Wednesday, November 28, 2012

Stocks Ride The Political Roller Coaster

Yesterday the market was rallying on perceptions that progress was being made on the fiscal cliff.  Then Harry Reid came on tv and said the sides are still far apart.  That caused a market swoon right away.  This morning the markets opened very weak but then Boehner spoke with more comments about being flexible on tax rates and the market rallied a quick 100 points.

That is a huge amount of volatility on just political rhetoric.  But I don't think it is going away in the short-term.  I expect a lot more back and forth and political posturing that will continue to sway market sentiment in short bursts.  But we have yet to see any concrete progress other than words.

My guess is as time goes on the swings in the market will be less pronounced, but it does seem like we are going to continue to see the market rally on fiscal cliff hopes and decline on worries that nothing will actually get done before the deadline.  I am on record as saying that I think the best case will be a couple of items get addressed before 12/31 but the majority of the Bush tax cuts simply get extended until 2013 to kick the can down the road and give Congress more time.

Asian markets were lower overnight on concerns about US fiscal cliff.  China fell to a 46-month low.  A Japanese PM candidate suggested the country should employ unlimited money printing.  But at least someone is Asia is seeing a pickup in economic growth-- the Philippines saw Q3 GDP surge +7.1%, above estimates.

Europes markets are also lower this morning.  Spanish retail sales fell -9.7%.  And Eurozone private loans decreased 0.7%.

In corporate news, Costco (COST) is higher after reporting good same-store sales and declaring a special cash dividend of $7.00.  Analysts expect more companies with excess cash on their balance sheets to also declare special dividends.

Commodities are taking it on the chin today.  Gold prices fell close to the $1700 level and have started to bounce a bit.  And oil prices fell below the $86 level before but are also off their earlier lows.  Copper and silver prices are lower as well.

Trading comment: We mentioned the SPX in neutral territory between its key 50-day and 200-day averages.  This morning's selloff took the SPX down within 1 point of its 200-day support-- which is close enough for govt work.  Right on cue, buyers stepped in and the market began to bounce (aided by Boehner's comments).  But it supports the notion we laid out earlier this week that the 200-day could come into play if the market pulled back.  It's hard to forecast market direction short-term when so much sentiment is being swayed by political commentary, but that is the reality of things for the next few weeks.


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