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The stock market remains in a bad position, as the US has spent its way into a massive hole and it would seem like the US economy is in need of even more spending to nurture forward progress in the economy. Maybe Obama will say tonight that he is going to fully halt spending immediately after his term is over. While the market didn’t make too much out of the sharp decline in existing home sales earlier this week, weakness in housing figures has already fostered talk that the US housing market is still unable to carry its own water. Therefore, we suspect that the new home sales report this morning will be fairly critical and it is imperative for the bull camp that something positive is seen from the data, as the market remains vulnerable off a host of themes. In fact, with favorable US corporate earnings reports generally taking a back seat to macro economic and political concerns, the best outcome from the State of the Union address tonight, might be to see less initiatives pouring forth from Washington. Usually we would expect to see a stock market bounce in the wake of the FOMC statement early this afternoon and we would also expect to see a run up Thursday, when Bernanke is confirmed, but in the current condition, business leaders and investors just have too many uncertainties to be pulled back into the stock market in big numbers. Instead of predicting a rally, we think the market needs good numbers, a good auction and a favorable FOMC statement just to avoid more weakness.
S&P 500: It looked like the S&P might be able to forge a classical reversal signal on the charts yesterday but that hope was dashed with a late slump. Clearly the economy lacks momentum, political uncertainty is extremely high and the markets are also off balance because the Chinese are enforcing prior tightening intentions. As suggested in other sectors today, the bulls might catch a minimal lift off the scheduled data flow this morning and that upward tilt might be fanned by the US action and by the FOMC statement, but on any bounce today, we would think that those holding longs into the close, would be facing a significant risk into the next round of Obama initiatives. Critical support is seen down at 1081, with even lower support seen down at 1073.
DOW: With the markets failing to post a key reversal after another new low move yesterday, the technical bias remains with the bear camp. In looking at the totality of the fundamental case, the bear camp would also seem to have the edge. As suggested in the introduction today, the Mini Dow probably needs a series of favorable developments just to keep the selling pressure to a minimum. After the biggest stimulus program in the history of the US seen last year, it would seem like Obama is poised to push child care credits and a further pounding of Wall Street, as the solution to further slowing. All things considered, Obama has painted himself into a corner by offering up the promise of a spending cap, when it is possible that more stimulus efforts will be needed. While the market might forge a weak rally off housing news, the auction and the FOMC statement, we doubt that the trend is going to be pointing up into the close today.
NASDAQ: While the bull camp might want to point to a collection of closes around the 1797.70 level, as some sign of consolidation support, the big picture look on the economy is suspect and overall uncertainty abounds. In addition to a Congressional grilling of Geithner today, the market is also seeing the end of the grilling of Bernanke and it is also likely that some portions of the press will be poised to grill the President after his speech tonight. In short, strong tech sector earnings did nothing for the market and we suspect that nothing will support stock prices, until they get cheap enough to equate to the lack of direction in the economy. Initial support is seen at 1785 and then again down at 1774 and therefore we have to leave the edge with the bear camp.
TODAY’S MARKET IDEAS: Too much uncertainty and little if any interest in favorable earnings news suggests that the bear camp retains control over prices. It might pay to buy a near to expiration option strangle.
