In It To Win It?

Daily State of the Markets 
Tuesday Morning – March 1, 2011

Good morning. While it is tempting to take Monday’s big gain for the DJIA in stride as just another day in the life of the current bull market, there was much more to it than that. In my humble opinion, Monday showed us that both teams are now ‘in it to win it’ and that the previous ‘it’s all good’ environment may be waning.

Don’t get me wrong, I haven’t made a costume change (I.E. this is a bull market party until proven otherwise) and I’m not suggesting that the bears are now in control of the game. However, I am suggesting that we might see things become a lot less one-sided going forward as some of the ‘issues’ the market is now facing could indeed prove problematic at some point in the future.

To be sure, there is ALWAYS something to worry about in the stock market. Right now that list includes most of the Middle East (with Saudi Arabia topping the list), gasoline prices and how the consumer will react, the tightening campaign in places like China, commodity inflation, Ireland, housing in the U.S., banking almost anywhere in the world, the state of the economic rebound, etc., etc.

While it is important to recognize that these issues are ‘out there,’ it doesn’t usually pay to invest based on the assumption they will come home to roost. For example, Marty Zweig made a career out of being worried about the market. However, Mr. Zweig was also smart enough to know that being a permabear was a sure way to financial ruin in this business.

Everyone join in now… “Things don’t matter (to the stock market) until they do – And then they matter a lot!” I know that, at first blush, this may sound idiotic. But it has been my experience that it most certainly is an accurate depiction of the way the stock market works. We knew tech was overvalued for a very long time in the late 1990’s, but nobody cared – until they did, that is. Same thing for the housing bubble and the European debt mess. So, while there are usually any number of problems that could crop up and it is probably a good thing to be aware of them, it is more important to be able to objectively identify what is driving the market at any given moment.

But I digress. My point this morning is while the headlines may read that the Dow gained another 95 points yesterday and is back to within a stone’s throw of its highs for the current bull market cycle, the key takeaways are (1) the Dow was the only index to enjoy strong gains and (2) it was a struggle. As such, we’re of the mind that the bears are back on the field and are now at least putting up a fight.

Am I not guilty of worrying too much over a sloppy session that ended with green screens? After all, isn’t the saying, “All’s well that ends well?” Perhaps, I am simply reading too much into yesterday’s action. However, the NASDAQ spent most of Monday solidly in the red due to a handful of downgrades in semi’s and some lousy action in both Amazon.com (AMZN) and Netflix (NFLX), both of which were former poster children for the bull camp. And the market leading small- and mid-caps also struggled. Now toss in the fact that the banks and the semi’s both finished lower and, well, you’ve got to at least admit that the bulls weren’t exactly hitting on all cylinders.

So, will the bulls be able to regain their mojo and continue to simply trample their opponents on the way to new highs for the Dow and S&P? Or will the bears decide that its time to stick around and put up a fight? While we can’t know for sure, my money is on the idea that both teams are now in it to win it, and thus, we’ll be watching the action closely if the bulls can push the indices back toward last week’s highs.

Turning to this morning… It looks like the bulls are going to try and keep things going on the back of solid manufacturing data (PMI’s) out of Europe. However, with oil prices rising and word the Saudi Arabia is sending tanks to Bahrain (note that Saudi Arabia’s stock market fell -7%), the early enthusiasm is waning a bit as the morning wears on.

On the Economic front… We don’t have any big economic data to review before the opening bell. However we will get reports on Construction Spending ad the U.S. ISM Manufacturing Index at 10:00 am eastern.

Thought for the day: Try not to let success go to your head or defeat into your heart…

Pre-Game Indicators

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

• Major Foreign Markets:
  • Australia: -0.04%
  • Shanghai: +0.51%
  • Hong Kong: +0.25%
  • Japan: +1.22%
  • France: +0.12%
  • Germany: +0.58%
  • London: +0.04%

   

• Crude Oil Futures: +$0.62 to $97.59
• Gold: +$11.30 to $1421.20
• Dollar: lower against the Yen, Euro and Pound
• 10-Year Bond Yield: Currently trading at 3.473

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value): 
  • S&P 500: +4.43
  • Dow Jones Industrial Average: +32
  • NASDAQ Composite: +10.16

Wall Street Research Summary

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