The Good, The Bad, And The…

Daily State of the Markets 
Wednesday Morning – July 7, 2010  

By most counts, the bulls should have run the table on Tuesday. There was some good news to work with, some bad news that seemed to be ignored, and the realization that the bulls were due a day in the sun. But instead of a joyride to the upside based on an oversold condition and some good action across the pond, investors were treated to a market on Tuesday that wound up being just plain ugly.

In short, if ever there was a day in which the market should have rallied, it was yesterday. Traders were treated to a round of good news before the market opened here in the U.S. and in the early going it appeared that the bears were likely to take a day off. European stock markets were soaring on the back of some good news. Asian markets piggybacked a successful IPO in China. Both of which led most to believe that stocks here in the U.S. would follow suit. But then it got ugly.

Most market watchers probably expected to see a blast higher on Tuesday after the long holiday weekend. Stocks were set up to rally after being down for 9 of the last 10 sessions. Credit spreads were improving in Europe. The T-note auction in Spain had gone well. And France’s finance minister had hinted that the bank stress tests (the results of which are scheduled to be revealed on July 23rd) would show banks to be sound. And all of this good news had pushed European bourses to gains of at least 2%.

True to form, the market opened up nicely here in the U.S. The bulls even managed to brush off the bad news from the ISM Non-manufacturing Index (the index fell to a 4-month low and came in below consensus) and before you could figure out that it wasn’t Monday, the DJIA was up 170 points. But, unfortunately for anyone leaning long, things got ugly from there.

To be honest, I’d like to be able to blame the ensuing selloff on the ‘boys and their toys’. I’d like to tell you that it was those nasty HFT programs that turned a good day ugly. But unfortunately, this just wasn’t the case. From where I sit, it appeared that fund managers remained in ‘sell the rallies’ mode as the 170 point gain turned into a loss of 30 with 35 minutes left in the session.

While the HFT boys did come to the rescue in the last few minutes of the day with some buying, the bottom line is the action Tuesday was ugly from a technical standpoint. A market that should have been ready to rally simply failed miserably. A market that should have scared the shorts into covering wound up emboldening those in the bear camp.

So, given the oversold nature of the market, the good news is our furry friends may have a hard time pushing things lower from here. The bad news, of course, is that the bulls blew a pretty good opportunity yesterday and as such, they may have to do some base building before making another rally attempt. And from one market watcher to another, let’s just hope that things don’t get ugly again anytime soon.

Turning to this morning… we don’t have any economic data to review before the bell this morning. In the pre-market, things are down a bit, but have improved a fair amount from earlier levels.

Finally, We wish you all the best for a great day…

Pre-Game Indicators

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

• Major Foreign Markets:
  • Australia: +0.51%
  • Shanghai: +0.49%
  • Hong Kong: -1.13%
  • Japan: -0.63%
  • France: +2.02%
  • Germany: -0.87%
  • London: -0.90%

   

• Crude Oil Futures: + $0.49 to $72.47
• Gold: – 3.60 to $1191.50
• Dollar: higher against Yen, Euro and Pound
• 10-Year Bond Yield: Currently trading lower at 2.93%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value): 
  • S&P 500: +0.63
  • Dow Jones Industrial Average: -4
  • NASDAQ Composite: -4.2  

Wall Street Research Summary

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