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Can The Confidence Last?

Daily State of the Markets 
Tuesday Morning - September 27, 2011

Good morning. Given that this stock market likes to go in one direction for several days straight and then reverse on a dime and go the other way, I guess we should have expected to see the indices embark on yet another joyride to the upside on Monday. Stocks soared back into the middle of the trading range (trip #4, perhaps?) yesterday on the back of the idea that an all-new Euro-TARP was about to become the hit of the fashion season. In short, traders expressed confidence that there might be a plan in the works that could actually be the ultimate game-changer for the bulls.

The first problem is everyone who is anyone in the Eurozone is currently denying that such a TARP-like plan is being worked on. Purportedly this is due to the simple fact that the plan is currently being discussed, reviewed, and/or finalized by all those who will need to ultimately approve it (which, by my last count, included seventeen different countries). Frankly, it does make sense that officials would continue to deny the existence of their game-changing plan until they actually had a plan in hand.

So, my first question on this fine Tuesday morning is just how long do you think the market confidence shown Monday can last without some hint that there actually is a game-changing plan coming and that the reported "Euro-TARP" is indeed that plan? Remember, traders aren't exactly a patient lot. So, if we don't hear some details about the plan sometime soon, my guess is that the fast-money types might reacquaint themselves with the sell button.

Next, if we go ahead and assume (always a dangerous move in this game) that the plan is indeed the plan and that the plan will soon be forthcoming, can the exuberance shown yesterday continue until the plan can be implemented? Lest we forget, at least part of the reason that the oh-so chic original TARP became all the rage (well, sort of) in 2009 was that the markets were crashing down and it looked like unless somebody did something - and right quickly - that the U.S. banking system might have to be nationalized. As such, Hank Paulson had the luxury of a full-fledged panic on his hands in order to get his plan passed (after the requisite false start the first time around, of course).

Although the European markets are in bear market territory, we simply don't have the same kind of environment that we did when Paulson rammed his six page document through Congress. As such, with lawmakers from seventeen different countries feeling like they still have some time for politicking and perhaps even some grandstanding and/or brinkmanship, we're wondering how long the market confidence will last if the process of starts to drag on.

And finally, I have one other nagging question: Haven't we heard about a grand plan to solve Europe's troubles before? Wasn't the first EFSF supposed to do the trick? And then wasn't the new, bigger and better plan agreed to on July 21 also supposed to be the answer? (That plan still hasn't been ratified by all seventeen countries, by the way.) Therefore, call me cynical if you must, but I'm wondering if the latest and greatest plan out of Europe will actually do the trick. And on that note, I'm also wondering just how long the market's newfound confidence can last these days.

Turning to this morning... Global markets soared overnight on expectations for the new and improved EFSF plan, which, of course, has now been officially denied in Europe (remember, a story isn't official until its been officially denied). Stock futures in the U.S. are following the lead and are pointing to a significantly higher open.

On the Economic front... We will get the Case-Shiller Home Prices update at 9:00 am and the Conference Board's Consumer Sentiment at 10:00 am eastern.

Thought for the day... Are you feeling inspired today? Shouldn't you be?

Pre-Game Indicators

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

 

  • Major Foreign Markets:
    • Australia: +3.46%
       
    • Shanghai: +0.91%
       
    • Hong Kong: +4.15%
       
    • Japan: +2.82%
       
    • France: +4.14%
       
    • Germany: +4.25%
       
    • Italy: +3.51%
       
    • Spain: +2.70%
       
    • London: +3.12%

     
  • Crude Oil Futures: +$2.58 to $82.82
     
  • Gold: +$65.60 to $1660.40
     
  • Dollar: lower against the Yen, Euro and Pound
     
  • 10-Year Bond Yield: Currently trading at 1.969%
     
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +20.15
       
    • Dow Jones Industrial Average: +184
       
    • NASDAQ Composite: +32.12

 

Wall Street Research Summary

Upgrades:

  • Gilead Sciences (NASDAQ:GILD) - Target increased at Bernstein
     
  • Clorox (NYSE:CLX) - Caris & Company
     
  • Bunge Ltd (NYSE:BG) - Citi
     
  • Sanderson Farms (NASDAQ:SAFM) - Goldman Sachs
     
  • Baxter (NYSE:BAX) - JPMorgan
     
  • Stryker (NYSE:SYK) - JPMorgan
     
  • Alexion Pharmaceuticals (NASDAQ:ALXN) - Target increased at Oppenheimer
     
  • Church & Dwight (NYSE:CHD) - Target increased at Oppenheimer
     
  • Kimco Realty (NYSE:KIM) - RW Baird

     

    Downgrades:

  • Huntsman (NYSE:HUN) - Goldman Sachs
     
  • Abbott Labs (NYSE:ABT) - JPMorgan
     
  • Zimmer Holdings (ZMH) - JPMorgan
     
  • WMS Industries (NYSE:WMS) - Sterne, Agee

     

    Long positions in stocks mentioned: none

    For more of Mr. Moenning's thoughts and research, visit StateoftheMarkets.com

     


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