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Jeff Saut: Will the Upside Continue Into Year-End?


Likely, yes, as under-invested portfolio managers continue to chase stocks.


Editor's Note: The following article was written by Raymond James Chief Investment Strategist Jeff Saut. It has been reproduced with permission for the benefit of the Minyanville community.

Both ISI's Trucking (+4.9 in two weeks) and Tech Company (+5.9 in two weeks) surveys were up the most in two years. Over the past two weeks, ISI's Retailers Surveys have increased +7.0. In addition, unemployment claims have fallen sharply over the past two weeks. Vehicle sales were stronger in November at 10.9M, pending house sales have jumped +16.9% over the past three months. The Dow closed at a new high yesterday, and Bloomberg Financial Conditions Index also made a new high. (The) Manufacturing PMI for orders moved up +60.8%, inventories declined to 41.3%. India real GDP rose +14.6% q/q in the third quarter. China PMI increased to record 55.7% in November (while) first-quarter vehicle production plans are being lifted. Ed and Nancy say this is the strongest package of data we can recall in months.

We begin our yearly survey of Christmas Tree Sales this week, which was up +6.5% y/y -- tree sales are off to a good start with customer traffic and purchases strong over the holiday weekend. Again, the Trucking Survey moved up from 32.0 to 34, with retail shipments boosting TL carriers again this week while LTL truckers are little changed. For (the) Tech Company Survey, up from 49.5 to 55.4, the stronger component was consumer and business demand. The Homebuilders Survey moved down from 25.8 to 25.7, with contacts reporting a touch softer week, with quieter traffic and the holiday weekend making it difficult to gauge. Oscar's hearing that there is interest in taking advantage of deals that can close before April's tax credit expiration.

-- Ed Hyman and Nancy Lazar, ISI (12-2-09)

"Buy on the cannons and sell on the trumpets" is an old stock market "saw" that's stood the test of time. Plainly, my firm recommended "buying on the cannons" the first week of March; and, evidently, participants heeded the second half of that axiom last Friday as the much better than expected employment numbers sparked a moon-shot opening that saw the Dow dance 180 points higher in the first 15 minutes of trading.

From there, however the Doleful Dow was "sold" into the end of the session. That caused one old Wall Street wag to exclaim, "Up mornings and down afternoons is not particularly good market action." Not good action indeed, for Friday's trading pattern smacked of what a technical analyst would term a "one-day downside reversal."

According to Bedford and Associates:"The one-day reversal is the starting point for most reversal patterns. After an extended rally the stock gaps higher at the open to trade at a new high on a positive news announcement. As the session proceeds volume expands significantly but by the close the entire rally disappears and the stock closes lower."

To be sure, Friday's figures were clearly a "positive news announcement" given that employment payrolls declined a much less than expected 11,000 in November versus the median forecast of down 130,000. Meanwhile, there were sharp cuts in the two previous months' reports for a combined improvement of 159,000 jobs. The result was an unemployment rate of 10.0% instead of the estimated 10.2%.

Interestingly, Average Weekly Hours Worked rose in November, as did Temp-Help (52,400 from 44,100). These are not unimportant data points since if past is prelude, they suggest there will be new hiring in the months ahead. Then too, the GDP per worker stands at roughly $122,000 and it rose by 2.8% in the last reporting period. In past recessions, any time this figure has increased by 2% or more, it's defined an inflection point for corporate hiring.

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No positions in stocks mentioned.
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