Good morning. Having been at this game for some time now, I always get concerned when the masses are ALL singing the same song at the same time. And the bottom line is if you've been listening to what people have to say about 2011, the song is almost uniformly positive. The U.S. offers better valuations than the emerging markets, earnings will continue to grow, the economy is improving, inflation isn't a problem, and the Fed is bound and determined to err on the side of growth/inflation. Thus, the conclusion is clear: U.S. stocks are projected to be THE place to be this year.
Perhaps this is why stocks have been moving steadily higher since September 1st. In looking at the charts, it is quite clear that the game has become exceptionally lopsided as we've seen just one -4% respite from the joyride to the upside over the past four and one-half months. Even now that the page on the calendar has changed, Wall Street continues to be a one-way venue. All news is good news and all the dips have been bought. How hard is this game?
While I enjoy a good uptrend as much as the next guy (heck, who doesn't enjoy watching their accounts go up every day?) and I have seen the market move upward in a relentless fashion many times during my career, I am becoming more than a little concerned about this "don't worry, be happy" environment we now find ourselves thoroughly entrenched in.
Confirmation of the mood is everywhere. Commentary on websites from individual investors is universally positive with many saying they don't see anything that could take stocks lower. In this weekend's Barrons, the bottom line from the semi-annual Roundtable is simple: " The stock market is heading higher." And finally, I'm hearing that the individual investor is starting to return to the fray. (After a 91% move higher, what else would you expect the public to do?)
Unfortunately, we all know how these types of environments end. But the trick, as always, has to do with the timing. There is little doubt that the market will likely pull back at some point. Yet anyone who has tried to run counter to the current uptrend has been gored and trampled by the stampeding bulls. So, what is an objective, unemotional investor to do?
For those looking for a pullback, a correction, or even a sideways consolidation, the trick is to wait for things to reach extremes (check) and then look for sentiment and/or the momentum to reverse. THIS is when the bears can usually make some hay.
So, what the bears need at this point in time is for something to come out of the woodwork that causes the buyers to either stand aside for a spell or question their conviction. Last year it was Greece as fears of Credit Crisis II emerged and the market corrected to the tune of -16%. And while we don't have anything of that magnitude on the horizon at the moment, the announcement that Apple's (AAPL) Steve Jobs is taking a second medical leave may be "that something" the bears need to get people to cease and desist with the relentless buying binge - even if only for a few days. Or maybe it will be China's comments on the dollar. Or maybe it will be Citigroup's (C) earnings, or Tunisia. But then again...
Turning to this morning... The report that Steve Jobs is taking an indefinite medical leave pushed futures lower on Monday. However, a better-than-expected bond auction in Spain, word that Russia will resume buying EU debt, and talk of an expanded rescue fund across the pond improved the mood a fair amount. But then, Citi's weak earnings report has pushed the S&P and Dow futures back into the red at the present time.
On the Economic front... The Empire Manufacturing Index (designed to indicate the state of the manufacturing sector in the New York region) for January was reported at 11.92, which was below the consensus expectations for a reading of 12.8. The index was above the December reading of 10.57. Looking beyond the headlines, the New Orders component came in at 12.39 (vs. December 2.03) and the Employment component was reported at 8.42 vs. -3.41.
Thought for the day: Remember that there is more to life than increasing its pace...
Pre-Game Indicators
Here are the Pre-Market indicators we review each morning before the opening bell...
- Major Foreign Markets:
- Australia: +0.80%
- Shanghai: +0.09%
- Hong Kong: -0.01%
- Japan: +0.15%
- France: +0.60%
- Germany: +0.82%
- London: +0.86%
- Crude Oil Futures: - $0.36 to $91.18
- Gold: + $10.60 to $1371.10
- Dollar: higher against the Yen, lower vs Pound and Euro
- 10-Year Bond Yield: Currently trading at 3.300%
- Stocks Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: -1.69
- Dow Jones Industrial Average: +5
- NASDAQ Composite: -20.2
