Larry Summers as next Fed chairman. Dollar hits five-week low. Gold up three weeks in a row. Oil drops under $105 a barrel. Dow closes higher for the fifth week in a row. S&P 1700 on tap. All are parts of the current landscape.
As traders we have to pull as much information together as we can to keep up, but it seems almost impossible to do. The algos have figured out most of the indicators. That is why you must continue to add to your trading tool box. It’s like a game of chess: We see 1 move and the algo sees the next 10 moves. There is just no way to bob and weave at every ES twist and turn.
As the S&P continues its grind higher, it has already rallied past most year-end expectations. Despite the constant drumbeat of the Fed tapering, the S&P futures are sitting at new all-time contract highs. While one would expect a pullback, the trend continues to be higher prices and buying weakness. It’s unlike any we have ever seen.
Long road from S&P 666
In our generation there will never be a more scary time than at the height of the subprime/ credit crisis. We called and called the S&P lower during that time and came out the day before the 666 low saying it was time for a bounce. After a 80-120 handle bounce we thought the S&P could reverse again, but who would have known that nearly four years later the S&P would be up a stunning 151%?
Despite continued mixed economic signals and a clear lack of job growth, the S&P continues to charge higher. The great American shakeout has left millions of investors and billions of dollars sidelined and uninvested.
One of the bright spots of the economic recovery has been the housing market. The Fed has spent billions keeping rates low to help bring homebuyers back into the markets and it has worked. One of this morning’s economic reports is pending home sales, which we bet will come in higher than expected.
On a recent trip to the south and west sides of Florida we found few deals for cheap houses under market value. Many of the nicer pieces of property are sold before they even hit the market. Many old homes are being bought up and knocked down to make way for new homes to be built. On our trip, in two days 4 homes we were to see were either sold the day before or sold the day we were scheduled to see them. Florida clearly has moved from the cheap liquidation phase into a rebuilding phase.
Jobs, Jobs, Jobs
This week will bring a flood of economic reports, but the big one is this Friday’s jobs report. MrTopStep has been pretty good at calling the numbers over the last several reports. That said, we expect the jobs numbers to be in line with the consensus.
Certain parts of the economy are working but the main one, job creation, remains elusive. In order to jumpstart the economy, job growth would have to exceed 360,000 jobs a month for an extended period of time. That is not in the cards.
What’s it all mean?
It means that all the rules have been broken. All the things we used to expect no longer work. The old idea that when the stock market is good so is the economy has been thrown out the window by QE1, QE2 and QE3.
The stock market and the rest of the economy are disconnected and the market is driven by factors other than overall economic progress. Maybe not now but at some point stock prices will come back in line with reality. The big question is when.