Between Hope And Fear

Daily State of the Markets 
Friday Morning – July 15, 2011

Good morning. During times of uncertainty in the market, the major indices have a tendency to seek an equilibrium point between hope and fear. With so many big, bad events on the horizon, it appears that this is what is occurring at the present time. Yes, it is true that the market has either been down or acted badly for five straight sessions on the back of bad news and the fear of what could happen. And yes, the “action” has to be considered negative, which, if you are a tape watcher, means that there is likely to be more red numbers to come.

However, let’s not forget that the market had moved higher for the eight days prior on the hope that the worries relating to Greece and the U.S. economy were overblown. And in my office, the argument has been made to me that the eight straight up days “wasn’t a realistic assessment of the outlook either.”

So, in looking at the action since June 24th, I will submit that maybe, just maybe, the eight day “hope rally” was overdone and that the recent fear-based pullback has put us closer to a realistic equilibrium point given the current environment. As such, it would appear that we are now stuck smack in the middle between hope and fear.

The market action of Wednesday and Thursday has offered a fair amount of both emotions. First there was the hope (accompanied by a nice rally in stock prices) that Ben Bernanke’s testimony on Wednesday suggested that his FOMC crew was all set to start buying up every bond in sight again. But then on Thursday, Bernanke seemed to back away a bit from that stance. “The situation is more complex,” Bernanke told the Senate Banking Committee. “Inflation is higher…We are uncertain about the near-term developments in the economy.” Bernanke went on to say that the Fed would like to see if the economy picks up from here. And on the topic of the implementation of QE3, he said, “We are not prepared at this point to take further action.”

While we are of the mind that Bernanke’s clarification that QE3 is simply a possibility should the economy falter from here and that anyone getting the idea on Wednesday that the Fed was ready to embark on QE3 was guilty of hearing what they wanted to hear, the fast-money and their data-mining computers took the comments as a negative. And before you could blink, the sell programs had taken over.

So, for the third straight day, gains were given up and the end result felt awful and looked bad on the charts. However, if one can step away from the blinking screens and the minute-to-minute volatility, it becomes clear that prices are now smack in the middle of the current range. Or as I choose to see it, in between hope and fear.

How does one “play” such an environment? For starters, we need to understand that (a) it’s summer, (b) this is a news-driven environment, (c) the computers are in charge on an intraday basis, (d) computers don’t care about trendlines, support, or resistance, and (e) this too shall pass. Given this set of assumptions, we will suggest that perhaps the best way to deal with the violent moves is to pick a side and stick with it until the current range breaks one way or another. Or, as I like to say, this is the time to “Do nothing, absolutely nothing, until there is something to do.”

As for the idea of “picking sides,” personally, I think the European debt mess will continue to be an overhang on the market, but will not prove to be the disaster the bears fear. The longer the powers-that-be can drag this thing out, the more time the markets have to “deal” with the potential outcomes. Next, I think the economy will perk up and continue to grow, albeit at a frustratingly slow pace. And finally, I’m of the mind that the professional politicians in Washington may have gotten the message that screwing around with the debt ceiling is going to have VERY serious consequences. As such, I see the chance of a deal not getting done as quite small. But, then again, we are talking about Washington here and this is the same group that voted down TARP the first time…

Turning to this morning… Earnings from Google have put traders in a better mood and the numbers from Citi weren’t half bad. As such, the market mood is modestly upbeat in front of the EU stress test results, which are due out at noon eastern and this morning’s batch of economic data.

On the Economic front… The Consumer Price Index for June fell by -0.2%, which was below the consensus estimates for a drop of -0.1%. When you strip out food and energy, the so-called Core CPI came in with a gain of +0.3%, which was above the expectations for +0.2% but in line with May’s +0.3%

Next up, the Empire Manufacturing Index (designed to indicate the state of the manufacturing sector in the New York region) for July was reported at -3.76, which was below the consensus expectations for a reading of +3.9. The index was better than June reading of -7.79.

Thought for the day… Best of luck on this Friday and be sure to enjoy the weekend!

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell…

  • Major Foreign Markets: Australia: -0.41% Shanghai: +0.35% Hong Kong: -0.30% Japan: +0.39% France: -0.45% Germany: -0.33% London: -0.09%
  • Australia: -0.41%
  • Shanghai: +0.35%
  • Hong Kong: -0.30%
  • Japan: +0.39%
  • France: -0.45%
  • Germany: -0.33%
  • London: -0.09%
  • Crude Oil Futures: +$0.40 to $96.09
  • Gold: -$3.60 to $1585.70
  • Dollar: higher against the Yen Euro, and Pound
  • 10-Year Bond Yield: Currently trading at 2.948%
  • Stocks Futures Ahead of Open in U.S. (relative to fair value): S&P 500: +5.58 Dow Jones Industrial Average: +41 NASDAQ Composite: +22.59
  • S&P 500: +5.58
  • Dow Jones Industrial Average: +41
  • NASDAQ Composite: +22.59

Wall Street Research Summary


  • Verisign (VRSN) – Estimates increased at JPMorgan
  • Rock-Tenn (RKT) – JPMorgan
  • Tiffany & Company (TIF) – Estimates and target increased at Oppenheimer
  • Google (GOOG) – Target increased to $690 from $650 at Oppenheimer
  • UnitedHealth (UNH) – Estimates and target increased at UBS
  • VF Corp (VFC) – Target increased at UBS
  • DeVRY (DV) – UBS
  • SM Energy (SM) – Wells Fargo
  • PPD Inc (PPDI) – William Blair


  • Diamond Foods (DMND) – Deutsche Bank
  • Qlik Technologies (QLIK) – Jefferies
  • TeleCommunications Systems (TSYS) – JPMorgan
  • Petrohawk Energy (HK) – KeyBanc
  • FLIR Systems (FLIR) – Stephens
  • Altera (ALTR) – Mentioned cautiously at UBS

Yesterday’s Earnings After the Bell


Google GOOG $8.74 $7.84 JB Hunt Transportation JBHT $0.53 $0.53 

Earnings Before The Bell


Citi C $1.09 $0.96 First Horizon National FHN $0.16 $0.11 Mattell MAT $0.23 $0.16 

* Report includes items that make comparisons to the consensus estimate questionable

Long positions in stocks mentioned: None

For more of Mr. Moenning’s thoughts and research, visit


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