In Search Of

Daily State of the Markets 
Tuesday Morning – November 9, 2010  

After an impressive blast in response to an abundance of positive inputs last week, it wasn’t terribly surprising to see the bulls take a bit of a breather yesterday. And although the bears may have been emboldened by the early action and the idea that yesterday’s downside move might be the start of something positive for their team, the drop of -37 points on the Dow wasn’t exactly a cause of concern in the bull camp – especially considering the fact that both the NASDAQ and the Russell 2000 wound up with green screens by the time the closing bell rang.

So, if you find yourself in the bear camp these days, you are likely in search of a reason to be there. Despite the fact that everyone knows trees don’t grow to the sky and as tough as it may be to swallow, our furry friends need to recognize that this is simply one of those times where the bulls are on a roll and the game has become a one-way street. Therefore, that bear costume might remain uncomfortable for a while longer.

Hasn’t the joyride to the upside gone far enough? Isn’t this move based on hope and hope alone? Is anybody watching Ireland and Portugal? Aren’t there going to be problems ahead with inflation, the economy, sovereign debt, housing, and employment? These are the questions that the glass-is-half-empty crowd can be heard bandying about these days. However, the answer to all these queries can be found in one of my all-time favorite Wall Streetisms: Things don’t matter until they do, and then they matter a lot.

However, before anyone on the dark side decides to throw up their hands and start buying those triple-long ETF’s on margin, it might be a good idea to recall how this game works. Remember that the market can indeed stay irrational longer than you can stay solvent and Ms. Market will find a way to frustrate you whenever possible. BUT (and this is a mighty big “but”), despite the performance anxiety, the calendar, and the exuberance over QE II, I’m fairly confident that something unpleasant is likely to come out of the woodwork at some point to put some fear back in the game… it always does.

It is for this reason that I prefer to play a modified version of the trend-following game. Simply put, I don’t like being on the wrong side of the market when one of these joyrides takes off. I will admit to being more than a little skeptical in early September and even more so in mid-October. However, in my humble opinion, the key to longevity in this game is to avoid making big mistakes. So, while I may have been less than enthusiastic about the upside potential form a big-picture standpoint, the bottom line is I got onboard the Bull train anyway. And so far at least, I will have to admit that it has been a fairly pleasant ride.

However, like those in the bear camp, I too am in search of that “something” that is going to jump up and surprise the late-to-the-party crowd in this “To the moon, Alice” run. I am in search of the trigger that will cause the HFT gang to go the other way – in a big way. I am in search of the level where valuations become a problem. But until the bears can find something to hang their hat on, the game may continue to be one-sided.

Turning to this morning… Stock futures are moving a little higher in the early going on the back of improving European markets, a lower dollar, and some M&A activity.

On the economic front… The NFIB Small Business Optimism index for October rose +2.7 to 91.7 from 89.0 in September.

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

Pre-Game Indicators

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

• Major Foreign Markets:
  • Australia: -0.71%
  • Shanghai: -0.78%
  • Hong Kong: -1.02%
  • Japan: -0.39%
  • France: +0.81%
  • Germany: +0.68%
  • London: +0.81%

   

• Crude Oil Futures: + $0.23 to $86.44
• Gold: + $11.00 to $1414.20
• Dollar: lower against the Yen, higher vs. Euro and Pound
• 10-Year Bond Yield: Currently trading at 2.543%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value): 
  • S&P 500: +1.65
  • Dow Jones Industrial Average: +16
  • NASDAQ Composite: +5.3  

* Report includes items that make comparisons to the consensus estimate questionable

Wall Street Research Summary

Upgrades: