Daily State of the Markets
Monday Morning – May 24, 2010
It's time to take sides, to pick your team, and to commit to a game plan. In short, investors must make a decision and make it fast: Are you a chartist looking for additional upside this week or a fundamentalist trying to further de-risk your portfolio?
To market technicians, Friday was a clear-cut buy signal. Yes, we know it was an options expiration event and as such, the volume was artificially high. And yes, we know that short-covering most likely was responsible for both the bounce off of the bottom and the late-day surge of 150 points in the last 15 minutes. But the bottom line is technicians don't care about any of that because in their world, "the tape tells all."
From a purely technical perspective, two very important events occurred on Friday. First, all of the major indices (which we define as the Dow, S&P 500, NASDAQ, Russell 2000, and S&P Midcaps) successfully tested their respective Flash Crash lows of May 6th. This, in and of itself, is a big reason to get excited from a chart perspective. But wait, there's more. Again, from a purely technical point of view, Friday also represented a Key Reversal day. And any technician worth their six screens knows this could lead to more green numbers on the horizon.
On the other side of the aisle, those in the fundamentalist camp can be heard vehemently arguing that Friday's action was simply a bounce of the dead cat variety. The big-picture gang is quick to remind us that nothing changed on Friday. Europe is still stuck in their debt mess, China is still trying to slow their economy, the jobs picture in the U.S. is iffy, housing remains a big problem, and financial regulatory reform is still likely to knock a bunch of cash from the bottom lines of any company even remotely related to the financial industry.
So which is it? Frankly, both camps are probably right; it's just a matter of the time frame you choose to work in, or, put another way, which team you play for. Traders recognized on Friday that something good could indeed happen over the weekend (think coordinated central bank intervention to help support the Euro). As such, covering shorts and banking some good gains certainly explains the late burst of buying into the close. And yet, anyone with a fundamental outlook may not be able to see a very bright picture from a macro economic perspective.
And this, folks, is what makes a market. The techies will likely come into this morning looking for more upside and/or maybe a quick retest of the lows before movin' on up. Yet, the macro crowd may see any further upside action as an opportunity to lighten up and "de-risk" their portfolios.
So, like the title says, it's time to take sides and play the game accordingly.
Turning to this morning... Futures are pointing to a lower open as investors are concerned about the need for a bank bailout in Spain as the government had to step in to close a bank after a merger failed.
On the economic front, the Chicago Fed reported that their National Activity Index came in at +0.29 in April, which was above the revised March reading of +0.13 (revised from -0.07). The reading was the highest since December 2006.
Finally, don't forget to check the happiness box today...
Here are the important indicators we review each morning before the opening bell...
Foreign Markets: Europe is lower, while most of Asia (except Japan) is higher
Crude Oil Futures: -$0.22 to $69.82
Gold: +$7.80 to $1183.90
Dollar: Lower against Yen, higher vs. Euro and Pound
10-Year Bond Yield: Currently trading at 3.18%
Stocks Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: -10.6
- Dow Jones Industrial Average: -82
- NASDAQ Composite: -14.6
Wall Street Research Summary
- First Solar (NASDAQ:FSLR) - AURIGA
- AmeriGas Partners (NYSE:AGU) - BofA/Merrill
- Enbridge Energy Partners (NYSE:EEP) - BofA/Merrill
- ONEOK Partners (NYSE:OKS) - BofA/Merrill
- TC Pipelines (TCLP) - BofA/Merrill
- Skyworks (NASDAQ:SWKS) - Barclays
- Google (NASDAQ:GOOG) - Added to Top Picks Live at Citi
- US BAncorp (NYSE:USB) - Citi
- Abbott Labs (NYSE:ABT) - Citi
- Alcon (NYSE:ACL) - Citi
- Transocean (NYSE:RIG) - FBR Capital
- Citi (NYSE:C) - Goldman Sachs
- Ace Limited (NYSE:ACE) - Added to Conviction Buy at Goldman
- CME Group (NASDAQ:CME) - Added to Conviction Buy at Goldman
- Northern Trust (NASDAQ:NTRS) - Added to Conviction Buy at Goldman
- Jefferies (JEF) - Added to Conviction Buy at Goldman
- BlackRock (NYSE:BLK) - Goldman Sachs
- Sprint Nextel (NYSE:S) - Goldman Sachs
- Intuitive Surgical (NASDAQ:ISRG) - Lazard
- Kennametal (NYSE:KMT) - Longbow Research
- Exxon Mobil (NYSE:XOM) - RBC Capital
- Health Care REIT (NYSE:HCN) - RW Baird
- Nationwide Health (NYSE:NHP) - RW Baird
- Intel (NASDAQ:INTC) - ThinkEquity
- CF Industries (NYSE:CF) - UBS
- Mosiac (NYSE:MOS) - UBS
- Cree (NASDAQ:CREE) -CLSA
- Arch Capital (NASDAQ:ACGL) - Goldman Sachs
- Comerica (NYSE:CMA) - Goldman Sachs
- Wells Fargo (NYSE:WFC) - Goldman Sachs
- Franklin Resources (NYSE:BEN) - Goldman Sachs
- Janus Capital (NYSE:JNS) - Goldman Sachs
Long positions in stocks mentioned: INTC
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