Daily State of the Markets
Thursday Morning – August 26, 2010
Good morning. After being down four days in a row and nine of the last eleven, the bears were clearly due for a break. Remember, even in the most vicious bear markets, stocks don't go down EVERY day. However, the late arrivals to the bear party may have been scratching their heads a little by the time the closing bell rang on Wednesday. After all, with more lousy news on both manufacturing and housing, our freshly minted bears may have been expecting some additional fireworks to the downside.
After the reports on Durable Goods and New Home sales, fireworks to the downside is exactly what the bears got as the Dow found itself down triple digits again within the first 30 minutes of trading on Wednesday. But with the Russell 2000 breaking to news lows, the NASDAQ looking ugly, and the S&P playing a game of tag with the 1040 level, the bears apparently decided to lock in some gains.
There was no real catalyst for the reversal of fortunes yesterday. And to hear the bears tell it, this means that any rebound that we may see in response to oversold conditions will likely be temporary. However, our heroes in horns will argue that the combination of the market having become oversold by almost any measure, the likelihood that Ben Bernanke will say good things on Friday, and the idea that the current 7% decline has sufficiently discounted the increasing odds of a double dip means that the bears' recent dominance may be ending.
On the topic of a double dip, yesterday's news certainly didn't hurt those who see the glass as half empty right now. The Durable Goods report was the latest in what feels like along string of disappointments and the data on New Home sales was just plain ugly. Thus, with the recent data coming in much weaker than expectations, it isn't much of a stretch these days to assume that things will simply roll over here.
But that wasn't the message in the market - well, for yesterday at least. While there is no guarantee that yesterday's move up off of the bottom will continue or even that the 1040 level will hold, it appears that traders decided that the touch of 1040 was enough downside action (for now?) and decided to go the other way. Thus, if you have been feeling long-and-wrong lately, you can thank all those trader types who use charts to guide their trading for some green on your screen yesterday.
Turning to this morning... The Labor Department reported that initial claims for unemployment insurance for the week ending August 14 fell by 31,000 to 473K. The week’s total was 14K below the Reuters consensus for a reading of 487K. Continuing Claims for unemployment for the week ending August 7 were below consensus at 4.456M vs. expectations for 4.505M and last week’s 4.518M.
Traders appear to like this number as it is the first sign in a while that the economy is not falling off of a cliff.
Finally, don’t forget, ego is the enemy in this game...
Here are the important indicators we review each morning before the opening bell...
Major Foreign Markets:
- Australia: +0.75%
- Shanghai: +0.27%
- Hong Kong: -0.11%
- Japan: +0.69%
- France: +1.14%
- Germany: +0.14%
- London: +0.44%
Crude Oil Futures: + $0.73 to $73.25
Gold: + $2.70 to $1244.00
Dollar: higher against Yen, lower vs Euro and Pound
10-Year Bond Yield: Currently trading lower at 2.538%
Stocks Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +6.52
- Dow Jones Industrial Average: +44
- NASDAQ Composite: +12.12
Wall Street Research Summary
- BP PLC (NYSE:BP) - Mentioned positively at Credit Suisse
- Paychex (NASDAQ:PAYX) - Deutsche Bank
- National Bank of Greece (NBG) - Goldman Sachs
- China Telecom (NYSE:CHA) - HSBC
- China Life (NYSE:LFC) - BofA/Merrill
- Taiwan Semiconductor (NYSE:TSM) - Deutsche Bank
- Nasdaq OMX (NASDAQ:NDAQ) - Morgan Stanley
- Charles Schwab (NYSE:SCHW) - Morgan Stanley
- Medtronic (NYSE:MDT) - UBS
Long positions in stocks mentioned: none
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