Checking The ScoreboardAugust 16, 2012 @ 8:01 AM EST
Only in the stock market game can players ignore the scoreboard entirely by using arguments and statistics to create their own reality. For example, the Dow Jones Industrial Average is just 114 points (or 0.86%) from its high-water mark for the current bull market cycle. The S&P 500 is also less than 1% away from a new bull market high. And for those of you keeping score at home, the S&P is up +107% from its March 2009 low. Yet, the bulls still can't get any respect these days as the weapons of fear and uncertainty (as well as a little HFT-induced volatility) are employed on a daily basis by the bear camp in order to keep investors worrying about the next big whoosh down.
In all fairness, it hasn't exactly been smooth sailing for the bulls during the majority of this bull market. If you will recall, each of the last three summers has seen double digit declines as well as enough volatility to make even the most ardent bull's head spin. As such, I will agree that the game most certainly hasn't been easy.
However, a quick glance at the scoreboard should remind investors that things aren't all that bad right now either. The S&P 500 is up +11.76% on the year and the NASDAQ - thanks in no small part to AAPL - currently sports a gain of +16.76%. So, while the ride has certainly been a bit bumpy, I'm not sure I understand why the bears continue to pound the table about how terrible things are.
Our furry friends are quick to counter my statistics with arguments such as the market is only up on "hopium" and thus, has no business advancing. The glass-is-half-empty crowd also points to the idea that uncertainty reigns supreme at the present time in the areas of the Fed's next move, the ECB's plans, Germany's ruling on the constitutionality of the EU's bailout fund (the ESM) and the "Fiscal Compact," the U.S. election, the "fiscal cliff," the economy, China, and an oldie but a goodie - the European debt mess.
Even with the market only a modest buy program away from new highs and having moved largely sideways for the past 7-8 days, the bears refuse to relent. I'm told that stocks are "churning," that there is no volume, that the indices are overbought, that there is resistance overhead, that the upside momentum has vanished, and that stocks are in the process of forming a major top. And despite the fact that the indices have not pulled back in any way shape or form over that past 8 days, the perma-bear camp continues to pound the table and tell anyone who will listen that the end is nigh.
Sure, I understand that the bond market was clearly saying "No QE for you" yesterday as rates spiked higher in the U.S. And yes, I completely "get" the fact that if Super Mario can't deliver on his purported promise to buy enough Spanish and Italian bonds to drive rates down, then the market could easily get knocked around a bit. And I will also concur that if the German high court doesn't put their stamp of approval on the ESM/Fiscal Compact that things could get ugly. However, my response to such worries at this stage is to check the scoreboard.
To be sure, the stock market doesn't like surprises. So, if any nasty surprises crop up along the way to the election or the "fiscal cliff," I'm quite confident that the algo's will drive stock prices lower in a hurry. But according to the scoreboard, there doesn't seem to be too much worry about all of the potential land mines between here and Jan 1, 2013.
Remember, in the stock market game, something that everyone "knows" really isn't worth knowing as traders have likely already discounted the probability of an event taking place. And THIS is why surprises take such a heavy toll on the market when they occur. But at this stage, everybody on the planet knows far too much about the workings of the Eurozone, the ramifications of the fiscal cliff, etc., etc. Thus, I'm going to suggest that Ms. Market doesn't seem to be too terribly worried about any of that at the present time. I know, I know, things can change at the drop of a headline these days. But until they do, I think it is a good idea to glance up at the scoreboard every once in a while to see how the game is REALLY going.
Publishing Note: I am traveling again Fri-Mon (we are returning our youngest to her college campus). Thus the "Daily State" report will be published as time permits.
Turning to this morning... The snoozefest market seen in the U.S. has spread to Europe this morning. Other than Cisco's (CSCO) strong report and Wal-Mart's (WMT) shoulder-shrug, there just isn't much happening in the early going. U.S. futures are pointing modestly higher at this time but there is a lot of data on tap today.
On the Economic front... We'll get reports on Weekly Jobless Claims, Housing Starts and Building Permits, Bloomberg Consumer Comfort, and the Philly Fed Index this morning.
Thought for the day... "Surround yourself with the best people you can find, delegate authority, and dont interfere." - Ronald Reagan
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Wishing you green screens and all the best for a great day,
David D. Moenning
Chief Investment Strategist
Positions in stocks mentioned: none
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The opinions and forecasts expressed are those of David Moenning, founder of StateoftheMarkets.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this