As the First 5 Days Go

Daily State of the Markets 
Monday Morning – January 11, 2010  

Good morning. According to the old Wall Street saw, “As the first five days go, so goes January.” Then when you combine that with, “As January goes, so goes the year,” it sounds like Wall Street lore is telling us we should just close our eyes and buy.

There is no denying that the first five days of the New Year have been impressive. Heck, the S&P and Midcap Indices were up every single day last week and all the indices closed Friday at new cycle-highs. And the fact that stocks were able to shake off the disappointing Jobs report was viewed as a positive by most analysts.

The action has led many trader-types to suggest that the Bulls are on a quest to 1200 or beyond on the S&P and that there is nothing likely to detract buyers from their mission right now. This is certainly an argument fully supported by the bull camp and there is no telling how far this liquidity-driven market will go. But if memory serves, things tend to get bumpy just about the time everybody is on the same page and singing the same song.

Friday’s result was once again decided by some last-minute buying that took the Dow from red to green in a matter of 20 minutes. Thus, we are of the mind that it is hard to argue the day’s result was an indication of any kind of statement being issued by Ms. Market. As such, we will smile and continue to be on the lookout for signs of trouble in paradise.

Friday’s market was dominated by the news out of the Labor Department. The December Jobs report was a mixed bag as the headline told of a much larger than expected loss of jobs. While there were great expectations for a tide-turning sign of job growth from this report, the loss of 85,000 jobs didn’t come close to confirming the high hopes. But the good news was the report did indeed contain a plus sign as November’s job totals were revised to a gain of 4,000 from a loss of 11,000.

One might have expected stocks to tank on this news as the bear camp tried to spin the report by suggesting the economy is nowhere near ready to create jobs. However, since the glass-is-half-full crowd seems to be firmly in control at the present time, traders took the report as a sign that the job market is indeed continuing to improve.

The bulls also got some help from other places on Friday. First, UPS (UPS) announced that it was increasing its EPS estimates for the upcoming quarter. The company, which is viewed as a harbinger for the state of the economy, said they expected earnings to be 12.5% to 25% higher than the current consensus.

In addition, the tech sector caught a bid, which is always helpful to the bull camp. It seemed that the talk of rotation from semis to banks in the hedge fund community took a back seat to what looked like either short-covering or some bottom fishing after three straight down days.

Finally, our heroes in horns got a little help from the greenback and the bond market. The buck took it on the chin against the Yen and Euro after the jobs report, which helped the usual suspects in the commodities and energy space. And the pullback in interest rates (again in response to the weaker-than-expected economic data) gave those worrying about a spike in interest rates a day of rest.

So, where do we go from here? While we’re still not in the prediction business, it does feel like money is moving into stocks right now. However, a pullback of some sort would appear to be on tap in the near future as the indices are overbought and sentiment is getting a little too cheerful at the present time.

Turning to this morning, we don’t have any economic data to review today. However, data out of China relating to exports, vehicle sales, and loans has put a positive spin on the overseas markets.

Running through the rest of the pre-game indicators, the major overseas market indices are higher across the board. Crude futures are up with the latest quote showing oil higher by $0.91 to $83.66. On the interest rate front, we’ve got the yield on the 10-yr trading higher at 3.83%, while the yield on the 3-month T-Bill is at 0.04%. Next, gold is moving up by $19.10 and the dollar is higher against the Yen, but lower versus the Euro and Pound. Finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 30 points; the S&P’s are up about 4 points, while the NASDAQ looks to be about 4 points below fair value at the moment.

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