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Daily State of the Markets |
Good morning. Stocks headed higher out of the gate on Monday on the back of some better than expected economic news out of South Korea (of all places). And before I could find my second Diet Coke of the morning, the Dow was pushing higher by more than 100 points. So, with traders assuming that if South Korea can grow its economy, the U.S. should be able to as well, it looked like Friday’s economic fears were long gone and happy days were here again.
But then it happened. At about 11:05 am eastern time, the rally abruptly ended and stocks began to dive in a manner we haven’t experienced since early March. Within 15 minutes the gains in the stock market were gone. And 30 minutes after that, the Dow found itself down triple digits.
Since I’ve gone out of my way lately to opine that stocks don’t make big moves without a good reason, I’m guessing you are probably expecting some sort of an explanation right about now. So, here goes. At precisely 11:10 am Monday morning, the dollar ticked up through what was apparently a very important technical level. A level that caused the dollar shorts to run for cover in a big hurry because if you’ve been paying attention to the “dollar carry trade” lately, you know that being short the greenback has become a very popular trade.
Why should the stock market care so much about the dollar – especially when it makes a rare jaunt to the upside? Well, as Nouriel Roubini put it yesterday on CNBC, asset prices around the globe are being inflated by the combination of a falling dollar and low interest rates here in the USofA. This has made the strategy of borrowing money in dollars and investing in just about anything else very successful. And as Captain Sunshine (aka Nouriel Roubini) put it, “the dollar cannot keep falling forever and there could be a market crash all over the world when the U.S. dollar reverses.”
Thus, the dollar poking its head up above some short-term resistance level was akin to yelling “fire” in a very crowded theatre of skittish moviegoers. And since the first rule of fast-money trading is “panic early or not at all,” it is little wonder that a certain segment of this trade wanted out.
But to be fair, we probably shouldn’t blame all the Monday’s miserable market action on the sudden upturn in the dollar. No, the bears had a couple of other things working in their favor such as Barney Frank talking about a new oversight council that could easily wipe out shareholders if the government needs a new business venture. There were rumors of S&P downgrading Bank of America (BAC), which would make their capital raise a tad more difficult. There was more talk about the First-time Homeowner Tax Credit not being renewed. There was the breakout on the 10-year note yield. And there was word of heavy insider selling at some big names.
All of which led to some VERY bad tape action for the stock market. And while the bulls will argue that the greenback is more likely to resume its decline than embark on any kind of rally, the fact that stocks reversed lower on heavier volume two sessions in a row ought to make even the most ardent bulls a little nervous right about now.
Turning to this morning, we don’t have any economic data to review before the bell. But we will get the Richmond Fed and US Consumer Confidence reports at 10:00 am.
Running through the rest of the pre-game indicators, the foreign markets are split by region with Asia following Wall Street lower and Europe is higher. Crude futures are moving up a bit with the latest quote showing oil trading up by $0.19 to $78.87. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.55%, while the yield on the 3-month T-Bill is currently at 0.07%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to maybe a slightly higher open. The Dow futures are currently ahead by about 15 points; the S&P’s are up by about 2 points, while the NASDAQ looks to be about a point above fair value at the moment.
| Yesterday’s Earnings After The Bell | |||
Company |
Symbol |
EPS |
Reuters Estimate |
| Arch Capital Group | ACGL | $2.56 | $2.36 |
| American Financial Group | AFG | $1.07 | $0.89 |
| CF Industries | CF | $0.97 | $1.02 |
| Dryships | DRYS | $0.27 | $0.20 |
| Flextronics | FLEX | $0.13 | $0.09 |
| Masco | MAS | $0.14 | $0.09 |
| Plum Creek | PCL | $0.14 | $0.08 |
| Rent-A-Center | RCII | $0.55 | $0.50 |
| VF Corp | VFC | $1.94 | $1.95 |
| Vertex Pharmaceuticals | VRTX | -$0.84 | -$0.81 |
| WMS Industries | WMS | $0.36 | $0.36 |
| Zoran | ZRAN | $0.17 | $0.04 |
| Today’s Earnings Before The Bell | |||
Company |
Symbol |
EPS |
Reuters Estimate |
| TD Ameritrade | AMTD | $0.26 | $0.22 |
| Bemis | BMS | $0.48 | $0.39 |
| Boyd Gaming | BYD | $0.09 | $0.10 |
| Convergys | CVG | $0.27 | $0.23 |
| FPL Group | FPL | $1.38 | $1.42 |
| Hospira | HSP | $0.90 | $0.69 |
| InterActive Corp | IACI | $0.34 | $0.13 |
| Johnson Controls | JCI | $0.52 | $0.52 |
| L-3 Communications | LLL | $2.12 | $1.85 |
| PACCAR | PCAR | $0.04 | $0.02 |
| Textron | TXT | $0.12 | -$0.03 |
| Valero Energy | VLO | -$0.39 | -$0.34 |
| Waters | WAT | $0.81 | $0.77 |
| Wynn Resorts | WYNN | $0.33 | $0.15 |
| US Steel | X | -$2.11 | -$2.89 |
Wall Street Research Summary
Upgrades:
Texas Instruments (TXN) – at FBR Capital Cheesecake Factory (CAKE) – at Goldman Cabot Oil & Gas (COG) – at JP Morgan Intel (INTC) – Initiated Buy at Kaufman Bros Radio Shack (RSH) – at KeyBanc Viacom (VIA.B) – at Pali Research PNC Bank (PNC) – Estimates and target increased at Rochdale Agrium (AGU) – at TD Newcrest Verizon (VZ) – at Wells Fargo Cablevision (CVC) – at Wells Fargo
ONEOK (OKE) – at Citi Spectra Energy (SE) – at Citi Sohu.com (SOHU) – at RBC Capital
Long positions in stocks mentioned: GS
Don’t forget, ego is the enemy… and until next time, “may the bulls be with you!”
David D. Moenning
Founder TopStockPortfolios.com
For more “top stock” portfolios and research, visit TopStockPortfolios.com
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