Have The Stars Aligned?

Daily State of the Markets 
Monday Morning – December 13, 2010  

With stocks breaking out to new two-year highs on Friday and just about every major index now clearly in an uptrend, there is talk of the stars aligning for a new leg up in the bull market that began on March 10, 2009. And while the bears do still have some points to make, it is becoming obvious to anyone on the short side that the game just doesn’t seem to be going their way right now and may not for some time to come.

I know what you’re thinking, “Boy, does he sound bullish – Is it time to start going the other way?” On that note, allow me to first point out the question mark at the end of the title to this morning’s missive. And then, before you start using my perceived tone as a contrary indicator, let me say that I am not suggesting that things will be up-up-and-away from here. No, I’m merely trying to review the bull argument this morning.

Point number one in the bull case is stocks are going up. Despite the worries about sovereign debt, the Korea’s, interest rates, the housing market, politics, etc, all the indexes (except the Dow) have broken out to new highs for this cycle. And as they say, the most bullish thing a market can do is go up.

Running down the rest of the list we’ve got improving consumer sentiment (for the record, a rising stock market tends to cause everyone to feel better), a steady stream of better-than-expected economic data lately, a downright festive feel to the holiday shopping season, a Fed that is bound and determined to keep the economy moving forward, some new tax cuts on the horizon that will put more cash in your paycheck for 2011, expectations for continued improvements in corporate earnings, a favorable spot on the calendar, and the asset allocators talking about selling bonds and buying stocks going into 2011.

Friday’s market, while more than a little on the dull side, was a microcosm of the bull argument as we got improved confidence numbers from the University of Michigan, a little company named GE (GE) announcing a nice increase to their dividend, and word that consumers are hitting the malls and the online stores much harder than last year. And with the indices moving higher in the afternoon, most everybody holding stocks went home happy.

Even the bears can be heard mumbling about the possibility that stocks could go higher from here. Factor in some window-dressing and some repositioning for next year and it isn’t too hard to see how the indices could march higher into the New Year celebrations.

Which brings me to my second point this morning. If everyone, including yours truly, is singing the bulls’ praises and looking for higher prices going forward, it might indeed be time to start thinking about taking a little something off of the table or at the very least leaning a little toward the cautious side. After all, while the stars may be aligning for the bulls, there are still some issues out there to deal with. And as they say in this business, things don’t matter until they do – but then they matter a lot.

Turning to this morning… Things are fairly quiet in the early going but the tone remains positive. Overseas markets are higher across the board as traders breathe a sigh of relief that China decided to raise only bank reserve requirement as opposed to interest rates.

On the economic front… There isn’t a single entry on the economic calendar today either here at home or across the pond.

Finally, we wish you all the best for a productive and enjoyable day…

Pre-Game Indicators

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

• Major Foreign Markets:
  • Australia: +0.23%
  • Shanghai: +2.88%
  • Hong Kong: +0.67%
  • Japan: +0.80%
  • France: +0.91%
  • Germany: +0.37%
  • London: +0.94%

   

• Crude Oil Futures: + $1.21 to $89.00
• Gold: + $7.30 to $1392.20
• Dollar: lower against the Yen and Pound, higher vs. Euro
• 10-Year Bond Yield: Currently trading higher at 3.348%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value): 
  • S&P 500: +5.10
  • Dow Jones Industrial Average: +42
  • NASDAQ Composite: +9.01

Wall Street Research Summary

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