Good morning. Admittedly, a long weekend filled with a family wedding and all the associated gatherings left me a little less than prepared for this week's market action (there were no fewer than 5 festive gatherings in 48 hours!). But sometimes - no, make that oftentimes - stepping away from the scrolling news, the flickering screens, the tweets, the IM's, the text messages, and the algorithmic runs up and down on the charts for a day or so is the perfect way to gain a bit of perspective on what exactly is happening on Wall Street. Or as the case may be presently, what isn't happening on Wall Street.
Yes, I know that it's Wednesday and that the opening bell has already rung twice this week. And for the record, I was strapped into a chair in front of computers on both occasions. It's just that this is the first time in the last 5 days that I've had more than a moment to do any sort of analysis on what has been driving the market action of late, which, by definition, is what my meandering morning missive sets out to accomplish each day.
The good news - well, at least as far as yours truly is concerned - is that it's mid-August. And if you've been at this game for any length of time, you know that if you are going to take your eye off of the ball for a couple days, now is the time to do it. So now that I've got a couple days before the next excursion (a quick road trip to return my youngest to her college campus) and a couple hours before the opening bell rings again, it's time to get back to the task of analyzing the market drivers.
If the question that immediately leaps into your mind is "Drivers of what?" you've obviously been paying attention. The bottom line is that next-to nothing has happened to the S&P 500 over the past five sessions. And even less has transpired over on the Dow Jones Industrial Average as the venerable index finished yesterday a grand total of 4 points higher than where it closed on August 7th. What about the NASDAQ you ask? While the stocks in four-letterland did make a run for the border yesterday, the composite index is only a point higher than where it closed six sessions ago.
There are a couple of ways to look at the sideways action that has occurred recently. The bulls contend that we're seeing a nice, quiet period of sideways consolidation. Our heroes in horns contend that the trend is still up and that the market has "handled" everything the bears have been able to throw at it lately. Oh, and hope for a little thing called QE on both sides of the Atlantic has been cited as a reason for the market's levitation act.
It probably won't surprise you that those seeing the glass as at least half-empty do not concur. In fact, our furry friends in the bear camp continue to warn that this is 2007 all over again and that as soon as Angela Merkel starts saying "nein" with regularity again, the stock market will begin another scary dance to the downside.
To be sure, I don't have a crystal ball and I really have no idea which team's argument is going to wind up being correct (trying to predict what Ms. Market is going to do next is just not my cup of tea). However, I can say that over the past year, we have seen two distinctly different types of trends. And my guess is that one of them is going to resume at some point in the near future.
If you will recall, it was a year ago August that the market plunged something on the order of 20% in less than three weeks (the vast majority of the damage occurred in 9 days). And for the next four months, the stock market was a roller coaster ride, moving one direction in a straight line for several days only to quickly reverse course and retrace the majority of the move in an equally short period of time. But then starting in mid-December, the game changed and the volatility receded. And for next three and one-half months, the market marched steadily higher with nary a single bout of volatility along the way.
My point on this fine Wednesday morning is that periods of sideways consolidation occurred several times during the one-way markets seen during the December-March period as well as the QE2 rally in 2010. Each time an uber-boring period set in it was eventually resolved with another blast higher. So, given that the current move started with a blast up and was subsequently followed by a 5-6 day period of market malaise, I'm wondering if we couldn't be embarking on another meaningful one-way move to the upside.
While a violent algo-charged reaction to any headline, comment or rumor will answer this question, I for one will be on the lookout for clues as to which type of trend is going to resume. Will it be the violent, HFT-driven, roller coaster ride in reaction to some news or a resumption of the type of hope-based one-way market we saw in 2010 and again last winter? I guess time will tell.
Turning to this morning ... Stock futures are following Europe a bit lower this morning as there is talk that the Fed will hold off on any additional QE in the near term.
- Major Foreign Markets:
- Australia: NA
- Shanghai: -1.10%
- Hong Kong: -1.18%
- Japan: -0.05%
- France: -0.32%
- Germany: -0.62%
- Italy: +0.85%
- Spain: -0.39%
- London: -0.46%
- Crude Oil Futures: -$0.36 to $93.07
- Gold: -$6.20 to $1596.20
- Dollar: higher against the yen, lower vs euro and 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: -2.58
- Dow Jones Industrial Average: -25
- NASDAQ Composite: -4.24
