And Now We Wait

Daily State of the Markets 
Tuesday Morning – February 23, 2010  

After having moved higher four straight days last week and in six of the last eight sessions overall, it is safe to say that the bulls had earned a rest by the time yesterday’s opening bell rang. Let’s not forget that it was just two weeks ago that the bulls were shaking in their boots over the PIGI’S and the bears were pushing the Dow back down near the 9800 level. But after a 600 point jaunt to the upside in just eight sessions, no one should have been terribly surprised to see a little profit taking set in Monday.

With traders having pushed aside some very big macro issues over the last couple of weeks and some fairly big economic, political, and earnings events on the calendar this week, it would appear that it just might be time for the bulls to take a break.

There were some inputs to consider on Monday such as earnings from Lowe’s, some M&A chatter, talk of health care reform coming back from the dead, and a couple of encouraging economic reports. But in reality, it looks like traders were happy to sit on their hands and wait to hear what Mr. Bernanke has to say to the House on Wednesday.

In case it isn’t circled and highlighted in yellow on your calendar, let me remind you that Fed Chairman Ben Bernanke is scheduled to give his semiannual report on the economy and monetary policy to the House on Wednesday and to the Senate on Thursday. Previously referred to as the Humphrey-Hawkins testimony, Bernanke is expected to outline for lawmakers what the Fed has been doing as well as what they might be looking to do in the future.

Had the Fed not surprised everyone including yours truly on Thursday by hiking the Discount Rate, this week’s testimony might not have made it on investors’ calendars. However, now that Bernanke & Co. have shown that they still have some tricks up their sleeves, traders will be listening intently for any hints of what might be coming down the pike next.

In addition to the Bernanke testimony this week, the earnings calendar starts to get busy again as many consumer related companies such as Barnes & Noble (BKS), Target (TGT), Home Depot (HD), Macy’s (M), Sears Holdings (SHLD) will be releasing their results this morning. So again, it wasn’t surprising that traders may have wanted to wait for some additional inputs before making additional commitments to a market that has become overbought from a short-term perspective.

From a chart standpoint, the bulls have some ground to give back if needed. Stocks sliced through what was considered important resistance last week and then put some distance between the 10,300 area on the Dow and 1098 on the S&P. Thus, a pullback to retest what should now be a new support zone is certainly logical. As such, we will be watching the action around these areas carefully to see if the bulls can stand their ground on a retest.

Turning to this morning, we don’t have any economic news to report before the bell however, we will get the Richmond Fed Index and the report on U.S. Consumer Confidence at 10:00 am eastern.

Running through the rest of the pre-game indicators, with the exception of Hong Kong, the overseas markets are mostly lower. Crude futures are down $1.45 to $72.86. On the interest rate front, we’ve got the yield on the 10-yr trading higher at 3.77%. Next, gold is moving up by $0.70 to $1113.80 and the dollar is higher against the Yen, Euro, and Pound. Finally, with about 60 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 about 2 points, while the NASDAQ looks to be about 4 points below fair value at the moment.

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

Wall Street Research Summary

Upgrades: