There are few times I can recall over the years when the stock market was as predictable as it is today. The morning rally and the Monday Melt-up have become trademarks of the current rally in stocks. Today was no different as investors initially sold the market in the morning, but quickly became buyers as the morning rally took control. This market has been a day traders dream. The predictability of the moves is almost unprecedented. Not to mention the fact that there is practically no downside risk. Down days over the last 40 sessions have averaged a meager 0.2% and depending on which index we are talking about, there have only been a handful of them to begin with.
It’s now quite evident that investors are running into earnings season with the hope that the rally will continue after, what we have predicted for several months, will be another quarter of “better than expected” earnings. Whether there will be anyone left to buy at that point is looking less and less likely. If I had to venture a guess I would say that institutions will be sellers of the news on earnings as they have been over the last few earnings seasons. That probably means the rally is more than long in the tooth. I haven’t been unhedged and fully bearish since 2007 & 2008. I have not one single long position and that’s an usual spot to find myself in. Though I am still constructive on the economic performance of H1 (and perhaps as far as Q3) the market appears to be discounting an awful lot in my opinion and that makes it highly susceptible to downside risks.
Today’s move was similar to the majority of the days over the last 40 sessions. Volume was very light, every dip was bought and most importantly, the market finished higher.
From Daily Futures:
U.S. Economy
The U.S. Labor Department said that jobless claims were up 18,000 last week to 460,000, more than expected.
The U.S. Treasury sold $13 billion of 30-year T-bonds at a median yield of 4.73% with an impressive bid-to-cover ratio of 2.73. The June U.S. T-bonds were down 9/32nds at 115.13/32nds.
Grains and Cotton
The USDA said that, as of last week, 2009-2010 exports of:
Corn fell from up 8% to up 7% from a year ago.
Soybeans fell from up 34% to up 33% from a year ago.
Wheat improved from down 21% to down 20% from a year ago.
Cotton improved from down 18% to down 17% from a year ago.
May cotton fell 2.38 cents to 78.60, the lowest close in seven weeks.
In addition, net sales of corn totaled 1.36 million metric tons last week, up 64% from the previous week. May corn closed down 8.25 cents at $3.482 ahead of tomorrow’s monthly USDA estimates.
The USDA said today that 126,000 tons of U.S. wheat were sold to unknown destinations. July wheat was down 7.25 cents at $4.815.
Today’s USDA Drought Monitor map shows that most pockets of dryness this spring are west of the Rocky Mountains.
Livestock
The USDA said that net sales of beef totaled 13,000 tons last week, up from 7,500 tons the previous week. June cattle were down .42 at 94.32.
Orange juice
May orange juice closed down 3.85 cents to $1.2650, the lowest in over four months, backing down from January’s freeze concerns.
Energies
The U.S. Department of Energy said that underground supplies of natural gas were up 31 billion cubic feet last week to 1.669 trillion cubic feet. Supplies are now down slightly from a year ago. June natural gas closed down 10.3 cents at $4.006.
Currencies
Australia’s unemployment rate stayed at 5.3% in March with a net gain of 19,600 jobs, roughly as expected. The June Australian dollar closed up .10 at 92.22.
Eurostat said that retail sales in the EU-27 were unchanged in February and down .7% from a year ago. Also, the European Central Bank kept its interest rate unchanged at 1.0%, as expected.
Will Greece default on its bonds? The lack of details of Europe’s support for Greece is keeping the question alive and pressure on the euro. The June euro ended down .0021 at 1.3351.
The U.K.’s Office for National Statistics said that its manufacturing index was up 1.3% in February and up 1.4% from a year ago, better than expected. Also, the Bank of England kept its interest rate unchanged at .50%, as expected.
Japan’s Cabinet Office said that machinery orders were down 5.4% in February, much weaker than expected.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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