The chart that says this stock market could be ready to bust out

2015-12-02

The c

How did the S&P push past 2,100 yesterday, when Wall Street has so much on its plate? This morning, we’ve got Fed Chairwoman Janet Yellen coming at us, followed by a phalanx of Fed speakers later in the day. Then there’s the nonfarm payrolls data on Friday. And don’t forget the ECB and OPEC.

A hope and a prayer? Holiday spirit? Are those what sent the markets higher? Greg Guenthner, author of the Daily Reckoning blog, says the smart advisors right now are looking past the noise and sticking to their plans.

Granted, he says, this market has been a right pain. “Every time it looks safe to buy, prices drop. And every time investors get spooked, stocks sprint higher.” He notes 60% of U.S. stocks are stuck below their 200-day moving averages.

Some find comfort in the charts, where there’s a lot of action going on. MarketWatch’s Tomi Kilgore interviewed Steve Nison, the man who brought the candlestick chart pattern to the West. Nison says he’s not buying stocks right now, and offers up some pretty solid reasons why. Our chart of the day begs to differ, showing a pattern that suggests this market may be ready to bolt higher.

But we drift back to the macro for our call of the day. That ISM data that got a few out there excited yesterday? Saying there’s no way the Fed can hike in the face of such weak data? Don’t bet on that. Read on for more.

Key market gauges

Futures on the Dow YMZ5, -0.11%  and the S&P ESZ5, -0.05%  are up just a little this morning. Asia stocks had a mixed session, but the Shanghai CompositeSHCOMP, +2.33%  surged over 2% on hopes for stimulus out of Beijing. EuropeSXXP, -0.01%  is perking up quite a bit, especially after weak inflation data that came out this morning has added more fuel for the ECB’s easing fire Thursday.

Gold GCZ5, +0.31% is rising, while crude oil CLF6, -1.17%  is lower ahead of a report that could show rising stockpiles. The dollar DXY, +0.23%  is up, getting a lift from weak eurozone inflation data.

The economy

ADP’s private-sector payrolls data for November is coming at 8:15 a.m. Eastern, followed by third-quarter productivity and unit labor costs at 8:30 a.m. The Fed’s Beige Book is due for release at 2 p.m.

Several Fed speakers are hitting the tape today, such as Atlanta Fed President Dennis Lockhart at 8:10 a.m., but it’s Yellen who will probably get the lion’s share of attention. She’s giving opening remarks at a college event at 8:30 a.m., then giving a speech on the economic outlook at 12:25 p.m. Here’s what to expect.

The buzz

Expect a lot of Yahoo YHOO, +3.83%  chatter today. Shares rose late Wednesday on a Wall Street Journal report that the company may sell its core Web business. Whatever happens, it’ll be messy, says MarketWatch’s Therese Poletti.

Twitter’s TWTR, +0.51%  co-founder Ev Williams has given his foundation a load of the company’s stock, which was then sold, according to an SEC filing.

Facebook FB, +0.07%  CEO Mark Zuckerberg and his wife greet the arrival of their newborn daughter Maxima with plans to give the bulk of her potential inheritance — almost all of his stake in Facebook, worth $45 billion — to charity.

Just what Volkswagen VOW3, -3.04% VLKAY, -0.96%  doesn’t need: an S&P downgrade. The ratings agency said it sees a “tarnished reputation and brand image,” cutting its rating to BBB+ from A-.

Check out Bloomberg’s deep dive on Gravity CEO Dan Price, who pledged to pay all his employees $70,000 a year.

The chart

Tweeter @NitzaBarki sent this chart out yesterday, suggesting that the SPDR S&P 500 ETF Trust SPY, +0.00% — the giant ETF that tracks the S&P 500 — has etched a cup-and-handle formation. Note, it’s also the largest ETF by assets under management.

As explained by Investopedia, this so-called “cup and handle” shows up in specific patterns on bar charts. The cup’s in a U shape and the handle has a slightly down drift, seen in this example from Investopedia:

How does a cut with handle work? “As the stock comes up to test the old highs, the stock will incur selling pressure by the people who bought at or near the old high,” as Investopedia explains. “This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for four days to four weeks... then it takes off.”

As @NitzaBarki says, if this pattern is headed the right way, it could turn into “a hell of a Xmas rally” for stocks.

Note the S&P 500 closed above the key 2,100 level for the first time in nearly a month on Tuesday.

The call

Has the Fed ever tightened on the back of an ISM manufacturing number below 50? Most out there are thinking not. But Michael O’Rourke, chief market strategist at JonesTrading, says it has happened.

“The last times the Fed funds rate moved higher after sub-50 ISM Manufacturing prints were single episodes in 1985 and 1986, which were not followed by additional tightening and were followed by additional easing within 6 months,” he points out in a note.

“There was another series of episodes, 7 instances between August 1979 and August 1982, when policy tightened in the face of weak ISM readings,” he says.

O’Rourke says don’t count on the Fed backtracking on an interest-rate hike just because of one number. Dig into that ISM reading yesterday, and you’ll see employment recovered. Plus, while new orders dropped, inventories also fell, keeping that ratio at a positive number.

“More importantly, despite employment being a lagging indicator, the Nonfarm Payrolls report will almost always trump the ISM Manufacturing report. While the markets celebrated today’s weak data, it will take a weak jobs report to keep the Fed on hold,” he says.

The stat

6,368,509 — That’s how many children’s accounts have been hit by the hack at toy company Vtech. The most affected countries? France, the U.S. and the U.K.

“Our hope is that people will understand 99 percent of people on Airbnb in New York City are using it as an economic lifeline.” — Chris Lehane, Airbnb’s head of global policy and public affairs, talks to the New York Times about the company’s new policy of sharing data on how its hosts use the platform.