Market Talk

Didn’t have much time to lift my head up to take a look around at what’s happening in the world today, but here’s a few things that caught my eye.

- NY Fed President Bill Dudley in comments today said enough bad stuff about the economy in order to justify continuing the Fed’s $600 billion bond-buying escapade, and enough good stuff about the economy to encourage bulls and performance chasers to keep buying stocks. Here’s a couple of examples of headlines showing the Fed trying to have its cake and eat it too:

Fed’s Dudley: Current Economic Situation ‘Unsatisfactory’
Fed’s Dudley: US Economic Situation Is ‘Considerably Brighter’

To Dudley’s credit, he did say the drop in January’s unemployment rate was “not an unmitigated positive,” as fewer people were actually out looking for jobs.

- Story on the top of WSJ today — “Mideast Unrest Spreads” — didn’t exactly spook stock markets. Perhaps it should. There’s a certain complacency about the events in Egypt that seems a bit mystifying, as if everyone’s convinced this transition from 30-year dictatorship to well-heeled democracy will be smooth as silk. The DJIA is up about 2.4% since the protests began on Jan 25, while the S&P 500 is up 3.2%. Hardly missed a beat. Meanwhile, protests flared in Iran, Algeria, Bahrain, Yemen and Jordan and it’s hard to imagine there’s a lot of pro-US sentiment swirling amid the Middle East upheaval.

Like Europe’s sovereign debt problems, this thing is only on simmer now, but could easily heat to a rapid boil at any time. Continue reading…

Stock futures slightly higher premarket as bulls look to bounce back from a rough week. Markets mixed in Asia overnight, edging higher currently in Europe, with the euro recovering a bit from earlier
lows.

USD index up 0.5%, Treasurys taking an early beating, perhaps on word that Republican lawmakers are trying to persuade the Fed to halt QE2 plans. Busy week for data, this morning brings Oct retail sales, and NY Fed’s Nov Empire State manufacturing survey at 8:30am ET. Sept business inventories set for 10:00am.

Also a lot of retailers reporting quarterly results this week, including Lowe’s this morning; Wal-Mart, Home Depot and Abercrombie & Fitch tomorrow. S&P futures up 3.70; 10-yr note hit hard, yield at 2.83%.

David Stockman, former OMB director under Ronald Reagan, had some spirited comments on the Fed’s QE2 gambit during a Bloomberg TV interview yesterday, well worth a watch. He finishes with a flourish by saying the central bank is “injecting high-grade monetary heroin into the financial system of the world, and one of these days it is going to kill the patient.”

Hat tip to Art Cashin’s daily morning comment for heads up on the Stockman interview.

GMO’s Jeremy Grantham continues to be among the most coherent, rational and entertaining voices commenting on US markets and the economy. His latest quarterly piece is the usual must-read, titled “Night of the Living Fed.” Here’s a little taste:

In almost every respect, adhering to a policy of low rates, employing quantitative easing, deliberately stimulating asset prices, ignoring the consequences of bubbles breaking, and displaying a complete refusal to learn from experience has left Fed policy as a large net negative to the production of a healthy, stable economy with strong employment.

Enjoy the rest here.

- The 10-year yield has fallen 40 bps during the past month, James Hamilton notes at Econbrowser. “If you wanted to attribute all of this to expectations of QE2, and if you were assuming that $400 billion in long-term bond purchases could lower the rate about 13 basis points, you might think the market has already discounted some $1.2 trillion in additional large-scale asset purchases,” he says. “All of which raises the interesting possibility that if the Fed were to announce in November another trillion in purchases, nothing would happen, because the market has already discounted it.”

- “The fact that an IMF meeting ended with the participants unable to feign a narrowing of differences on the currency front is further evidence that positions are hardening,” Yves Smith writes at naked capitalism.

- Bank stocks no longer driving this rally. “That old adage of ‘as financials go, so goes the market’ — I don’t think that’s tru this time,” said John Lynch, chief equity strategist at Wells Fargo Funds management Group.

- Next-gen 4G mobile phone systems promise faster speeds and better audio. Various US carriers have already promised to roll the new technology out within the next couple of years, but Apple (AAPL) will wait until the technology is more mature before adding it to the iPhone, according to TechCrunch. Instead, the blog speculates that AAPL will release phones next year that are compatible with many more carrier networks using different technologies.

- The Reformed Broker blogger Josh Brown channels his inner Alanis Morrisette as he discusses Dow 11000. “When I consider the state of the market rally, I can only think to myself, ‘Isn’t it ironic, don’t ya think?’”

- Piper Jaffray’s Gene Munster tells Silicon Alley Insider that tablets built with Google’s (GOOG) Android software will provide some “very stiff competition” to Apple’s (AAPL) iPad. While Apple will probably ship about 20M-25M iPads next year, Munster says “ultimately we think that Apple won’t have the majority of the (tablet) market share. It’ll probably be with Android-based tablets.”

- “The biggest problem with TARP is that the other portions of the response were so poorly crafted,” the Economist’s Free Exchange blog says. “And the legacy of that underperformance — a weak American recovery alongside continued wealth on Wall Street — is what continues to give political TARP-bashing its potency.”

- Southwest (LUV) announces it’s ending its eight-year tenure as the “official airline” of the NBA after the two sides couldn’t agree on an extension. Farewell then to Slam Dunk One, a specially painted plane that marked the partnership which is now destined for a new color scheme. “With our tough financial climate and limited resources, we had to make the tough decision to say goodbye to one of our dear friends and partners, and both sides agree — we’ll miss each other!” gushes Southwest’s blog.

- Big Picture blogger Barry Ritholtz says America needs an intervention. “The credit crisis and now foreclosure debacle have revealed to anyone who cares to look what we have sought to ignore: That the past decade has been based on a set of fundamental beliefs that are intrinsically false,” he says. “The sooner we stop kidding ourselves, the sooner we can move forward with more productive honest economic lives.”

- Jets-Vikings: the hyperbole bowl, WSJ’s Jason Gay writes.

- AIG and Treasury reportedly discussing an accelerated sale of the government’s stake. WSJ reports Treasury’s likely to convert $49B in AIG preferred shares to common and gradually sell its stake.

- “In case you lost track of this sorry affair, AIG, the biggest ward of the state in human history, continues to get the kid glove treatment,” Yves Smith writes at naked capitalism. “Funny, isn’t it, how creative and accommodating the Treasury can be when dealing with large distressed firms, and its skill seems to evaporate when contending with underwater homeowners.”

- This is not a typical stock picker’s market. Far from it. Since the May 6 “flash crash,” correlation of S&P 500 stocks to the overall index has reached its highest level since the 1987 crash. “The stock market has turned into a schizophrenic herd of sheep,” the Pragmatic Capitalism blog says. “Currently, the herd is grazing happily with not a care in the world. But don’t be fooled — when something spooks them you’ll get trampled if you don’t run with them.”

- Retail sales rise for second straight month and the 0.4% rise in August is the highest percentage gain since March. “If we look at the monthly trend of late, there’s an upside bias,” James Picerno writes at The Capital Spectator. “It’s hardly definitive or strong enough to close the book on worries, but considering what might have been it’s okay and more than welcome.”

- Microsoft’s (MSFT) Bing has overtaken Yahoo (YHOO) as the No. 2 search engine in the US, at least according to Nielsen’s August report. Firm says Bing had 13.9% search share last month, compared to Yahoo’s 13.1%. This will “will surely cause a firestorm of controversy in the search arena today,” Kara Swisher says at All Things D. Regardless, Google (GOOG) still dominates as it holds 65.8% of search, up 0.9% month-over-month and 0.5% from a year earlier.

- The outcome from Basel III has been critiqued left and right, but Reuters blogger Felix Salmon finds some positives, calling Basel III a “quiet victory” and saying the banking restraints are fairly constructive. “The Basel committees did a masterful job of depoliticizing the process as much as possible,” he says. “If politicians and the media had got involved, that might have made the process more democratic, but it would also have made it much more chaotic and quite possibly would have derailed any chance of an agreement at all.”

- Couch potatoes rejoice! Google TV, the new Internet television product Google (GOOG) is rolling out, will hit stores in the middle of October, possibly on Oct. 17, Engadget reports. Citing an internal memo from Best Buy (BBY), the blog says BBY had originally planned to begin selling Google TV on Oct. 3 but the launch has been pushed back by two weeks.

- Investors who try to time the market may be better off sticking with a buy-and-hold strategy. Barry Ritholtz posts a chart at The Big Picture looking at how investors would do if they bought the S&P 500 in 1993 and how their performance would be dictated if they missed the 10 best days or avoided the 10 worst days.

- Rimarkable blog wonders why the BlackBerry Curve 3G doesn’t run on BlackBerry 6 out of the box. Research In Motion (RIMM) says BlackBerry 6 will be available for the Curve 3G upon network certification in the coming months. And RIMM notes the device, which will sell initially through Verizon Wireless, is BlackBerry 6 ready. But for now, it will run on BlackBerry 5, prompting Rimarkable to wonder why RIM would release a device with an “old deprecated OS” a month after the debut of its next-generation operating system.

- Rafael Nadal finally solves New York. Congrats Rafa.

John Hussman once again hit the nail on the head in his weekly commentary, telling investors to stay cautious after last week’s run-up.

It is premature to interpret last week’s somewhat benign data as an ‘all clear’ signal for the economy.

He couldn’t have predicted it better, especially as the Dow dropped 107 points, or 1%, to 10341, snapping a four-day winning streak. The decline, which comes on the heels of last week’s 2.9% gain, occurs amid fresh concerns across the pond.

A WSJ analysis questioned Europe’s recent stress tests of the major banks, saying the tests understated some lenders’ holdings of potentially risky government debt. And a bigger-than-expected drop in German manufacturing orders in July also didn’t help matters.

“The end of the US summer holiday period is upon us, and with it, a return to reality,” Yves Smith writes at naked capitalism. “The markets are again concerned re Eurobanks, as the fears registered in EU periphery country bond spreads are now registering with investors in other markets.”

Whether that means the market is poised for another leg down is way premature. For the most part, market observers were convinced that today’s decline was just a pause after last week’s big gains following better-than-expected jobs and manufacturing data.

And, as WSJ’s Matt Phillips points out, today’s anemic trading volume shows the “summer slumber” is still in effect, even if Labor Day has come and gone. Low-volume moves in either direction often don’t signal much conviction.

“I think the market was due for some kind of consolidation and any excuse would’ve worked,” said Bruce Bittles, chief investment strategist at Robert W. Baird. “Today’s decline is more a result of the market going too far too quickly last week.”

Investors have kicked September off on a strong note. But significant technical resistance, as well as fundamental negativity, continues to plague S&P 500 at current levels.

From a technical perspective, it’s tough to make a bullish case for the broader market right now, even after yesterday’s run-up, according to Bespoke Investment Group. Firm notes the S&P 500 is currently sitting just above its 50-day moving average. But it’s still lingering too close for comfort as it hasn’t been able to significantly shoot higher all morning.

“The 50-day acted as a point of resistance (yesterday) that just couldn’t quite be broken,” Bespoke says. “For those hoping that the upside momentum will continue, it will be important to see a close above the 50-day in the next couple of days.”

S&P 500 was recently up 5 at 1086, with the 50-day at about 1080.

Continue reading…

All the chatter about a second Hindenburg Omen sighting in a week proved to be just a bunch of hot air.

Some blogs and traders were abuzz that the Hindenburg Omen, a technical indicator that foreshadows a stock-market crash, had been triggered yet again on Thursday. But based on criteria provided by the Omen’s creator, Jim Miekka, the speculation has proven to be false.

According to Miekka, both the number of 52-week highs and 52-week lows on the New York Stock Exchange must be more than 2.5% of the issues traded to satisfy one of the Omen’s criteria. Many reports have incorrectly stated issues traded need to surpass a 2.2% threshold.

For Thursday, there were 137 new NYSE highs, or 4.33% of the 3,163 issues traded, according to WSJ’s market data group. But there were only 69 new lows, which is 2.18% of issues traded. Consequently, all those fearful Hindenburg Omen watchers can rest safely, at lease for a day.

On August 12, the indicator was tripped, leading Miekka to believe the market is poised for a meltdown in September. It only takes one instance to foreshadow a stock-market crash, but from a psychological standpoint, multiple occurrences certainly don’t bode well.

Crisis averted, for now.

But where the market heads from here is anyone’s guess. As trading volume dwindles in the dog days of summer, the stock market is showing little conviction in either direction, which leads investors to grasp to anything that will offer clues about the market’s next direction. Hence, all the attention this week surrounding the Hindeburg Omen.

But from a fundamental point of view, it seems that investors are in a “pause and reflection” phase as they contemplate the economic landscape as well as the market’s valuation, says strategist John Stoltzfus of Ticonderoga Securities.

“At least for now, expectations of a Q4 mid-term election year rally appear to be waning while philosopher kings and pragmatists butt heads in Washington but proffer no solutions for the markets to consider as prospects of yet another jobless recovery loom,” Stolzfus says.

DJIA was recently down 96 at 10175; S&P 500 was off 9 at 1067.

(Tomi Kilgore contributed to this post.)

How about that Hindenburg Omen?

The story that Tomi and I wrote last week, and Paul discussed on the blog over the weekend, is still generating a ton of chatter on the web, in the newsroom and on trading floors. Heck, this Huffington Post pickup has more than 1,100 comments on it.

The tone among readers is definitely mixed. Some are intrigued about the indicator and understand that it’s something to keep in their back of their heads as they assess the stock market’s prospects. Others are completely outraged that we’d write such a story, with some claiming its merely sensationalist drivel.

But I think the main takeaway from all the attention and scrutiny of our piece is people are on edge, plain and simple. Investors are worried, panicked if you will, about what’s coming next.

There’s a heightened sense of uncertainty swirling throughout the stock market during the last few weeks. Yes, I know, nothing is ever certain about the market. But these times seem especially dicey, especially after the weaker-than-expected 2Q GDP report, a disappointing July jobs report and a less-than-stellar assessment of the economy from Fed Chairman Ben Bernanke. Consumer spending is way down, the labor market is still a mess, retail sales aren’t close to fully recovering, the housing market can’t find its way and small businesses are more pessimistic than ever.

How about this for a sign of the times? When you search “double dip” on Google, the famous Seinfeld scene is no longer the top response. Instead, you find increasing chatter about the economy double-dipping back into recession.

Continue reading…