Market Mood Appears To Be Improving

“The January retail sales data is not consistent with either same store chain sales or total vehicle sales during the sampling period.”

– Joseph Brusuelas, IDEAglobal

The surface rationale for today’s move is a stronger than expected January Retail Sales report from the Census Bureau. 

But I think a lot of doubt has to be cast on these numbers because, as Joseph Brusuelas points out above, the numbers are not consistent with what chain stores and automakers themselves have told us in the last week or so.

On this score, Barry Ritholtz points out that in understanding market action understanding the news is not enough.  You also have to understand the overall condition of the market (technicals, sentiment, overbought/oversold, etc….) to explain the reaction. 

Drop a lighted match on some dry wood and you get a fire; drop it on some damp wood and you don’t.  In scientific terms, the effect is always dependent on initial conditions.  I made this same point in a post explaining last Thursday’s action “Dreadful News + Dreadful Expectations = Flat/Up Market”.

That said, it feels like we are starting to get some constructive action in stocks. 

Markets held up towards the end of last week and we’re moving higher this week.  Investors seem to be dipping a toe back into the market, possibly on the assumptions that a recession is now priced into stocks and that the January 23 lows will hold, at least for the immediate term – something I’ve heard now a number of times (see, for example, Jeff Saut’s weekly commentary, “No Regrets?”, February 11).

I think we could be in a trading range (S&P: 1270-1400, Nasdaq: 2200-2400, Dow: 11,500-12,800) for a bit.

UPDATE (Wed 2/13, 10:30am PST): Technician extraordinaire Tim Knight of The Slope of Hope appears to be putting short term resistance where I indicated above: at the highs from Friday February 1 (“Danger Levels”, Wednesday February 13, 9:12am PST).

UPDATE (Thu 2/14, 12:20pm PST): In a post from this morning before the open, “No Fear”, Tim Knight does a good job of putting into a bigger context the recent up move in stocks.  It still looks like nothing more than a bounce.

I continue to believe we are in a range, capped by the values I listed above.