What’s It Gonna Take?

Daily State of the Markets 
Wednesday Morning – February 9, 2011

Well, it’s official. The angst in the bear camp has become palpable. While I prefer to be an agnostic when it comes to taking sides in the market, one of my colleagues who, unfortunately, has leaned toward the dark side over the last couple of months has gone into hiding, while another lamented to me yesterday, “When is it going to end?” And my personal favorite example of strife in the bears’ den was the one line email from Tuesday, which read, “What’s it gonna take to get a down day around here?”

If you think about it; our bewildered bear friends have a point. After all, in just the past few months we’ve seen the Chinese embark on a monetary tightening campaign to combat asset bubbles and inflation. And on the inflation score, we will have to admit that it seems to be cropping up in some of the countries/regions that have enjoyed strong growth of late. In addition, we’ve seen riots in the Middle East, more debt problems in Europe, rising gasoline and food prices, and a jobs report on Friday that was just plain weird.

And through it all what has the market done? With the exception of a three-week pause in mid-November, the answer is simple – stocks have gone up, up, and then up some more. And while those of us that have been around a while have indeed seen markets like this before, I can’t really blame our furry friends for wanting to throw up their hands in disgust and begin banging their heads against the wall. After all, if I’m counting the little green boxes right, there have only been four or five weekly declines (with only none of those declines exceeding even -2.25%) over the past 25 weeks.

If you’ve ever been on the wrong side of a trend, I’m sure you can appreciate the emotional difficulty that those who find themselves in the glass-has-to-be-half-empty camp are experiencing right about now. I know I’ve been “long and wrong” at times in the past and my guess is that I’ll wind up on the wrong side of Ms. Market’s game again a time or two in the future. However, I’ve learned a couple of valuable lessons relating to this topic that I thought I’d share this morning.

First, it is important to remember that no one is holding a gun to your head insisting that you hold onto a position that is going against you. So, if you find yourself watching the action with tight fists, a clenched jaw and a pit in your stomach, do yourself a favor and sell something – and quickly! I’ve found that even selling a small portion of a position will help ease the emotional strain and clear your head.

Second and perhaps more importantly, it is vital to understand that you aren’t likely to be able to predict when or what will cause a trend to end. While I can say with the utmost certainty that the current joyride to the upside will end at some point – and yes, perhaps even soon – I can also tell you with an equal degree of certainty that we won’t know what will ultimately cause things to turn around and go the other way.

So, if you find yourself wondering what it’s gonna take to kill this rally, you might want to direct your attention toward something a little more productive.

Turning to this morning… Although there does not appear to be any specific catalyst other than sagging foreign markets, stock futures in the U.S. are heading down a bit in the pre-market session. Key happenings today include Ben Bernanke’s testimony in front of the House Budget Committee at 10:00 am and the Treasury’s 10-year note auction at 1:00 pm eastern.

On the Economic front… We don’t have any economic data to review before the bell and there are no important releases on the calendar today.

Thought for the day: Will you make time for you today?

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell…

• Major Foreign Markets:
  • Australia: +0.24%
  • Shanghai: -0.94%
  • Hong Kong: -1.36%
  • Japan: -0.17%
  • France: -0.03%
  • Germany: +0.02%
  • London: -0.24%

   

• Crude Oil Futures: +$0.33 to $87.27
• Gold: +$0.60 to $1364.70
• Dollar: lower against the Yen and Euro, lower vs. Pound
• 10-Year Bond Yield: Currently trading at 3.709%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value): 
  • S&P 500: -4.76
  • Dow Jones Industrial Average: -12
  • NASDAQ Composite: -7.20

Wall Street Research Summary

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