About that Rally...

Brit Ryle

Posted January 7, 2023

On Wednesday, I discussed the possibility that a rally might be brewing. For Exhibit A, I pointed out that the S&P 500 held above support at 3,818 for 10 of the previous 11 days. Exhibit B was the simple observation that stock prices in general had held pretty steady, even as the newsflow leaned negative – with a downgrade for bellwether Microsoft (NASDAQ: MSFT) and negative demand news for Apple (NASDAQ: AAPL) and Tesla (NASDAQ: TSLA).

The thing about negative news is that it gets tiresome. A person can only hear that the world is going to hell in a bucket so many times before the message starts getting tuned out. And in the specific cases of both Apple and Tesla, investors have been getting beaten over the head with the “weakening demand” stories for at least three weeks…

Apple has been selling off since December 13, when it opened the day for trading at $149.50. As of yesterday’s close, that recent decline took Apple down 16% And it was even worse for Tesla – since it closed at $179 on December 9, the shares have been crushed by 38%.

Nothing really new has been added to the bearish case for Apple or Tesla in the last few days. And there’s only so many times a cry of WOLF! can be repeated before investors just don’t feel the need to come running anymore…

This is why we see shows of support at various index levels, like what we’ve seen at S&P 500 3,818 over the last 11 days. In a nutshell, there just hasn’t been enough new information to  send prices lower. And that’s when the market gets ripe for change in direction…

Now, I don’t mean to oversimplify this discussion for any readers who are active traders. And I don’t mean to talk down to any readers who are new to this game. It’s just that, in the years that I’ve been trading and investing, I’ve found that a simple approach to technical analysis and chart-reading works best for me. I hope you find it useful.

Anyway. Moving on…

Basically, what I am saying is that investors/traders were looking for a reason to be bullish and push stock prices higher. And they got that reason with today’s Non-Farm Payroll data from December. 

December Payroll Data

Now, to anyone who follows the monthly Non-Farm Payroll data, let me just say I feel your pain. I don’t know for sure that reading economic reports is considered a form of masochism, but it should be. 

And I’ll be honest: I don’t read them in their entirety anymore. Now, I’d appreciate it if you didn’t tell anyone I said this, cuz I don’t wanna disillusion anybody, but the truth is: it is more than adequate to just check the synapsis of important economic reports from Bloomberg or Wall Street Journal. And really, when you get right down to it, it’s the market’s reaction to new data and news items that really matters. 

Now clearly, investors are pretty excited today. Investors were hungry for some good news, and they got it from part of the payroll report concerning wage growth. Wages didn’t grow as much as they did in November’s report. 

Wage growth is an important component for how the Fed interprets inflation data. To make a long story short, if wage growth slows down, maybe that means inflation is slowing too and the Fed may not have to push interest rates as high as some now fear. 

Now, earnings from the 4th quarter start up at the end of next week. JP Morgan (NYSE: JPM) and Bank of America (NYSE: BAC) are slated to report on Friday, January 14. The Fed doesn’t meet again till the end of the month. Don’t be surprised to see the market give back some of today’s move next week. But the start of earnings season is likely to to be bullish, and put a cap on any downside. 

That’s it for me today, have a great weekend and I’ll talk to you on Monday.

Brit Ryle
Pro Trader Today