Up For Discussion

Daily State of the Markets 
Thursday Morning – October 7, 2010  

From a big picture perspective, stocks didn’t do much on Wednesday. In our humble opinion, this is due to the fact that just about every market topic is up for discussion these days. And we’re going to suggest that it is this unusual uncertainty that kept either team from making any real progress yesterday.

Think about it; if you run through the key issues facing the market right now, it is fairly easy to make an argument on both sides for just about all of them. Quantitative easing? I can definitely go both ways here. Competitive currency devaluations (i.e. currency wars)? Same answer. The earnings parade? Well, it might be good, but then again, good wasn’t good enough last time around. Sovereign Debt? Deficits? Government Policies? Inflation? Taxes? Mid-Term Elections? Valuations? The employment picture? Well, okay, that last one’s actually easy, but you get the idea… just about everything seems to have a valid pro and con argument.

Recently however, the idea that the Fed might start buying up bonds again in order to push longer-term rates lower (which, in theory is supposed to increase economic growth, but, as you might suspect, there is a bit of discussion on this topic as well) has gained popularity and created a heads-stocks-win, tails-stocks-win environment. And now that the Japanese have joined the QE party, well, it’s relatively easy to argue that things are going to be peachy keen from here.

But… (you knew that was coming, right?) The rose colored glasses that traders have been wearing recently didn’t seem to do the trick on Wednesday. Apparently the reality that the economy just isn’t creating any jobs, the downgrade of a PIGI, the reduction in global growth forecasts, and then a warning in the highest of high-tech arenas proved problematic. Or in English, the topics of discussion on Wednesday gave buyers a reason to pause and maybe a chance to listen to the other side of the argument.

The bulls will suggest that the punk data from the Challenger and ADP reports simply reinforce the need for the Fed to launch the much vaunted quantitative easing program. And from the glass-is-half-full gang’s perspective, there isn’t much that can crop up that will keep Mr. Bernanke from boarding that helicopter with bushels full of cash.

But what about the big dive in some of the red-hot tech names, you ask? Our heroes in horns simply brushed it off as a normal pullback and some went so far as to call the selling in names like Citrix Systems (CTXS), Rackspace (RAX), Salesforce.com (CRM), F5 Networks (FFIV), VMware (VWM), and Red Hat (RHT) an overreaction. After all, declines of any kind are simply a buying opportunity these days, right?

So, where does this leave us on this fine pre-Big-Kahuna trading day? The good news is the bulls have some breathing room to work with as any technician worth their rulers will tell you that as long as the S&P 500 remains above 1150, all is right with the world – well, as far as the bulls are concerned, anyway. But then again, if the bears can find a raison d’être over the next few days, even the chartists might have something to talk about.

Turning to this morning… Things are fairly quiet in the early going despite an auction in Spain, same-store sales numbers from retailers, and some economic data as traders may be sitting on their hands in front of tomorrow’s big jobs report.

On the economic front… The Labor Department reported that initial claims for unemployment insurance for the week ending October 2 fell by 11,000 to 445K. The week’s total was 8K below the Reuters consensus for a reading of 453K. Continuing Claims for unemployment for the week ending Sept. 25 were above consensus at 4.462M vs. expectations for 4.450M and last week’s revised (higher) 4.510M.

Finally, remember to think positive today…

Pre-Game Indicators

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

• Major Foreign Markets:
  • Australia: +0.17%
  • Shanghai: NA
  • Hong Kong: +0.02%
  • Japan: -0.07%
  • France: +0.14%
  • Germany: +0.19%
  • London: +0.07%

   

• Crude Oil Futures: + $0.50 to $83.73
• Gold: + $9.90 to $1357.60
• Dollar: higher against the Yen, lower vs Euro and Pound
• 10-Year Bond Yield: Currently trading at 2.389%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value): 
  • S&P 500: +1
  • Dow Jones Industrial Average: +16
  • NASDAQ Composite: -1.32  

Wall Street Research Summary

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