Granted, I haven't studied the roots of this survey vs. last week's reports. But, given retail sales reports last week from the retailers, doesn't this seem like a sandbag number this week? What's economy.com saying about this?  Based on a simpletons point of view (mine), I think there is upside risk to this number this Friday, thus bullish input. What say you?

Not really, economists have to account for a shorter month and the blizzards. I have written retail sales down as a negative input for the stock market this week and jobless claims as a positive input. Whether I am right or wrong I don’t really care.  What I do care about is whether or not the market is validating (confirming) or contradicting my price correlation models. The price models I am overweighting suggest a market correction is more likely than trend continuation this week.  The model I am underweighting suggests trend continuation this week into Friday’s Retail Sales report.

If you review my stock mkt “trend following the Feb 5 and March 5 NFP reports” you will find that one upside model targets 1157 by Friday’s March 12 retail sales. If the market doesn’t rotate lower or digest last wks gains ahead of Thursday’s jobless claims, the idea is the mkt could reach 1157 by Friday’s retail sales report. That would possibly set up a short term sell signal about 10 points above the year highs at 1148.  

However, I am leaning towards or favoring scripts that suggest a correction begins the day following the March 5 NFP report. (Gold which was down today has been leading the stock mkt by a day or two since Feb 21, so that is a confirmatory indication that the stock mkt will likely correct this week. A second confirmation that a correction is likely is that the day following NFP was a very narrow range day that had little to no upside. We like to call today’s price action a spinning top). But still what we really don’t know is how the mkt will actually trade between Mon-Thursday.

The modeling assumptions I am making are that the mkt corrects after reaching the 1140 price target as I illustrated with the three intraday price correlation models. This “walk-forward” model guesses a correction early this week will then rotate higher on [positive expectation for] jobless claims, followed by another sell off again on Friday’s retail sales [which has a negative expectation]. That would give traders and investors an ABC correction this week. Now, that is my personal script I am sharing with you. The mkt can choose to follow my script or not. If it follows the script, I might be able to make a few bucks. If it does not follow my script, the mkt will chase me out of my trades. No biggie, other trades will certainly come along and present themselves even if my scripting is not validated by the mkt.  

But these are very short term scripts. The shorter term the script is, the more room for error in the scripting. However, with the information (stale data) that we have available to us (vis-a-vis the trend in the job market data, Q4 productivity and decreasing labor costs) the intermediate trend is pointing the stock market higher into and through the Q1 earnings season. So, if a short term ABC correction unfolds into the March 12 retail sales report that holds above the year open at 1114 that would likely provide investors and traders with a short term trend-following buy setup.

So, you have two “walk-forward” models to consider. One is a higher stock market into Friday, and the latter, which I prefer is corrective through Friday. Since the trend is up, a correction into Friday might offer trend followers a buy setup, if the mkt stays bid into Friday, short term traders might consider counter trend setups at new move highs on the year. The key here is for traders to keep an open mind with their scripting and listen to what the mkt tells them. The mkt could opt for either scenario here, the trade setups will follow accordingly.

Event-Driven Research for Risk Managers
John Bougearel
Author of Riding the Storm Out
Registered Commodity Trading Advisor
Director of Financial and Equity Research
Structural Logic, Inc.

312-618-2290