Not Ready

The market stalled at resistance once again today. Technically it seems destined to retreat from its highs.

Market commentators are crediting hot PPI numbers and a dour “pre-earnings” comment from GE for today’s poor tone. But the PPI numbers were released before the market opened and the session saw the NASDAQ and other indices rally to fresh recovery highs. And besides, the hotter PPI numbers were not much more than a reversal of the cooler numbers witnessed just last month. A trend has certainly not been established. As for GE, this is a company that has struggled throughout the financial crisis and as a turnaround strategy intends to focus on government incentivized businesses. If this was once a bellwether it is now captained by executives that seem clueless in how to weather this storm.

No, the market went down today because it simply wasn’t ready to move higher. Especially in front of an FOMC statement on interest rates to be released tomorrow afternoon. Speculation abounds as to whether the Fed will alter policy or the accompanying statement, but this is a Fed that has been cautious to a fault in not surprising the market. We doubt they will change their statement about rates being held at low levels “for an extended period” without amply telegraphing it in advance. Thus far there hasn’t even been a hint.

While market prices are likely to continue to “fluctuate,” as J P Morgan once famously said, we still believe another leg higher remains a likely resolution. Provided the Fed is not ready to remove accommodation, and we clearly don’t believe they are, they have provided sufficient stimulus to the economy to induce solid growth. We believe the market will rally into what it anticipates to be “better than expected” Q4 earnings.

In the meantime we are encouraged that stocks have held up in the face of an aggressive move higher by the U S Dollar that does not seem anywhere near over. With each day that passes the link between the two asset classes, that have been inversely linked all year long, appears to be weakening. Stocks and the dollar rallying together would be a heartening turn of events and a sign that we are awakening from what has been a national nightmare.