Daily State of the Markets

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Moving On

Good Morning. I continue to get questions as the reason behind the current run for the roses in the stock market. What about Greece, they ask. Aren't there huge problems with the bailout deal that was finally arranged on Tuesday? What if the private bond holders don't go along with the debt swap? Isn't there a risk that the Germans won't approve the deal? And won't we eventually see a default? What about the rest of Europe? And what about those big problems in Portugal? And on and on and...

Unfortunately, the answers to the questions make those asking them even more befuddled. Yes, there are problems with the bailout deal. Yes, there is a risk that the private bond holders might just walk away after taking it in the shorts yet again. Yes, there is the risk that the Germans and Fins may vote no when asked to approve the money for Greece's bailout loans. And yes, there are other debt bombs lurking in Europe and all over the world, for that matter.

Lessons Learned, Strategies Employed

Good Morning. One of the great things about the stock market game is that it is always changing. Just about the time your ego tells you that you've got the game licked - boom - the game changes completely. One minute you may be on top of the world calling every wiggle and giggle in the market perfectly and the next, well, you're wondering why on earth your account is red when the market is sporting a big green number.

And although I've said this a time or twenty over the past few years, THIS is why I prefer a systems-driven approach over the subjective, manager discretion approach to managing the market.

Good Things Can Happen

Good Morning. During the majority of last year, it seemed that all (yes ALL) the news was bad. Greece was surely going to default, which was going to trigger vast unknown quantities of CDS, which, this time, would tank the global banking system, which, in turn, would send us back to the middle ages bartering for goods and services with grains and livestock, and protecting our homes with guns. In a nutshell, the news flow and the macro outlook was a nightmare as no one could imagine anything positive ever happening again.

As I recall, even if Greece was somehow spared and a "messy default" avoided, the domino effect from the rest of the PIGIS would take over and the world as we know it would cease to exist. And if by some off chance the defaults could be avoided in Europe, then the recessions resulting from the mess this crisis had created would surely plunge even the best economies of the world into something that would make the Great Depression in the U.S. look like a cake walk.

Time To Panic Again?

Good Morning. After running up more than 12% since the December 19th low, stocks did something that while common last fall has been rare lately - they went down in an ugly fashion. With futures spiking higher in the pre-market on word that China was still planning on lending a hand to Europe eventually (at the right price, of course), it looked like it was going to be just another day at the office for the bulls. European bourses were up more than 1%, Asian markets had enjoyed strong gains, and our stock futures were sporting a bright shade of green.

But unfortunately, the expected breakout to the upside, a move that might have caused every last one of the bears to finally throw in the towel during this options expiration week, didn't happen. Instead word that the EU finance ministers were now talking about changing their tune with Greece caused the bears to sit up and take notice. In short, the guys who control the purse strings in Europe said yesterday that they may want to wait until after the April elections to let go of that €130 billion in bailout loans. This so that they might be able to hold the feet of the new leaders to the fire in terms of sticking to the deal. Needless to say, this caused anyone who has been watching this saga to roll their eyes and perhaps even throw up their hands.

Greece Is (Stilll) The Word

Good Morning. As we look back on the seventh consecutive session of the current sideways-is-the-new-down market, it becomes clear that Greece is still the word. While I was secretly hoping that we could finally be done paying attention to absolutely everything that is uttered by politicians on the other side of the Atlantic, yesterday's session made it clear that this is simply not the case. Yep, Greece still matters whether we like it or not.

As I've opined recently, it appears that except during last-minute negotiations that appear to be at a fever pitch, the stock market has been able to "move on" from the European debt mess and spend at least a little time focusing on the stuff the used to matter the most such as the U.S. Economy, earnings, valuations, interest rates, etc. But, each and every time a deadline comes (and/or goes) traders return to the game they now know all too well. And when this happens, suddenly it's all about the euro again.

It's Called Accumulation

Good Morning. The stock market has confused and confounded a great many investors so far in 2012. While the macro negatives are seemingly monumental and there are no easy answers available, the S&P 500 index is up +7.5% so far in 2012, +12.1% from the December 19th low, +16.7% from the November 25th low, and nearly +23% from the October 3rd low. This action has the bears crying foul and has left lots of folks scratching their heads.

Given that I have a call with some investors later this morning and I know I'll be asked to explain why the market doesn't seem to make sense, I decided I'd best put together my explanation for this seemingly counterintuitive action. So, while I'm sure I'll get some hoots and hollers from the bear camp regarding the remainder of this morning's missive, here's my view on why stocks are doing their best Energizer Bunny imitation right now.

Who Can Best Predict The Economy?

Good Morning. In light of the fact that the current stock market seems to be all about the macro outlook, it would be logical to assume that investors will need to get the economy right if they are going to be correctly positioned this year from a big-picture perspective. While this is most definitely not the approach I take to investing in the market (and no, I am not going to go off on another rant this morning), a great many investors do utilize such a macro-based strategy.

So, the question for this morning's meandering missive is who does the best job at predicting the economy? Should we put our faith in the forecasts of professional economists? After all, this group does seem to make their living making such calls. Or how about the Federal Reserve? Logic would suggest that the FOMC may contain some of the best minds in the country. Or should we just listen to the stock market?

It's Sooo Tempting...

Good Morning. When the market does something confounding, such as rally for the better part of eight straight weeks in the face of an ongoing crisis, it is soooo tempting to form an opinion of the action and to base your investing strategy on that opinion. For example, one of my colleagues pinged me yesterday with a note saying "This rally is suspect, I don't believe in it." My response was short and straight to the point, "I don't judge market moves, I just try to stay in tune with them."

I know that I've been touching on my particular, opinion-agnostic approach to the markets a lot lately. But I continue to be surprised at the number of investment professionals that I come in contact with who can't just enjoy the ride. Instead, there are soooo many folks who feel the need to take a stand and to "make a call."

Where's The Volume?

Good Morning. One of the bear camp's big gripes about the current rally - other than the idea that it came out of nowhere and caught the nattering nabobs of negativism flat footed, of course - is that fact that volume has been lacking. As any chartist worth their salt will affirm, a market doesn't need volume to fall but a strong, sustainable rally should be accompanied by increasing volume.

In short, rising prices being accompanied by rising volume represents strong demand. As such, our furry friends contend that the current joyride to the upside isn't long for the world.

Is It Time To Buy and...?

Good Morning. Although our models told us to hop back on the long side of the market six weeks ago, there are a great many investors out there - individuals and professionals alike - that have missed the current rally. For example, I personally know three investors who make their living in the market that have been either short or entirely in cash during the current joyride to the upside.

In light of the fact that I live in a glass house so to speak, I am most definitely not going to be tossing any stones aroung this morning. No, my first point is that this rally was an easy one to miss as the volatility in the market prior to the start of the rally had been insane and the macro backdrop was nothing short of ugly. Thus, there were plenty of reasons to avoid stocks at the end of last year.

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