News-Driven Markets Are Tough

12/05/2011 6:30 am EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

Jim Jubak, MoneyShow’s Senior Markets Editor, discusses the recent surge in stock prices and reviews what he is watching to determine if the market can continue to move higher.

So, one of the things you probably want to know after watching 200-, 300-, 400-point moves in the Dow is how long can this go on?

Are we going to go back down to the despair that we had just a few days ago, or is this going to roll on for a while? Are we looking at something more than just a two- or three-day bounce? Are we looking at an actual rally?

One of the things that makes this very hard is that this is so news-driven that if you look at what’s happened…

You’ve had the announcement that the central banks of the world were going to make it easier for European banks to borrow dollars at decent rates, and whammo, the market goes up. Or you get some news about potential solutions to the Euro debt crisis and whammo, the market goes up.

When you have a news-driven market like this, it means that the trends that you might be looking at in technical analysis to try to figure out where we are don’t really tell you much.

A couple of days ago, some pretty good technical analysts were saying, “Well, we’re going to hit resistance at 1,216.” That in fact was the way it was on the morning of November 30. Well, I read that and then I turned to the screen and well we were already at 1,240. So, it had gone straight through that resistance like it was nonexistent.

The next question is, well, do we go back to the top of the trading range at 1,295? That’s a decent move from here on the S&P, maybe 50 points, but again it will depend on the news rather than on the trend.

What we’ve got is a lot of money sitting on the sidelines. A lot of people were still really out of the market before this rally happened. They’re trying to decide whether to go in. If they see another news event pushing them in that direction, that money will move forward, and I think we’ll go out to 1,295, or beyond 1,295.

Beyond that, if the technical analysis was telling us anything, we’d be looking at the July high around 1,346, about 100 points from where the S&P is now.

So, the next thing I think really to look at comes at the end of this week. On Friday, we get two things. We get the US jobs number, so right now the consensus is that we’re going to see something around 100,000 to 120,000 jobs added.

It’s not a very big number. It would be an improvement from October when we only added like 80,000 to 85,000 jobs. So, even if we just meet expectations that would be good news, because it would be a big jump. If we beat 120,000, which wouldn’t be that hard, that in itself would be a positive surprise and we’d get more move, a bigger move in the market. [In fact, the Labor Department reported a gain of exactly 120,000—Editor.]

The other thing is we’ve got a bond sale by the French government. If that goes relatively well and doesn’t spike up rates and make it really panicky, again I think that would be good news. [The bond sale was successful and rates fell, albeit marginally—Editor.]

On the other hand, if it doesn’t go well and it does spike up rates, people might say “That means that the Europeans are finally going to make some moves to settle this because it is really endangering France.” So maybe this one works both ways.

So, those are the two things that might keep the rally going for this week. Beyond that, of course, we’ve got the December 9 euro summit. That will really determine how long this might keep going.

So, watch for the employment numbers from the US, and then, of course, more news from the Europeans.

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