Market Talk

US stocks fluctuating between small gains and losses Wednesday as investors digest Japan’s move to halt the yen’s rise. But the indecisiveness continues a broader trend this week as investors haven’t shown much conviction for stocks in either direction.

Yesterday’s trading featured some puzzling relationships, Art Cashin at UBS noted in his morning note. Treasurys rallied, gold rose sharply — typically signs of moves to safety, but the dollar weakened. Meanwhile, stocks waffled between plus and minus territory throughout the day.

“By early afternoon, traders were looking at the tape like it was a Picasso painting,” Cashin said. “For equities, the net result was yet another low volume stall at the top of the trading range.”

Now, Cashin sees the market approaching a “very critical inflection point,” especially as S&P 500 stalled Tuesday right below the top of its three-month trading range for a second-straight day.

S&P 500 recently up 1.5 at 1123. Cashin said resistance could come in the range of 1129 to 1132, while support exists at the 1111 to 1113 level.

The indecisiveness over the last few days comes as stocks have steadily churned higher this month, gaining more than 5% in September, historically the market’s worst-performing month. But amid the run-up, market sentiment has been a bit schizophrenic, Yves Smith wrote on her “naked capitalism” blog.

From recovery optimism, to fears of the economy double-dipping back into recession, and back to a more positive outlook, investor mindset has widely shifted back and forth recently, she noted. The consensus now seems to believe August bearishness was overdone.

“The other shoe may be yet to drop,” Smith said. “But until then, institutional investors can’t afford to stay too far from the herd, and the herd hates to bet against growth for very long.”

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.”

- Nokia’s (NOK) adding its own twist to the Apple/Gizmodo iPhone 4 controversy earlier this year. Nokia’s getting Russian police involved in asking Eldar Murtazin, editor-in-chief of Moscow-based mobile-review.com, to return the prototype N8, a device he gave an unfavorable review earlier this year.

- “Investors have this week been buying up names that have been hit the hardest in recent months, which is usually the case when we see bounces like this,” Bespoke says.

- Banks and regulators must take “appropriate action” to strengthen banks’ resilience to shocks and safeguard the health of Europe’s financial system, ECB President Jean-Claude Trichet says.

- Whatever happened to all those toxic assets on banks’ balance sheets that garnered so much attention a while back?

- Jobless claims dropping 21,000 to 454,000 represents a “tactical victory for the bulls,” James Picerno writes at The Capital Spectator. “But until and if the trend rolls on it’s only marginally encouraging. The strategic outlook, in other words, is still up for grabs.”

- Silicon Alley Insider says the real reason Google (GOOG) is worried about Facebook is that people buying things are more inclined to trust their friends than strangers or search ads. SAI says that’s the key message in a presentation prepared by Google researcher Paul Adams for company execs who are plotting the company’s next social network initiative, rumored to be called “Google Me.”

- Individual investors are turning more bearish, which contrarians could actually view as a bullish indicator. Only 25% of AAII’s respondents are bullish on stocks, compared to 42% who say they are bears. “I always prefer actual buy and sell driven data — prices, volume, asset allocation, etc. — versus mere surveys,” Big Picture blogger Barry Ritholtz says. “They can be useful, but have huge limitations. Us humans are notorious for saying what we hope, rather than what actually is.”

- Double-dip has dominated the market chatter in recent days. While pundits keep saying the economy won’t fall back into a recession, Reuters’ David Gaffen isn’t so sure. “It may not happen — but when a lot of people are trying to convince you that something’s not going to happen, it can make you believe that it’s more likely than not.”

- The commercial real estate market hasn’t collapsed because of a strategy known as “extend and pretend,” essentially banks giving troubled borrowers time to make good on their bets until the economy recovers. “Sometimes, it actually works. But, usually it doesn’t — especially when practiced on an industry-wide scale,” Henry Blodget writes at Business Insider.

- The LeBron James surreality show is about to begin. He’s “leaning” toward Miami, but we still have faith he’s coming to the Big Apple. Let the “LeBronference” begin.

- Big Picture blogger Barry Ritholtz wonders if the crowd can accurately predict a double-dip recession. He reminds there have only been three double-dip recessions during last 150 years and just one (1980-82) in post-war era. “When was the last time the crowd correctly forecast an ordinary recession?” he asks. “Given this track record, why should we believe they can forecast a double dip recession?”

- “The American political class will have to face up to the new reality of a semi-permanent slump for a decade or more that will blight a great number of lives,” Ambrose Evans-Pritchard writes at the Telegraph. “The cyclical recovery that normally makes it possible for most Americans to find a job if they want one is not going to happen this time because the overhang of debt, fiscal tightening, and a liquidity trap have combined to jam the mechanism.”

- Eric Jackson, founder and president of Ironfire Capital, has some advice for Microsoft (MSFT) CEO Steve Ballmer: run the software giant like a bank. “Not a modern basket-case bank with improper capital levels and a stack of bad loans,” writes Jackson, who acknowledges he’s long MSFT. “[Ballmer] should run Microsoft like an old-fashioned bank that expanded conservatively and paid out a fat dividend attracting lots of widows and orphans.”

- Paul Krugman says he’s not surprised that corporations are reluctant to spend, while hoarding tons of cash. “With huge excess capacity, why invest in building even more capacity,” he says. Time to put that cash to good use.

- The debate over whether the economy needs a second stimulus package just won’t go away. Add Goldman Sachs chief economist Jan Hatzius to the growing group of stimulus advocates who believe more help is needed.

- Baltic Dry Index drops for a 29th straight session, its longest losing streak in more than six years, and no one seems to care. This a story that might otherwise make front-page headlines, but “it appears there are some growing concerns about [the index's] usefulness today versus its usefulness say two years ago,” FT Alphaville says. “And it’s all down to shipping supply.”

- Stock market’s recent swoon off the late-April highs shows the market’s “beginning to take a path of fear rather than traversing the path of fundamentals,” writes Doug Kass of Seabreeze Partners. “My baseline expectation is that, despite the hyperbolic dire market warnings and the admittedly poor price action in the markets around the world, the domestic economy is simply decelerating from a V-shaped recovery toward moderate expansion.”

- Netflix trades for more than 40 times this year’s earnings, which prompted Crossing Wall Street blogger Eddy Elfenbein to call it “the absolute worst stock to buy” back in April, when it traded at $87. He didn’t exactly have the best timing, it’s risen since then and today jumped 10% to $118.49. Nevertheless, he’s not changing his tune. “I still think Netflix is wildly overpriced. Only now, it’s even more so.”

- Bearish sentiment this week jumped to the highest level since July 2009, Bespoke Investment Group reports, citing the Investors Intelligence weekly survey of adviser sentiment. Ironic, especially since the S&P 500 rose more than 3% today, its third-biggest gain of the year.

- LeBron’s decision is about 24 hours away. Ochocinco and current NBA player Jared Dudley believe he’s going to the Knicks. Here’s to hoping King James makes the concrete jungle his new home.

- China better have right intentions regarding its pledge for a stronger yuan. “The probability of a disastrous trade war will skyrocket if Congress believes they have been the victim of a classic bait and switch,” Tim Duy writes.

- “Adjustment in China and America will be slow, but that’s not unexpected or entirely a bad thing,” Ryan Avent notes at The Economist’s Free Exchange blog. “And the best news of all is that America and China have managed to arrive at this point without a major diplomatic fall-out.”

- Obama administration’s housing market stabilization efforts are yielding mixed results. Calculated Risk has the details.

- Digital music is a tough business to profit from, but MediaMemo blogger Peter Kafka says it still makes perfect sense for Google (GOOG) to jump in. A music store would enhance Android as well as give GOOG an “owned and operated destination” for music traffic. “My suggestion: Start simple. Copy iTunes’ pay-per-song model.”

- The fact that the “normally bank-friendly” Fed is pressing big banks to move faster in curbing risky pay practices is a step in the right direction, Yves Smith writes at naked capitalism. “Given [the Fed's] track record, I would not be terribly optimistic, but then again, I am surprised it has gone even this far. It would be great if it surprised me again.”

- May existing home sales dropped 2.2% to a 5.66M annual rate, well below the 5% rise to a 6.06M rate that economists were expecting. “We see more evidence that the next leg down in housing has begun,” Barry Ritholtz writes at The Big Picture.

- Investor sentiment can be a funny thing. “You couldn’t find a bull two weeks and eight percent ago but voila, as soon as the 200-day was captured and S&P 1115 traded underfoot, the equity enthusiasm was palpable, as evidenced by the recent collapse in volatility,” Todd Harrison says at Minyanville. “That’s the fatal flaw of technical analysis, right? Financial assets are ‘better’ higher and ‘worse’ lower, which is why I use them as a risk context rather than a catalyst.”

- Business Insider blogger Henry Blodget goes a bit sensationalistic in a recent post entitled “The Odds Are Increasing That Microsoft’s Business Will Collapse.” But in reality, Microsoft (MSFT) faces a “simple and less flashy situation,” BoomTown blogger Kara Swisher says.

- Looking for the important aspects to today’s existing home sales report? “The key is the inventory and months-of-supply, and if these two measures increase later this year as I expect, then there will be additional downward pressure on house prices,” Calculated Risk says.

- The IPO market never really made a comeback from the tech bubble a decade ago, and it’s telling that Facebook, Twitter and LinkedIn — some of the most successful tech companies right now — keep pushing off filing an IPO as long as possible, Eric Schoenfeld writes at TechCrunch.

- “It’s looking like more individual investors just can’t stand being on the sidelines anymore as the stock market continues to rally,” Tom Petruno writes.

- Bullish sentiment is on the rise in recent weeks. But keep in mind “as quick as [investors] have been to embrace rallies, they have been just as quick to abandon them,” Bespoke says.

- As good as recent economic data has been, high unemployment levels should keep investors “very hesitant to erupt in full-throated rejoicing at the turnaround in the American economy,” Free Exchange says.

- Is Newsweek’s cover story touting the economy’s “remarkable turnaround” a contrary indicator, or just plain contrary?

- Europe appears to be heading down a slippery slope.

- Initial jobless claims jumping for a second consecutive week shows the labor market hasn’t quite joined the recovery fiesta.

- Yesterday’s strong retail sales report shows the consumer is finally showing real signs of life. “Even a relative pessimist like me has to admit that recent trends look pretty good,” Tim Duy writes.

- Requiring commercial banks to separate derivatives operations from commercial banking activities looks nice on paper, but Yves Smith at naked capitalism remains skeptical it will solve the systemic risk posed by OTC businesses.

- AAR reports rail traffic rose 7.5% in March compared to a year earlier, which Calculated Risk notes is the first year-over-year increase since July 2008. Sure, it’s a step in the right direction, but recovery in rail traffic still has a long way to go.

- Harbinger Capital discloses it’s purchased 16M shares of Palm. “Somebody, somewhere is going to buy Palm. And they’ll end up paying more for it than the market thinks it’s worth today. That’s the thinking behind hedge fund Harbinger Capital’s bet,” Peter Kafka says.

- Here’s a new one. Obama administration approaches Microsoft (MSFT) about creating a video game about balancing US budget. Erskine Bowles, leader of Obama’s 18-member budget-balancing commission, says the game “would enable anyone with a computer to take a stab at balancing the budget” and would definitely “go viral.”

- Google (GOOG) dumped from China Unicom’s (CHU) Android devices. “An obvious and, I suppose, inevitable response to Google’s recent defiance of the Chinese government,” John Paczkowski says. “I imagine we’ll be hearing of a similar move by China Mobile in the near future.”

- “The mortgage mods and foreclosure abatement programs are really all about propping up insolvent banking institutions,” Barry Ritholtz writes. “These programs are another losing round of helping Wall Street at the expense of Main Street. It is the worst kind of trickle down economics that has been seen in decades.”

- Bernanke says record-low interest rates still needed to support the economy, but the central bank has to be ready to tighten credit when needed to prevent inflation. His comments helped propel stocks higher. Then ECB President Jean-Claude Trichet said IMF help for debt-strapped Greece would be bad, really bad, which helped push stocks way off the fresh highs they set earlier in the session.

- If you thought 2009 was bad for newspapers, 2010 may be even worse, Newsosaur blogger Alan Mutter says. “If the rate of decay continues to slow in 2010, the industry will shrink at a slower pace than it did last year. But it still will continue to shrink. And declining shrinkage should not be taken as a sign of health.”

- Venture-backed IPOs might be making a comeback. Four non-biotech venture-backed deals have occurred this year, and all have performed fairly well, Paul Kedrosky notes. “Admittedly, four data points aren’t yet much of a trend, but it’s worth pointing we are seeing the beginnings of a resurgence in the venture-backed IPO market in 2010.”

- It may be a lost decade for some buy-and-hold investors, but keep in mind “some investing rules never go out of style,” Tom Petruno writes. “Try to buy good businesses, try to get them when they’re relatively cheap, and don’t underestimate the power of dividend income over time. And the cardinal rule: Stay well-diversified.”

- Tepid revenue growth won’t placate market much longer. “If we don’t start seeing a pick-up in top-line growth this market is not going to be celebrating for long and the recent optimism in stocks will be proven wrong,” Pragmatic Capitalist says.

- Once again, another weak Treasury auction today. Hard to pinpoint exactly what’s causing it, “but something has changed this week in the US Treasury market and the cost of borrowing is going up as it is in Europe too,” Peter Boocvkar says.

- The Dow Jones Internet Index, which last got any press back when pets.com was still around, surpassed its pre-Lehman levels last summer, and is marching higher and now making a run at its highs from 2007, Bespoke notes.

- AAII’s sentiment survey shows percentage of respondents who expect the market to rise has dropped two weeks in a row, even as stocks keep setting fresh highs. “This is not typical,” Jason Goepfert writes.

- Deflationary winds kicking up? Core CPI slips into negative territory for first time since 1982. “It’s hard to overlook the fat that negative monthly readings for this data series are extraordinary rare,” James Picerno says. “For the sake of economic stability, let’s hope it stays that way.”

- With Goldman Sachs’ (GS) image under attack, spokesman Lucas van Praag’s tough talk has only served to “alienate potential allies and enablers in the press and project a supercilious institutional arrogance which only serves to confirm the unflattering portrayals offered up by the firm’s detractors,” the Epicurean Dealmaker blog says.

- “High volatility in sentiment is a clear sign of utter confusion on the part of market participants and creates a landscape that is ripe for dramatic moves in either direction,” the Pragmatic Capitalist writes.

- Fed’s discount rate hike has more to do with technical reasons than a policy shift, former Dallas Fed president Bob McTeer says.

- Barclays scooped up a lot of talent throughout the financial crisis, according to LinkedIn data.

- Matt Taibbi’s latest account of the financial crisis misses one key point that no one wants to talk about: we could be in a depression without government intervention, Andrew Leonard writes. Still, reflecting on current bank profits, banks’ resistance to regulation and inability of government to do anything about it, “I’m beginning to come around to the view that maybe it would have been more effective to just blow everything up and start all over.”

- Deal activity has gotten off to a sluggish start in 2010, but investment bankers remain busy keeping up with secondary offerings, DealBook reports.

- Bottom line to this economy recovery is job growth. “The good news is Washington is working on it,” S&P’s Howard Silverblatt says. “The bad news is Washington is working on it.”

- Record bank profits may be tough to come by as the Fed starts raising rates.

- Tiger made the world stop from 11:00 to 11:15 this morning. How’d he do? Bill Simmons says the press conference was “a borderline train wreck.”

-It only took two weeks and a 6% pullback in the stock market, but more newsletter writers are looking for a correction than at any other time since 1984, Bespoke reports, citing data from Investors Intelligence.

- A Kauffman Foundation survey of economic bloggers found what many already expected: we share a bleak economic view. “While [bloggers] individually express themselves virtually every day, we think their collective voice needs to be heard,” says Tim Kane, senior fellow at Kauffman and author of the study.

- Time Inc says 4Q subscription revenue down 6% from year ago and ad sales dropped 12%. Not great, but better than 3Q, when the declines were worse in each category. “Requisite caveat here: These numbers…are being compared to really terrible numbers from the previous year,” Peter Kafka says. “So the fact that Time Inc can’t show actual growth tells you that this is still an industry with really big problems.”

- Strategic defaults on mortgages gaining steam. “The longer the real estate bust continues, the more deeply underwater borrowers will think hard about the costs of upholding their side of a deal,” Yves Smith notes.

- A dandy revenue comeback? Not quite. Year-over-year revenue growth “leaves much to be desired,” Pragmatic Capitalist says, as revenue ex financials is up just 3%. “Not exactly a barn burner in top-line growth,” blog says. “And this is in comparison to the very weak 4Q08 when the economy was nearly lifeless.”

- AOL’s 4Q ad and subscription revenue fell. “Again, recall that these numbers are against miserable comps from a year ago, when advertisers and publishers just sat in the dark with towels over their heads, crying,” Kafka notes. CEO Tim Armstrong certainly has his work cut out for him.

- ADP says only 22,000 private-sector jobs were lost in January, the smallest decline since February 2008. “The less-bad theme continues,” says Miller Tabak equity strategist Peter Boockvar.

- The “Volcker Rule” is looking more “toothless” by the day.

- US Transportation Secretary Ray LaHood says he wants to talk directly with Toyota’s CEO about vehicle-safety concerns and the company’s handling of those issues.

- AIG”s ignoring its critics and still moving forward with plans to accelerate bonuses to employees of its financial products division.

- From Geithner’s hearing to the FOMC statement and Obama’s State of the Union address tonight, politics seem to be overshadowing fundamentals in the markets these days. “If there ever was a day that encapsulates the new economic world we live in, it is today,” says Miller Tabak’s Peter Boocvkar.

- Recent data from Investor’s Intelligence show a 23% one-week drop in bullish sentiment. “Declining sentiment from high levels tends to be bearish for the market, not bullish,” Jason Goepfert writes at Sentiment’s Edge blog.

- Tablet day – what else can we say. Here’s the Journal’s recap. But one thing Steve Jobs didn’t show off today: much in the way of new media, MediaMemo blogger Peter Kafka says.

- Matt Taibbi weighs in on populism. The man needs no introduction, just go read it.

- Turbo Tim defends AIG bailout.

- Hoenig: the lone dissenter.

- “The dollar seems be benefiting from the ever so slightest of hints that the Fed might be prepared to take tiny, baby steps towards tightening,” Grainne McCarthy writes at MarketBeat.

- Toyota dealers say they are trying to operate normally a day after automaker decided to halt sales and production of eight models because of safety concerns.

- At Davos, global business leaders warned Western governments that a populist crackdown on the financial industry could crimp this fragile recovery.

- NYT’s Room For Debate blog has an excellent discussion about Ben Bernanke and whether he should be confirmed for a second term as Fed chairman. Yves Smith says he doesn’t deserve another term after being a “major architect” of the worst crisis since the Great Depression. But Tyler Cowan says it would be a mistake if populist outrage prevented Bernanke from getting confirmed.