Daily State Of The Markets: Remember, It's Not The News

Includes: DIA, QQQ, SPY
by: David Moenning

Daily State of the Markets

Thursday Morning - February 23, 2012

Good Morning. As the saying goes, "It's not the news, but how the market reacts to the news that matters." So, with this time honored Wall Streetism in mind, I have but one question (ok, maybe two) for the bears out there this morning: If you can't get anything meaningful going to the downside when weak macroeconomic news shows up, when will you? If you can't produce a triple-digit Dow decline on weak PMI numbers, what's it gonna take?

We're told daily by the glass-is-completely-empty crowd that the end is near, that stocks can't possibly go any higher, and that the bears will return to the corner of Broad and Wall any day now. And yet, when the "Flash" (meaning preliminary) PMI reports, which are designed to tell us whether a specific sector of a country's economy is expanding or contracting, from both China and the Eurozone come in at levels indicating contraction, the Dow doesn't get crushed, it drops 27 points.

I know that stocks have run a long way in a short time and that the indices are overbought. Yes, I recognize that the sentiment readings are a little too rosy right now (a condition that often is a prelude to a decline). I fully understand the concept of resistance overhead and that Dow 13,000 appears to be a bit of a problem at the current time. I can also appreciate some of the technical divergences that may (or may not) be cropping up. And I totally get that it's got to be tough being a bear these days. But come on, 27 points?

The point to this morning's meandering missive is what we're seeing right now is good old fashioned bull market action. The very fact that the market hasn't been able to pull back over the past couple of weeks says a lot. But then when the bears come up nearly empty handed on a day where the slowdown theme was front and center in China, where the reality of recession in the Eurozone was blatant, and the fact that U.S. housing market is still going nowhere fast cropped up again, well, you've got to call that a darn good down day.

To be fair, none of the economic reports out yesterday were overtly negative. For example, although the Flash PMI in China did come in below 50, the February reading was actually higher than January's. Those folks adorned in the rose-colored Revo's suggest that such a reading is more indicative of a soft landing in China and not a meaningful slowdown. In Europe, while the composite flash PMI was below 50, it was only modestly so at 49.7. And since the data was collected before the Greece bailout was completed, anyone looking on the bright side could argue that the data isn't exactly the catastrophe that is being projected for the embattled European Union. And as far as the housing market in the U.S. goes, nobody is really expecting to see much in the way of positive news these days. As such, seeing gains in existing home sales during three of the last four months isn't half bad.

This is not to say that our friends in fur will continue to be completely shut out of the game. After a gain of nearly 24% in less than five months, there is little doubt that a correction, a pullback, or at the very least, a sloppy period is likely to occur. And with each passing day, the chances of the bears enjoying a day or two in the sun increase. The question though is what is likely to trigger the pullback? Will it be a new surprise out of Europe, a big piece of economic data that refutes the bull thesis, some new saber rattling out of Iran, or something completely out of the blue?

To be sure, I can't answer that question. However, based on the fact that the market has held up well in the face of some not-so hot news lately, I'm going to continue to watch the action closely while keeping in mind that it's not the news that matters, but rather...

Turning to this morning... The report from the European Commission, which is now forecasting that the Eurozone's economy will contract for the full year in 2012, has offset the good news that business sentiment in Germany continues to improve. U.S. futures were hanging around breakeven waiting for the Weekly Jobless Claims but have since improved modestly.

On the Economic front... Initial Claims for Unemployment Insurance for the week ending 2/18 were unchanged at 351K which was was below the consensus estimate for 355K. Continuing Claims for the week ending 2/11 came in at 3.392M vs. consensus of 3.470M.

In addition, we will get the report from FHFA House Prices at 10:00 am eastern.

Thought for the day... Instead of just muddling through, why not make a concerted effort to enjoy your day to the fullest?

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

  • Major Foreign Markets:
    • Australia: -0.11%
    • Shanghai: +0.25%
    • Hong Kong: -0.78%
    • Japan: +0.44%
    • France: -0.11%
    • Germany: -0.48%
    • Italy: -1.30%
    • Spain: -1.26%
    • London: +0.20%
  • Crude Oil Futures: +$0.49 to $106.77
  • Gold: +$9.30 to $1780.60
  • Dollar: unchanged against the yen, lower vs euro and pound
  • 10-Year Bond Yield: Currently trading at 2.036%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +2.54
    • Dow Jones Industrial Average: +19
    • NASDAQ Composite: +7.93

I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.