D&D Note (5-1-2012)
The DOW hit a four year high today closing at 13,279.32 up .50% on the day. The rally was fueled by a rise in American manufacturing. The ISM (Institute of Supply Management) monthly index rose to 54.8 in April up from 53.4 in March (a reading above 50 means growth in the sector). This was the 33rd month in a row we saw growth in the sector.
The S&P 500 gained .57% to close at 1,405.82. The Nasdaq only rose .13% to close at 3,050.44 after Apple (AAPL) turned the gain today into a minimal loss, call it it a flat close for the stock.
China manufacturing data also came in good continuing the rise for now five straight months, helping to calm the fears of a “hard landing.”
We seem to be in a sideways correcting market, stuck in a trading range – and at the high end of the range. Data and earnings keep coming in good making the case against QE3. However since we are in an election year (even though the FED is not politically aligned) if we continue to get bad jobs numbers that paints the case for QE3.
Keep in mind the FED has a duel mandate in 1) inflation and 2) unemployment.
The problem is that while QE helps the stock markets it hasn’t ever really shown to help unemployment.
Interestingly Paul Krugman made the case yesterday that we in fact need higher inflation to bring us out of what he calls our current depression. Explaining that it was the inflation coming out of WW II is what kept us out of slipping back into depression (where the war itself is what got us out of depression).
A great debate took place yesterday between Paul Krugman and Ron Paul. Going back to the Gold standard was Ron Paul’s argument, although at times it was unclear just what Ron Paul really was arguing for – at one point it seemed like he would like to see each state go back to choosing their own currency be it gold, dollars, or sea shells.
If we did go back to the gold standard experts say that we would have to re-price gold up a few thousand dollars – basically creating an artificial market like what we have today in the FED. Ughhh, for every positive point there is a negative point and in the end it seems we get back to square one no matter what path we choose.
Apple (AAPL) closed today on the 50-day SMA (Simple Moving Average). The 5-day SMA is pointing up, and we could see a rally tomorrow through the 20-day SMA which would put the stock back up $600.
Right now we are seeing rather unusual movement in Apple due to the stock being, well Apple. Many people have begun trading Apple this year and are not used to the technicals in the equity. Hedge Funds are basically playing all these new longs and creating the volatility in the daily trades.
Don’t forget why Apple blew out earnings – China. Apple continues to gain market share in China and will continue to be an upside catalyst in iPhone sales. However, don’t be surprised to see sideways movement in the stock following the market (or the market following Apple) over the next few months. Without a major product launch in this quarter it will be difficult to have another blow out earnings quarter which is why the company lowered guidance.
Gold continues to also move sideways which to D&D is a good thing. Why? Because now it can create that Fib Floor in the asset price. How the metric works is you take the gold close today and compare it to 4 days back, if it closes above the price it did 4 days previous and that happens 9 times in a row then that creates the new floor. Historically once Gold has accomplished that metric the price has never fallen below that floor.
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