Where Did All the Sellers Go?

So much for the sellers taking control… the buyers were back today and essentially erased the selling from Monday and it is business as usual? Retail sales were better than expected and business inventories rose to put buyers in a good mood from the open. Import prices didn’t increase at all helping the inflation picture. Overall positive economic data set the tone for the day… the opposite of Monday.

More rattling about the stimulus cuts today as Fisher stated he wanted $20 billion in cuts as the first efforts are made to reduce the Fed involvement. However, that news didn’t impact stocks today as traders were more interested in the positive economic data. Short term the market is on an emotional roller-coaster. This means we have to be patient and look for the opportunities as they are presented.

Actionable items of interest today…

Wells Fargo and JP Morgan disclosed in earnings today that the mortgage origination business has slowed to a snails pace. Both banks recorded drops of better than 50% in loans for both refinancing and home purchase. They sold off early, but thanks to a positive market environment essentially closed unchanged on the day. This does raise questions looking forward for the lending business, but many analyst expect the banks to get more aggressive in marketing and originating new home loans. The bump higher in mortgage rates has impacted those seeking new loans as well. Despite the bad news both met expectations on earnings and revenue.

Banks as a sector were up only 0.4% today and financials overall gained 0.8% lagging the broad indexes. The news from Wells Fargo and JP Morgan weighed on the sector and puts it on watch as more earnings hit the tape this week. Bank of America gained 2% despite the news and they report earnings tomorrow.

Retail as a sector was down 2.9% on Monday leading the broad indexes lower on the day. Today they got a shot in the arm to help the upside as December numbers were better than expected. They rose 0.7% ex-autos, and 0.2% inclusive. The positive data helped the equity markets regain lost traction from Monday as the retail sector rose 1.1% and XRT remained well below of support at $85.30, but above the next level of support at $83.20. Scanning the sector leaves plenty of questions and plenty of broke charts technically. Worth watching, but the bounce today may be nothing more, and the downside may resume control as online sales are growing versus brick-and-mortar sales stall and drop. That is bad news for the retailers themselves, but positive for the economy.

Healthcare also returned to it’s winning ways with a gain of 1.2% erasing the selling on Monday. Biotech was back in the lead gaining 3.6% on Tuesday. Small cap stocks were the leader for IBB. Some rumblings by analyst that the impact of the Affordable Healthcare Act is being fully priced into stocks in advance of the program being fully active. Watch the sector and hold on as the story unfolds.

Analyst upgrade to the semiconductor sector has helped the SOX index gain 2.2% today. Intel is leading the upside as positive comments on PC sales or projected sales rise for the first time in nearly two years. Hewlett Packard, Microsoft, Lenovo and Asus all beat estimates relative to their respective PC business. SMH was up 2.6% and broke above resistance at the $42.25 level as well. The uptrend that started in late August remains in play on the upside.

China (FXI) is attempting to build a bottom near the $35.50 level currently. The questions relative to the outlook for the economy and financial/banking system are winning over the positive comments from some analyst, but leaves others worried.The up and down movement over the last week is setting in and could give an upside opportunity if some positive sentiment returns to the country near term.  A break of the new support at the $35.50 mark would be continuation of the downside and something to watch for short trades. However, if the consolidation results in a continuation of the upside move it would offer some short term trading opportunities.

Bonds (TLT, IEF) are getting a rotation of money as money finds its way to safety or trading opportunities. The reality of the trade is simple, fear prompts money flow to bonds. If the fear is eliminated relative to the outlook, it may very well rotate back to stocks. Interesting trading opportunity, but not much more at this point.

Bottom line… the market cannot make up its mind relative to the economy and earnings. Both are driving the daily activity, but neither is winning the war. The key is to remain patient and pick your direction as this all unfolds. The micro trend took a hit on Monday, but bounced back on Tuesday. We are still heading sideways as all this moves forward. One day at a time is all we can do. Watch, listen and act according to the discipline you deploy relative to the markets looking forward.