Daily State of the Markets
Just about every trader-type on the planet can be heard talking about the likelihood of a near-term pullback in the stock market these days. Everyone can look at their oscillators and see that stocks are overbought. Everyone will readily admit that the smallcap and midcap indices are starting to “go parabolic.” Everyone acknowledges that the banks might be overdone and could be due for a respite. Everyone sees the resistance on the S&P and Dow charts. And everyone who studies investor behavior recognizes that things are starting to get a little frothy right about now.
But while even the most ardent bulls will admit that it is time for the bulls to take a siesta, stocks have continued to march higher. So, the question that anxious players on both teams are probably asking is: Are days like Friday all we can expect for now?
We have argued that the bears’ fumbling of the ball on each of their last two possessions is a sign of strength. And we will agree that the new leadership role of the banks could catch on and they could run for a while. But, at some point something will come along to put a scare into the buyers, right?
While this argument is certainly logical and it is a safe bet that stocks WILL pull back at some point soon, trying to pick the exact moment when said pullback will begin can be a very tricky business.
In terms of downside triggers, it looked like the bears had at least a couple last week. We had any number of reports showing that the situation in Greece could be worse than anybody expects. We had reports of inflation starting to percolate in China. And we had some economic data that wasn’t exactly inspiring. To which traders replied, “Buy ’em!”
It is times like these where the phrase, “the trend is your friend” definitely applies if you are playing the long side. And speaking of sides, it has become quite clear that the long side remains the right side of this “mini bull” market. Sure, stocks are overbought and a 2% – 3% pullback could happen at any time, for any reason. And frankly, we aren’t interested in putting any additional money to work here without at least a pause in the action. But if days like Friday are all the bears can muster right now, it is probably best to avoid fighting the tape and simply enjoy the ride.
Turning to this morning, the big news so far are the comments made about the U.S. budget deficit and the dollar from China’ Premiere. On the economic front, the Empire Manufacturing Index (designed to indicate the state of the manufacturing sector in the New York region) for March was reported at 22.86, which was above consensus expectations for 22.00 but below February’s level.
Looking ahead to this week, all eyes will be on the Fed again on Tuesday as well as the reports on Housing Starts, PPI, and CPI.
Running through the rest of the pre-game indicators, the overseas markets are mostly lower. Crude futures are down $0.64 to $80.60. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.71%. Next, gold is moving up $3.80 to $1105.50 and the dollar is lower against the Yen but higher against the Euro and Pound. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly lower open. The Dow futures are currently off by about 20 points; the S&P’s are down about 2 points, while the NASDAQ looks to be about 3 points below fair value at the moment.
Wall Street Research Summary
Beazer Homes (BZH) – Initiated Buy at Citi Wal-Mart (WMT) – Citi Legg Mason (LM) – FBR Capital Research in Motion (RIMM) – Estimates increased at Morgan Stanley Kirklands (KIRK) – Piper Jaffray Rackspace (RAX) – RBC Capital Nike (NKE) – Target increased at Thomas Weisel, UBS DuPont (DD) – Estimates increased at UBS
Deutsche Telekom (DT) – BofA/Merrill Atheros Communications (ATHR) – Barclays Radio Shack (RSH) – Removed from Conviction Buy at Goldman Arch Coal (ACI) – HSBC DreamWorks Animation (DWA) – Janney Capital Zumiez (ZUMZ) – Jefferies IntercontinentalExchange (ICE) – Keffe, Bruyette & Woods Apache (APA) – Morgan Stanley Chesapeake Energy (CHK) – Morgan Stanley Patterson-UTI (PTEN) – Morgan Stanley Lam Research (LRCX) – Oppenheimer KLA-Tencor (KLAC) – Oppenheimer Riverbed Technologies (RVBD) – Piper Jaffray PNC Bank (PNC) – Rochdale CF INdustries (CF) – UBS
Long positions in stocks mentioned: None
Best wishes for a pleasant day and
David D. Moenning
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