Good Morning. Well, it's about time. After a record-breaking streak of fourteen straight sessions in which the close of the S&P 500 wound up being the opposite of the day prior, the bulls finally put together back-to-back winning days on Tuesday. The DJIA marked the occasion by finishing at a fresh all-time high. But unfortunately, the fun stopped there as far as the rest of the major indices were concerned.
To set your mind at ease, I promise that I'm not going to spend another thousand words this morning lamenting the negative implications of the divergences that exist within the major stock market indices. To be sure, the bears have already done a fine job on this issue. Which brings me to my point this morning: Am I the only one who finds it strange that the glass-is-half-full crowd has wound up looking like the bad news bears lately?
For example, on Friday of last week, the bears were handed a double dose of bad news to work with before most folks had finished their first cup of coffee. First there was word that those pesky North Koreans were moving missiles around and telling everybody that wasn't a native to hit the road. Then came the jobs report, which was nothing short of shockingly weak. And before you could remember where to put all the letters in the kid's name that is now running North Korea, stocks in Europe were down close to 2% and our futures were suggesting an ugly open.
This was expected to be a defining moment for the bears. They had a handful of weaker-than-expected economic reports to suggest that the now-annual spring swoon in the economy was taking shape. They had the divergences in the market indices and the so-called "defensive leadership." They had new troubles brewing in Europe as Italy still had no government and Cyprus clearly still had problems. There was talk of Slovenia needing a bailout. And then over the weekend, the EU's Ollie Rehn said that maybe the Cyprus plan of grabbing bank deposits wasn't such a bad idea after all.
Then there was China. The Shanghai index has been in a world of hurt lately in response to the fact that the economic miracle that was China appears to have stalled out a bit. In addition, the "China Demand" trade was all but dead. Steel, silver, coal, and copper were all in free-fall status, and even gold had been losing its luster as talk of an end to the secular bull in the yellow metal had become rampant.
The bears could also still count the "issues" in Washington on their side of the ledger on Friday morning. While the professional politicians had been smart enough to put the budget battle on hold for a few months, the issue had clearly not gone away. And if I'm not mistaken, I recall my bearish buddies saying something about the possibility of the budget battle resurfacing as a reason to be cautious.
There was also the topic of earnings to consider. My furry friends have been quick to point out that analysts have been hard at work cutting earnings estimates recently. So much so that according to FactSet, EPS on the S&P 500 is projected to decline by -0.5% in Q1. This is down precipitously from the +2.4% projected growth rate that had existed at the start of the quarter.
And then there was the calendar. Although it was still early-April, a review of the market's performance during the second and third quarters of each year for the past decade (or so) reveals that the "Sell in May and go away" trade has been fairly successful. As such, I'd been told that traders were likely to stick with tradition and would start selling stocks in earnest any time now.
I even went so far as to title Friday morning's meandering market missive, "Things are Looking Dicey." So, it will suffice to say that at that I too was a little concerned that the stock market had gone too far, too fast and was due for some downside action. Sure enough, stocks opened down hard on Friday morning and it looked like the bears were going to finally get their day in the sun.
Except, as you may recall, a funny thing happened on the way to the market debacle. Although both support levels and moving averages were cracking like twigs early in the session, the expected devastation just didn't happen. And by the end of the day, one would've never guessed that there had been talk of the sky falling just 6.5 hours earlier.
And what have we seen since Friday? The answer may just depress those still donning their bear costumes as we've seen a big reversal to the upside followed by two consecutive green bars on the S&P chart. We've seen a new all-time high on the DJIA. And all because of, oh wait, that's right; there really hasn't been any big impetus for the rally. And from where I sit, that would appear to be a positive.
Yes, I know that this game can change in an instant and that earnings season is about to begin. And yes, I know that the Koreans are still playing with their missiles and that Europe still has a problem or two. But as long as the S&P 500 doesn't do the much anticipated dance to the downside, I'm going to continue to ask: Where are the bears, anyway?
Turning to This Morning ...
The news flow appears to be upbeat in the early going on Wednesday. China's inflation data was helpful and the T-Bill auction in Italy went very well. In addition, there is hope emerging from across the pond that the ECB might ease rates at their May meeting. This has pushed European bourses up nicely and U.S. futures are following suit. However, all eyes will be on the FOMC minutes today at 2:00pm as analysts will be looking for any hints of a change in the Fed's current stance.
Here are the Pre-Market indicators we review each morning before the opening bell ...
Major Foreign Markets:
- Shanghai: +0.01%
- Hong Kong: +0.75%
- Japan: +0.73%
- France: +1.23%
- Germany: +1.18%
- Italy: +1.63%
- Spain: +2.28%
- London: +0.76%
Crude Oil Futures: -$0.44 to $93.76
Gold: -$6.70 to $1580.00
Dollar: lower against the yen and euro, higher vs. pound
10-Year Bond Yield: Currently trading at 1.766%
Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +4.94
- Dow Jones Industrial Average: +50
- NASDAQ Composite: +10.68
Thought For The Day ... Consider raising your expectations. As Michelangelo said, the danger is not that your hopes are too high, but rather ...
Positions in stocks mentioned: none