The shine is wearing off....

After a horrific year in the financial mkts the S&P at least recovered a bit in Dec, as the picture shows.
I'm not sure if I made that call at some point in December but I didn't see that anything had fundamentally changed. My view was "Bad economic releases are priced in, and maybe the lows are set. Unless more really shocking things happen (like Citi going under? Like Citi and Morgan Stanley merging? Like the automakers going bankrupt?) we might be good." But at the same time I was very much expecting bad economic data releases. So the 7.2% unemployment number the other day... didn't really surprise me that much.

This morning then, retail sales numbers for December came in and were pretty horrific. -3.1%. The previous number had come in at -1.6% and was revised down to -2.5%. The consensus forecast was -1.4%. On a sidenote, who thought deseasonalized retail sales would be better in December than in Novemeber? Who's thinking that people are spending more even as they are being laid off? And who thought they'd be better despite the fact that pevious month's estimates were revised down?

My sales coverage at Goldman then sends me this this morning:

"1. the rate of deterioration in economic/earnings growth is not slowing. a lot of people will tell me "I know that already." but the degree of loss still matters. and if you use today's retail sales report as example, the difference between 'bad' data and 'disastrous' data still moves the forwards."

I'm still wondering who was surprised by this print. Did people really think this was it things would improve from here? Did people really anticipate economic number to be coming in better from now on? Jack the Ripper thinks that news of the Obama stimulus drove the mkt higher in December and that that is wearing off now. I think it's maybe even a bit more psychological. In December everyone was down for the year and was trying to make the year-end result look a little better by possibly taking advantage of any little rally if it were to develop. Now in the new year, when the profit counting is reset, ppl are doing everything to protect capital. Including getting back into the "safe haven" of Treasuries, trading up massively this morning (see graph).

What I don't get is why people are waiting until now to do it. But then again, I guess we have been trading lower for the whole past week with three positive days for the year.


On the technical side, JTR says that if we hold 850 today we could bounce but that we'll still take out the low in November. He says: "I AM A BUYER WITH A 600 HANDLE"