Daily State of the Markets: Surprised and Frightened?

September 8, 2010 9:08 AM EDT
Daily State of the Markets
Wednesday Morning – September 8, 2010

Good morning. Let's see here; after a four-day run in which the DJIA went from an intraday low of 9,941, which just happened to be the all-important line in the sand between good and evil, to a high of about 10,450, it shouldn't surprise anyone to see stocks pull back a bit yesterday. But to hear the talking heads tell it, surprised (and frightened) was exactly what we were supposed to be yesterday.

Apparently we were supposed to be both surprised and frightened that some of the banks in Europe didn't quite include all the bad stuff they should've during the so-called stress tests. Apparently we were supposed to be shocked that the President's latest and greatest way to spend a hundred billion or so wasn't met with a thundering round of applause. Apparently, we were supposed to quake in our boots regarding an article suggesting that the housing market isn't exactly in great shape. And finally, apparently we were supposed to be taken aback by the fact that the latest data out of Germany showed that things might have slowed a little during the summer.

The bears likely assumed that with the market having run more than 5% in three days that it was ripe for a pullback. Thus, the plan may have been to trot out these well-worn negatives and hope that with the help of a few well placed sell programs, anyone long the market might just become frightened enough to panic out of their positions. And while the HFT gang was able to bash their way to a triple-digit decline, I for one wasn't terribly impressed, surprised, or frightened by Tuesday's assault.

While I can probably be accused of talking my book here as I am indeed long some equity at the present time, the whole day seemed kind of forced. The initial decline in the indices took about 30 minutes and then, after spending much of the day going sideways, the programs did their thing twice more. And that was that. Sure, I may be missing the point that the increase in CDS spreads in places like Ireland should make us fearful.

However, the primary point to this morning's ramble is that stocks have spent the past four months worrying about Europe, the U.S. economy, the consumer, and housing. And after four months of some pretty nasty stuff, I'm betting that a fair amount of the bad stuff has been priced in - well, based on what is known right now, that is.

So, let's stop with the excuses du jour. Instead, let's recognize that traders are the only players in the game right now and that the market moves with the news. Then when there isn't any news, the boys and their shiny computer toys turn to the technicals and look for the path of least resistance. And with a market that was overbought and no reason to believe that the game has changed, a pullback was to be expected - and not exactly shocking or frightening.

Turning to this morning... stock futures have turned around this morning on word of an upbeat bond auction in Portugal. However, concerns about the banking sector both here and across the pond remains a concern.

On the economic front... there is no data scheduled for release before the opening bell this morning.

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: -0.75%
    • Shanghai: -0.11%
    • Hong Kong: -1.46%
    • Japan: -2.18%
    • France: +0.57%
    • Germany: +0.32%
    • London: +0.12%
  • Crude Oil Futures: + $0.09 to $74.18
  • Gold: + $3.10 to $1262.40
  • Dollar: lower against Yen, Euro and Pound
  • 10-Year Bond Yield: Currently trading lower at 2.637%

  • Stocks Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +3.46
    • Dow Jones Industrial Average: +32
    • NASDAQ Composite: +9.30
Wall Street Research Summary

Upgrades:
EnCana (NYSE: ECA) - CIBC
Staples (Nasdaq: SPLS) - Goldman Sachs
Costco (Nasdaq: COST) - Goldman Sachs
Phillips-Van Heusen (NYSE: PVH) - Piper Jaffray
K-Sea Transportation (NYSE: KSP) - RBC Capital
MGM Resorts (NYSE: MGM) - Soleil
Commscope (NYSE: CTV) - UBS
Apple (Nasdaq: AAPL) - Estimates and target increased at UBS

Downgrades:
Ball Corp (NYSE: BLL) - BofA/Merrill
Weyerhaeuser (NYSE: WY) - BofA/Merrill
Pactiv (NYSE: PTV) - BofA/Merrill
Raytheon (NYSE: RTN) - BofA/Merrill
Lockheed Martin (NYSE: LMT) - BofA/Merrill
Visa (NYSE: V) - BofA/Merrill
Baxter (NYSE: BAX) - Citi
Monsanto (NYSE: MON) - Estimates reduced at Citi
Dicks Sporting Goods (NYSE: DKS) - Goldman Sachs
BorgWarner (NYSE: BWA) - JPMorgan
Dana Corp (NYSE: DAN) - JPMorgan
Lear Corp (NYSE: LEA) - JPMorgan
Sonic Automotive (NYSE: SAH) - JPMorgan
Harman Intl (NYSE: HAR) - JPMorgan
H&R Block (NYSE: HRB) - Oppenheimer
Las Vegas Sands (NYSE: LVS) - Soleil
Teradyne (NYSE: TER) - UBS
Varian Semiconductor (NYSE: VAR) - UBS
Western Digital (NYSE: WDC) - UBS
Hewlett-Packard (NYSE: HPQ) - UBS
Intel (Nasdaq: INTC) - UBS

Long positions in stocks mentioned: AAPL

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Piper Jaffray, UBS, JPMorgan, Citi, CIBC, Soleil Securities, RBC Capital, Standard & Poor's, Crude Oil