Daily State of the Markets
Wednesday Morning – January 25, 2012

Good Morning. It is safe to say that investors of all shapes and sizes found 2011 to be a very frustrating year. It didn’t matter whether you employed a buy-and-hope approach or an active trading strategy; the bottom line is it was a rough ride. And although the action in 2012 appears to be diametrically opposed to that seen during the last six months of 2011, there is a certain contingency of investors that remain frustrated all the same.

With the market off to one its best starts in years, you might expect stock investors to be a happy lot these days. And truth be told, I did sense that CNBC’s guests in the last hour of yesterday’s trading did seem to sport an almost giddy attitude as suddenly there is something for analysts and fund managers to talk about besides whether or not the Eurozone is going to go down in flames. But for many investors, particularly professional money managers, the newfound uptrend presents its own set of problems.

The problem is something I’ll call “barrier to entry.” In short, this market is not letting investors get in the game. During the first two weeks of the year, the advances seen in the market indices all occurred in the opening moments of just a couple of sessions. Thus, unless one had positions on before the open, there was no way to participate in the big blasts. And given that there have been just two red bars on the chart of the S&P 500 this year and none of the meaningful variety, anyone looking for a pullback before committing capital may be starting to get a little anxious.

Yesterday was a perfect example. With stocks opening lower on the back of Germany denying any interest in expanding the size of the dueling Eurozone bailout funds, it appeared that the long-awaited pullback had arrived. Thus, for those looking to get money invested, the question was whether the quick dive at the open was another one-hour wonder, or the start of a more traditional pullback.

I have often said that pullbacks can be a bull’s best friend. For it is during these bouts of profit-taking that one can get a feel for the underlying strength of the trend. And yesterday’s action was a perfect example of this concept. You see, at this stage of the game, even the most confident bulls have to be wondering how long the current joyride to the upside will last. So, with an overbought market, some overhead resistance, and a great deal of inputs about to hit the tape in the coming days (Fed meeting, earnings, GDP), a bout of selling – perhaps even some nastiness – would have been expected.

But instead of a tank-job on word that the Greek negotiations may drag on for another few weeks or the fear that Portugal might soon need some additional assistance in order to pay its bills; stocks continued the recent trend of rebounding after each and every dip. So, unless you were very nimble, once again it was tough to put money to work into any sort of meaningul decline.

While there is a great deal of disbelief relating to the potential upside in this market and stocks could easily get blindsided by some new debacle, for now at least, the barrier to entry is real. Well, for now anyway.

Turning to this morning… Apple’s ginormous quarterly earnings report boosted returns in Japan and Australia and are certainly helping the NASDAQ this morning. However, declines in European bourses are keeping pressure on the S&P and DJIA futures.

On the Economic front… There are no economic releases scheduled before the bell. But we will get a report on pending home sales at 10:00 am.

Thought for the day… “Be the ball, Billy”…

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell…

  • Major Foreign Markets:
    • Australia: +1.00%
    • Shanghai: Closed
    • Hong Kong: Closed
    • Japan: +1.12%
    • France: -0.62%
    • Germany: -0.53%
    • Italy: -1.12%
    • Spain: -1.08%
    • London: -0.60%
  • Crude Oil Futures: -$0.54 to $98.40
  • Gold: -$7.80 to $1656.70
  • Dollar: lower against the Yen, higher vs Pound and Euro
  • 10-Year Bond Yield: Currently trading at 2.055%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: -2.15
    • Dow Jones Industrial Average: -35
    • NASDAQ Composite: +24.69

Positions in stocks mentioned: None

For more of Mr. Moenning’s thoughts and research, visit StateoftheMarkets.com

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