Morning Musings From Art Cashin

Submitted by UBS Financial Services

Greek Circus Continues To Control Markets In U.S. – Stocks began Thursday in the hole. The primary driver was, yet again, a weak Euro responding to twists and turns in the Greek crisis. There were reports of large draw-downs from Greek banks. Greek government bonds inverted with the two year bond trading at higher yield than the ten year.

In addition to the weight of the weak Euro, U.S. stocks were bothered by higher Initial

Unemployment Claims. Since, by name and definition, “initial” claims are new events, that meant there was an increase in the number of layoffs. Bulls tried to excuse the number, calling it a quirk caused by the Easter holiday (a bit odd twist, I think).

After the opening selloff, stocks began to regroup and edge higher. Again, it was a response to the Euro. This time the Euro was firming.

The turn in the Euro seemed to be a response to calming comments by Mr. Trichet of the ECB at a news conference. He said “default is not an issue for Greece”. Also, helping the Euro was a report from the Greek Finance Ministry citing a drop in the budget deficit.

In addition to the Euro firming, stocks bulls got help from glowing reports at retail stores, especially apparel. Bears countered that it was probably an “Easter Outfit” distortion. Bulls and TV pundits would have none of it. They proclaimed that the American consumer was back and spending.

The Euro firming continued into early afternoon, albeit in a somewhat muted fashion. Then the Euro and U.S. stocks reverted to mildly choppy sideways trading.

Around 2:45 p.m., the stock bulls made another try to juice up the rally. Their effort could not get back to Wednesday’s highs and the rally attempt sputtered into the close. A rather inconclusive session if you’re looking for forward guidance.

Beyond The Napkins – Advances Versus New Highs – Away from the usual cocktail napkin scrawling used by amateur technicians, they use some other tools. Two of them are tools also used by our more sophisticated and professional brethren.

One is an index of advances and declines. In simple hands it is just a gauge to tell how broad or narrow the action is. If the market goes up and advances swamp declines, the rally appears to be broad which is assumed to be synonymous with powerful.

Over the centuries, traders began to keep running tallies of some kind of advance/decline average. There are many variations. For example, some only use “common” stock excluding “preferreds”, “warrants” and other special vehicles. Like a handed down recipe, the user may put in a unique twist or spin on his, or her, version of an advance/decline index.

Twist or no twist however, they all share a basic comparison – advances to declines. As they evolved, some trader folklore became attached. One of the most prevalent is – “You can never have a major top if the advance/decline line is making new highs.

“Never” as you may have noted over the years, is a very dangerous word in a dynamic world. So, let me say that traders think it is very, very, very rare to make a major top while the advance/decline line is at, or making, new highs – and that’s where we are today. Ah, but if only life and the market were so simple.

Another tool we troglodyte technicians use frequently is new 52 week highs and new 52 week lows. More correctly, it is a comparison of the new highs or new lows to the market action. If the market is making higher highs, you hope that it is accompanied by succeedingly larger numbers of new highs.

Last year the market pointed toward its March lows by having fewer and fewer new lows on each selloff. It was getting “sold out” since fewer stocks were joining in the carnage.

In recent weeks, the number of new highs is shrinking with each higher rally. That divergence suggests a pullback may be at hand as it did in January.

So, the combined trader folklore says we may be set up for an imminent pullback but not a major selloff. Let’s see what happens.

Will China Stop Bidding On U.S. Bonds? Well, It Looks Like They’ve Stopped Bidding On Chinese Bonds – China tried to auction 20 billion Yuan in a nine month bill yesterday. They managed to sell only 15.8 billion worth. They also tried to auction 15 billion in a 90 bill but only got off 14.25 billion. Do you think that, just maybe, the bidders see a rate hike looming?

Cocktail Napkin Charting – In Thursday’s Comments, we said that the napkins saw S&P support around 1175/1178. Yesterday’s intra-day low was 1175.12. We’ll save that napkin. For today, the napkins show little change. They suggest support around 1172/1175. Resistance looks like 1194/1197.

In the Dow, traders say that the bulls need to defend 10,800 on any pullback. A break below that could reconfigure the napkins substantially. But, like Scarlett O’Hara, I’ll worry about that tomorrow.

Consensus – Greek crisis still festers but the big funding rollover deadline is still more than a month away. Nevertheless, stocks will dance to the Euro tune. Have a great weekend and stay very nimble.

Trivia Corner

Comments

[43 Steelie]

TD, how about the WalMart story? If that isn't the definition of deflation then I don't know what to tell you.

[juangrande]

Off topic but has anyone paid attention to the recent circuit court decision to slap down legislation designed to preserve "net neutrality". Bad news for sites like this one!

[AnonymousMonetarist]

He said “default is not an issue for Greece”

Well that's correct sir.

The issue is for the folks that Greece will default on dontchaknow.

Beware the Trojan Hoax!