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Waiting and Wondering

Daily State of the Markets 
Tuesday Morning - January 10, 2012

Good Morning. For the fourth consecutive day, stocks followed a nearly identical pattern. In case you don't pay attention to the tick-by-tick action of the major indices, stocks have tended to open higher recently only to be met, almost instantaneously, with a bout of selling. From there, things tend to settle for a bit before the next batch of sell programs are run. And then, just about the time things start to look and feel ugly (which is usually right around the time Europe closes), the S&P bottoms. After that, the days have belonged to the bulls as the buyers have then come in and helped the averages spend the majority of the day clawing their way back to breakeven (well, until the last-minute sell programs are run, that is).

The problem is that unless you are trading the trend of a one- to five-minute chart, there hasn't been much opportunity for regular investors to make money this year. Sure, there have been dips to be bought on each of that last four days. But at the end of the all-important first five days of January, new investors don't have much to show for their efforts.

For example, the talking heads on TV were more than a little giddy after the close yesterday. After all, everybody knows that "as the first five days go, so goes January" and then "as January goes, so goes the year." And with the S&P sporting a gain of +1.84% through the first five days, I'm surprised CNBC didn't shoot confetti from the cannons of their fancy new set being built on the NYSE floor.

However, the problem is that if you found yourself feeling bullish coming into New Year and were ready with an order to buy the SPDR S&P 500 (NYSEARCA:SPY) on the open of 2012, my system says you could have gotten filled at 127.77. And while that buy price may have felt good for much of the day on Tuesday, January 3, 2012, your SPY shares haven't enjoyed much of an advance since. So, given that the SPY closed yesterday at $128.02, those who bought the open probably aren't nearly as exuberant as the folks exalting the hype of the "first five days."

Frankly, I'm guessing most investors are still waiting for the game to really get started this year and are wondering what the year is going to look like. I'm also guessing that most investors are still braced for crash and are simply waiting and wondering when the next shoe will drop in Europe. After all, there has been little sign of improvement from across the pond and just about everybody I talk to is quick to tell me how horrible this year is going to be.

So, with massive levels of uncertainty surrounding things such as the new Eurozone agreement, bond yields in places like Italy and Spain, the enormous amount of European debt that needs to be rolled in Q1, the new worries about Greece, Hungary's entry into the bailout game, the fragility of Eurozone banks, the unwillingness of the Germans (who appear to be the Tea Party of Europe these days) to fix the problem, the fear of rating downgrades in France, another debt ceiling showdown here in the U.S., and all kinds of questions regarding the prospects for both the U.S. economy and corporate earnings, I can certainly understand why many investors - especially those without supercomputers running HFT programs - might be waiting and wondering what the next move is going to be.

While I am most certainly unable to predict the future (my crystal ball flashes an ID10t error at me whenever I try to turn the silly thing on - sure wish Apple would enter this market segment), I can say that I am growing a tad uneasy about the current sideways movement. So, as I type this morning, I find myself waiting for the teeny tiny range to break and wondering which team will have the ball when it happens.

In football parlance, here's hoping the bulls will be able to "pull a Tebow" and force all the doubters to head to the sidelines with their heads in their hands. After all, time is running out on this drive and the game appears to be on the line!

Turning to this morning... Reports out of China showing weakness in Import growth has traders assuming that the Chinese will soon begin to ease monetary policy and jumpstart global growth. This has put overseas markets in an upbeat mood with big gains in Europe this morning. As expected, the U.S. futures are also pointing to a good gain at the open.

On the Economic front... The NFIB Small Business Optimism Index came in with a gain of 1.8 points in December. The increase was the fourth since September.

We will also get a report on Wholesale Inventories at 10:00 am eastern.

Thought for the day... Happiness comes from within...

Pre-Game Indicators

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

  • Major Foreign Markets:
    • Australia: +1.08%
    • Shanghai: +2.69%
    • Hong Kong: +0.73%
    • Japan: +0.38
    • France: +2.68%
    • Germany: +2.82%
    • Italy: +3.32%
    • Spain: +2.35%
    • London: +1.36%

  • Crude Oil Futures: +$2.04to $103.35
  • Gold: +$31.50to $1639.60
  • Dollar: lower against the Yen and Pound, higher vs. Euro
  • 10-Year Bond Yield: Currently trading at 1.982%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +12.75
    • Dow Jones Industrial Average: +118
    • NASDAQ Composite: +22.45

Positions in stocks mentioned: None

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

 


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