Daily State Of The Markets: Weebles Wobble But They Don't ...

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Includes: AAPL, DIA, EEM, EPI, EWI, EWP, EWQ, EZU, FXI, SPY, VNM
by: David Moenning

Good Morning. There are times when the phrase "market logic" is clearly an oxymoron. Such is the case when stocks rally furiously after bad economic news based on the idea that the negative data means more economic hand-holding from the Federal Reserve. And yet there are other times when the drivers behind the stock market's moves are blatantly obvious and easy to understand. Lately we've seen a little of both as hopes for more Global QE have certainly driven stock prices at times this year and then on days like yesterday, it was pretty darn easy to understand what was going on.

If you will recall, stocks rallied relentlessly from late-December through April 2nd on the idea that maybe the sky wasn't going to fall after all across the pond and that things were actually better than expected here in the good 'ol USofA. Thus, it became clear that BTE trumped all the hand wringing and fretting about what should, could or would happen next to any number of European countries. And then when "Super Mario" hatched up his grand plan (aka the LTRO offerings) to provide liquidity to the European banks, well, things started to look downright peachy - especially here at home.

Recently though (as in yesterday morning) the S&P 500 has started look a little wobbly (and yes, that is a technical term). But I guess after the best start to a year in ages, some sloppiness, some profit taking, or a period of consolidation was certainly to be expected. And this appears to be exactly what we've got. Stocks are wobbling but they have yet to fall down. And yet at the same time, the U.S. market is clearly the place to be this year.

To make this point come alive, compare and contrast the charts of the SPY and the DIA to their European brethren such as EWI (Italy), EWP (Spain), EWQ (France), and/or EZU (the EU) over the past six months. Now take a quick gander at the charts of EEM (emerging markets), FXI (China) and EPI (India) versus our markets. This little exercise should make it perfectly clear that the U.S. has indeed been the global leader this year. Sure there are some obscure winners around the globe such as VNM (Vietnam), but the bottom line is that global investors have had a pretty tough time beating the good 'ol SPY.

But I digress (shocking, I know). The point here is that yesterday's action in the stock market was fairly straightforward. As my uber-bearish buddy tried to tell me yesterday (I seriously couldn't take the call), the sea of red seen on all sides of the Atlantic was due to Europe. If one listens to the growling market grizzlies, the French election, the problem with the gov't in Belgium, the news that Spain was officially in recession, the really lousy PMI data from the eurozone, France, and Germany, and Italy's bond yields are going to be a problem for us soon.

At the outset yesterday morning, this certainly looked like a distinct possibility. The European markets had tanked in earnest after the PMI numbers stunk up the joint. And with France, Germany, et al down around 3%, it looked like things might get really ugly, really fast on this side of the pond. So, a drop of 180 points on the Dow wasn't terribly surprising. And with Apple (AAPL) on the ropes yet again, well, things weren't looking good.

However, while the S&P did indeed wobble a bit, the bears were not able to push any of the indices down through important support. And until they do I guess we'll need to view the U.S. as a "weebles" market because, as everybody knows, "weebles wobble but they don't fall down."

Turning to this morning ... Stock markets in Europe are rebounding a bit this morning as Spain and Italy held debt auctions that weren't a disaster. In addition there is a fair amount of earnings news, economic data, the FOMC's 2-day meeting, and of course Apple after the bell today.

On the Economic front ... We will get reports on Case-Shiller Home Prices, Consumer Confidence, New Homes Sales, and FHFA Housing later this morning.
Thought for the day ... Remember to say hello when opportunity knocks ...
Pre-Game Indicators
Here are the Pre-Market indicators we review each morning before the opening bell ...
  • Major Foreign Markets:
    • Australia: +0.08%
    • Shanghai: +0.01%
    • Hong Kong: +0.26%
    • Japan: -0.78%
    • France: +1.16%
    • Germany: +0.29%
    • Italy: +0.95%
    • Spain: +1.08%
    • London: +0.36%
  • Crude Oil Futures: +$0.39 to $103.50
  • Gold: +$10.30 to $1642.90
  • Dollar: higher against the yen, lower vs. euro and pound
  • 10-Year Bond Yield: Currently trading at 1.95%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +1.31
    • Dow Jones Industrial Average: +31
    • NASDAQ Composite: -0.15
Positions in stocks mentioned: AAPL, SPY, EEM