Good Morning. For the fifth day in a row (and the eleventh out of the last twelve), the DJIA experienced intraday volatility exceeding 100 points yesterday. While volatility in and of itself isn't a big deal these days, we do have to recognize that this represents a change in the market's character over what we had seen in the first five and one-half months of the year. And until we either hear from Mr. Bernanke or the trading range breaks, we can probably expect the manic depressive behavior to continue.

I was traveling during much of Monday's session and as such, I didn't have access to the minute-by-minute action on the charts. Yet, even via the finance app on my iPhone I was able to pick up the monster dive that took the Dow down 150 points in about half an hour. And as usual, I wanted to know why the move had occurred.

Obviously, the quick dance to the downside was tied to algo-driven sell programs - that's never in question these days. No, it was the trigger that I was looking for.

Within just a moment or two, I had identified the culprit. A headline from the Financial Times read: "Fed likely to signal tapering move is close." And just like that, the S&P 500 fell 15 points and the DJIA dropped 150.

But here's the problem. The article didn't say anything new on the subject. And the article did not quote any Fed officials. No, just the inference that the Fed might be close to tapering the amount of money going into their QE program every month was enough to send the algos into overdrive.

But upon closer inspection, the article really represented speculation on the part of the author. Sure, Mr. Kaminska cited some correlation between the number of Bloomberg stories with the keywords "tapering" and "volatility." And yes, the author did reprint a portion of an article written by somebody else talking about Jon Hilsenrath's recent article. But other than that, this article, yes, the one that moved the market 150 points in a matter of minutes, contained little to no substance.

My immediate response was to the move was to wonder aloud if the FT article had trumped the Hilsenrath article from Thursday. It seemed odd to me that the market was keying off of some article from across the pond instead of the position taken by "Hilsy." Did the FT know something that Hilsenrath didn't? Did the FT have a new comment from someone on the inside? In a word, no.

In fact, the author of the FT article later tweeted several comments that seemed to ease the markets fears. First, Kaminska tweeted that the Fed doesn't leak information to anyone - including him. Then he said that he believes the Fed's tapering will begin in September. And Kaminska tweeted that he doesn't know anything for sure.

So there you have it. Once again, the alogs picked up on a headline and assumed it was accurate. But in the words of my friend and colleague Curt Bergquist, this was "an article about an article about an article... now that's award winning reporting." In other words, the algo's didn't "read" the article, they just were programmed to react to the headlines. And then once the humans got involved and realized that this was a non-story, the indices rebounded a bit. But not before the computers scared the heck out of anyone watching who wasn't privy to what was happening.

In sum, this is the state of the speculation regarding what the Fed may or may not do next. The good news is we only have to wait another day and one half for the current ride to end.

Publishing Note: My apologies... I managed to misread my schedule yesterday. It is tomorrow that I have an early meeting and will not publish morning report. Regular "State" reports will return on Thursday.

Turning to this morning... The speculation of what Ben Bernanke is likely to say at his press conference on Wednesday continues unabated. At this time, it appears that traders are positioning themselves for a dovish statement from the FOMC as U.S. futures are pointing to a higher open. However, as we saw yesterday, the mood can turn on a dime so it is best to stay flexible.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:
- Shanghai: +0.13%
- Hong Kong: +0.00%
- Japan: -0.20%
- Germany: -0.03%
- France: -0.07%
- Italy: +0.61%
- Spain: +0.67%
- London: +0.83%

Crude Oil Futures: +$0.29 to $98.06

Gold: -$7.90 to $1375.40

Dollar: lower against the yen and euro, higher versus pound

10-Year Bond Yield: Currently trading at 2.195%

Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +5.01
- Dow Jones Industrial Average: +52
- NASDAQ Composite: +9.94

Thought For The Day...

"Some men see things as they are and ask why. I dream things that never were and ask why not?" -Robert F. Kennedy/George Bernard Shaw

Positions in stocks mentioned: none

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