Stocks could take another roller coaster ride Friday, as investors keep their eyes on Europe ahead of the weekend.
Oliver Quilla for CNBC.com
NYSE Traders
U.S. retail sales data for July is released at 8:30 a.m. ET and is among the most important economic reports of the week. Economists expect an increase of 0.6 percent, compared to 0.1 percent last month.
Consumer sentiment is reported at 9:55 a.m. and is expected to come in at 62, below last month's 63.7. Business inventories for June are released at 10 a.m. and are expected to increase by 1 percent. Brazil's oil giant Petrobras and retailer J.C. Penney both report earnings Friday.
Market Madness
Wall Street continued to trade with a sickening volatility on headlines from Europe Thursday, but this time to the upside. Stocks and risk assets soared as worries about French banks appeared to abate. Reports of a meeting next week between German Chancellor Angela Merkel and French President Nicolas Sarkozy triggered relief buying as traders speculated the two could attempt to bridge differences on how to solve the euro zone's sovereign debt crisis. Late in the day, regulators confirmed that some European markets will have temporary short selling bans on financial stocks.
The Dow was up 423 points, or nearly 4 percent at 11,143, and the S&P 500 rose 51, or 4.7 percent to 2,492. The Dow is now down just 2.6 percent for the week. On Thursday, it saw its fourth straight day of 3.5 percent or greater moves, a level of volatility not seen since November, 2008.
Jeff Saut, chief investment strategist at Raymond James said the wild trading in stocks this week is reminiscent of two other violent declines in 1978 and 1979, when the stock market fell 15 percent in five to six week periods, before rebounding.
"They came out of nowhere. The markets were doing fine and all of a sudden you had these 15 percent declines," he said. Saut expects stocks to follow a similar pattern and that would mean a retest this week's intraday low of 1,101 on the S&P 500, before it recovers and moves higher into the year end.
"I think that while a lot of stocks have bottomed, I think the overall market is going to rally and then come back down and test the lows," he said.
Sat said this week's action has been extraordinary in that the number of stocks that gained on Monday was just around 1 percent, and that was the lowest level of gainers since May 13,1940 when Germany was beginning its invasion of France. "That was the day the Germans punched a 60-mile wide hole in the Maginot line," he said.
It also has been a week of panic for individual investors, who have been cashing out of stock funds in droves this month. "You've had the biggest liquidation of mutual funds by individual investors since October, 2008," he said.
At the same time, insiders have been buying their companies' stock at a rapid rate. Trim Tabs reports that insiders have bought $861 million of their companies' shares so far in August, which is already near the $1.16 billion insiders bought, as the market bottomed and began to rally in March 2009. Trim Tabs told CNBC's Bob Pisani that the average daily insider buying month-to-date is the second highest since June 2008, only after November, 2010.
Saut said he believes there will be calm after the storm, and that is because he does not expect the economy to dip back into recession. "If we don't go into a recession, which is what I'm betting on, and earnings continue to come along pretty good, which is what I'm betting on, then markets will be higher at year end. Which is also what I'm betting on," he said.
Saut said he's been speaking with institutional clients in meetings this week. "Some of them were pretty freaked because they didn't raise cash three or four moths ago," he said. He said he has been buying stocks since last Thursday.
Bad Bond Auction
The long end of the bond market came under pressure Thursday as the 30-year bond auction drew weak demand. The government auctioned $16 billion in 30-year notes at an auction high yield of 3.750 percent. Wednesday's 10-year auction, on the other hand, was well received. It was also the first 30-year bond auction since Standard and Poor's cut the U.S. AAA credit rating by one notch.
The 30-year auction saw a small showing by indirect bidders, foreign buyers, of just 12 percent. The 30-year sold off after the auction and was yielding 3.765 percent late in the day. The bid-to-cover ratio was 2.08 percent.
"I don't think you can read too much into it," said Adam Brown of Barclays. "I think partly it's the stock market having a good day. It's with the rebound in stocks, with the rebound in some European markets, just as importantly. I think the extreme risk, flight-to-quality trade we've been seeing is slowly being unwound. That was a big factor in today's tail. The other big thing is you got to pretty extreme yield levels."
"I do think it (the market) has a more stable feel today than it has had in two weeks, and I think that added to it. I'm still shocked by the magnitude of the tail, but at he end of the day, the outright yield levels are still low compared to where they've been," Brown said.
Franc Talk
The Swiss franc went on a wild ride Thursday against the euro and dollar, and other currencies, as risk rallied. Traders said the move was also in part on speculation the Swiss franc could be pegged to the euro, after a Swiss National Bank official said it might be something considered on a temporary basis. The SNB also announced other measures this week to hold back gains in its currency, which has been a main beneficiary of the global fear trade.
Analysts doubted the franc would be pegged to the euro, but the talk helped drive the franc lower, an intervention in itself. The euro gained 0.4 percent against the dollar, to 1.4239, and the dollar was virtually flat against the yen.
Gold also lost some luster Thursday, falling 1.8 percent to $1,748.80, after the CME raised margin requirements by 22 percent.
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