Wild Wednesday Morning

Why is it always Wednesday's that the market changes direction?

You would think that the market reacts to news and events and international money flows that ignore arbitrary delineations like the day of the week yet Monday's we get mergers or other announcements that boost the markets, if that doesn't work we end up with "Terrible Tuesdays", as often as not it's "Which Way Wednesday" (followed by "Wild Wednesday Wrap-Ups"), then a themeless Thursday and, by Friday we are generally exhausted.

To some extent that probably mirrors the work experience in many offices and, when you come right down to it, investing is a Monday to Friday job just like any other so I suppose the key is to accept the fact that even the Carl Icahns of the World come to work rested on Monday, are buried and confused by Wednesday and take a long lunch on Friday and get out the door by 3 to beat the shore traffic. 

Let's keep in mind when we are investing that market psychology is a very real factor and I cannot recommend more highly the great work of our friend, Dr. Brett Steenbarger, in this field.  I know it's Wednesday but, if you do have any free time, browse a few of these classic articles from the good doctor.  This is not a "plug," we have a lot of new members who would really benefit from expanding their reading list beyond the financial pages and I think this is an excellent place to start.  Now, back to the financial pages!

As it's Wednesday and I'm buried already we're going to do some housecleaning with a single paragraph market report:  Asia was mixed as India plunged 8% and bounced 6% as Bombay tightened financial controls, Hong Kong was, of course, up 344 and the Nikkei continued down 182.  Europe started mixed but improved into lunch and the BOE voted to hold rates steady, supporting the dollar and we have good earnings from MO, JPM and UTX so the Dow should get a nice kick-start this morning despite $87 oil.

On the economic front: Today we will, as usual, pretend the CPI is unreal and the "Core CPI" is real as it reflects the true picture for all the non-eating, non-energy consuming citizens.  Housing Starts and Building Permits have high expectations (1.3M) and I don't see it happening but a big upside surprise if we beat it.  Crude is at 10:30 and we're due for a build and we get the Beige Book at 2, so no gain is safe until we get over that Hump Day Hump.  The week ends tomorrow (even economic indicators take long weekends!) with Jobless Claims, Leading Economic Indicators and the Philly Fed, none of which are likely to derail a crazy train if we can take back our levels today.

Speaking of levels, the Big Chart says not to worry as we are holding our critical levels (including my Nasdaq 2,750 line) very nicely:

The Russell and the SOX, which we have long been worried about, fell into our DIScomfort Zone after being rejected at our breakout level.  The Dow, the S&P and the NYSE all fell out of goals, a bad sign only if they don't find support at the breakout levels.  Transports held firm despite record oil prices and the Hang Seng and BSE continue to negate the Nikkei's continuing plunge, which is really a lack of recovery off the 3,000 point drop they took in August, rather than a reflection of any current weakness.  Europe needs to get it in gear as Asia can't keep things going by themselves.

MO had a nice beat, JPM beat, UTX had a slight beat and KO had the same problem as PEP with DECLINING US sales but…  Come on people, you know this one – IT JUST DOESN'T MATTER!  Thank goodness we are rapidly becoming a third World country, it takes all the pressure off!

It's earnings mania today and, in addition to our Dow components, we've had beats from ABT, BLK, CIT, GAP, ITW and MAN and we're still (8am) waiting for AMR, GCI, PJC and, most worrying, NTRS.  After the bell today we will hear from ADS, ALL, AMLN, CTXS, ETFC, EBAY, GKK, RX, KMP, KNX, LEG, LOGI, NE, SOV (big concern), SYK, TER, VLY (also needs watching) and WM (uh oh).  So we get the Beige book at 2, followed by bank earnings at 4, possible recipe for disaster if both point down so we will have be cautious going into the afternoon but let's enjoy the ride up as we called a nice bottom yesterday afternoon and should be well positioned to take advantage of this morning's move.

Expectations for the builders, banker and brokers are VERY low and we've already had "beats" by SCHW, C, CBSH, STT, USB, AMB and CHB this week and even TMA lost a less than expected $8.83 per $11.40 share for the quarter.  OK, perhaps TMA is really bad but I'm betting it doesn't matter and nothing else will until the Beige Book when I think we'll at least hedge with some DIA puts, just in case things suddenly do start to mater at 2pm.

8:30:  Housing starts are down 10% and building permits are down 7.3% – incredibly bad numbers and the CPI is up .3% but don't worry, the "core" CPI is up just .2% and, even though EVEN the Core CPI is up to 2.8% (from 2.1% last year), we are STILL going to ignore it (and oil was "just" $78 in September).  The WSJ ran an excellent piece today highlighting the "best of" economic excuses by major earners – so far, which is a nice window into the economy – not that it matters…

So no dwelling on bad news today!  Time to go with the flow and swim upstream with the other salmon – let's just keep an eye on that 2pm beige book and enjoy our day!

MSFT Note: There was a misquote in yesterday's tech report, the play was the Apr $35s for .55, I don't think even Steve Ballmer would be playing the Apr $55s!