David Fry came up with that meme to describe how markets can rise on bad news. This happens when the Bulls seize upon the idea that the worse the news is, the more likely it is that the Fed will step in and rescue the markets. This is called the Bernanke put. This type of action happened yesterday when the markets rallied in the face of horrible consumer confidence data. Of course good news is still good because that means the economy is doing better. Yeah, I know it makes zero sense but that is the way the markets work.
Today we got some bad news and some good news. On the bad news front, factory activity in the Midwest slowed to its lowest pace since November 2009. Factory activity was still growing but it was growing at a slower rate.
The good news came in another report which showed that private nonfarm payrolls grew by 91,000 in August. The ADP report showed that turmoil in the financial markets and weakening confidence has not affected hiring all that much. The much anticipated government August jobs report is out this Friday.
More good news came from the July US factory orders report from the Commerce Department which showed a huge jump in the demand for autos and airplanes. In fact, it was the biggest jump in the demand for autos in 8 years!
"The Commerce Department says factory orders climbed 2.4 percent, the largest increase since March. Orders for motor vehicles and parts rose 9.8 percent, the largest one-month gain since January 2003," said the Associated Press. This is likely related to Japan auto and parts production coming back online after the Fukushima earthquake devasted manufacturing there.
In other big news, the Justice Department has filed a complaint in the US District Court of Columbia to block the planned merger of AT&T and T-Mobile which would create the biggest wireless company in America on the grounds that it is anti-competitive.
"AT&T's elimination of T-Mobile as an independent, low-priced rival would remove a significant competitive force from the market," said the complaint. "Thus, unless this acquisition is enjoined, customers of mobile wireless telecommunications services likely will face higher prices, less product variety and innovation, and poorer quality services due to reduced incentives to invest than would exist absent the merger."
The deal would have reduced the amount of major wireless carriers in the United States to just 3, Verizon, AT&T and Sprint. Consumer advocates argued that it would reduce competition, raise prices and result in poorer service.
AT&T stock dropped 4% on the news and Deutsche Telecom, T-Mobile's parent company dropped 5% in overseas trading.
Stocks rose as much as 150 pts on the DJIA before paring gains. As of 1:00 PM PST, the DJIA was up 53 pts, Gold was unchanged and oil was down a small amount. European shares rebounded strongly after underperforming recently with the German DAX up close to 3.0% and the London FTSE up 2.5%.
Stocks I am watching today include AAPL which is selling off hard today, much more than the overall market. I'm not sure why except maybe simple profit taking after a nice runup. There seems to be a resistance level around 391-392 that it can't seem to get past. The stock opened on the highs around 392 and steady selling has dropped it to 384.
I am also monitoring the small caps stocks via IWM which are also underperforming today. Small caps have run up much more than the overall market the past week or so, so a little profit taking is to be expected. I will become more concerned if the weakness persists. As you know, I have been watching small caps to signal turns in the markets so let's see how they close today. If they can close green, I will consider it to be positive.
Strength is found in manufacturing stocks that had been absolutely obliterated in the correction. CAT for example had been as low as 79 but has rallied furiously over the last week to 94. Thats almost a 20% move in a week and a half! That's some nice coin there. It is concerning to me however the big turnaround today in CAT. After hitting a month high at 94 it has dropped 3.50. This could be a big turnaround day.
I got stopped out of XLE today at the lows of the day. I had been keeping a shallow stop and raising it as I went along. Unfortunately, I set my stop a little to high and it triggered when XLE went down to 68.00. It quickly bounced back and ended the day around 68.50 costing me some profit. Still, I made another 4% on that trade so I can't be unhappy. Its uncanny how those market makers can fish for those stops.