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It's Baaaaack!

Daily State of the Markets 
Thursday Morning - April 20, 2011

Good morning. I am catching a very early flight to a family wedding in North Carolina, so please accept my apologies for the brevity of this morning's missive. (Note to self: It's probably a good idea to check your itinerary before noon on the day prior to the trip!)

Cutting straight to the chase, many analysts and most of the popular press are citing the strong earnings from some very big names in technology such as Intel, IBM, Yahoo, and now Apple as the primary driver to the Dow's recent run for the roses (and for those keeping score at home, yes, the DJIA did indeed close at a new high for the current bull market cycle on Wednesday). And while you'll never hear me say anything even remotely negative about a spate of strong earnings, I can't help but feel that this move is more about the dollar than anything else.

Lest we forget, it has been a heaping portion of the "risk trade" that has helped the bulls keep things movin' on up in a relatively straight up fashion since the beginning of last September. To review, with the Fed on a bond buying binge, the dollar has been on a fairly consistent downward slope. And the bottom line is that a falling dollar has been part and parcel to the risk trade, where traders (think hedge funds and big institutions) sell the greenback and buy "risk assets" such as commodities, stocks, and emerging markets.

So, what has the dollar been doing since Monday's close? Yep, you guessed it; moving to new lows. Therefore, we're of the mind that as long as the dollar keeps dropping, then stocks will keep on keepin' on. Oh, and some more earnings like we got out of Apple after the close yesterday probably won't hurt either.

Yes, it is true things are not be looking so hot in some of the European countries. Yes, the U.S. may indeed have to admit it has a problem with debt sooner rather later. And yes, you are correct if you are of the mind that taking action on the debt in the U.S. will lead to slower economic growth. But for now, it appears that traders may be able to brush all of this aside and continue focusing on a trade that is working - until it doesn't, of course!

My point at this wee hour is that while the "risk trade" may be back and may continue to help boost stock prices, the fundamental backdrop of less spending and lower economic growth probably isn't a good thing in the long run. So, while we can certainly enjoy the green on the screens for now, it probably isn't a good idea to get too terribly comfy with the uptrend. But then again, I've been wrong before and the stock market does have a tendency to stay irrational for extended periods of time.

However, in addition to watching the earnings parade, I'll be keeping an eye on the dollar going forward. And then there's oil. Don't look now, but prices are soaring again on the back of the falling dollar.

Turning to this morning... Apple's earnings after the bell provided the bulls both here and overseas with an energetic boost and the indices are now either at or near their highs for the bull market cycle.

On the Economic front... This morning, we'll get Initial Jobless Claims at 8:30 am eastern and then te FHFA House Price Index, the LEI, and Philly Fed Index at 10:00 am.

Thought for the day: They say that it's best to avoid sweating the small stuff. And as the saying goes, it's all small stuff...

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell... (as of 6:15 am eastern time)

 

  • Major Foreign Markets:
    • Australia: +1.12%
       
    • Shanghai: +0.67%
       
    • Hong Kong: +1.01%
       
    • Japan: +0.82%
       
    • France: +0.35%
       
    • Germany: +0.62%
       
    • London: +0.13%

     
  • Crude Oil Futures: +0.65 (May contract) to $112.10
     
  • Gold: +$8.60 to $1507.50
     
  • Dollar: higher against the Yen, lower vs. Euro and Pound
     
  • 10-Year Bond Yield: Currently trading at 3.40%
     
  • Stocks Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +8.30
       
    • Dow Jones Industrial Average: +64.5
       
    • NASDAQ Composite: +24.4

 

Long positions in stocks mentioned: none

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