One-Way Street?

Daily State of the Markets 
Thursday Morning – October 21, 2010  

If you classify yourself as a bear these days, you probably found yourself cursing, pounding the table, and throwing things at your screen by the time the lunch bell rang yesterday. After moving straight up for more than a month and a half, logic would seem to dictate that after a day like Tuesday, in which the indices were shellacked on a new worry relating to the credit crisis, the glass-is-half-empty crowd was likely to run with the ball for a while. However, by the time the closing bell rang on Wednesday, it became apparent that Wall Street was once again a one-way street.

Remarkable as it may be, this market, like the energizer bunny, just seems to keep on going (and going… and going). And what is perhaps most impressive is the fact that our heroes in horns didn’t even need a reason to reverse Tuesday’s big dive. (Feel free to insert the Blazing Saddles rendition of “Reasons? Reasons? We don’t need no…” here.) Nope, just knock the dollar back down and this bull is good to go.

As long-time readers know, I have a penchant for needing to know the ‘reason’ behind a move. I’m of the mind that stocks don’t just make triple-digit moves in either direction without a reason. But, try as I might, I couldn’t find a specific catalyst for yesterday’s turnaround. However, part of the rally may have been attributed to the fact that there was a fair amount of talk about the fact that the effort to force Bank of America to repurchase $47 billion worth of bad mortgages (commonly referred to as a push back) may not come to fruition, or may take years to accomplish.

Next up there was word that things weren’t as bad in the banking industry as had been feared as Wells Fargo (WFC) had some good things to say about default rates. And although BAC kept the banking index in the red on the day, most of the names made impressive rebounds on this news (well, that and earnings out of Goldman Sachs).

In addition, we heard a lot of talk about China yesterday, which seemed to be focused on the idea that economists don’t expect a long tightening campaign. The fear on Tuesday had been that with officials hitting the brakes on one of the world’s fastest growing economies, the rest of the world was sure to suffer. But, with economists suggesting that the tightening campaign is likely to be short and sweet, traders returned their attention to other matters.

The combination of talk about China and the growing expectations for the Fed to implement QE II, sent the dollar back in a familiar direction on Wednesday – down. And by the time the lunch bell rang, the greenback had given back most of Tuesday’s gains. As such, traders returned to the usual trades: buying stocks, commodities, etc.

The bottom line here is that after yesterday’s rebound, the indices are once again a stone’s throw from their recent highs and the DJIA needs a mere 97 points to climb to its highest level of this bull cycle. However, we would be remiss if we failed to point out that there is some resistance overhead and that, as we’ve been saying for a while now, the market remains in an overbought condition. But, in light of the fact that this is a one-way street these days, this is unlikely to matter (until it does, of course).

Turning to this morning… Stocks are movin’ on up again this morning on China’s GDP numbers, the PMI data in Europe, earnings after the bell, and Weekly Jobless Claims here in the U.S.

On the economic front… The Labor Department reported that initial claims for unemployment insurance for the week ending October 16 fell by 13,000 to 452K. The week’s total was 1K below the Reuters consensus for a reading of 453K. Last week’s total was revised higher to 475K from 452K. Continuing Claims for unemployment for the week ending October 9 were above consensus at 4.441M vs. expectations for 4.42M and last week’s revised (higher) 4.45M.

Finally, don’t let success go to your head or defeat into your heart…

Pre-Game Indicators

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

• Major Foreign Markets:
  • Australia: +0.04%
  • Shanghai: -0.68%
  • Hong Kong: +0.39%
  • Japan: -0.05%
  • France: +1.03%
  • Germany: +0.90%
  • London: +0.81%

   

• Crude Oil Futures: – $0.33 to $82.21
• Gold: + $1.60 to $1345.80
• Dollar: higher against the Yen and Pound, lower vs. Euro
• 10-Year Bond Yield: Currently trading at 2.493%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value): 
  • S&P 500: +7.33
  • Dow Jones Industrial Average: +71
  • NASDAQ Composite: +16.55  

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

Wall Street Research Summary

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