Dare We Say, An Improvement?

Daily State of the Markets 
Friday Morning – July 23, 2010  

In this up-one-day-and-then-down-the-next type of market, it is tough to maintain your bearings as the market’s focus seems to bounce from one thing to the next day in and day out. But such is the case when the market is basing and/or seeking an equilibrium point in front of a big, bad event such as the European bank stress tests due out today at noon eastern.

However, based on the action in between the knee-jerk, HFT-influenced big moves, dare we say it, we believe we might actually be seeing some improvement. For example, up until the point in time when Ben Bernanke uttered the words “unusually uncertain,” the stock market “felt” like it wanted to go higher. But then, of course, the violent reaction to the two words the computers didn’t recognize in relation to the state of the economy pushed those thoughts to the sidelines and the sell programs took over.

But on Thursday, the feeling that things might be improving reappeared after a round of economic data from across the pond showed that the European economies weren’t doing half bad and that sentiment was actually on the rise. As such, the argument that Europe was going to simply collapse and drag the rest of the world down with it seemed to disappear.

As the saying goes, it’s not the news, but how the market reacts to the news that counts. As such, we’ll argue that since traders embraced the good news out of Europe and simply ignored the bad news here at home on the housing and jobs front, the market may be looking ahead and not back. After all, everybody knows that the housing market is bad (and is likely to stay bad for a while) and that jobs aren’t a pretty picture right now. So, the fact that the market embraced the good news yesterday might be something to pay attention to.

With that said however, we must recognize that this remains a news-driven environment and that today’s big, bad event could easily bring out the sellers. For example, some traders may want to “sell the news” of the bank stress tests results (since the rumor has been that the results will be positive). And if the results are too good, there will undoubtedly be those who will sell on the idea that the tests weren’t rigorous enough. And then, of course, there is the scenario where the results are actually below the generally upbeat expectations. The point is that we might see some selling today regardless of the outcome. But then again, if we don’t get a big dive in response to the news, we’ll say that maybe, just maybe, we’re starting to see some improvement in the market. We’ll see…

Turning to this morning… we don’t have any economic news here at home to drive trading in the early going. However, the earnings parade contines to provide plenty of input and the economic data from the UK and Germany was pretty darn good. But again, all eyes will be on those stress tests results today at noon.

Finally, best of luck on this Friday and be sure to enjoy the weekend!

Pre-Game Indicators

Here are the important indicators we review each morning before the opening bell…

• Major Foreign Markets:
  • Australia: +1.83%
  • Shanghai: +0.38%
  • Hong Kong: +1.10%
  • Japan: +2.28%
  • France: +0.57%
  • Germany: +3.07%
  • London: -0.26%

   

• Crude Oil Futures: – $0.37 to $78.73
• Gold: + $5.00 to $1200.60
• Dollar: lower against Yen, Euro and Pound
• 10-Year Bond Yield: Currently trading higher at 2.99%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value): 
  • S&P 500: +2.73
  • Dow Jones Industrial Average: +27
  • NASDAQ Composite: +0.85  

Wall Street Research Summary

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