Daily State Of The Markets: What Is Ms. Market Saying (If Anything)?

Includes: DIA, EWI, EWP, EWQ, EZU, SPY
by: David Moenning

Good morning. Stocks have flip flopped from green to red and from red to green for six consecutive sessions now, all the while staying in a tight little range between 1330 and 1310 on the S&P 500. And the end result of all the back-and-forth, up-and-down movement is that as of Thursday's close the S&P sits in the same place it was on May 29th. So, "going nowhere fast" may be an appropriate label to spack on this market [heck, even Apple (NASDAQ:AAPL) has done nothing for the last 17 days!].

To be sure, this remains a news/headline/rumor-driven market. And there was no better display of this than the spikes up and down seen yesterday afternoon. First, and for the second day in a row, stocks moved down in earnest after Egan Jones (aka "Egan Who?" in the Twittersphere) decided to downgrade a major European country's debt rating -- this time it was France.

Then at precisely 3:05 pm eastern time, stocks rocketed higher to the tune of 11 S&P points and 100 Dow points for no apparent reason. Well, until you saw the Reuters headline: "Central banks preparing for coordinated action to provide liquidity if needed after Greek elections," that is. Then it became quite clear that the computers had put the words "coordinated" and "action" together and -- Boom -- stocks were off to the races. But after a few minutes (seven to be exact), the computers ran things the other way to the tune of 9 S&P points in about 9 minutes as somebody finally saw the words "if needed." Thus, it was clear to anyone watching that the computers can giveth and the computers can taketh away.

As if that wasn't enough, the computers then got a bonus batch of headlines to work with as the U.K. and Bank of England announced coordinated steps to improve liquidity in the U.K. and then Canada started making noise about the G20 holding up its end of the bargain. The S&P then enjoyed a spirited rise of 8 points in about 10 minutes right before the close. So, to review, we had a blast up of 11 points, a dive of 9, and another joyride to the upside of 8 points - all in one hour.

After the roller coaster ride, it would be easy to brush it off as boys simply playing with their new computer toys. However, we believe that Ms. Market may have been telling us a little something on Thursday.

First off, I've long believed that the market likes to find an equilibrium point in front of well known "big, bad events." In short, traders wind up finding that spot where they are ready for a binary response to the event. A good results means green and a bad result means red. Therefore the flip-flopping from green to red over the last six or seven days would appear to be the market searching for that equilibrium point in front of the Greek elections.

But I'm of the mind Thursday's action may have also been telling in a couple of ways. First, let's consider the following inputs. Yields continued to rise in Spain and Italy. Next, the Greek stock market rose nearly 10% as word got out that the anti-bailout Syriza party may be slipping and that the eurozone is willing to do some renegotiating of the bailout deal (this told Greek voters that they didn't have to vote for the communist to stay in the euro). And finally, the S&P was able to brush aside the worries about yields. So, what do you take away from this? Simple, that Greece remains more important than the rates in Spain and Italy.

The second thing Ms. Market whispered in traders' ears yesterday is that "the bazooka" (a globally coordinated response) still carries a fair amount of weight with traders and the computers alike as the reactions to Thursday's headlines were much more intense than usual. In short, the biggest fear the shorts have these days is that either the G7 or G20 nations will get their act together and put up the money necessary to put the eurozone crisis to bed. As such, this remains a weapon that global leaders can still wield.

So, while the action may be hot and heavy at times, we do need to keep an eye on the charts and an ear to the ground because you never know when Ms. Market just might be telling you something important.

Turning to this morning ... Overseas markets continue to be buoyed by the idea that there would be a globally coordinated response by central bankers (aka a Bazooka firing) should the Greek election go to Syriza. European markes are up strong and U.S. futures pointed to a higher open in front of this morning's U.S. economic data.

On the Economic front ... The Empire Manufacturing Index for June was reported at 2.29, which was well below the consensus expectations for a reading of 13.20 and also below last month's reading of 17.09.

In addition, we'll get Industrial Production and University of Michigan Sentiment this morning.
Thought for the day ... "Remember that not getting what you want is sometimes a wonderful stroke of luck" - Dalai Lama
Pre-Game Indicators
Here are the Pre-Market indicators we review each morning before the opening bell ...
  • Major Foreign Markets:
    • Australia: +0.42%
    • Shanghai: +0.47%
    • Hong Kong: +2.26%
    • Japan: +0.01%
    • France: +1.87%
    • Germany: +1.69%
    • Italy: +2.36%
    • Spain: +0.99%
    • London: +0.59%
  • Crude Oil Futures: +$0.50 to $84.41
  • Gold: +$6.50 to $1626.10
  • Dollar: higher against the yen, euro and pound
  • 10-Year Bond Yield: Currently trading at 1.627%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +4.35
    • Dow Jones Industrial Average: +46
    • NASDAQ Composite: +4.86
Positions in stocks mentioned: SPY, AAPL