Market Talk

We still don’t know all the ramifications of Japan’s triple disasters on the global economy. We don’t even know if the pumps will work at the battered Fukushima Daiichi reactors. We don’t know how long the Jasmine Revolution will last, or how bad or how violent it will be ultimately. Another regime seems poised to fall this morning, in Yemen.

There’s a world’s worth of unknowns out there, but the bulls  have been assured of one very important thing:  the Fed is still buying the drinks.

It’s easy enough to ignore a world of perils when somebody else is picking up the tab. The Fed is plowing ahead with its bond-buying program, the so-called QE2 that runs through June, and is going to pump $600 billion into the economy come hell or high water (both of which, lamentably, have appeared on the world stage lately.)  The Fed can’t force people to buy stocks, but it can throw a lot of free money around, and it can force down the interest rates on safe havens, and “encourage” investors to venture out on the risk curve.

So is it so surprising that the stock market is ignoring what appears to be a world very much on fire? And what happens when the Fed decides it’s time to settle the bar tab?

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Once again it looks as if the Dow Industrials’ winning streak (now at eight straight sessions) may be in jeopardy, but it would be foolish to underestimate the bulls’ ability to turn things around, especially late in the session.

“These days, opening indications and actual closing prices are two very different animals,” Barry Ritholtz noted earlier at the Big Picture. He has a precise summation of how the bull vs bear battle has gone during the past several months:

In the face of massive liquidity of QE2, there remains a firm bid beneath this market. So far, losses have been modest to minuscule, with selling pressure well contained. M&A, share buybacks, anything but disappointing earnings are an excuse to put on the rally caps. Even dips are an excuse to buy. (We are running 53% cash on specific name selling, not overall market calls).

The bears are bloody but unbowed — they know a correction is imminent. But the bulls have heard this line for nigh on two years, and yet still the market still powers higher. The Dow, S&P and Nasdaq are all at multi-year highs. There is a difference between being early — a matter of days or weeks — and wrong. So far, the bears have been wrong.

Eventually, the grizzlies must be fed. They have their champions, including various Fed Hawks, who are terrified of an inflationary spiral. Lacker, Plosser and Fisher may be mortal enemies of price instability, but they are friends of Yogi and Boo-Boo and Baloo, well known amongst ursines for their opposition to easy money. And easy money is a bull’s best friend.

Even the most ardent bull knows that this too, will pass. The bears will have their day, before their next bout of hibernation.

The 64 trillion question: When? Continue reading…

With the Dow Industrials up six-straight sessions, and both DJIA and S&P 500 up 10 of the last 12, it’s reasonable to think bulls could use a breather.

Stock futures point to a flat open, eyeing marginal declines in European markets and word of a well-telegraphed interest-rate hike in China. Nothing notable on the data calendar today, though a trio of Fed presidents are scheduled to share comments on the economy during the afternoon. Disney reports F1Q results after the close.

Crude oil continues to pull back, recently down a buck at $86.48/barrel, despite a weaker dollar. Euro higher, recently at $1.363. S&P futures up less than a point; 10-yr note lower, yield at 3.66%.

Bulls once again are able to fend off a mortal gash by bears, erasing much of a sharp morning decline, but still limp away from this engagement.

Nasdaq, in particular, shows some damage as a few tech bellwethers — Google, eBay, Amazon — get hit with some earnest selling. Tech, health-care and financial stocks slide most; only telecom ekes out a small gain.

Euro-zone issues continue to be a drag, euro slides below $1.30, USD index rises 0.4%.

First negative month for the DJIA since August. DJIA down 46.47 to 11006.02, and Nasdaq Comp sheds 26.99 to 2498.23. S&P 500 ends 7.21 lower at 1180.55.

- Oracle (ORCL) CEO Larry Ellison wasted no time slamming H-P’s (HPQ) hiring last week of former SAP chief Leo Apotheker as new CEO. “I’m speechless,” he tells WSJ late Friday. “H-P had several good internal candidates…but instead they pick a guy who was recently fired because he did such a bad job of running SAP.” Harsh, to say the least, though not particularly out of character for Ellison, Digital Daily blogger John Paczkowski says.

- Goldman gets harsh on Microsoft (MSFT) and offers three strategies it should employ to help boost shares. Firm calls for huge dividend increase, a “coherent consumer strategy” and MSFT to become the global leader in cloud computing. “Oh, that’s all?” Paul Kedrosky quips. “Pulling this off would be like Microsoft learning Geller-ian magic tricks, the equivalent of being able to bend spoons with its brain.”

- Another economic downturn is “not only a possibility but a likelihood,” John Hussman says. “A significant correction in valuations and resolution of the growing backlog of delinquent debt may finally restore strong ‘investment merit’ to the US stock market, but only after a greater amount of pain and adjustment than most investors seem to anticipate.”

- Executive departures at Yahoo has put more scrutiny on CEO Carol Bartz, who she still has to convince Wall Street she has what it takes to turnaround the struggling Internet giant. But YHOO’s 3Q report, scheduled for Oct. 19, will provide clues into how she’s really doing, Kara Swisher notes. And as executive departures “garner a lot of attention,” Yahoo’s results are “the most important of all to watch,” she says.

- With the September jobs report due at the end of the week, Calculated Risk says keep an eye on the participation rate. Right now, it sits at a “very low” 64.7%. “A future decline would be considered bad employment news (even if the unemployment rate declined slightly),” blog says. “An increase in the participation rate, combined with a weak labor market, could lead to a jump in the unemployment rate. This is something to watch closely.”

- Another unsavory wrinkle in the US foreclosure epidemic as some big banks (BofA, JPMorgan, Ally’s GMAC) suspend foreclosure activity across close to half the nation amid reports of seriously flawed paperwork. Seems “the real estate/financing industry has brought the same machine-like technical prowess that they used to automate the process of underwriting mortgages to a similar automated foreclosure process,” Big Picture blogger Barry Ritholtz notes. “Is it any surprise that the results of this are similarly disastrous?”

- The bulls, like John Paulson, looked pretty smart in September.

- “But even if we agree that the Fed could depress long-term yields with these kinds of measures, it is a separate question as to whether it should,” James Hamilton says. “I remain of the opinion that while the Fed is understandably reluctant to embrace QE2, it may have little other choice.”

- Twitter promotes chief operating officer, Dick Costolo, to CEO amid company’s scramble to build its advertising business. He succeeds Evan Williams.

- New York Observer wants Dealbreaker, but Bess Levin wants her big pay day. Good for her, she deserves it. Now, Barry Ritholtz hopes to get in on the action.

Trust me, there's never been a better time to buy stocks.

Listen, it shouldn’t surprise any of you to know that we’re skeptics here at Market Talk. We get paid to be skeptics.  The folks at CNBC get paid to cheerlead (and paid pretty well, apparently, wow. Maybe we should get more bullish.)

Anyhow, for much of this year, we’ve been dogged by this feeling that 2010 is playing out very much like 2007. Back then, the signs of the implosion to come where evident, but few were paying attention. The strains were building, the gears cracking under the pressure, but few were paying attention. We didn’t have the blog back then, but we got a lot of grief from our subscribers on the Newswire about the things we were writing and the points we were making.

Ahem.

So, anyhow, something in David Rosenberg’s column today struck a note with us, because it hearkens back to that 2007 feeling. Now, look, obviously I don’t know what’s going to happen. If I did, I’d be running a hedge fund up in Connecticut. But something doesn’t feel right.

It’s hard to look at what’s going on on Main Street, where unemployment’s painfully high, where homes are in far too many cases a millstone around their owners’ necks, where storefronts are emptied out and left empty, and what’s going on on Wall Street, where stocks keep rising, where analysts gleefully talk about peak earnings (albeit, the trading volume’s are so low, some banks that make their money via stocks are letting people go), and not see a huge disconnect.

Wall Street is getting its animal spirits back. Main Street is still having its spirit torn asunder. Somebody’s got to be wrong.

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Attempting to divine the message from the markets is a constant preoccupation. Most times the clues are subtle, and easily dismissed. Other times, like yesterday and today, the signals seem more bold and definable, suggesting a clear direction or strong sentiment may be about to emerge.

As we noted earlier, it was curious yesterday to see both stocks and Treasurys rally, as if investors couldn’t decide if they wanted to embrace risk or run from it. That action has continued today, with a more pronounced rally in Treasurys, even as stocks earlier pulled off a sharp turnaround, loping higher in a chase after the sprinting euro. The Dow Industrials’ about-face produced an 89-point spread from session low to high so far.

Today it’s a duel between the safety and the risk trade. Stocks and the euro have rallied, US dollar has sold off sharply on the risk side of the ledger. Meanwhile, gold surges to fresh highs, Treasurys and the yen rally, while oil declines in a skew toward safety.

So what’s it going to be, safety or risk?

Maybe a clue from technician Walter Murphy, via Art Cashin at UBS, in his morning comments. Murphy noted the S&P 500 has rallied 9 of the last ten sessions, Cashin said, which has only happened 11 times since 2002. “In every case, it was followed within a day or two by a meaningful pullback. Stocks are overbought “and vulnerable,” he says.

DJIA currently off 4, S&P 500 flat.

Don't you dare doubt the market.

For investors, this month has been anything but a typical September.

This month kicked off with the usual banter that September is historically the worst month for market. But ten days later the market hasn’t followed any of September’s historic patterns. Stocks keep drifting higher and, as a result, the bulls are starting to show fresh signs of life.

The S&P 500′s 5.2% rise in the first six trading days of the month is the best six-day start to September since 1939, Bespoke reports. Bullish sentiment among individual investors has soared throughout the last two weeks and most recently reached its highest level since April, according to AAII’s sentiment survey.

“Talk about a schizophrenic market,” Pragmatic Capitalism says. “Just two weeks ago the sky was falling…Now, just a few economic reports and a brief rally later, small investors are convinced that there are no risks coming down the pike.”

But the rallying stock market and soaring investor sentiment begs the question: What exactly has changed in the last few weeks?

Sure, we’ve had a run of not-exactly-horrible economic data over that time frame. But the better-than-expected ISM manufacturing report and jobs data, which garnered the most attention last week, weren’t exactly excellent reports. Lets not kid ourselves, data improving from awful to less awful shouldn’t be a reason to believe the economy’s back and the recovery’s ready to roar.

Couple of other things to consider as this rally keeps puttering along: this recent run-up has all been on low volume, which tends to skew results and lack conviction in either direction. As Pragmatic Capitalism notes, the last time bullish sentiment was this high was mid-April, just days before the 1Q market peak.

We’ll end with UBS’ Art Cashin’s wise conclusion to his morning note: “Thin markets are very tricky. Stay very nimble.”

Slow, lazy climb

Bigger-than-expected declines in initial weekly jobless claims and July trade deficit carry stocks for a while today, with Dow Industrials threatening early to reach into triple digits on the upside.

It continues to be what Art Cashin calls a “low-volume levitation,” which nearly succumbed to evaporation as bulls showed signs of afternoon fatigue. US stocks manage modest gains, but still unable to produce an upside breakout to really demoralize bears.

Materials sector ends as the only one in the red; financials, health-care and telecom lead, but conviction still seems MIA. DJIA rises 28.23 to 10415.24, and Nasdaq Comp adds 7.33 to 2236.20. S&P 500 ends 5.31 higher at 1104.18.

Look for more aimless, wandering action tomorrow (stalking the euro), as the only notable data release is July wholesale trade and inventories.

Stocks stage a modest rally as S&P 500 hovers around 11o0 yet again before closing at 1099. But the longer the index keeps lingering around that level, the more restless strategists are becoming.

The index crossed under 1100 in May and has essentially traded sideways since then and hasn’t shown any signs of breaking out of the trading range its been stuck in for months. And with 2010 about 3/4 over, a bunch of strategists have cut their year-end S&P 500 price targets.

Bespoke Investment Group cites Bloomberg’s weekly survey which shows strategists’ average target has dropped to 1205, about 20 points lower than the beginning of year. And five of 12 strategists surveyed have also lowered targets after boosting them earlier in 2010.

JPMorgan’s Thomas Lee and BofA’s David Bianco continue believing S&P 500 will end the year at 1300 by year’s end, while Deutche Bank’s Blinky Chadha is even more bullish, holding a 1375 target, which would represent a 25% jump from current levels.

S&P 500 at 1205 by year’s end would mark 10% gains from where it currently stands. Even that would be quite the run-up over the last quarter of the year, but maybe it’s not so far-fetched.

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