A Recap on the Stalking-Market Plunge

 | Dec 30, 2012 | 2:30 PM EST  | Comments
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Yes, for this weekend of political theater, my two-week-plus bearish market call has remained in play. Since teaching people about the markets is a personal mission of mine, below you will see tidy lists of items I have drawn from my daily studies -- and ones I've communicated -- dating back to the Dec. 21, market plunge. Peruse these oddities, take notes and then holla at me with additional questions on Twitter @BrianSozzi.

Dec. 21, 2012

● Markets fell around the world, indicating the U.S. is the straw that truly stirs the drink. To me this says that, if the U.S. does enter into a cliff-induced recession (likely translating into sub-1% gross domestic product growth in the first half), the nascent China economic recovery could stall by the end of the first quarter of 2013. China remains very export-driven, even despite the government's efforts to promote consumption -- and if the China crutch goes, so does the bid under many industrials, among other sectors.

● Yes, the S&P 500 shaved Friday's losses into the close. But, in my view, this was based on optimism that a place-marker cliff deal was set to emerge this past weekend -- a pre-Christmas gift to the world from Washington politicians.

● Mr. Market is telling you the data is altogether backward-looking and irrelevant -- and that, because of the fiscal cliff, these numbers have no chance of strengthening or even being sustained into the first quarter. Earnings estimates, therefore, are too high.

● The Nasdaq outperformed the Dow by 1.3% last week, largely as a function of Apple (AAPL). I've snooped around a bit, and I believe the other underlying components of the index may show caution on any impending first-half revival in material capital-expenditure spending -- which I would hope will emerge as more of a slow build. It makes one wonder if, for instance, Oracle (ORCL) was too optimistic with its commentary, and I also wonder how less fortunate companies will fare in six months' time. 

Dec. 24, 2012

● The Dow Jones Transportation Average and the S&P Railroad Index have been tapering off in a sneaky, methodical manner since Dec. 17. When I look at these charts, it apperas as if the market is trying to whisper to the smartest bulls that they should cash in on their chips -- chips won on falsehoods, rather than  on substantive information.  Further, the direction of these U.S.-oriented indices continues to reflect hope that the U.S. will avoid a cliff-induced recession in the first half of 2013.

● I have maintained that such a recession will be narrowly averted -- but if stocks dive in the next two weeks, that may strengthen my reservations on that assumption. Earlier in the week I assigned an above-average probability that the markets will soon undergo a down day even more profound than what occurred Dec. 21. This has been fed by the following ruthless concoction. First, it looks as though stop-gap fiscal-cliff deals will be delayed into the start of January . Second, any such stop-gap measure will likely trigger a credit-rating downgrade while politicians craft a hurried, half-baked final piece of legislation.

● I like to live dangerously -- as you see by Twitter avatar -- and will toss this out there. As we speak, it's possible the path is being laid to a slight contraction in U.S. gross domestic product. Consider, first, two dreadful reads on consumer confidence; in fact, I anticipate this week's Conference Board report will fall sharply from November highs and increase the angst on the health of the consumer. Second, in almost three months, profit-growth estimates from S&P 500 companies have shed 700 basis points to around 3%, and profit warnings are outpacing positive preannouncements by a more than a 3-to-1 ratio. I'm not sure how you interpret this, but I see it as a meager level of profit growth that carries greater risk to running negative and surprising the still-too-amped Wall Street.

Dec. 26, 2012

● One leg of the recovery, the consumer-spending rebound, is being eaten away by termites. A spending retrenchment is highly probable in the first half of 2013, and the telltale signs thereof began in November -- such as a slight contraction in retail sales. Currently, this is all in the process of transmitting to stock prices as the earnings trajectories evolve for the worse in consumer-facing companies.

● Off-price retail stocks TJX (TJX) and Ross Stores (ROST) are no longer working. Ideally, these trade-down names would catch a bid as more discretionary retail stocks head into the trash bin. This phenomenon -- a lack of rotation into retail safe-haven stocks -- constitutes an indictment on the entire economy. It could even indicate that small-business job creators are cautiously planning hiring and raises. In a Tweet-able moment, #TrickleDown.

Target (TGT) and Wal-Mart (WMT) have crumbled from the beginning of December, yet they've continued to lose ground on the negative holiday-sales news.  That means the true direction of consumer spending six months forward is not priced into the stocks.

● Consumer staples are outperforming on a relative basis. That's pretty interesting, in my view, considering these are the dividend payers that the market has dumped due to the fiscal cliff and its implications regarding capital-gains taxes. In order to protect capital, market-goers are more willing to be exposed to higher taxes and slow-growth stories, and less apt to indulge in growth-type names that could be pummeled by an upset market.

● The U.S. Dollar Index peaked near Nov. 12, and it's been in steady decline from there -- yet gold and silver prices have not perked up. This means 2013 deflationary forces from real U.S. economic conditions -- which have implications on a China recovery -- trump extraordinary Federal Reserve accommodation in terms of rates and balance sheet.

● Oh yeah, and how is that platinum chart looking? That's what I thought.

Dec. 27, 2012

● Stocks that log a material down day are not snapping back in the following session. I interpret this to mean that these stocks have not been sold unduly; they technically deserve a bloodletting, given changing earnings outlooks. In fact, the market seems to be the only entity recognizing the changing outlook at the moment. People are still looking for 3% earnings growth among S&P 500 companies for the fourth quarter.

● Have you been lulled into believing that 2013 will see the economy create 160,000 new jobs per month, no matter the lingering fear of the fiscal cliff? If so, the price action in Paychex (PAYX) suggests you better wake up, and quickly.

● Approximately 61% of NYSE stocks are trading above their respective 200-day moving averages. It sounds simplistic to say, but the outlook for 2013 is vastly different from that of 2012, so this percentage has to narrow.

● Financial stocks have generally held at key technical levels on the charts. That's a good sign, right? Wrong. If the market goes south, like I imagine it could, a selloff in financials will only feed into the negativity. What stands to cause a slide in the financial space, you ask? Well, there's the fact that recent housing news is anything but supportive of the recovery thesis. We also saw an unfortunate revision to October new-home sales, which fits snuggly with two poor consumer confidence reports.

● The market is reacting harshly to new information, rather than viewing it as an oversold buying opportunity. Two sector call-outs here are retail and homebuilders.

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