate early in the week, pushing the Dow above 13,050 and fueling hope that stocks were ready for another leg higher. But sentiment quickly turned bearish, with the averages falling sharply on Wednesday and early Thursday before stabilizing a bit into the weekend.
Ya, it was a pretty bumpy ride. The daily ranges haven’t been huge, but movement within those ranges is on the higher end of the moving average. The Dow actually crossed 13K 32 times this week. How’s that for range-bound volatility? Take a look at the tick-by-tick action below.
Monday-Friday/Dow 13K
Dow 13K
But through it all, there has been no collapse. Everyone’s worst fears have still been denied. And thank god for that. The market continues to view every dip as a chance to buy. You see that showing up all over the chart. That means there has to be some bigger players that are committed to being very long this market.
Do the Insiders Know Something?
Remember, in order for monetary stimulation to succeed, it has to be a surprise. So do the big insiders already know something big is coming down the line, keeping the pedal on the medal as smaller players on the outside sell into fears about “a correction” or “big selloff?”
It’s anyone’s guess.
But for now, in spite of all these crazy issues floating through the air, like Iran, Oil and Europe, a lot of fresh capital continues hitting the equity market. Ya, the averages were denied a weekly close above key levels, but they continue to linger in convincing fashion.
If you’re looking for a warning signal take a look at small caps and energy on Friday, with the Russel 2000 down a very sharp 1.6%. And energy got spanked too, the worst performing sector in the S&P500. Both are leading indicators, holders of hot money. Hot money is the first to flow in and it’s the first to flow out, so that says risk flowed out of the market.
But right now it really does look like a flat out horse race between the bears and the bulls. It could go either way. If the market gets nervous there could be some real downward pressure. But if the bulls can charge above 13,050 and rip through a bunch of stops, the great year continues. Either way, all you can do is look for good companies to give you an edge. Because even though the short-term action is fun to follow, it’s definitely a long-term game.
On that note, we’ve got a lot of data hitting the market this week that will keep things moving. The biggest is Friday’s jobs report, pretty much the biggest number on the Street. Jobs have been looking better lately so we’ll see if that trend continues. Other than that we’ve got:
- Monday-Factory Orders, ISM Manufacturing Index
- Wednesday-ADP Employment Report, Productivity, Crude
- Thursday-Claims
- Friday-Non-Farm Payrolls
So needless to say, it should be an action packed week.
Alright, let’s talk about some stocks.
Energy Under Pressure
Energy took a little hit late in the week after Obama called the industry’s $4 billion in tax breaks “inexcusable” and “outrageous.” Pretty harsh words from an administration that makes more profit on a gallon of gasoline than the company selling it. And by the way, if Exxon has to pay higher taxes, how do you think they’ll fund that? By raising prices. So thank you very much for trying to slap another tax on already expensive energy.
But it didn’t stop there. Nancy Pelosi took some time to bash the private sector too.
“Independent reports confirm that speculators are driving up the cost of oil, hurting consumers and potentially damaging the economic recovery. Wall Street profiteering, not oil shortages, is the cause of the price spike.”
She thinks it’s all because of those evil speculators, you know, people like you and me who buy stocks because we think they’re going higher.
It’s particularly ironic coming from someone who made millions as an insider on the Visa IPO. And from someone who was part of a Congress allowed to trade on inside information until 2 months ago. And SHE”S outraged? I think we’re the ones who should be outraged.
The energy market is absolutely ripe for government intervention. There is too much at stake. And this isn’t a political statement, it’s a market statement. If you’re investing in energy you have to understand that you are exposed to things like permits, stiff regulation and public sentiment. Governments have grown over the last few years. They have become more intertwined with the private sector. It’s like they crossed a forbidden line, but now that it’s been crossed, its sanctity is lost. Alright, let’s not get too philosophical here. All I’m saying is don’t expect Uncle Sam to be kicking back and watch energy prices shooting higher. There’s just too much money on the table.
Energy Stocks Lag
So with negative political sentiment hanging over the industry, the individual players followed suit.
Baker Hughes, Inc. (BHI), looked a lot like the market, trading higher early in the week before falling into the weekend. The stocks 3.64% decline on Friday and 5.64% loss on the week are good examples of how energy underperformed. That had something to do with the overall market, but it also looks like there is some real bearishness creeping into natural gas right now.
For the last few years the industry was in a real boom. Demand for drilling services went through the roof as energy companies scrambled to increase supply. But now, the industry is a victim of its own success. They brought so much new gas to the market that prices started to tumble. So now everyone is pulling back. Prices are down, demand is down. The natural gas boom is in a bit of a down period right now.
But if you’re looking for salvation, try crude. With prices already hitting $110 going into spring, the stage could be set for a new all-time high. It wouldn’t take that much. Throw a little inflation in there; add some monetary stimulation and escalation in the Middle East. It wouldn’t be pretty, but if crude jumped back to its high natural gas would probably go along for the ride.
Cimarex Energy (XEC) was also a victim in the energy bash, falling 6% on the week. This stock is up big in the last two week after jumping 24% in one day on an earnings surprise. It went a long way to make up for some of the weakness over the last six months. So a small pullback in this area is totally normal. After a big jump like that a lot of people will want to take profit. And that makes sense. But longer term, with crude back on the move, exploration and production companies could be a good place to benefit.
Some Winners Too
But it ain’t just all about energy. We’ve got some winners in the mix too.
Of course the unstoppable Apple, Inc. (AAPL) was up, leading the pack with a 4.4% gain for a new all-time high at $548. This stock is just on fire. A lot of people have been calling for this kind of movement from Apple, and it’s finally here. That has a lot to do with big, institutional money; aka, hedge funds. I read an article this week that Apple is the #1 owned stock by hedge funds. So there is definitely a lot of big and fast money built into AAPL.
We also saw some solid movement from our fertilizer stock, CF Industries, Inc. (CF), trading within $3 of the all-time high at $195. This is another stock that has powerhouse earnings, projected to be about $23 this year. So a $200 price tag still has shares trading at less than 9X forward earnings. And with an industry average of 11X, you can see why CF looks like a great value play in the fertilizer space.
And finally, how about some VeriFone Systems, Inc. (PAY) action? This company makes those electronic machines that you use to swipe your debt and credit cards. Electronic financial transactions is a huge growth area, so owning stock like this is a way to play that trend. Shares were up 2.3% on the week, more than 30% above the low from October. As a small, mid cap, this stock has been a bit bumpy at times, hitting a new all-time high of $57 last year before falling back to $35. But with shares once again pressuring the $50 mark and earnings on the upswing, the story still looks strong. The company reports its Q4 results this week so we’ll be watching closely.
That’s all for this week. But until next time, here is a good article discussing sentiment between bears and bulls and who has the edge. Enjoy!
Hulbert: Best Market Timers are Bullish
Your Investment Partner,
Mike
