The Daily Grind

Daily State of the Markets 
Friday Morning – March 19, 2010  

Although the Dow Jones Industrial Average has been a laggard recently, it appears to have shifted into catch-up mode this week. While the rest of the major indices stumbled around a bit on Thursday, the venerable market index managed to grind higher for the eighth straight session.

There was an awful lot of data inputs for traders to deal with yesterday including reports on Weekly Jobless Claims, CPI, the Philadelphia Fed Index, February Leading Indicators, conflicting rhetoric in Greece, another M&A deal, some solid earnings in the retail sector (NKE, GME), the quadruple options expiration event, and a rumor that the Fed was going to hike interest rates again. But at the end of the day, none of it really mattered as the vast majority of stocks were mixed.

With a market that has become overbought by most measures, one might have expected to see some selling on a day like Thursday. Although there was some pretty good news mixed in, the growing uncertainty surrounding Greece and the rumor that the Fed was about to get busy again would usually have been enough to give the bears the ball. Thus, the fact that traders were able to shake off the Greece situation and stick to their knitting has to be considered a positive.

If you are thinking that a fix to Greece situation is old news and a done deal, you are probably not alone. However, the level of rhetoric has definitely picked up this week and there now appears to be a bit of a Mexican standoff taking place. For example, yesterday the Greek Prime Minister began asking for assistance but said that it wanted to keep its options open on where it will get the money. In what appears to be an effort to bargain, the Greek PM said that Greece would prefer a European solution but would go to the IMF if necessary. On the other side of the discussion, Germany has begun to take a hard line as Chancellor Merkel basically said yesterday that Greece is on its own and needs to solve its own problems. Apparently there is growing public unrest in Germany against the idea of bailing out Greece. This stance appears to be a break from what appeared earlier to be unified front with France and the ECB.

Closer to home, the rumor that the Fed might increase the Discount Rate again after the close initially caused stocks to move down off of their early highs. But thinking logically, another increase in the rate charged to banks for emergency capital is actually a good thing. Since the Fed has made it clear that the increases in the Discount Rate do not represent a change in monetary policy, the fact that the Fed has enough confidence in the banking system to continue on the path of returning things to normal has to be viewed as a positive.

From a chart perspective, it is a positive that the Dow appears to be breaking away from its January high, which up until this week had been a resistance zone. And the fact that the rest of the indices now have a substantial cushion between them and the breakout area is also a good sign. However, we will continue to “cry wolf” and warn that a 2% – 3% pullback would be logical about now. But with stocks appearing to simply grind higher each day, we will have to wait and see if the bears can come up with a reason to be anytime soon.

Turning to this morning, we don’t have any economic data to work with before the bell. But it is a quadruple witch Friday and the fact that the latest a health care plan may come to fruition over the weekend may keep traders busy today.

Running through the rest of the pre-game indicators, the overseas markets are higher across the board. Crude futures are down $0.63 to $81.57. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.695%. Next, gold is moving down $6.30 to $1121.20 and the dollar is higher against the Pound but lower against the Yen and Euro. Finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a flat open. The Dow futures are currently within a point of unchanged; the S&P’s are up a fraction of a point, while the NASDAQ looks to be about 1 point above fair value at the moment.

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