Looking For Consolidation

Charts: The S&P 500 closed at 1105, up 1%. Volume patterns are still bearish and the 50-day moving average is still providing resistance. The index is fractionally above its October high. In five months it has gone nowhere. Chartists see things as black or white, rally or correction. Very few want to forecast consolidation. However, consolidation (tight range bound trading) is healthy if volume is light. And we are certainly seeing light volume although a clear trading channel has not evolved because the sideways movement has been loose and sloppy. If it tightens up and looks to stay range bound for a long time, we will have a stock pickers market. In that case we can put some money to work.

Fundamentals: Yesterday’s Case Schiller data was bad without the seasonal adjustment; with the adjustment it was so-so. New home sales data today was very bad. Fed Chairman Bernanke softened the blow by saying interest rates will stay low as far as the eye can see. This week’s treasury auction has been very sloppy so far with yields jumping again on the 10-year. An all time record amount of debt (about $138 billion) has to be shoved out the door to make room for more gigantic auctions. Adding to the debt load, Congress is busy passing a $15 billion jobs bill. But the bill isn’t capped at that amount; it’s an open ended commitment to subsidize all new hires that have been out of work for a certain length of time. The real price tag will be closer to $30 billion (it’s only Monopoly money, right?). Goldman Sachs estimates Taiwan’s Q4 GDP grew at a superb 18% (annualized). Emerging Asia is our best friend, next to the CIA, USMC, and gridlock.

Geopolitics: A NATO spokesman said the alliance is facing a shortfall of 1600 trainers in Afghanistan as an alliance conference wound up today bearing very little fruit. The repercussions of Holland pulling its army out of the war are beginning to be felt. Def. Sec. Gates is trying to get the European countries still committed to Afghanistan to essentially send only trainers and scale back any other type of troops. He’s scrambling to fill a hole with help from Europe as the White House gives him the cold shoulder. Thursday is Obama’s big healthcare media event so he’s busy.