We Don’t Need No Stinking Reasons!

Daily State of the Markets 
Wednesday Morning – June 2, 2010  

One of my more cynical colleagues called me just after the close on Tuesday and wanted to know what I had heard about the latest late-day plunge in the market. He knows that I am a firm believer in the idea that there is always a reason behind any big move in the stock market – especially when it occurs in a short period of time. Knowing what this guy was after, I played along and responded in “Blazing Saddles” fashion with “Reasons? We don’t need no stinking reasons!”

That was all it took for my friend to launch into a diatribe (which I assumed was coming) about how this market had become nothing more than a casino run by the high frequency “boys and their toys.” My long-time associate suggested that somebody in Washington had better put a stop to this “stuff” or the average investor was going to quit the game and never come back.

Having had my fun, I waited for an opening and said, “While I appreciate your point, there were actually a couple of pretty decent reasons for Tuesday’s brisk little dance to the downside” (a move that shaved 115 points off of the Dow in just a little over 15 minutes). To which, he responded with a very drawn out “Reeaaally?”

And this, in and of itself, is part of the problem with this market. While those of us that live, breathe, and eat this game will do whatever it takes to find out and understand why things happen the way they do in the market, the popular press tends to leave the public in the dark. Thus, the average investor comes home to the news that the market dove another 115 points and probably procedes to log in and start moving their 401(k) into the fixed income category.

Cutting to the chase, my point this morning is that although there were a couple of stories that seemed to coincide with the two quick plunges in stocks seen late yesterday afternoon (word that Lebanon had fired on Israeli aircraft and a report that there would be a criminal investigation into all that bubblin’ crude in the Gulf of Mexico) this market really doesn’t need much of a reason to head south – especially at the end of the day.

Early yesterday morning, I was actually quite encouraged by the market action and was starting to believe that the bulls might have turned the corner on this correction. After all, the market had apparently shrugged off the reports from China, France, and the Eurozone showing that their respective manufacturing sectors were beginning to slow, and traders had turned a blind eye to Fitch’s downgrade of some big banks in Spain. Instead of selling on these reports, it appeared that traders were turning their focus on the good news out of the construction report here in the good ol’ USofA.

However, the party ended as quickly as it began and I couldn’t help but think about all the talk of “de-risking” going on these days and that every rally (even intraday rallies) seems to be encountering some selling right now. And then with the Dow losing nearly 200 points in the last couple hours, I quickly came to the conclusion that either this market was in trouble or that it was just about time for the high frequency boys to run this thing the other way. We shall see.

Turning to this morning… Despite mixed results in Asia and lower markets in Europe, the futures in the U.S. are currently pointing to a better open.

On the economic front… Challenger, Gray and Christmas reports that there were 38,810 planned job cuts announced in May, which was up 1.3% from the 38,326 in April but down sharply from the 111,182 seen a year ago in May. Later this morning we will get the report on Pending Home Sales.

Finally, try doing something nice for someone today (for no reason at all)…

Pre-Game Indicators

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

• Major Foreign Markets:
  • Australia: -0.74%
  • Shanghai: +0.12%
  • Hong Kong: -0.13
  • Japan: -1.12%
  • France: -1.21%
  • Germany: -0.64%
  • London: -1.03%

   

• Crude Oil Futures: -$0.03 to $72.55
• Gold: -$4.60 to $1222.30
• Dollar: Lower against Yen, Euro,and Pound
• 10-Year Bond Yield: Currently trading lower at 3.28%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value): 
  • S&P 500: +4
  • Dow Jones Industrial Average: +38
  • NASDAQ Composite: +10  

Wall Street Research Summary

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