Somtimes it IS the News

Daily State of the Markets 
Friday Morning – July 16, 2010  

One of THE most important Wall Streetisms that investors and traders alike need to understand is “It’s not the news, but how the market reacts to the news that matters.” The thinking is that you can tell an awful lot about the market environment by watching how the market reacts to a particular news item. For example, there are times that good news is greeted with selling and vice versa, Thus, the key is to determine what type of environment you are dealing with at all times.

Thursday’s roller coaster ride on Wall Street was a good example of this. In the past month or so, we’ve seen the market go into a panic over the idea that the economy was going to “double dip” only to rally furiously when it became obvious that a slowdown in economic data does not a recession make. Thus, we will argue that up until Tuesday, any news which suggested that things aren’t half bad out there (such as the anecdotal commentaries out of companies such as CSX, Alcoa, and Intel) was greeted with buying. And at the same time, any report that suggested the economy might be slowing was treated at “old news” and brushed aside. In short, this is a bullish market action.

On the other side of the coin, this morning we saw an almost an almost diametrically opposed response. The improvement in the weekly jobless claims numbers were completely ignored as traders focused on the weaker numbers out of the Empire Manufacturing and Philly Fed Indices. In short, both were rear-view mirror numbers and brought nothing new to the discussion. In addition, traders completely ignored the upbeat message from the credit card issuers as five out of six saw delinquency rates decline, which is clearly a “good thing.” But, with a market that had become overbought after six straight up days, boom – all news was bad news again.

Thus, if you listened closely yesterday afternoon, you could hear the bears arguing that this new environment isn’t going to be kind to stock prices. But then it happened. Just about the time the HFT boys were pushing stocks lower late yesterday afternoon, BP (BP) announced that they had capped the broken well that had been gushing oil into the Gulf for months. while this news has no bearing on the economy, this “feel good” piece of news forced the program traders to reverse course and run stocks higher into the close. Thus, we will admit that sometimes, it is indeed the news that matters.

Looking at the charts, the glass-is-half-full gang will call Thursday’s action a successful test of the important 1080 support zone on the S&P 500. However, given that the resistance is still intact and that this remains a news-driven environment, we’re not sure stocks are ready to simply blast higher from here. As such, we wouldn’t be surprised to see some additional testing of support as the bulls spend some time regrouping.

Turning to this morning… earnings from Bank of America (BAC), Citi (C), and GE (GE) all beat on the bottom line EPS numbers but the revenue numbers from all three were a little on the light side.

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

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

Pre-Game Indicators

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

• Major Foreign Markets:
  • Australia: -0.44%
  • Shanghai: -0.01%
  • Hong Kong: -0.03%
  • Japan: -2.86%
  • France: +0.18%
  • Germany: +0.28%
  • London: +0.74%

   

• Crude Oil Futures: – $0.36 to $76.26
• Gold: – $15.30 to $1193.00
• Dollar: higher against Yen and Pound, lower vs Euro
• 10-Year Bond Yield: Currently trading higher at 3.00%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value): 
  • S&P 500: -2.98
  • Dow Jones Industrial Average: -27
  • NASDAQ Composite: -4.41  

Wall Street Research Summary

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