Wednesday, December 6, 2006

12/6/2006 - Morning Market Comment

Our Neutral stance on the stock market is a reflection of caution over the ongoing low volatility readings. Low $VIX readings have often been followed by times of trouble for the market. In explaining our neutral stance in recent blog entries we have warned that shorting, or betting against the market would be a mistake, and indeed the rises of the past couple of the days for the broader market have put shorts squarely on the defensive. With a respite in dollar selling this week, benign economic data, and end of year fund buying - the direction has been up for the stock market. Yesterday on more than one occasion the NYSE tick popped above +1,000 indicating broad based buying. With all the liquidity sloshing around as evidenced by the remaining FED M gauges, the stock market could rally hundreds more points for all we know. We're neutral because the risks are also growing that the whole shooting match could quickly come grinding to a halt - probably sometime next year. When I hear the word "bullish", I think of my friend Ralph Acampora and the hey days of the 1990s... this isn't the 1990s and I don't feel that kind of bullishness... that's why I use the word 'neutral' even as the market continues to rise going into the end of the year.

This morning, stock futures are modestly lower with some buzz over the ADP employment index showing job creation of 158,000; the market is expecting the government's non farm payrolls report to show a jobs creation gain of only 110k gain. ADP has in the past been out of sync with the government data, but the dollar bulls are playing it up, pushing the Euro lower by 61 ticks; which is enabling further technical retesting in gold down at the $640 level.

YHOO did what amounted to a management reshuffle of the deck chairs and that’s how Wall Street is reacting this morning with a 10-cent dip in the stock. Google (GOOG) is up about $1.

If there's one group to pay attention to with respect to how the economy is faring, it's the railroads. When John Snow was Treasury Secretary he often recalled how when he was CEO of CSX he knew the economy was falling off a cliff in 2000 by the sudden slump in rail carload activity. This morning Merrill Lynch downgraded Burlington Northern (BNI) and Canadian National (CNI), citing attained stock price targets and anticipating weaker volumes on a weaker economy in 2007. Rail carloads and intermodal traffic is something I watch very closely and thus far the numbers have been looking pretty good, especially on the coal side.

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