Morning Musings From Art Cashin

Via UBS Financial Markets

Intel Anticipation Conquers Currency Concerns – Slightly – The stock market limped through the morning while currencies churned as more confusion arose about the Greek data. Opponents in Germany threatened a court challenge on the constitutionality of the German participation.

As the afternoon wore on, currency pressure abated. That’s when the “Intel Anticipation” seemed to kick in.

With Intel set to report earnings after the close, Nasdaq began to move higher. Some thought it might be short covering in front of the expected better earnings. If so, it was a bit muted. Traders thought it looked more like both longs and shorts “setting up” in front of the number.

The late bounce allowed the Dow to close above 11,000 for the second straight day. The S&P continued to struggle trying to get to 1200 (see Napkins below). Overall, it appeared to be another float to a plus close. This rally has put in an incredible string of those. While the bulls can’t quite be called exuberant, they are certainly consistent. Walter Murphy points out that “up days” this year have occurred 64% of the time versus the norm which is closed to 50%

Traders wonder if the 64% is akin to a long string of “heads” in a coin flip. At some point, we revert to a string of “tails” to return to a 50/50 split. Maybe this time it’s different.

The Little Guy Doesn’t See Daylight – The National Federation of Independent Businesses (NFIB) issued its March survey Tuesday morning. Optimism in the small business community fell again. It dropped to a nine month low of 86.8. The last time it was at this level was April of 2009 (one month after the great March rally began).

Businesses of this size produce more than half the GDP and provide nearly 70% of the private sector jobs. To put the pessimism level in perspective, in the three prior recessions, the index always bottomed out above 90 (2000/2001 – 96.3; 1990/1991 – 91.4; and 1981/1982 – 94.4).

Virtually all of the component sectors fell – employment, job openings, wages, sales, capital expenditures, earnings and credit conditions. For every company planning to raise prices, three were cutting prices. Deflation, anyone?

Here’s a bit from a Bloomberg piece on this topic:

Usually we see the small businesses leading the way out since they’re the first ones to see the consumer come back, but what’s happened this time is the consumer didn’t come back,” William Dunkelberg, the group’s chief economist, said today in a Bloomberg Radio interview. While purchases have increased, “there’s not enough sales to go around to make the whole population of small businesses very healthy,” he said.

The article also homed in on lagging sales:

The measure of earnings expectations showed the biggest decline in March, falling 4 points to minus 43 percent. Thirty- four percent of respondents cited “poor sales” as the top business concern, the same as in February, and the net percent of owners projecting higher sales, adjusting for inflation, fell to minus 3 percent.

The cause for concern is that, as Dunkelberg notes, this index is not a lagging or even coincident indicator. As Mr. D. points out, “Usually we see small businesses leading the way out……” There seems to be a disconnect here. It certainly bears watching.

Cocktail Napkin Charting – In Tuesday’s Comments, we said the napkins suggested resistance in the S&P looked like 1199/1202. The high on the index was 1199.04. So, for the second day in a row, the S&P failed to make the one foot putt to 1200.

While the S&P did close at a higher high, as did the Dow, the S&P’s intra-day high was lower than Mondays. (A mild divergence.)

Additionally, Robert McHugh points out that the VIX has given one of its rather rare sell signals. That occurs when the VIX  falls below the bottom of its Bollinger Band (two standard deviations) and then returns into the middle of the Bollinger Band. That occurred yesterday.

I wrote about this the last time it happened (Comments, January 12/13). That, pretty much, marked the beginning of the January/February pullback. We’ll see if it has any impact this time.

In addition to the failure of the S&P to pierce 1200 for the second day, Tuesday had some other anomalies. The breadth (advance/decline) was basically even but volume was negative 2 to 1. Some of that may have been from huge selling in the low priced “lottery ticket” stocks.

For today, the napkins see S&P resistance at 1201/1204. Support looks like 1185/1188 with fallback at 1178/1182.

Overnight – Singapore shocked Forex markets by revaluing its currency upward. Some wondered if the move was a signal of an imminent move in the Yuan by China. Others think it was a stand alone action. We’ll watch how markets react to the move to see which side of the debate is favored.

Today – Mortgage apps fell. Pre-opening, we’ll see Retail Sales and CPI. Then there’ll be lots of Fedspeak, including testimony from Bernanke. At 2:00, the Fed Tan Book will be pored over seeking clues on the status of the economy.

Consensus – The bulls still have the ball but seem to be tiring. They need an upside breakout in high volume to rally the troops. Failure to breakout could suggest, at least, a consolidation. Stay very nimble.

Trivia Corner

Today’s Question - Little Simple Shoo and his cronies had just settled in to watch the opening day baseball game when someone lost the bottle opener. The mood turned ugly so Shoo posed the following problem – What is the lowest (fewest) number of pitches a pitcher can throw in a regulation ballgame (no rain outs, extra innings, just regulation). There are two possible answers but only one is fewest. Can you help quiet the crowd with an answer?


On this day in 1614, the union of the New World and the Old World may have held its greatest promise. Forget about Columbus, cannibals, conquistadors, and communicable diseases! Forget about Pilgrims, Plymouth, Puritans, Punishment, Poxes and Plagues!

Instead, think about boys and girls, and about courting, bonding and blossoming. For it was on this day that the Princess Pocahontas (under native Americans in your program) married a young planter named John Rolfe (under settlers in your program).

As you may recall from an earlier episode, said Pocahontas had previously saved the life of Captain John Smith (under adventurers-rescued in your program).

Anyway, the marriage went very well for two years until "the Virginia Company" needed help. The Virginia Company owned and ran the Jamestown Plantation where the young couple lived. But returns were not good and the stockholders (under London citizens in your program) wished to put the company into bankruptcy.

Even nearly 400 years ago it was evident that if you don't have earnings you need a gimmick. So the Virginia Company (sans earnings) sent Pocahontas (unique Indian Princess gimmick) to London. It worked well for everybody (except Pocahontas who caught pneumonia in the London Fog and died). Nonetheless the stock went up and investment (and emigration) increased.

To mark the date of the union, stop by the Wigwam Inn and have some Redeye until your scalp hurts. And think what America would be like if Pocahontas had lived. (Footnote - A person claiming be one of her descendents once served as a Director of the NYSE.)

Traders apparently had lots of reservations about the markets Tuesday. In the end, they leaned a little to the up side.


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