Daily State of the Markets 12/14: Can It Be That Easy?

Good morning. Can it really be that easy, that obvious? Everywhere I turn these days I hear the same message from the talking heads, "It's time to sell bonds and buy stocks." The thinking seems to be that bonds have had their run and that it's time to switch to the stock market. While does seem to make some sense from a relative valuation standpoint, one of the first lessons that was beaten into my head in this business was: They don't ring a bell at the top. However, based on what I'm hearing on the television these days, it sounds like the bell is ringing and that everyone everywhere hears it. Hmmm....

To be sure, I am not a contrarian investor. Although I do review investor sentiment on a daily basis and am wary of the crowd at extremes, I consider myself more of a "market environmentalist" - i.e. someone who tries to stay in tune with the overall market environment. But every once in a while, the urge to go contrary to the crowd swells up inside me. And quite honestly, that's exactly what is happening right now.

As a trend-follower by nature, I don't generally "bet" that a particular move is about to end. In fact, I try to refrain from using the words "should," "could," and "would" when it comes to looking at the market. I've learned that the market can indeed stay irrational longer than I can stay solvent and that Ms. Market often does whatever it takes to make me and/or the masses look foolish. So while I certainly "get" why traders would want to be selling bonds right now, the idea that it is also suddenly time for the public to get back into stocks has me shaking my head.

But perhaps this is the reason that stocks continue to march higher lately. Maybe if the experts on T.V. say it often enough and loud enough then the public will suddenly decide to make that big asset allocation shift from bonds to stocks. And maybe it is already happening.

If you detect a hint of sarcasm in my tone this morning, go ahead and give yourself a gold star. Frankly, I think the chances of the public suddenly abandoning their bond funds, those very same bond funds that have treated them much more kindly than the stock market did over the past decade, is pure folly. However, I can see how some of the big institutions might be thinking along these lines.

As I've mentioned a time or twenty, the objective of this daily missive is to identify the drivers in the market place. Therefore, it is fairly safe to say that "the trade" of the day is to sell bonds and buy stocks. How long this will go on is anybody's guess. But since the talking heads are also saying that "the trade" is likely to keep on keepin' on at least until the New Year's celebrations have ended, I guess I'd best stop typing and start buying.

But before I get to that stack of buy orders, I'd be remiss if I didn't address the reason behind the afternoon swoon that took place on Monday. Unless you watch the market on an hourly basis, you may not have noticed the action. But, word has it that it was none other than the Kings of the Street - Goldman Sachs - and their advisory note to "avoid Intel" (Nasdaq: INTC) that put pressure on the semis and caused the sell programs to do their thing.

However, yesterday's little pullback probably isn't anything to be concerned with. After all, with everyone coming back into the market - and soon - any and all dips are just opportunities to buy, right?

Turning to this morning... A weak bond auction in Spain and disappointing earnings from Best Buy have kept the bulls in check so far this morning.

On the economic front... The Labor Department reported the Producer Price Index (an indication of inflation at the wholesale level) for November rose by +0.8%, which was above the consensus estimate for +0.6% and above October’s +0.4%. When you strip out food and energy, the so-called Core PPI came in up +0.3%, which above the consensus for +0.2% and October’s +-0.6%.

Next up, the Commerce Department reported that Retail Sales rose in the month of November by +0.8%. This was above the consensus for +0.6%. When you strip out the sales of autos, sales were up nicely at +1.2%, which was double the consensus for an increase of +0.6%. Sales for the month of October were revised higher to show a gain of +1.7% from the initial reading of +1.2%. Ex-autos, October sales were revised higher to +0.8% (from +0.4%).

Also, don't forget about today's Fed meeting with the statement due to be released at 2:15 pm eastern. Traders are going to be looking for any mention of the big spike in rates over the past month, so don't forget to tune in.

Thought for the day: remember to think positive today...

Pre-Game Indicators

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

* Major Foreign Markets:
o Australia: +0.20%
o Shanghai: +0.14%
o Hong Kong: +0.49%
o Japan: +0.2%
o France: -0.13%
o Germany: -0.14%
o London: +0.04%

* Crude Oil Futures: - $0.29 to $88.32
* Gold: + $7.90 to $1405.90
* Dollar: higher against the Yen and Pound, lower vs. Euro
* 10-Year Bond Yield: Currently trading higher at 3.310%

* Stocks Futures Ahead of Open in U.S. (relative to fair value):
o S&P 500: +3.64
o Dow Jones Industrial Average: +20
o NASDAQ Composite: +7.85

Wall Street Research Summary

Upgrades:

* Sara Lee (NYSE: SLE) - Bernstein

* Comcast (Nasdaq: CMCSA) - Bernstein

* Rent-A-Center (Nasdaq: RCII) - Estimates increased at Cowen

* Research In Motion (Nasdaq: RIMM) - FBN Securities

* Covidien (NYSE: COV) - Goldman Sachs

* TRW Automotive (NYSE: TRW) - KeyBanc

* Pioneer Natural (NYSE: PXD) - Target increased at Oppenheimer

* Darden Restaurants (NYSE: DRI) - Target increased at Oppenheimer

* Questcor (Nasdaq: QCOR) - Target increased at Oppenheimer

* Occidental Petroleum (NYSE: OXY) - Target and estimates increased at Oppenheimer

* Amgen (Nasdaq: AMGN) - Piper Jaffray

* Eldorado Gold (NYSE: EGO) - UBS

Downgrades:

* Tesoro (NYSE: TSO) - BofA/Merrill

* UIL Holdings (NYSE: UIL) - BofA/Merrill

* National Bank of Greece (NYSE: NBG) - BofA/Merrill

* CareFusion (NYSE: CFN) - Goldman Sachs

* Progressive (NYSE: PGR) - Janney

* Agnico-Eagle Mines (NYSE: AEM) - UBS

Long positions in stocks mentioned: none

For more "top stock" portfolios and research, visit TopStockPortfolios.com

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