Decline….What Decline?

Index & Sector performance 1/15/14

The Market:

The vast majority of today’s action was on the open where the S&P 500 gaped higher and ran until 11am EST which marked the highs of the day.  The remainder of the day stayed in a 5 point range from the 11am highs as the market digested the strong reversal rally which has gained roughly 35 S&P points since Monday’s lows.

In Economic Data, Headline PPI slightly missed expectations while Core PPI beat.  The Beige Book reiterated an overall positive outlook on the economy showing moderate growth.  Tomorrow traders will be most focused on CPI and Unemployment claims as well as when Bernanke speaks at 11amEST.

Economic Calendar week of 1/13/14

In the News:

Bank of America (BAC) gaped and closed 2.27% higher today albeit off the highs after beating EPS (29C vs. 26c) and revenue ($21.49B vs. $21.24B) estimates.

General Motors (GM) was also in the news after declaring a $0.30 dividend.  This is the first dividend payment to investors since 2008 and helps continue to mark the company’s progress since entering bankruptcy (“Restructuring”).  Initially GM was quoted higher in after hours yesterday when the announcement broke but optimism waned and GM ended up closing 1.6% lower on the day but off the lows.

Chelsea Therapeutics (CHTP) closed 91.74% higher on an FDA advisory committee vote to support the approval of Northera.

Nu Skin (NUS) was a notable loser closing down 15.56% on the day reportedly due to an article published in People’s Daily, a Chinese periodical.  The company came out in refute of some of the article’s statements and Deutsche Bank released a note that investors should view today’s weakness as a buying opportunity reiterating their price target of $150.

Another stock worth noting is Intercept Pharmaceuticals (ICPT) which popped after closing a trial early due to meeting the endpoint. This positive development sent the stock that was trading at $72.39 as of the close January 8th, 2014 to an intraday high of $497 on January 10th.  ICPT has since pulled off the 1/10/14 highs and reached as low as $235 closing today at $281.26.  Analysts appear committed to the company with the most bullish we saw being Bank of America who has a $872 price target.  This will likely be a volatile name but if you have the stomach for it there may be some nice swings yet to come.

The following noteworthy companies are scheduled to report earnings before tomorrow’s open: C, GS, UNH, BLK, PNC, PPG, BBT, HBAN, FRC, PVTB

Analyst Comments:

Upgrades 1/15/14

Downgrades 1/15/14

Initiations 1/15/14

Price Target Changes 1/15/14

The Game Plan:

The S&P 500 has not only regained all that was lost Monday the 13th but it has added more for good measure and is now threatening to breakout to new highs (ticked higher intraday but closed lower).

Not much has changed from our outlook Monday where we state:

“It was a strong down day and one we have been looking for and in our opinion was needed but by many metrics the trend is still higher.  Could this be the beginning of a much longer broader decline?  Possibly, but the Bears must put together more than a one or two day drop.Right now we are leaning toward the market having a neutral to upward bias into the Spring where then we see a decline of larger and longer magnitude.  If this earnings season is weak then that expectation could be pulled forward.”

Until we see follow through on the downside the trend must be respected.  In our chart Monday we showed what a 3-10% correction would look like in the market and the point was to try and step back and keep a 20+ point down day in perspective.  It is not that you discount such a move but that you keep it in perspective.  We added to the chart this evening what a rally of 3-5% would look like.