Seeing Both Sides Now?

Daily State of the Markets 
Thursday Morning – June 17, 2010  

Traders apparently busied themselves with both sides of the argument during Wednesday’s session as the bulls and bears finished in a draw. Stocks first headed lower as the bears made their case on the housing market and more speculation in Spain. However, the bulls were able to counter with a little company called Apple (AAPL), which seemed to be having a fair amount of trouble accepting the gazillion orders for its new phone. And so it went from there with the Dow finishing modestly green while the S&P, appropriately, finished a smidge in the red.

However, simply labeling a day at the corner of Broad and Wall a draw could be considered a lame effort on our part. So, upon further review, we’re going to award the day’s prize to our heroes in horns. Why side with the bulls when the bears seemed to have the stronger arguments, you ask? After all, when you factor in the speculation that Spain is secretly talking to the EU/IMF about an emergency loan, the really lousy Housing Start and Permit data, the disappointing report from FedEx, the ongoing uncertainty relating to the Fin Reg bill, and the worry about what will come out of the ECB’s stress tests, it appears that there is no reason whatsoever to be upbeat.

However, this is precisely the point. The bulls only had their best buddies over at Apple and BP’s announcement that they were going to buck up a cool $20 billion for claims on their side of the ledger. So, given that (a) the bulls were vulnerable after Tuesday’s romp and (b) the bears seeemed to have the upper hand in terms of the news flow, we find ourselves impressed that the bulls didn’t turn tail and run yesterday.

In short, Wednesday was the type of day that could have easily been ugly. Up until this point, each and every rally try over the past two months has been met with more “de-risking,” more short sales, and more HFT activity as the path of least resistance had been down. However, maybe, just maybe, the all-news-is-bad-news environment is starting to change.

What about all the bad stuff that’s still out there? How can we even consider the bull camp argument with all of the negatives? Well, the bottom line is that the bad stuff is becoming well known and traders are getting more information on all the bad stuff on a daily basis. This means that there is a decent chance that the “what if’s” have been priced in – for now. Heck, even the results of the stress tests in Europe are going to be released shortly. As a result, traders will be able to determine who’s in trouble and who isn’t. Thus, a great deal of the uncertainty is being removed.

Please don’t misunderstand the point here. We are not saying that everything is peachy keen and stocks will move straight up from here. No, the key point is that stocks discount the future and unless that future holds some new really bad stuff, then the market may have priced in an awful lot of bad news already. And finally, it is important to keep in mind that stocks don’t move either direction in a straight line. Therefore, even if there is more bad stuff on the horizon, the bulls deserve a rally every once in a while.

Turning to this morning… Spain’s auction of 3.5 billion Euros in 10- and 30-year bonds was well received, which has produced a sigh of relief rally in Europe. However the weekly jobless claims numbers have caused stock futures to pull back.

On the economic front… The Consumer Price Index for May fell by -0.2%, which was in line the consensus for a drop of -0.2% and higher than April’s reading of -0.1%. When you strip out food and energy, the so-called Core CPI came in with a gain of +0.1%, which was dead on with expectations.

Next up, the Labor Department reported that initial claims for unemployment insurance for the week ending June 12th rose by 12,000 to 472K. The week’s total was a above the Reuters consensus for a reading of 450K. Continuing Claims for unemployment for the week ending June 5th were also above consensus at 4.571M vs. expectations for 4.470M.

Finally, here’s something to ponder today: There is more to life than increasing its pace…

Pre-Game Indicators

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

• Major Foreign Markets:
  • Australia: -0.55%
  • Shanghai: -0.38%
  • Hong Kong: +0.38%
  • Japan: -0.67%
  • France: +0.77%
  • Germany: +0.63%
  • London: +0.80%

   

• Crude Oil Futures: – $0.41 to $77.20
• Gold: + $12.20 to $1242.70
• Dollar: Higher against Yen, Lower vs. Euro and Pound
• 10-Year Bond Yield: Currently trading lower at 3.25%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value): 
  • S&P 500: +1.04
  • Dow Jones Industrial Average: +9
  • NASDAQ Composite: +17  

Wall Street Research Summary

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