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My Crystal Ball Rant

Daily State of the Markets
Wednesday Morning - February 1, 2012

With stocks having effectively moved sideways for the past eight sessions, the question of the day is which way we go from here. The bulls will argue vehemently that the bears have had ample time and opportunity to get something started to the downside - and have simply failed to do so. Yet on the other sideline, our furry friends are quick to counter with the argument that yesterday's economic reports poke a big fat hole in the bull camp's thesis.

While we could spend the rest of our time together this morning sifting through the tea leaves and trying to come up with some sort of prognostication that I might later find a way to hang my hat on (remember, if you are going to play the prediction game in this business you can predict what or when, but definitely not both!), long-time readers know that I simply don't make predictions.

In short, making a prediction about the markets is a fool's errand. I have been in this business since early 1980 and I can say with absolute certainty that every single pundit who was known at one time or another for their grandiose predictions was eventually humbled mightily by Ms. Market. Sure the Granville's, the Prechters, and the Garzarelli's all had their days in the sun. But they also all wound up being dead wrong - and some for a very long time. So, as I've said a time or twenty, around here we focus on what IS happening in the market, not what we think ought to be happening.

My apologies for what is turning out to be a personal rant against the crystal ball crowd this morning. It's just that everywhere I turned yesterday, I read, heard, or saw some self-proclaimed expert telling me with absolute certainty what was going to happen next in the stock market. Pardon me, but this just drives me batty.

But to clarify, I don't have any problem with the folks that lay out their case and then position their portfolios to profit from the scenario they see playing out. Heck, this is how John Paulson made the "trade of the century" shorting sub-prime in 2008. This is how Soros broke the Bank of England. This is what made David Tepper famous. What is called a "macro" approach suits lots of investors and has made many hedge fund managers very wealthy.

The difference is these uber-successful managers aren't seeking T.V. time at every turn. They don't have publicists getting them booked with anybody that will listen to their latest predictions. No, these guys and gals tend to spend their time studying their craft - not sitting in makeup.

In case you don't know this about me, I am a trend follower who uses models and systems to guide my decisions. I don't believe in telling Ms. Market what she should do next and I don't believe in making big stands. I am a bad interview because my sound bites tend to always sound the same. Put simply, my goal is to try to stay in tune what my indicators and the markets are doing at any point in time.

As Ned Davis is famous for saying, this game isn't about being right, it's about making money. And as Warren Buffett has also quite famously said, one of the most important keys to investing is to avoid losing big money. As such, I am also a big believer in managing risk on a daily basis. Taking this approach doesn't always work out the way I'd like and Ms. Market has made me look more than a little foolish on plenty of occasions. But my thinking is if you utilize strategies or systems that can put the odds of success in your favor; you just might wind up on the long end of the stick more often than not.

Turning to this morning... The outspoken bears may be disappointed yet again this morning as better than expected PMI reports in China and Europe are lifting stock futures in the U.S. However, the all-important ISM Manufacturing report may dictate the eventual outcome of today's trading. The report will be released at 10:00 am eastern.

On the Economic front... ADP reported that private sector jobs rose by 170K jobs in January, which was below the consensus expectations for a gain of about 197K and below December's revised (lower) 292K.

In addition, we'll get reports on the Construction Spending and ISM Manufacturing later this morning.

Thought for the day... "There is nothing wrong with change, if it is in the right direction" -- Winston Churchill

Pre-Game Indicators

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

  • Major Foreign Markets:
    • Australia: -0.80%
    • Shanghai: -1.07%
    • Hong Kong: -0.22%
    • Japan: +0.08%
    • France: +1.59%
    • Germany: +2.26%
    • Italy: +2.21%
    • Spain: +1.48%
    • London: +1.40%
  • Crude Oil Futures: +$0.29 to $98.77
  • Gold: +$8.00 to $1748.40
  • Dollar: higher against the Yen, lower vs Pound and Euro
  • 10-Year Bond Yield: Currently trading at 1.802%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +7.84
    • Dow Jones Industrial Average: +80
    • NASDAQ Composite: +11.70

Positions in stocks mentioned: None

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


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