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It's Deja Vu All Over Again (Again)

Daily State of the Markets
Wednesday Morning - April 18, 2012

Publishing Note: I am traveling Thursday and Friday this week. Thus the "Daily State" report will be published only if time permits.

Good Morning. "Buy! No, Sell! No wait, did I say sell? I meant Buy! Yea, that's right, Buy! Unless... Well... Ok... No, let's Buy.... Yea, that's my final answer! But wait... Maybe I should..."

While it sound's idiotic, this is the type of indecision that appears to have overwhelmed traders (oops, I mean the computers) of late. One minute Europe's woes are back, contagion is spreading, the global banking industry is toast, China is going to bring down the world, and Apple (NASDAQ:AAPL) is crashing. But the next - Wheee! - It's all good, buy em!

Although the bulls certainly won the round on Tuesday as the S&P 500 and DJIA appeared to break above their respective short-term high-water marks as well some of the moving averages that everyone on TV loves to yammer on about, I'm going to opine that the consolidation phase that began in the last month or so, remains intact. Sure, the bright green numbers were pleasant to see for anyone owning equities yesterday (my UPRO's did bring a smile to my face). And as expected, AAPL bounced back with a vengeance, erasing the prior day's entire shellacking with a pop of +5.1%. But seriously, how long can we expect a move to last in this market that has no memory? One day? Two?

The bottom line is that the uncertain market environment may continue given that it is earnings season once again and an options expiration week to boot. For example, no sooner had the NYSE's closing bell sounded Tuesday than first Intel (NASDAQ:INTC) then IBM (NYSE:IBM) missed earnings. Then we heard that Warren Buffett has stage 1 prostate cancer and thus, Berkshire Hathaway (NYSE:BRK.A) could be at risk. So, will the boyz and their computer toys focus on selling those names today or will something else bright and shiny attract their A.D.D.-driven fancy?

Then there's the situation in Europe. A friend of mine continues to be fixated on all the minutiae happening in Europe these days. As such, I'm treated to an almost daily dose of the bad things that could happen on the continent. What my friend is missing though, is the idea that markets don't care about issues until they do. And right now, nobody cares all that much about Europe. But, given that I like to keep an open mind with regard to anything and everything that might get the attention of the algo's, I will admit to fearing another bout of déjà vu all over again (again) should yields in places like Spain, Italy, or France really start to spike.

The bulls argue that Europe is "so last year" and that the earnings from companies like Coca-Cola (NYSE:KO) were the focal point on Tuesday. After moving sideways for the better part of last year (at least from a weekly chart perspective), KO has taken off recently on word that the company is seeing higher sales volume as well as... wait for it... improving pricing power around the world. Frankly that sounds pretty good. And in this sector, Monster (NASDAQ:MNST) seems to be doing pretty well too, have you seen that chart?

My point this morning is that unless one of our two teams can grab the reins in the near future, the déjà vu all over again (again) situation where stocks are up one minute/day and down the next is likely to continue. We're likely to see more volatile days as the computers all run the same trades at the same time on the latest and greatest data inputs.

So, how does one play this type of environment? Personally, I like to lean on market models and rules-based strategies. However, if you like to play things by ear and make decisions as they come, take out your electronic rulers and draw horizontal lines on the S&P 500 chart at 1420 and 1360. In short, until the market can make a pronounced move above or below those lines, we just might be stuck in this déjà vu phase.

Turning to this morning... After a strong day in the U.S. markets yesterday, what should we expect today, you ask? Oh, that's right, a down day, of course. In short, Europe is down 1% or so on concerns about Spain, which is driving our futures lower. In case you haven't picked up on the pattern, the U.S. futures follow the European markets in the early going.

On the Economic front... There is no economic data scheduled for release today.

Thought for the day... Learn to trust in an idea whose time has come...

Pre-Game Indicators

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

  • Major Foreign Markets:
    • Australia: +1.34%
    • Shanghai: +1.97%
    • Hong Kong: +1.06%
    • Japan: +2.14%
    • France: -1.61%
    • Germany: -1.00%
    • Italy: -2.48%
    • Spain: -3.11%
    • London: -0.41%
  • Crude Oil Futures: -$0.10 to $104.13
  • Gold: -$9.10 to $1642.00
  • Dollar: lower against the yen and pound, higher vs. euro
  • 10-Year Bond Yield: Currently trading at 1.99%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: -6.53
    • Dow Jones Industrial Average: -66
    • NASDAQ Composite: -11.93

Positions in stocks mentioned: AAPL, IBM, UPRO, MNST

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


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Disclosure: I am long AAPL, IBM, MNST, UPRO.