Market Talk

To say the stock market is jittery is an understatement. We watched the Dow drop about 100 points in a matter of minutes after those headlines from the EU’s energy commissioner. But keep in mind that, technically speaking, despite all the fear, this is still a minor moderate correction. The only problem for the bulls is that it still plenty of room to run, and a stream of dire news feeding it.

Dow Jones Newswires’ columnist Tomi Kilgore penned the following two missives this morning:

While there’s still nothing technical to suggest the current weakness is anything more than a short-term pullback, there’s also no indication that it is about to end. Bottoms are usually characterized by higher intraday lows rather than positive closes, and today’s low in the S&P 500 (1260.79) was below yesterday’s (1261.12). The lowest intraday lows at the market bottoms in March 2009 (667) and July 2010 (1011) were hit the day before the lowest closes (677 and 1023, respectively). Basically, as long as bears can make downside progress on an intraday basis, they have no reason to turn bullish.

And consider this…

The DJIA’s recent ability to bounce sharply off its intraday lows may seem encouraging for bulls, but it’s not really paying off even for those lucky enough to buy at those lows. In the previous three trading sessions, the DJIA has closed more than 100 points above the respective intraday lows. Today, the DJIA is down 109 at 11746, or 85 points above the low (11661). Despite the intraday resilience, the DJIA has lost a total of 239 points in four sessions, and is now 151 points below Monday’s low (11897). Basically, the “buy on dips” strategy isn’t working for anyone but day traders.

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As if to illustrate our post this morning, and to illustrate just how jittery the market is, and to painfully illustrate just how dangerous the situation in Japan is still, the news late this morning out of Europe, regarding the nuclear crisis in Japan, drove every asset into an immediate nosedive (or in the case of the safe havens, a sharp spike higher.)

The latest news roiling the markets is about Japan, but it isn’t actually coming from Japan. Rather, the EU’s commissioner for energy, Guenther Oettinger, told a European Parliament committee “the site is effectively out of control.” This reiterated the same comments reported in two UK papers, the Telegraph and Daily Mail.

Look at the pictures in the Mail’s story; I have a more comprehensive grasp of just how bad the damage is after seeing them. They are sobering. There have been reports that those 50 people who’ve been — heroically — trying to save the plant had to be evacuated temporarily, and you wonder how long they can stay there.

The Dow dropped as much as 190 points in a matter of minutes. It bounced back to about down just 100, and is currently down around 170. All this underscores the fact that the market is a rough place to be right now, especially if you’ve been hooked by the Street’s usual sunny pronouncements.

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US stocks fall amid the continuing Japanese crisis, but the indexes come far off the morning’s steep plunge after the stream of dire headlines eases off, and the FOMC holds its hand steady on the tiller. That seemed to calm some folks.

The unfolding horrors in Japan send investors across the globe scrambling, although as always there are others investors looking to profit from the race for the exits. Without a stream of dire headlines in the afternoon, those investors came back to the market.

DJIA loses 138 (1.2%) to 11855, after falling nearly 300 points in the first five minutes of trading; Dow’s now down about 4% from February highs. S&P 500 drops 15 (1.1%) to 1282, Nasdaq Comp loses 34 (1.3%) to 2667. Commodities sell-off sharply across the board, while Treasurys rise.

The last time the Dow dropped that sharply at the open was Oct. 24, 2008, when it lost 504 points in the first five minutes. The index finished that day down 3.6%, losing 312 points.

Look, the Japanese are still just trying to figure out just how bad things really are, forget about planning for a rebuilding effort, and the fallacy of expecting that to be a good thing was exposed by George Melloan on the op-ed page of today’s Journal:

As the great 19th-century economist Frederic Bastiat taught in the “fallacy of the broken window,” the GDP growth that comes from reconstruction brings no net gain in society’s wealth. It just replaces, over time, what was lost. “Destruction is not profitable,” he wrote.

It’s going to take a long time, a very long time, for the Japanese just to get back to where they were last Thursday.

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Talk about timing. John, George and I were literally standing at the set, talking about Cisco’s earnings, when the first headlines started crossing about Mubarak stepping down. If we’d have taped five minutes earlier, we would’ve missed it, and I’d be cursing up a blue streak.

The market has a lot internally to deal with, but you wonder if the bulls will just grab onto the Mubarak news and force yet another rally.

(Incidentally, holy cow do I look small next to those two guys. Somebody get me an apple box.)

US stocks fall for a second straight session, amid a sell-off of stocks overseas and riskier assets like gold and oil.

The moves for the two big indexes, the Dow and the S&P 500, were minor, but for other indexes, they were more severe. DJIA eases just 2 to 11823, after falling as much as 80 points during the day, and S&P 500 loses 2 to 1280. But the Nasdaq Comp drops 21 (0.8%) to 2704, and the Russell 2000 loses another 1.1%, after falling 2.6% yesterday. The Dow Transports drop another 1%, on top of yesterday’s 1.8% slide.

So the relative strength of the blue chips is masking a deeper sell-off that can be seen elsewhere.

Crude futures fall more than 2%, to below $90/barrel. Gold fell, and even Treasurys got shellacked.

As for the new flow today, jobless claims dropped, and home sales rose, but the numbers aren’t enough to break a growing perception that a correction is on its way. Throw in fears that China’s economy may be hot despite efforts to cool it off, and well, you’ve got your correction cocktail.

Google just reported earnings, and it had a surprise for the market: not the number, which once again blew Street estimates out of the water, but the news that co-founded Larry Page is taking over as CEO from Eric Schmidt, who’s been in that seat since 2001. The news is of course presented and painted amicably enough, but we can’t but think the whole thing is rooted in something a little less friendly.

The major indexes, the Dow and S&P 500, have been dancing near some big, round numbers lately: 12000 for the former and 1300 for the latter. Seems they’re dancing away from them now, and everybody’s dog-piling on the idea that a sell-off is here.

First, you’ll get the “healthy” sell-off crowd opining. This crew says, rightly, that stocks can’t go up in a straight line, and at some point they need to pull back. They’re right, to a point. The market doesn’t ever go up in a straight line. It does always “pause.” Those pauses, though, always lead to the question is it more than a quote-unquote pause.

A correction of 10% shouldn’t be unthinkable, given that the S&P 500 rose about 22% from the August lows to 1296 a few days ago. A correction of 20% will start to make people sweat. I have some trouble imagining a big, big sell-off, given that the Fed is still pumping $80 billion or so into the marketplace every month. But, you know, interest rates were supposed to fall, too.

Dennis Gartman, who writes the popular Gartman Letter, doesn’t mince words in his commentary today: a sell-off’s coming:

A correction…perhaps a rather serious one…has begun. It shall not require much to take the S&P, for example, down from just under 1300 to just over 1200 over the course of the next several weeks, but that is very likely what we shall see happen.

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US stocks overall drop sharply, as the pullback many have been predicting appears to be arriving, even though the blue chips held up relatively well. While the slide doesn’t look so bad viewed through the prism of the blue chips, it’s looking decidedly worse in some of the other indexes.

Yes, stocks are overdue for a pullback. Yes, this might be it.

DJIA drops only 13 to 11825, but S&P 500 falls 13 (1%) to 1282, biggest one-day drop since Nov. 23; Nasdaq Comp loses 40 (1.5%) to 2725. DJ Transports lose 1.8%, breaking uptrend line going back to August lows. Others indexes suffer as well; S&P 600 drops 2.2%. Russell 2000 drops 2.6%.

Financials get hit hard, after Goldman’s disappointing earnings; Wells Fargo, others also reported as well. Housing starts take a big dive, a worrying sign for such a critical part of the economy.

Treasurys conversely rally, with the 10-year yield lately down to 3.34%. Meanwhile, euro has another roller coaster session, rising and falling seemingly on every new comment out of an officials’ mouth. Common currency rises above $1.35 before easing into the $1.34 range.

We’ve been among the crowd pointing to the bond sell-off as a potential sign of something bigger. David Kotok of Cumberland Advisors is also among that crowd. But whereas our concern has been the bond vigilantes lashing out against Washington profligacy, his main point is that the rise in bond yields isn’t solely a U.S. happening.

It isn’t necessarily being driven by inflation either, he notes. But what is sure is that investors are moving out of sovereign debt and exhibiting a herd mentality and going into stocks and commodities. I’m not sure exactly where that puts us; seems stocks and commodities were having something of a run before the recent bond sell-off. Still, the idea the there’s a global move out of bonds is important.

Via The Big Picture:

First and foremost, let’s be clear. This bond market riot is a global phenomenon. US-centric observers are blaming the rise of the benchmark ten-year Treasury note yield on an inflation-risk scare or on Fed money printing with QE2 (quantitative easing round 2) or on expanded deficits because of the tax-cut extensions. These observers are missing the boat.

This is global. Look at this chart (http://www.cumber.com/content/special/G4.pdf) on Cumberland’s website in the Special Reports section. The title is “Charts for Bond Herd Commentary.” In chart one we have rebased the yields of the four key global currency benchmark ten-year notes. We start at the low yield day of October 12. Since then the upward movement in yields has been correlated worldwide. We pick the four big denominations of debt, the yen, pound, dollar, and euro. Together they define the overwhelming majority of world capital markets.

This correlated movement suggests that the selling is coming from a reallocation of assets in large indexed global funds. They are moving monies out of the highest-grade sovereign debt bonds and into other sectors. We have now confirmed this with several large portfolios. We infer from our anecdotal evidence that there are many others doing the same thing. Their reasons for acting may be different but their actions constitute a herd mentality in this sector of high-grade sovereign debt.

Barry Ritholtz, over at The Big Picture, seems be getting a lot of the Zero Hedge traffic these days. Because, he says, he’s been getting hit over the head with emails from readers bashing him for not bashing the market:

A composite of their emails would read something like this: “How can you sit there so blithely while the Fed debases the world’s reserve currency? Why haven’t you commented on POMO?!? The entire game is rigged, and your just another @%$# salesman for Wall Street!”

Ritholtz argues, quite rationally, that his primary job is money management, and right now, there are obvious reasons to be in the stock market. (The biggest one is spelled F-E-D.) While he expects a correction of some sort, he chastises the doubters. “The folks who missed an 85%  generational run up in equities will pound their chests and say “See, we told you so!” And they will have made absolutely no money in the process.”

Do you want to be right, he asks, or do you want to make money?

Of course, some of those doubters undoubtedly got out before the crash, and lost absolutely no money in the process. In fact, depending upon what they actually did with their money after pulling it out of stocks, they may have even made money, while the vast majority were getting taken to the cleaners. Comedy, as Steve Martin said, is all about ti-ming.

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If there really is a bond bubble, it just got bigger.

US stocks under pressure even before an awful housing report, which only exacerbates the feeling that the economy is sliding back into the drink. Existing-home sales post a record drop, exacerbating concerns about the economy. That just turns up the heat some more for the Fed, which is confabbing this week out in Wyoming.

DJIA loses 134 (1.3%) to 10040, although it importantly holds after dipping under 10000. For how long is now the question. S&P 500 falls 15 (1.5%) to 1052, importantly holding at 1050. Nasdaq Comp loses 36 (1.7%) to 2124. Consequently, Treasurys rise, with 10-year yield hitting 2.49% and two-year hitting record low.

Stocks fell sharply in the morning, with the Dow slipping under 10000 to 9991 at one point. The S&P 500 got as low as 1047. At that point, the sell-off could have turned into a real rout, because while 10000 is merely psychological, the area between 1050-1056 on the S&P has some technical significance. Even while it held 1050, falling under 1056 is technically significant. That number represents a 61.8% retracement (a key percentage in Fibonacci circles) of the rally from the July 1 low of 1011 to the Aug. 9 high of 1129, our colleague Tomi Kilgore reported this morning. “That suggests a full retracement of the July rally is likely,” he wrote.

So expect more selling pressure, especially with that Friday double-whammy of the GDP revision and Bernanke’s Wyoming speech on tap. But, you know, bonds are in a bubble.