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Explaining the bumpy stock market

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Shannon Stapleton/Reuters/File

(Read caption) The Nasdaq Composite stock market index is seen inside their studios at Times Square in New York in this 2011 file photo.Brown argues that the roller coaster performance of US stocks in 2012 can be attributed to a variety of factors, including a recovering housing market and financial instability in Europe.

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Stocks get pulled higher today on a combination of dovish comments out of China (I know), a big M&A deal in industrial conglomerates (Eaton for Cooper Inds) and a lack of horrific Euro headlines overnight.  And they were due for a bounce after 13 down days in the last 15 for the Dow.

There is a Push-n-Pull thing happening with US equities here that is very difficult to deal with on an intraday basis but makes a lot of sense when viewed from a further back perspective.  It's never easy stepping back from the quotes on whatever we're trading to look at the big picture.  But it's become a skill that I've become determined to learn these past five years.  I will probably still be learning it a year from now, ten years from now and forever.

Anyway...

The Push lower comes from:

1.  A rapidly deteriorating sitch in peripheral Europe

2. A looming recession for core Europe based on all of the latest readings

3. A slow-mo bank run (bank jog?) that some feel portends a credit freeze if it spreads

4. Awful macro data from China when seasonally-adjusted and put together from various sources (Beijing PMI, HSBC Flash PMI, real estate metrics, available credit, commodity consumption/warehousing etc)

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5. Second derivative slowing in US housing / jobs data (still growing but growing at a softer pace)

6. Corporate earnings peak fears (last quarter's beat rate dropped from 72% to 59% as the season wore on, guidance was meh)

7.  JPMorgan, Chesapeake, Yahoo, Facebook and other individual stories serving to tamp down on enthusiasm for equities in general, the combined effect is multiple compression

8.  Technicals are shot, key sectors/ indices broken, Dow Theory sell signal with trannies and industrials confirming the drop

The Pull higher comes from:

1.  Stocks are hated

2.  Stocks are not especially expensive

3.  Bonds are over-loved and totally unproductive for investment capital given current yields

4.  The Fed and the White House both want the stock market higher, the Fed will reach into its bag of tricks again

5.  We are out of crisis mode on unemployment and housing/foreclosures

6.  Euro leaders desperate enough to pull another shock-and-awe announcement out of their asses any minute (aka Tapebombing)

7.  Everyone's leaning the same way (wait-and-see mode)

8.  The market is here to frustrate me and I am lightly invested

So there you have it, your guide to the push-n-pull currently underway.

Enjoy your summer.


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