Market Commentary

Stocks surged the most in one day since May
July 08, 2010

Stocks surged the most in one day since May extending their two day rebound from a 10 month low.  The catalyst for yesterday’s advance was the report from the International Council of Shopping Centers stating sales are growing at the fastest pace since 2006.  This news coupled with increased optimism about second quarter earnings and speculation that many of Europe’s banks will pass their stress test added further impetus for the advance. Is this advance sustainable?

As penned many times and as per Bloomberg/CNBC/Dow Jones approximately 82% of the volume is the result of algorithmic trading.   Did quantitative trading impact the markets yesterday, but this time in a positive manner?

I have commented about the dichotomy in the markets.  Market sentiment is extremely dour, partially predicated by the plunge in prices over the last sixty days and the unending stream of bad news.  On the other hand earnings and growth estimates are rising.

Based upon equity prices expectations are low that profits will match estimates.  However to the best of my knowledge there has been no high profile earning warnings.  In fact profit estimates are actually rising.

Regarding growth, consensus is projecting the economy to expand by 3.2% during 2010.  If this projection is correct, the economy would have to expand by an average of 3.4% for the next three quarters the greatest three quarter consecutive growth rate since 2003.

I ask who is right…analysts or market sentiment?

I have commented many times all are very scared from the events of fall 2008/winter 2009 living in utter fear there will be a rehash of those horrific events.  All must remember markets are people and people move markets.  Fear in more powerful than greed, fearing more of the unknown than the known.

Against this backdrop I believe the odds are greater than 75% the averages can advance close to April’s highs.  Expect the unexpected.

Unfortunately only history will tell me if I am right.   If I am correct and if positioned appropriately, considerable profits can be made.  Unfortunately if I and the analyst community are wrong, further equity losses could occur.

Last night the foreign markets were up. London was up 1.35%, Paris up 1.23% and Frankfurt up 0.43%.  Japan was up 2.76% and Hang Sang up 0.97%.

The Dow should open should open flat, digesting yesterday’s gains with all wondering whether or this advance is sustainable or just a proverbial head fake. The 10-year is off 2/32 to yield 2.99%.