Nobody Minds

Daily State of the Markets 
Friday Morning – June 18, 2010  

Stocks spent the vast majority of Thursday’s session looking for direction as traders attempted to digest the contradictory news flow. But then, just about the time it looked as if the bulls were ready to roll over and succumb to the pressure, the HFT boys flipped the switch. And while the 85 point rally in the Dow over the last 30 minutes was clearly driven by program trading, our guess is that nobody will mind this kind of volatility.

The day started off on a decidedly down note and it looked like our furry friends were bent on putting the Dow and S&P back on their side of the 200-day moving averages. Despite the good news out of Europe (Spain’s auction of 10- and 30-year bonds was successful), the economic calendar here at home suggested that the recovery might be stalling out.

The fly in the ointment of the U.S. economic recovery has been and will likely continue to be jobs. So, when Initial Jobless Claims once again came in well above expectations (472K vs. expectations for 450K and last week’s 460K), the bears began to trumpet the idea that this recovery is indeed a “jobless” one. The good news is that this is hardly a new concept as every economist on the planet has been talking about a “jobless recovery” for some time now.

However, when the Philly Fed Index (a regional Fed index measuring changes in business growth) was reported at a reading of just 8.0 versus the expectations for 20.6 and May’s 21.4, well, the bears actually had something to talk about. Sure, there were some positive aspects of the report, but the bottom line is the fundies were suddenly in question again.

As the bullishly inclined fretted about whether or not this news was meaningful, the market went through a series of gyrations in both directions. By about lunchtime, it appeared that the bulls had successfully defended their turf as much of the early loss had been erased. But, given the fact that we’ve got an options expiration event on our hands this week, the indices then turned lower and approached the lows of the day as the all-important time of the day arrived. No, I’m not referring to “Miller time,” but rather the time of day when the high frequency traders tend to take over – the last 30 minutes.

If you are looking for a reason that the HFT boys decided to run things from down -60 to +25 yesterday, you can forget the headlines or rumors. No, this time around the programs went the bulls’ way because the order imbalances were to the buy side… to the tune of more than $1 billion worth of orders to buy the close.

So, the question of the day becomes whether or not the day’s action (and more specifically, the closing action) was meaningful. And while no one is likely to complain much about the end result, we’re going to have to say that no, we wouldn’t try to read too much into Thursday’s green screens. Remember, what the computers giveth can also be taken away.

Turning to this morning… We don’t have any economic data to review on this options expirations Friday. And with the news flow slowing to a trickle, it looks like stocks are moving a little lower in the pre-market.

Finally, best of luck on this Friday and be sure to enjoy your weekend!

Pre-Game Indicators

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

• Major Foreign Markets:
  • Australia: +0.60%
  • Shanghai: -1.84%
  • Hong Kong: +0.74%
  • Japan: -0.04%
  • France: -0.19%
  • Germany: +0.02%
  • London: +0.17%

   

• Crude Oil Futures: – $0.95 to $75.84
• Gold: + $10.80 to $1259.50
• Dollar: Higher against Yen, Euro and Pound
• 10-Year Bond Yield: Currently trading higher at 3.21%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value): 
  • S&P 500: -2.34
  • Dow Jones Industrial Average: -22
  • NASDAQ Composite: -4.35  

Wall Street Research Summary

Upgrades: