Today’s intraday outlook for market direction is focused on the upcoming long weekend. The drop in Japan I believe has little to do with the United States. I watched CNBC yesterday when the CEO of TD Bank was talking about his bank’s returns. TD had a very good quarter and today TD Bank is the 8th largest financial institution in the United States. TD Bank is well-managed and as the CEO explained, their bank is not a lender of “last resort” when it comes to mortgages for home owners and yet demand is rapidly increasing. The CEO commented on the strength of the US economy and pointed out that the growth within their banking sector shows the underpinning growth of the United States in general. He believes the scaling back of QE in an orderly fashion is important for the economy and for markets in general. I believe Japan’s stock market problems are related to their style of quantitative easing and investor’s expectations.
Bernanke’s Style Of Quantitative Easing
Despite which side of the Bernanke fence you are on, the US Fed Chairman has been clear with his plans and his policies when it comes to his form of Quantitative Easing. Despite the opinions of the various Fed members and their comments in support or against QE, I believe Bernanke’s brand of easing has not ever been a “wishy-washy” “maybe we will or won’t” method which is what Europe and now Japan have done.
European Recession
Europe is in the midst of a recession and yet stock markets in general are sitting near and at all-time highs on the expectations of investors that the QE program will work and inflate assets like stocks. Therefore investors in Europe have pushed stocks up to unrealistic highs in many cases on the expectations of recovery.
Japanese QE
In Japan their stock market reached new highs in very short order once again on the belief that the money printing will inflate assets. But there is also one other aspect to quantitative easing which investors rely upon.
Government Backstop
It is the belief that the governments will be there to basically make sure these assets do not collapse like they did in 2008 and 2009. Many investors believe that the government is the backstop to their investments. I believe this is a key mistake. At some point the quantitative easing programs will wind down and assets will have to stand on their own backed by fundamentals of revenue growth and earnings increases. The Japanese markets basically shot up after the government’s QE announcement based on investors seeing the results of QE on the US and European stock markets. The rise in the Japanese markets was artificial based on investor enthusiasm and not sound fundamentals. The collapse of their market is not surprising at all.
S&P Market Direction Intraday
Intraday we can see that the bulls are still hanging tough and the “buy the dip” scenario is still with investors. Today’s market direction heat map shows a lot of neutral colors indicating that many stocks are not being sold. What’s missing though is a lot of green, so overall the market direction remains sideways with the bias down.
Stock and Option Comments
The one stock that really stands out on today’s heat map is Procter and Gamble Stock. (PG) Procter & Gamble Stock is up big today after the company announced that it is bringing back former CEO A. G. Lafley. Investor enthusiasm is pushing the stock back to its most recent high.
PG Stock is nearing its most recent high
Meanwhile Google Stock (GOOG) is continuing to decline aftersetting an all-time high of $919.98 on May 16. The stock today touched an intraday low of $871.22 marking a decline of 5.3%. Right now this is simply a correction but a further 5% drop and it will become a problem for investors.
In Canada National Bank (NA on the TSX only) handily beat earnings estimates coming in at $2.08 a share but on lower revenue than the pervious year same quarter. It hiked its dividend 4.8% and announced a further share buy-back program. National Bank stock is up 1.6 percent to $77.00 and pushing toward its most recent highs of $78.84 from back in February. National Bank Stock trades in Canada on the TSX. It does not trade in New York.
Durable Goods Report
The durable goods orders for April rose 3.3 % after a 5.9 per cent decline in March. This was way above analysts prediction of a rise to 1.5%. The figure was buoyed by more demand for military and civilian aircraft and an increase in business investment. It’s hard to say if this will have any impact on Bernanke’s decision whether to scale back Quantitative Easing earlier than the fall.
Market Direction Intraday Technical Outlook
The technical outlook for the market direction remains reasonably good still. Today’s open retested the low from yesterday. You can see this plainly in the 5 minute, 5 day chart of the S&P 500 below. The pattern of lower highs is not yet established although it does exist, but until the S&P 500 breaks the lows from yesterday and today, the market direction remains mixed.
Market Direction Intraday for May 24 2013
Market Direction Outlook Intraday
The best to hope for today would be for the market direction to close near the highs. If the market direction closes below the opening low we could see a lot more selling into next week after the Monday holiday. Personally I am still looking for the market direction to stay off the early morning lows and even try to close slightly up although that could be difficult with the long weekend approaching. Few investors will want to put in place new positions ahead of the long weekend.
Market direction then for the rest of the day I see as relatively unchanged from last night’s market direction outlook – sideways with the bias down.
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