The After Christmas Message Is That You Better Watch Out

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The question of the day is whether U.S. equities are in a real (corrective) contraction, meaning a bear market, or is this just a little sweeping out of the ashes from the fireplace of 2015.

A second, more compelling thought concerns how the markets reflect the true state of the American economy. Apparently, the Federal Reserve and the IMF think the U.S. machine is doing just fine.

We also believe that the “China Effect” is being overstated by nervous hands scurrying about the trading floor at least when it comes to its possible disruption of the American economy proper.

Of course, many American companies have exposure to now-shaky economies like China, Brazil, Russia and parts of Africa. However, some companies do so much manufacturing and selling outside of the 50 states that their stumbles are not terribly germane to the general economy.

Apple is a good example. Many tech companies fall into the same category. That is why we have been seeing the NASDAQ tumble harder than the more industrial and service-oriented DJIA and S&P 500.

Of enormous interest to our macro view is the price of crude. Both West Texas Intermediate and Brent North Sea probed the $32 support level and bounced off of it. That is good news, but it’s the kind of good news that says, “Hey, ma, I didn’t wreck the family car. I wrecked the neighbor family’s car.”

As of 3:30 in New York, WTI crude is trading close to $33.00 per barrel. A weaker dollar, which should drive the price of oil up, is not helping crude at all.

That weaker dollar is indeed helping gold to ride the rocket. Almost $11.00 of today’s price rise is attributable to dollar softness. The other $5.50 is due to regular trading. We do find it interesting that the interest in regular trading of gold is not stronger. If the equities are so miserable, why isn’t gold operating as even more of a safe haven?

The other traditional haven – the government bond – is on the rise as yields continue to fall. But trade remains choppy and no one seems willing in the realm of bond trading to declare an equities bear just yet.

We eagerly await tomorrow’s Labor Department employment report. ADP reported a very rosy 257,000 private jobs created in December, lending credence to the Fed’s view that the U.S. economy remains if not hot, and then very, very warm.

If Labor’s data is on target or better-than-predicted (as was ADP’s), look for the stock slide to falter.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer