What Will the Fed Say?

Retail sales for November rose more than expected.
The 4th quarter is already shaping up to be the strongest for
consumer spending since before the recession. And the National Retail
Federation has upped its forecast for holiday sales.

Retailers are rallying on the news. But I will
confess some disappointment at the group for its recent performance.
Target (NYSE:
TGT)
has done well, but my top play, Kohl’s (NYSE:
KSS) has performed poorly since it
rallied during the last two weeks of November.

A Trader’s Outlook

Yesterday was an interesting day to say the least.
The major indices gapped higher at the open after Congress and the
president reached a compromise that would allow an extension of tax cuts
and jobless benefits. And while I contend this was the right move, it’s
hard to see it as a major catalyst for stock prices.

Sure enough, stocks sold off steadily most of the
day. And the S&P 500 closed slightly below important
support/resistance at 1,225.

Is This the Dip to Buy?

It’s Veteran’s Day, I’m taking a moment to recognize
the sacrifice and dedication of our military.

The bond markets are closed today, so we’re losing
an important catalyst for the stock market. Without the running gauge for
the U.S. dollar, traders will have to depend on recent news to drive the
action today. And that may not be a good thing…

Cisco (Nasdaq:CSCO) is down huge after its
earnings report last night. The company beat earnings by a couple
pennies, but offered guidance that was well below expectations.

The Most Important Earnings Report is Tonight: How to Profit

After the closing bell, tech giant Cisco (Nasdaq:CSCO) reports earnings
for the latest quarter. And what Cisco says about business spending could
decide the stock market’s direction for the next three months.

Cisco makes Internet routers, which deliver Internet information across
corporate networks. Nearly all of Cisco’s sales come from corporations.
So when corporate spending is growing, Cisco knows it.

How to Trade the Fed’s Action

The Bloomberg headline reads Fed Bond Buying
May Risk Price Rise Similar to 2004
. Let’s remember that between
2004 and 2007, the S&P 500 rose around 40%, from approximately 1,100
to 1,550.

I think we would all be pretty pleased with a move
like that.

Of course, the rise in the S&P 500 coincided
with the housing bubble and the proliferation of sub-prime mortgages that
led to the financial crisis of 2008-2009.

Manufacturing Supports Stock Prices

We’re in the home stretch. Mid-term elections are
tomorrow. And then we get the Fed’s announcement on a new round of
quantitative easing on Wednesday at
2:15
ET
.

If you’ve never watched the market trade ride after
a Fed announcement, it can be spectacularly volatile. And I would expect
this Wednesday’s post-statement trading to be especially volatile. A
100-point swing or two on the Dow Industrials wouldn’t surprise
me.

Against the backdrop of the Fed and the elections, we have improving
economic data and another solid earnings season.

Earnings and the Dollar

Earnings season really gets moving this week as we hear from
heavyweights Bank of America (NYSE:
BAC), IBM
(NYSE:IBM)
Apple (Nasdaq:
AAPL), Goldman
(NYSE:GS), Yahoo (Nasdaq:
YHOO), Johnson & Johnson (NYSE:JNJ), Morgan Stanley (NYSE:MS), Wells Fargo
(NYSE:
WFC), and eBay
(Nasdaq:
EBAY).

Citigroup (NYSE:C) reported this morning, and its earnings
news was similar to JP Morgan’s (NYSE:
JPM): both companies beat expectations by a few
pennies a share, but much of the improvement was due to smaller loan loss
reserves, rather than strong improvement in operations.

Bernanke’s Burden

I don’t want to temp fate. I’m not trying to jinx it. I
understand that stocks (and gold, and oil) are rallying on the Fed’s promise
and the falling dollar.

But this rally just doesn’t want to reverse.

Yesterday was wide open for the bears to take prices lower.
Financial stocks, usually thought of as stock market leaders, were absolutely
crushed. It was a rout. Bank of America (NYSE:BAC) got creamed for 5%. Citi
(NYSE:C) lost 4.5%. Even JP Morgan (NYSE:JPM), after a good earnings report,
was down as much as 4% at its lows of the day.

What’s the Fed’s Number?

Well, new unemployment claims rose by 13,000 to
462,000 last week. I probably don’t have to tell you that unemployment is
moving in the wrong direction.

Of course, we’ve discussed the fact that
unemployment is a lagging indicator and will be among the last data points to
improve until we’re blue in the face. And really, investors seem to be
looking beyond the weekly swings.

What are they looking forward to? Why, quantitative
easing, of course. These days, any weak data makes it seem more certain that
the Fed will dump as much as $500 billion into the system in some form of
asset buying.