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Mixed economic signals continue to feed investor uncertainty and apprehensiveness. While a follow through (the technical signal for a new rally) may occur, it will be failure prone. TJX (T J X), which operates off price TJ MAXX, Marshalls, and Homegoods is profiting and staged a nice breakout, but would still be a cautious buy given the overall market.
The markets started the month falling into a ditch, then turned around, eventually ending +1.4% for the S&P500, and +3.9% on the NASDAQ. Investors remained "wishy washy", even as the the month ended in a 14 day rally attempt. The technical signal, or follow through, to start a new market uptrend is a 1.7% up day on above average volume, on one of the major indices. Follow Through's are usually reliable with a 70-80% historical track record, but this may be failure prone with a high 14 day count. The declining volume and wide price swings are secondary indicators of a weak market and translates to investor confusion and a lack of conviction. On the other hand, the market is very good a fooling investors, and it would not surprise me to see this follow through work.
While the Fed's action to raise the discount rate could be seen as a sign of recovery, it's really the Fed funds rate that needs to be watched. The discount rate is used primarily for bank to banks business, and the Fed fund's rate loans to customers. Also known as the prime rate, it impacts everything from credit card, mortgages, business loans, CD's, savings accounts. There was other economic news which did not support a recovery:
- Fitch Ratings reported that U.S, jumbo mortgages at least 60 days late reached 9.6% in January vs. 9.2% in December. It was the 32nd straight increase in "serious delinquencies."
- Wal-Mart reported that sales in stores open for a year fell in the 4Q of 2009- the first decline in history.
- The Fed reported that the year to year change in Commercial and Industrial loans is the lowest ever, since it started tracking this in 1948
- Sovereign default may be more widespread than the PIGS countries (Portugal, Ireland, Greece, Spain) as Standard & Poor's is considering the credit rating of the UK