Daily State Of The Markets: A Very Large Wall Of Worry?

Includes: DIA, SPY
by: David Moenning

Good morning. As someone who spends their days watching the stock market action closely, I completely understand why the bears are looking for a meaningful pullback to begin sometime soon. In short, the trend of the past four years has been for the market to advance sharply for a period of time and then get blindsided by the next crisis. So, as the saying goes on Wall Street, "Once is a trend, twice is a tradition, and three times is a commandment," I can't really blame anyone for expecting things to turn ugly again.

Heck, I'm not immune to the worry that things will get mean and nasty again any moment now. Based on the way some of the stocks we watch are acting, I wouldn't be surprised to see the bears get back in the game again in the near future. And frankly, it is pretty hard to argue against the idea that a pullback could commence sooner rather than later.

However, what surprises me is the veracity of the bear arguments in the face of new all-time highs for the DJIA. I don't expect to see champagne corks flying on CNBC (well, okay, that wouldn't surprise me one bit) or people running adorned in bull costumes. But the fact that the press seems to be backing the bear camp is a bit odd. Everywhere I turned Thursday morning, I saw headlines expressing worry about the stock market rally. In short, Reuters, WSJ, CNBC, and MarketWatch all had headlines telling folks to be wary of this market.

The Wall Street Journal's top story in the Market's section was entitled, "Bad-News Bears Crash the Party." This article focused on the idea that a bunch of hedge fund managers are selling into the rally. The premise for the negativity is as follows: The Fed has orchestrated the move up in stocks, there are signs of excess in the bond market, there is froth in speculative stocks, a recession is likely, and the usual worries about Europe and Washington. And according to the managers cited by the Journal, all of the above will ultimately lead to a big decline in stocks - you know, the same type of decline that we've seen each year for the past four years.

The top 3 stories in the Reuters morning money digest were also less than supportive of the current move higher. The first line of the article entitled, "What If They Held a Bull Market and No One Came?" really said it all: "The remarkable thing about the Dow Jones Industrial Average's new all-time high is how few people give a damn." Next, there was, "As Dow Hits Record, Should You Pile In or Run Away?" And finally, a Reuters article asked, "Is It Too Late To Chase Stock Market Rally?"

MarketWatch ran the following early headline: "Dow's New High: Bull Market or Bear Trap?" And in case the title didn't tip you off as to the concept of the story, the sub-header made it pretty clear: "Can this rally continue: Not everything is as bullish as one might suspect." Then after the market closed yesterday, the headline that adorned MarketWatch was: "How to prepare for the worst if the stock market corrects." This article sang the praises of buying put options to help protect your portfolio from the coming correction.

Finally, CNBC, as is to be expected, played both sides of the fence by including the headline "Jobs Report Could Add More Fuel to Stock Rally" alongside Marc Faber's piece titled, "It Will End Badly This Year." (Although to be fair, Mr. Faber does tend to sing this same dour song each and every year.)

As the Dow was moving on up to yet another new all-time high yesterday morning, my reaction was, "Wow, talk about a wall of worry!" My point this morning is simple. And yes, I can be accused of using little more than anecdotal evidence here. But generally speaking, big moves in the market end when optimism runs hot - too hot - and not when everyone is worried about getting hit again.

My guess is that the majority of these stories are being written for the public investor who purportedly is just now thinking about getting back into the stock market again. But I ask you, do you personally know anyone who after getting scorched in 2008 and selling everything is just now starting to buy into stocks again? Does the so-called public investor who is supposed to think that a new all-time high in the Dow represents an all-clear signal to get back into the market really exist? Personally, I don't know anyone like that and I think the premise is idiotic.

So, let's assume that we're not talking about someone who has been on the sidelines for the last four years. Let's talk about the average investor who already has money invested in their stock portfolio, their IRAs and their 401Ks. Let's talk about someone trying to decide what to do with their IRA contributions this year. So for these folks, is this the time to go all in and put everything they've got into the market? In short, my answer is, of course not.

My premise is that stocks will have a strong year in 2013 if (and only if) there are no surprise crises. So, based on that assumption, now is the time to be accumulating positions. This means buying a little here and there - not bombing in with your entire account the moment the DJIA hits a new all-time high. And here's another tip: Stop reading everything under the sun. Stop listening to all the self-proclaimed guru's and turn off the "fast money" types. Instead, patiently implement a prudent plan/strategy this year. Be patient. Keep some powder dry to put to work when the inevitable dips come. Don't get excited. And don't chase things too far because pullbacks and corrective phases are part of the game in even the biggest bull moves. My guess is that if you execute such a plan for the remainder of the year you will be rewarded as the market continues to climb what appears to be a very large wall of worry.

Turning to this morning ... U.S. stock futures are following the European bourses higher this morning. However, the jobs report will likely dictate the direction of trade for the session.

Pre-Game Indicators

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

Major Foreign Markets:

- Shanghai: -0.23%

- Hong Kong: +1.41%

- Japan: +2.64%

- France: +0.88%

- Germany: +0.58%

- Italy: +1.22%

- Spain: +1.69%

- London: +0.31%

Crude Oil Futures: -$0.38 to $91.18

Gold: +$0.60 to $1575.70

Dollar: lower against the yen and pound, higher vs. euro

10-Year Bond Yield: Currently trading at 2.017%

Stock Futures Ahead of Open in U.S. (relative to fair value):

- S&P 500: +5.54

- Dow Jones Industrial Average: +59

- NASDAQ Composite: +11.31

Thought For The Day ...

Most of us are just about as happy as we make up our minds to be. - Abraham Lincoln

Positions in stocks mentioned: none