Is It Time?

Daily State of the Markets 
Tuesday Morning – April 27, 2010

The message from yesterday morning’s exercise in sarcasm was that anyone attempting to play for a downside move in the market lately has been trampled by a thundering herd of stampeding bulls. The short side has clearly been the wrong side as all news has been good news during the most recent joyride to the upside. However, all good things must come to an end (eventually) and the few bears that are left in the game tell us that yesterday’s action may have been a precursor of bad things to come.

Up until yesterday, traders have been focused primarily on the macro picture. The fact that just about every piece of economic data told of improvement in the economy, the jobs market, and even housing seemed to underpin a buy-the-dip (any dip) mentality. The never-ending Greece debt saga didn’t cause concerns. Financial regulatory reform has been taken in stride. And even charges of fraud against the King of the Street didn’t cause the buyers to flinch. However, yesterday’s sloppy price action may be a sign that things are about to change. And maybe, just maybe that consolidation phase we have alluded to recently might have a shot at becoming a reality.

By most counts, yesterday should have been just another day at the office for the bulls. Our heroes in horns had another batch of better-than-expected earnings from bellwethers such as Caterpillar (CAT) and Whirlpool (WHR), an impressive report from the Dallas Fed, and even some fresh M&A activity to embolden the buyers. But this time around, the glass-is-half-full crowd went home empty handed as it appears that some trepidation may be creeping in.

What is there to worry about, you ask? For starters, the duration of the current move, which has been largely uninterrupted by any nastiness, is enough to get most market players’ attention. We’ve been yammering on for a couple weeks now about the warning flags flying in the sentiment and overbought/oversold indicators. But up to this point, the bears have been unable to do anything with their opportunities and can’t seem to even get out of their own way when attempting to take the field.

But with a financial regulatory reform bill that appears to include a tough stance on derivatives and a provision to break up the big banks looking more and more like something that will come to fruition, reality may be setting in for traders.

Speaking of reality, while the formulation of a plan to help Greece has been all well and good, the actual implementation of the plan appears to be being met with some resistance. And with Portugal’s problems on the rise, the harried bears still in the game may actually have something to hang their hat on in the near-term.

To be sure, our less-than enthusiastic attitude this morning could be off base. After all, the bulls have met any and all challenges of late, so there really isn’t any reason to doubt them now. However, we will be watching the 1200ish level on the S&P closely as a break below the recent resistance zone (which should now act as support) might be a sign that the bears are back – well, for a while, anyway.

Turning to this morning… We don’t have any economic data to review before the bell but we will get reports from the Richmond Fed and the numbers on Consumer Confidence at 10:00 am eastern.

On the news front, the FOMC begins a two day meeting and Goldman will be on the hot seat in front of a Congressional panel today. In addition, word that China is taking more action to restrain their housing market is causing more concerns about the impact on the Chinese economy and Europe seems to be struggling mightily at the moment on renewed concerns about Greece.

Running through the rest of the pre-game indicators, with the exception of Japan, the major overseas markets are lower across the board. Crude futures are down $0.80 to $83.40. On the interest rate front, the yield on the 10-yr is currently trading at 3.77%. Next, gold is off $3.50 to $1150.50 and the dollar is higher against the Yen, the Euro, and the Pound. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 20 points; the S&P’s are down by about 5 points, while the NASDAQ looks to be about 5 points below fair value at the moment.

Finally, we wish you all the best today…

* Report includes items that make comparisons to the consensus estimate questionable

Wall Street Research Summary

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