Santa's List of Holiday Cheer
- Don't be the investor that glosses over the fact that the China purchasing managers index is back in expansion territory. In fact, this number is serving as further confirmation of the prior encouraging data that commenced in September. Think: "Is the new China recovery trend priced in to valuations to the same sharp extent as the slowdown had been?" Yours other thought should center on whether the China story could alleviate that of the U.S. fiscal cliff to any substantive degree. (It certainly wouldn't hurt.) If you are not pondering a longer-term trigger-pull on a name like Caterpillar (CAT), you might want to start.
- Only half of the stocks on the NYSE are trading above their 200-day moving averages. This points to a lack of belief in any of the signs of a short-term bottom that we have witnessed since Nov. 16. Do I get the distrust? Well, yes, as I am skeptical and remain quite disciplined. But, as I indicated in the middle of the week, we're witnessing a desire to chase a rising tape -- aka a "rising stock market." Moreover, given the limited number of stocks participating in the move, ample numbers of sectors have not joined the miniature rally, and they deserve to do so against a backdrop of mitigated fiscal-cliff sentiment.
- Shares of sector leaders are base-building. This is important to watch, as an air of near-term normality has returned to replace the prior prevailing trend -- selling big 2012 gainers and asking questions later. Ideally, though, one would like to have leaders in fact lead, so this is an area of concern on which I am focusing.
- Lost in the sauce has been the direction of corporate bonds. Since the Sept. 14 climax in the S&P 500, corporate bonds have outperformed. This suggests confidence in corporate balance sheets and, possibly, that the fiscal cliff component is being too heavily priced in to the equity side of the equation. (You know, the income statement and balance sheet are connected.)