Weak reports and weak volume = Higher Prices

In most markets this would not be the case, but with the US equity markets that is how things have been acting. Looking at the volume data from the NYSE, the bullish days have 35% or so lower volume than the declining days. The other very noticeable fact is that the market had several days where the overnight range of the S&P was two to three times that of the day’s range. Wednesday and Fridays lack of action can most likely be blamed on the Olympic hockey games, as the S&P pit traders were focused on the hockey game. However all the global governments guaranteeing global debt has led to real complacency in the market place. In fact, Thursday the market made a very impressive rally from a big decline. The S&P e-mini was down 1.67% and almost closed positive. The news that propped things?
An unconfirmed rumor that Apple would split their stock 4 for 1. Really?? Amazing isn’t it.

What caught the economists off guard before the market opened? Greece is teetering on the edge of bankruptcy and according data put together by Bloomberg, they have to repay more than 20 Billion Euros ($27 Bill. US) by the end of May. “A Moody’s downgrade may make it harder for the nation’s banks to fund themselves by making Greek government debt ineligible as collateral for European Central Bank loans.” The Durable goods report received major headlines due to a 126% increase in civilian aircraft orders. These are orders that can cancel too, not done deals. Outside of transportation, orders fell 0.6%. Core capital equipment and machinery orders dropped 2.9% and 9.7%, respectively, which are the important ones that determine the direction of the economy. Durable goods for 2009 were down a new record 20%. Jobless claims were up too. So, not great economic data.

We are very surprised at the willingness of buyers to push the market higher. Most of the push seems to be related to “technical trading” reasons, like the market doesn’t have much resistance above 1200. Or it has had a nice pullback to the 200 day moving average, which is normal in a bull market. We remain cautious, with the short term being overbought again and the complacency increasing. Our outlook is for more volatility in March.