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Daily State of the Markets Good morning. On Monday afternoon, I heard an awful lot of talk about the “great action” seen in the major indices. While I initially argued that a drop of 240 Dow points could hardly be considered “constructive action” in my book, I knew full well that I was being petty due to the fact that it was the big rebound from the lows that was being referenced. And while I countered with the idea that much of Monday’s eye-popping bounce was due to rumors of this and that, the bottom line to pure market technicians was and always will be the action on the chart. To be sure, I am not a pure technician. No, I’m more like the kiddy version of a technician. While I would never dream of taking a position without consulting a chart and I will admit to spending the vast majority of each day poring over six screens full of squiggly lines and flashing quotes, I prefer the old-school stuff like trendlines, support and resistance, and some almost-fancy moving averages. So, before I hung up the phone with my techy buddy, I did manage to slip in the idea that if Monday’s rumors proved false (again) then the bulls might be in for some trouble. Then came Tuesday. To put it mildly, the news flow was abysmal and stocks reacted appropriately. Suddenly the “great action” – which, to me at least, was indeed tied to the rumors du jour on Monday – was gone. There was some good news to report in the early going as China’s PMI was the best in several months. But after that, things went downhill in a hurry. So let’s review. First, after the bell on Monday, Moody’s, having gotten bored with the easy stuff, decided to up the ante and cut their ratings outlook on Germany, Netherlands, and Luxembourg (I know, even Luxembourg!). Moody’s cited “rising uncertainty regarding the outcome of the euro area debt crisis” and “the increased susceptibility to event risk stemming from the increased likelihood of Greece’s exit from the euro area” as reasons to hint that they may soon be downgrading Europe’s biggest and baddest economy. Next came the early morning earnings where DuPont (DD), Altria (MO), and AT&T (T) all followed the current trend of missing revenue estimates. Then came United Parcel (UPS), which hit the trifecta by missing on both the top and bottom lines, cutting their guidance for next quarter, and then talking of uncertainty going forward. Thus, even the most enthusiastic bulls are going to have a hard time arguing that earnings continue to be great. Next up was the economic data, which wasn’t pretty on either side of the Atlantic. The European Flash PMI’s were weak with the Eurozone Manufacturing number at 44.1 and the Services at 47.6. And then the new Flash version for the U.S. (aka a guesstimate for the ISM numbers to come) came in at the weakest level in 19 months. Ouchie. Now toss in nothing short of an implosion in the Richmond Fed index and PIMCO’s Bill Gross was prompted to suggest that that the U.S. economy might be getting dangerously close to the zero-line. Oh, and lest we forget, Greece somehow made a big comeback on Tuesday as EU officials, who were auditing Greece’s books to check on the progress the country had made on its fiscal targets, basically said there is no way in heck that Greece was going to hit their targets. I know what you’re thinking – who cares, right? The point is that with the IMF saying this week that it just might cut off aid to Greece and Athens only having cash to cover expenses through September, well, it looks like that “Grexit” everyone was talking about a while back could become a reality. And with the ECB and Europe’s central banks still holding a big batch of debt at par, this could become a problem. Speaking of bond yields, the 10-year bonds of Spain and Italy closed the day at all-time Euro-era highs (not a good thing) while the benchmark 10-year in the U.S. moved to an all-time low during the session. And then yields in Germany remain negative on paper with durations up to 2 years. Thus, analysts looking for the flight-to-safety trade didn’t have to look very far yesterday. Finally, there is the fact that the pattern being traced out in the stock market right now is eerily similar to that seen a year ago. And with my calendar showing that August 1st is right around the corner, there is a certain segment of the trading population that expects things to get downright ugly again – and soon. All of the above brings me to the question of the day. We all know that Mr. Bernanke likes to lead the cavalry charge to come to the rescue when things look bleak. And to be fair, stock prices in the U.S. are hardly in trouble from a longer-term standpoint. However, based on the big-picture macro view, there are those who argue that now is time for Bernanke, Draghi, et al to pull the trigger on “the bazooka” (aka a globally coordinated central bank response with some “shock and awe” involved) before things get out of hand. And while I can argue both sides here, there are a great many traders who are wondering if now is the time to go ahead and pull that trigger. (And the WSJ’s Jon Hilsenrath’s late-day rumor that the Fed is “getting closer to taking action” certainly supported this thesis into yesterday’s close.) Publishing Note: I have family visiting through Wednesday evening of this week. Thus, I will publish my “Daily State” report as time (and sleep levels) permit. Turning to this morning… Although Apple shocked the street with a big earnings and revenue miss after the close, lower yields in Spain and expectations for central bank intervention is causing a rally in Europe today. And of course, the S&P and Dow futures are following suit (NASDAQ remains down hard in response to Apple’s nearly 5% decline). On the Economic front… We’ll get the report on New Home Sales at 10:00 am. Thought for the day… Courage is knowing what not to fear. -Plato Pre-Game Indicators Here are the Pre-Market indicators we review each morning before the opening bell… !========>
Positions in stocks mentioned: AAPL Follow Me on Twitter: @StateDave Download our Special Report on our New “Adaptive” Active Risk Management System for the Stock Market The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment. Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided. The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed. The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer. Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice. Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results. |
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