(By Rich Bieglmeier) Wednesday was a good day for bulls. Stocks got off to a sloppy start after cracks in the "housing recovery" thesis emerged. Wall Street expected new home sales of 387,000, and instead was treated to 368,000. To make matters worse, September's results were revised lower by 20,000 and August by 2,000. To make matters ever worser (not a word – we know), prices dropped for the second straight month, down 4.2 percent to a median $237,700. The bad news comes without excuses, too. The Commerce Department said Superstorm wasn't the problem; although, they didn't offer any other justifications.
Bears seized the unwelcomed economic news and tried their best to intimidate bulls into inaction. However, the indexes battled back after being down 1% intra-day. Apparently, cooperation between the White House and the House of Representatives gave the Street's algorithms reasons to buy, and so they did. Like we mentioned yesterday morning, cooperation as defined by Republicans caving on immediate – maybe even retroactive - tax increases that will pay for, at best, 20 days of government for spending. Meanwhile, cuts will be enacted sometime before 2020.
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While the bounce-back day was encouraging, especially with the NASDAQ making its way beyond Black-Friday's high, there is plenty of technical traffic ahead. iStock wants to see the NASDAQ get on the better side of 3,100, the Dow 13,200, and the S&P above 1,430. We are starting to get the feeling, however, that mid-November's low might be the bottom of the correction and as low as we'll see the indexes for the rest of 2012.
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We aren't there yet, but another day or two of gains, even mild upticks could put iStock's Momentum and Leadership models into buy territory. Our experience and history strongly suggest that when the two green light buying, it's safe to get back in the water. Sure, you might get stung by a jellyfish, but a shark attack is highly unlikely.
If jobless claims can return to a reading of fewer than 390,000, then the algos could have the ammunition needed to keep the indexes moving in the right direction. Economist put the target at 390,000 following two reading well above 400k. Sandy is no longer a viable excuse. Another plus 400,000 reading could mean a menacing undercurrent is happening with employment. Persistently high jobless claims would be a BIG negative for stocks heading into 2013, that's if we get beyond the end-of-the-world, of course.
GDP news could be another potential lightning bolt for the equity markets. The initial guestimate was 2% growth for Q3. Round two is expected to come in at 2.8% as more data is added to the mix. It's not too surprising as the third quarter is the end of the federal government's fiscal-year. So, there is a lot of "use it or lose it" spending crowded near the exit door. iStock will be interested in seeing just how much government spending accounts for the added growth.