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Good morning. To the casual observer, Thursday's little decline in the stock market may not have looked like much. After all, the Dow dropped just 42 points (or -0.3%), the S&P fell -0.18%, and the NASDAQ was off a mere -0.11%. And given that neither the upper nor the lower end of the current trading range was breached, on the surface it looked like just another day of consolidation.

However, I spend the vast majority of my analytical capital looking at the "why" and the "how" of the market's moves. To me, how or why a market moves is infinitely more important than the "what." For example, yesterday's measly drop of 40 Dow points doesn't really tell the whole story. You see, from about 9:35 am eastern until about 11:45 am the decline was anything but measly. In fact, when there that many gaps down on a one-minute chart over a brief time span, one might call the action downright ugly.

What was interesting (well, to me anyway) is the fact that the S&P 500 dove approximately 1% in about 30 minutes on ... wait for it ... oh, that's right, nothing. There were no economic reports, no headlines, and no surprises from across the pond. Sure, the popular press talked about Super Mario's suggestion that the eurozone economy wasn't going to improve much until later this year as a catalyst. But seriously, is the idea that the eurozone might continue to struggle for a few more months really a surprise to anyone?

We also heard some people talking about the "uncertainty" created by the delay of the latest and greatest EU Summit meeting (where exactly nothing is expected to be accomplished). And of course, the scandal in Spain and the election in Italy both continue to be of concern to some. However, when markets dive as fast as they did yesterday morning, there is usually something new to trigger the move. And the bottom line is there was nothing new to report on either subject yesterday.

No, if you wanted to understand what caused the stock market indices to fall off a cliff for a bit yesterday morning, you needed to dig deeper and to understand what causes the big boyz and their computer toys to take action. So, without further ado, I'm going to suggest that it was algos tied to the movement in the euro/dollar relationship that was to blame for the pyrotechnics.

With ECB President Mario Draghi effectively saying during his press conference that the euro was too high (although he also mentioned that the "appreciation in the euro is a sign of confidence returning"), traders started selling the euro in earnest. In turn, those same traders appeared to be buying the dollar. Then when you layer the comment about the economic weakness sticking around in the eurozone for a while, well, that currency trade appeared to get very popular, very fast.

My point this fine Friday morning is that the big hedge funds and the Wall Street banks that can play this little game returned to a familiar trade yesterday: dollar up = stocks down. If you will recall, this trade was very popular during the summers of 2010-2012 whenever the eurozone crisis raged. The thinking was that if the euro was falling it meant there was trouble in the eurozone. In response, currency traders piled into the dollar as a "flight to safety." And to finish off the trade, if folks were looking to the dollar for safety, then taking "risk off" by selling stocks made sense. So, with the dollar spiking (and the euro diving), stocks were hit with sell program after sell program for a period of about 45 minutes.

However, just before the lunch bell, the euro stabilized and the dollar's rise leveled off. And just like that the sell algos stopped and the dip-buyers returned as the S&P managed to gain back about 10 points before the closing bell rang.

The question, of course, is if yesterday's euro/dollar trade is likely to continue. If it does, then taking some risk off the table right about now certainly makes some sense. And then when you mix in the fact that stocks remain overbought, that February is traditionally a weak month for stocks, that sentiment is a bit too positive, that insiders are selling stocks in a big way right now, and that just about everybody is now looking for a correction, it is easy to see that stocks might be vulnerable right now.

But the key (again, for me anyway) is that the euro/dollar trade was able to knock the indices down very fast yesterday. So, since that "trade" was so effective for a while on Thursday, we'd best keep our eyes open and our ear to the ground for anything negative coming out of Europe. Yes, we're back to that.

Turning to this morning ... Decent economic data continued to support China overnight while improving sentiment towards Europe has put a bid under the bourses across the pond. Here in the U.S., the futures are hovering around breakeven at the present time as the Northeast braces for "Nemo".

Pre-Game Indicators
Here are the Pre-Market indicators we review each morning before the opening bell ...
Major Foreign Markets:
- Shanghai: +0.57%
- Hong Kong: +0.16%
- Japan: -1.30%
- France: +0.58%
- Germany: +0.23%
- Italy: +1.05%
- Spain: +1.05%
- London: +0.44%
Crude Oil Futures: +$0.36 to $96.19
Gold: -$0.30 to $1671.00
Dollar: higher against the yen, lower vs. euro, and pound
10-Year Bond Yield: Currently trading at 1.942%
Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +1.26
- Dow Jones Industrial Average: +5
- NASDAQ Composite: +4.60
Thought For The Day...

Can you live in that moment ... with clear eyes & love in your heart, with joy in your heart? If you can you're perfect. -Friday Night Lights

Positions in stocks mentioned: none
Source: Daily State Of The Markets: Yep, We're Back To That ...