What’s going on here? We have now had 9 out of the past 13 days with triple-digit Dow moves and yesterday’s upside barnburner puts the equation a bit closer at 4 positive and 5 negative, as if a person really does not have to put any meaning into what happens on one of these large movement days because it is then contradicted by what takes place the next day. For instance on Tuesday and Wednesday everyone got all bent out of shape when the Dow underwent consecutive triple-digit losses and then all of a sudden yesterday with a triple-digit gain everything is right with the world once again and all of the blah, blah “explanations” for what happened the day before get thrown out the window.

But the session was not without its early anxieties, as for instance the major averages started out a bit on the downside, as this neurotic obsession with what happens in Japan seems to control our markets here, and this I do not really understand, although one “explanation” seems to be – bets against the Japanese yen are used to finance long positions in the U.S. stock market and there is a highly correlated inverse relationship between the two, which is supposed to mean that if the yen strengthens against the dollar, this is bearish for U.S. stocks and if it weakens this is bullish. Now it is true that the U.S. market was going higher until May 22nd and the yen was weakening, and then the yen started to strengthen and our market began to weaken, although the yen reached its weakest level against the dollar on May 17th and then started to strengthen, while our stock market did not top out until the 22nd.

On the other hand, the yen strengthened by a lot against the dollar yesterday, down to as low as 94, and this is apparently what put our stock index futures into deep negative territory in the overnight session but they did start to improve as the pre-opening morning session moved along. This resulted in the Dow starting out with a quick decline of 42 points in order to satisfy those who wanted to sell at the lower levels and the S&P fell under its 50-day moving average, which is at 1610, and it got as low as 1608, which then becomes a “sell signal” for those who follow this nonsense, and for the second time this year they got short or sold out right at the bottom, as from those lower fast starts, things immediately turned right back around to the upside, as the Dow started to chop higher and kept moving in an up-staircase pattern, which means that each high and each low become successively higher until it was ahead by 207 points by 3:45pm before finally closing with a 180 point advance.

This means that just like yesterday, there was around a 250 intraday opposite reversal from the early levels of the day, and is this what is supposed to be known as investing, instead of just fast-money types of traders each trying to pick the other’s pockets? And just to sock it to those 50-day moving average people, the S&P ended with its second best gain of the year, trailing only the January 2nd upside moonshot that started 2013.

Breadth numbers were at a very strong 5 to 1 positive ratio, sort of the opposite of what they had been on the two prior down days and the VIX took a major league downside beating with a 2.18 loss to 16.41. This means that the 18 plus level is now going to act as very strong resistance to further market downsides, as it has failed in this area for the third time this year, back in February and April as well before today’s refusal to go higher.

How about the U.S. bond market, which is acting in the same schizophrenic manner as are stocks, as for instance yesterday saw one of the largest yield declines of the year, with the 30-year down to 3.3% while the 10-year dropped back to 2.15% amid all sorts of “explanations” from fixed income experts. There were stories that the Fed is now not going to disclose its stimulus tapering plans at next week’s meeting after everyone thought that they were going to do this, and also there was a story that the Fed has been trying to convince investors not to over-react when the stimulus tapering begins. Then there was the old tried and true “flight to quality” explanation that pops up whenever our bond market rallies to lower the yields. And another explanation for lower bond yields was that the World Bank lowered its global growth forecast for this year to 2.2%, which is below last year’s 2.2%.

Just to show that U.S. stock market/Japanese yen inverse correlation once again, as equities here moved higher, then the yen started to lose ground to the dollar, as it ended at 95 from what had earlier been 94. Japanese stocks closed with another huge loss, a decline of 6% to officially enter a bear market, but let it also be remembered that by May 22 they had risen by a mere 55% for the year and how is that sort of advance possible to sustain itself? And interestingly enough, this is the same day that our stock market topped out as well.

Crude oil could not resist the urge to move higher, as it started at $95 a barrel when stocks were on their morning lows and then ended at $96.70 when equities made that huge upward leap, which means that if one wants to see lower gasoline prices, then you had better hope for lower equity prices as well. Gold sold off on its own little explanations as the thinking yesterday was that eventual tapering of the stimulus is negative, and this is of course until the next day that it rallies, as it appears set to do today a bit.

The best performing groups were the industrial cyclicals, as the worst performing Dow stock of all, namely CAT, had the nerve to open higher and actually increase its strength as the session moved along, and it was joined on the upside by others in this group that have been strong all year such as BA, 3M and UTX. Energy stocks also got better as the day moved along, and they were joined by IBM, which sort of makes strong moves in the overall direction of the market.

Stocks also got support when May advance retail sales rose by more than expected and weekly jobless claims declined as well, down 12,000 to 334,000. The 0.6% gain was the result of a surge in motor vehicle purchases in addition to home building materials (repairs from the freakish weather we have seen in various parts of the country). And the core-sales component, which strips out automobiles, gasoline and building materials, and which corresponds most closely with the consumer spending component of G.D.P., rose by 0.3% after a 0.2% increase in April. In addition, import prices for May declined as well, which is further evidence that inflation is under control.

As Rodney Dangerfield would have said – the stock market cannot really get any respect, because after that nice almost 200 point upside move yesterday, which of course followed two triple-digit lower Dow closes on Tuesday and Wednesday, could we be headed for another triple-digit move for the fourth day in a row? The Dow began with a 25 point loss or so, then made a fast visit into positive territory at 10am, from which level it started to deteriorate once again, and reached its worst level so far with a 132 point decline at 2pm, from which level it is trying for the time being to dig in its heels, but I have long had a theory that on a summer Friday afternoon when things are down this much in mid-afternoon, it becomes very difficult to make any upside headway. The Dow is currently down by 107 as this is being written.

Breadth numbers are not as horrendous as they had been earlier in the week, and they are currently at a 12/17 ratio and the VIX is higher by .73 to 17.14. The bond market is also higher as a result perhaps of the I.M.F. lowering its growth projections for the U.S. down to 2.7% from 3$. Yields are down to 3.29% and 2.13% respectively for the 30 and 10-year maturities. The lower than forecast preliminary June U. of Michigan Consumer Sentiment Survey, from a six-year high the month before, is probably also causing yields to decline a bit as well, in addition to the lower May industrial production report as well, which came in unchanged when a 0.2% gain was forecast. The Euro is declining after its recent strong rally but once again that old (and new) market bugaboo, otherwise known as the Japanese yen, is rising, and heaven forbid when that happens, our stocks start to panic when they see this take place.

Crude oil prices have now found their latest reason to rally during the summer driving season, and it is because “concern over Middle East tensions will reduce exports”, which of course has not happened and might not ever happen, but as I have always maintained, the oil companies will find any excuse to sock it to consumers at this time of the year. The price is now up to $97.60 a barrel, and this starts to get close to the danger level of over $100, and when does the stock market rally when this happens? Gold is a bit higher for whatever reason, and some bullion experts decided that today’s May P.P.I. number, which on the overall level was higher by 0.5% when a 0.1% rise was predicted, is the reason and why not?

This will not be the third week out of the past four that the market has finished lower, and it was only last Friday’s huge post-jobs report upside surge that saved last week, which if it did not take place would have meant that the market would have been lower for four weeks in a row, but regardless of that technicality, the trend would now appear to be lower, and rallies are being sold instead of dips being bought, which was the mantra from earlier in the year.

Finally, on any down day that we now see, market experts have the easy “explanation” that investors are “worried” about the eventual tapering program that the Fed is going to implement and obviously next week’s latest F.O.M.C. meeting and (oh, no) press conference will have a lot to do in determining where things go from that point on and obviously this will be the big event of the week.

First quarter earnings for 2013 rose by 5% and the projection at the present time for the second quarter is for earnings to be just around flat, and then we will ostensibly see earnings advances of 4.6% for the third-quarter and 5.7% in the fourth-quarter.

The S&P trades at 15 times the projected 2013 earnings of $111. Earnings were $85 in 2010, $92 in 2011 and $102 in 2012. The estimate for 2013 is $111, a gain of 9%. The average P/E multiple for the S&P going back to 1954 has been 16.4 and it has been 14.4 for the last 10 year’s average.

After four consecutive quarters of negative G.D.P. growth, we have had 15 consecutive quarters of positive growth, starting with the third-quarter of 2009, every quarter in 2010, every quarter in 2011, and every quarter in 2012. G.D.P. rose by 2.2% in 2012, and is projected to increase by 2% in 2013, according to various surveys, with 2.5% in the first-quarter and then in the low 1’s for the second and third-quarters before a fourth-quarter acceleration to over 4%.

Donald M. Selkin

Don Selkin is the Chief Market Strategist at National Securities Corporation, member FINRA/SIPC, (NSC) and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analyses concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, Recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, Associated Press}.