June 13, 2007 Stock Market Recap

First, a quick note -- I'm taking tomorrow and Friday off in celebration of options expiration so there won't be any watchlists. The next recap will likely be over the weekend.

As I said this morning to a friend over IM after the Dow had been up over 100 points and then gave back 50 points: "This market is insane!" Today was almost the mirror image of yesterday only the morning reversal didn't carry the market back to the flatline. While *everything* was down yesterday, *everything* was up today. It was the release of the Beige Book at 2 PM that really got things cooking. Here's an intraday shot of the S&P over the last week showing a lot of back & forth (aka confusion) between 1495 to 1515:

I liked what Worden had to say in tonight's report (emphasis is mine):

From New York to San Francisco

The economy doesn't unfold in daily starts, skids, twists and stops. The stock market doesn't try to put itself together by recapitulating the lurches and jerks that come with every economic report.

But isn't that what the market seems to be doing? YES.

Well, what should it do?

The market is a discounting mechanism. It divines the future. It doesn't get suckered by every new rumor and report. It solves the meaning of news somewhere in the future.

How far in the future? We never know that. We can only guess.

Isn't that what the market is doing? Guessing?

Yes, and its guesses are not always right. But the truth is that it is a much better guesser than any of us are. If you laid approximately 2.25 million economists out head to foot, they would stretch approximately from New York to San Francisco. Their consensus opinions on the economy wouldn't hold a candle to the market's guesses.

What is the market guessing right now?

That is the right question. The market has stopped guessing and instead is letting itself get yanked around by a superabundance of self-contradictory news releases.

Is that supposed to be something new?

No, it isn't. This is an extreme case. But there is no doubt that the market has lost its feel for where the economy is heading. Yesterday was an extremely weak day. Today was an extremely strong day. Was the market right yesterday? Or was it right today?

[SNIP]

Today's market was somewhat stronger than yesterday's market was weak. All of the Important Averages were up over one percent. All of the Breadth Groupings were Super-Decisively positive.

But it's not a done deal. We need more follow through before we can trust what is happening. Only the Dow had a volume increase on today's rise.

[SNIP]

We still have the CPI and PPI coming out this week. It remains to be seen what kind of dance the market will choose. Maybe it will be a war dance, maybe an Irish jig.

Since the market is always right I'd say it was right both yesterday and today. :-)

Here's a chart of the 10 Year Treasury Note Yield. I thought I'd post this since it's these 10-year rates that are driving the action right now. These rates have gone nearl parabolic this month.

Utilities bounced with the drop in rates today: