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After a blistering open to the year — markets gained ~5% in the first 3 weeks — this past week was kinda flat — S&P added one point (not % — but a point) while the Dow lost 1/2%. Nasdaq, dragged upwards by Apple might Quarter, gained 1%.

The key question here is whether this is a pause that refreshes, a temporary break in the upwards action to consolidate recent gains, or whether the long awaited topping out has occurred. Lots of folks seem to be voting massive double top — from the 87 year old Joe Granville to the younger traders, there seems to be a groundswell of people thinking the market rally is finished.

Earnings so far this Q have disappointed. The January rally was merely an excess cash deployment, in their opinions, and is destined to fail.

On the other side are those people who believe the economic data is slowly improving, and its foolish to fight the Fed. Doug Kass believes this to be a consolidation.

Markets have been ignoring bad news out of Europe, not been disturbed by the raucous US elections, and mostly shaking off earnings news — is it denial, an eventual eureka moment or priced in? I suspect its none of the above — rather, the trader anticipation of a moon blast on the next QE announcement. Earnings? Fundamentals? PaShaw — its all about the power of the Fed’s mighty printing press. Indeed, in the post 2007-09 snapback rally — spitting distance from up 100% off of the SPX lows made March 2009 at 666 — its been a money loser to fight the Fed.

As to whether (or when) we top out, I have no opinion as of yet. I prefer to see more evidence that the rally is over before changing portfolio weightings. Otherwise, we are merely guessing.

More on this to come . . .

Category: Federal Reserve, Investing, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

9 Responses to “Consolidating Early Gains or Topping Out?”

  1. Dave B says:

    S&P 500 4Q update: Still disappointing, but Week 3 was better
    Week 3 (1/23-1/27) was key for 4Q11 earnings season, as a third of S&P 500 earnings were reported, bringing the cumulative total to 56%. Of the 196 companies that reported, 49% beat on EPS, 46% beat on sales, and 32% beat on both. This has been the worst earnings season in terms of surprises since 4Q08. Since the start of the recovery, positive EPS and sales surprises have averaged 60% and 61% respectively, with 41% beating on both. The high number of misses this quarter has largely been attributable to a tough quarter for Financials and headwinds from a stronger dollar, lower natural gas prices, and European weakness.

  2. dead hobo says:

    Thank you for asking. I bailed Friday. I made some decent scratch, although it wasn’t as much as I had expected when I bought in. FYI, shortly after my first buy, that idiot Greek PM asked for a Greek vote, causing the world to see Europe as a continent of idiots, and subsequently crashing the market with great pessimism. While the market has the possibility of going up a little, it is certainly spent for now and will oscillate back down few percent. To my surprise, the funds I was in all went up on Friday. I was pleasantly shocked when I discovered this.

    Greece going default will hurt a little. I don’t believe the happy talk out of Europe on this subject at this time.

  3. [...] Barry: Massive double top forming or the pause that refreshes?  (TBP) [...]

  4. Jim67545 says:

    I’m approaching “all in” so it’s time for everyone else to run for the exits.

  5. Ted Kavadas says:

    I’m seeing a lot of indications from technical, fundamental, and other standpoints that the stock market (as well as other markets) are in a rather precarious situation here.

    For those interested, my latest post on the topic of what I see as a building level of danger in the financial markets, and its implications :

    http://economicgreenfield.blogspot.com/2012/01/building-financial-danger-january-11.html

  6. Petey Wheatstraw says:

    Seems I can almost feel the psychology changing.

    When the sun came up and we saw the damage we had done to our hotel room, we decided to turn the music up and slam a few more beers. Now, it’s 10 a.m. (late morning in America), and we haven’t slept, we’re late for work, we reek of the excesses of the night before, and the housekeeper is knocking at the door. It’s beginning to dawn on us (a little late, and pardon the pun), that this will be a really shitty day, and there’s not much we can do to change it.

    If the markets go up from here, we’ll take a hit somewhere else (the dollar). We are long-term, fundamentally and irrevocably screwed.

  7. CANDollar says:

    Facebook IPO is indicator of topping out.

  8. This week is very important technical point of view. We haven’t had any pullbacks in over a month and we have had many breakouts in these time frame. Market needs time to digest this gain before breaking this level. But again nobody can predict this market so I am relying on a Market Breadth model and overbought/oversold model to decide markets move.

    As you said I don’t see any bearish indication from markets so i am not bearish just yet until proven otherwise….

    Thank you for sharing your view….

  9. Concerned Neighbour says:

    We need a new term to describe the stock market. It is less like a market with every passing day. Witness the daily manipulation of the futures, for example. I don’t know why more people aren’t talking about garbage like this.

    The investment case for equities the last three years has been “there’s nothing better”, or “don’t fight the Fed”. What could possibly go wrong with that approach?