Happy Anniversary?

Daily State of the Markets 
Thursday Morning – March 10, 2011

Good morning. Although there is a sea of red numbers from the bourses across the pond this morning and the futures are pointing to a lower open, we would be remiss if we failed to point out that today marks the second anniversary of the end of the Credit Crisis Bear Market and/or the start of the current bull run. For those of you keeping score at home (and who isn’t in this business) our heroes in horns have been able to push the S&P 500 up a cool +95.1% over the past two years while the DJIA has improved +86.5% and the NASDAQ has put up a double with a gain of +116.9% since the current run for the roses began on March 10, 2009.

Given that we’re dealing with a birthday of sorts, you may be wondering about the question mark in this morning’s title. As happy as these sorts of occasions tend to be with kids’ birthdays and wedding anniversaries, an aging bull isn’t always a good thing in the stock market. You see, while the lengths of bull markets can vary widely, the extent of the gains seen during bull cycles since 1900 tends to be something on the order of +81%. As such, the Debbie Downer crowd has been quick to remind me lately that this bull might be close to being done.

It is likely for this reason that the current consolidation phase may have some folks feeling a little nervous. After all, if you consider that the stock market is a discounting mechanism for what comes next and that the market has enjoyed a run of +26% since the end of August, a less-than upbeat person might be able to argue that the market has discounted the good news that is occurring now and that which is expected to occur in the economy in the future. And frankly, if the economy were to stall here in response to a protracted rise in oil, the uncertainty in the Middle East, or renewed problems in Europe, they might have a point.

However, our job each morning isn’t to spend a lot of time gazing into a crystal ball (btw, I think mine’s stll in the shop for repairs) or opining about what is likely to come next but rather to, as objectively as possible, identify what IS happening in the market. And from my perch, it appears that we’ve got a garden variety consolidation going on at the present time.

From a chart perspective, we’ve got a lovely “wedge,” “flag” or “triangle” formation (I can never remember which one is which, but they all mean about the same thing) happening right now. Stocks have pulled back after a strong run, have tested the lows (which appear to be rising at the present time), and then have spent some time going sideways – and have done so on light(ish) volume.

So, unless the bears can come up with a reason to scare the heck out of us again in relatively short order, we should keep in mind that markets tend to exit a consolidation pattern heading in the same direction they were going before the consolidation pattern began. And while I am not a big believer in the idea of blindly following the wiggles and giggles on charts (as was said in “Pirates,” it’s more of a “guideline”) I can say that the textbooks tell us to look for this corrective phase to be resolved to the upside.

While the bears will likely barrage me with nasty emails and counterpoints about the state of housing, the lurking trouble in Europe, China’s situation, the likelihood of some inflation, etc., etc., I’m going to conclude this morning by suggesting that if the bears can’t make something happen right quick, we should probably be prepared for the U.S. market to become a self-fulfilling prophecy (remember almost everybody on Wall Street is looking for higher prices in U.S. stocks this year) and continue movin’ on up.

Turning to this morning… A downgrade of Spain, more fighting in Libya and concerns about China’s growth created healthy pullbacks in the foreign markets, which is also carrying over to the futures in the U.S. at the present time. However, so far at least, the decline has not violated any important support zones on the charts.

On the Economic front… Initial Claims for Unemployment Insurance for the week ending 3/5 rose by 18K to 397K. This was above the consensus estimate for 379K and last week’s total of 371K. Continuing Claims for the week ending 2/26 came in at 3.771M vs. 3.753M

In addition, the U.S. Trade Deficit rose in January to $46.3 billion, which was worse than the consensus estimate for a deficit of $41.4 billion.

Thought for the day: Be sure to take time to breathe today…

Pre-Game Indicators

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

• Major Foreign Markets:
  • Australia: -1.48%
  • Shanghai: -1.47%
  • Hong Kong: -0.82%
  • Japan: -1.46%
  • France: -0.71%
  • Germany: -0.72%
  • London: -1.11%

   

• Crude Oil Futures: -$1.64 to $102.74
• Gold: -$8.10 to $1421.50
• Dollar: lower against the Yen, higher vs. Euro and Pound
• 10-Year Bond Yield: Currently trading at 3.466

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value): 
  • S&P 500: -11.62
  • Dow Jones Industrial Average: -83
  • NASDAQ Composite: -23.5

Wall Street Research Summary

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