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Daily State of the Markets Good morning. With the market now down twelve of the last thirteen sessions, it is fairly obvious that we’ve got a corrective phase on our hands. Although the S&P is down “just” -7.8% during the current pullback, the fact that this move has been almost completely devoid of any upside makes things feel worse than they actually are. For there is little doubt that anyone still on the long side of the game fears a replay of last August’s 17% dive over 17 days or the summer of 2010’s correction of -16%. In addition, there appears to be little-to-no hope available to owners of equities at this time. It seems that we are treated to some new problem on a daily basis. Europe is clearly the name of the game right now as Greece remains a sea of misery followed quickly by fears that Spain (EWP) is about to implode. Good economic data in the U.S. is either (a) ignored or (b) followed by data that is weaker than expected. Then there is the JPMorgan (JPM) fiasco, which looks to be getting worse by the day as traders are not going to let “the London Whale” out of his positions anytime soon. Heck, even Facebook’s (FB) much ballyhooed IPO wound up being a disappointment and Apple (AAPL) suddenly looks like the SPY of late. Make no mistake about it though; Greece is the word right now. While it is indeed mind boggling that a country with a GDP the size of Houston’s can hold the world’s equity markets hostage, this is EXACTLY what is happening at the present time. And although traders had put the thought of Greece leaving the Eurozone behind them during the first quarter of the year, it now appears that the odds of the Greeks walking on their obligations and returning to the Drachma are a coin flip. Why do we care what Greece does? Does it really matter to the global economy if the Greeks default on everything? In short, no. However, the issue here really isn’t about Greece, it’s about the question of who’s next? When Bear Stearns went under, the fear wasn’t really about the losses created by the brokerage firm going down; it was about which firm would be next. And as we found out after Lehman finally went bust, the answer was everyone. So, while I am clearly guilty of restating the obvious, the real issue here is contagion. Yields and spreads in Spain are soaring again and their economy is not in good shape. And the real problem is that Spain is simply too big to be propped up by the EU, the IMF, and/or the ECB. So, if Greece walks away from the EU, traders fear that the entire currency zone could unravel. The key word here is fear. As is the case during any waterfall decline, fear is the driving factor. And with the election in Greece nearly a month away, fear is likely to remain front and center for the foreseeable future. And THIS is why the buyers are simply sitting on their hands right now. Why buy now when the situation isn’t likely to be resolved for a month? No, it appears that reducing risk is the watchword during each and every session. It is during these one-way affairs that emotions tend to dominate. And yet at some point, something good tends to happen which causes everyone to realize that the sky isn’t falling and that the likes of McDonald’s (MCD), Panera (PNRA), Chipotle (CMG), and Google (GOOG) aren’t going out of business anytime soon. So, if history is any guide here, Greece won’t leave the EU, Spain, Italy, et al won’t collapse, and the EU will stay together. And when something good actually does happen, stocks are going to rebound furiously. What will that “something good” be, you ask? How about the ECB doing another LTRO? What about Mr. Bernanke starting to hint at another Operation Twist? Or what if Germany starts to concede on the idea of doing something about growth in the region or the G-8 talking about banding together to insure that this situation doesn’t get out of hand? Then there is the idea of Eurobonds that is being openly kicked around this morning. In short, any or all of the above will likely send the shorts scurrying for cover and bring the buyers back – in a hurry. In other words, the bears have enjoyed a stellar move based on fear. But with the market as oversold as it is and the emotions running as high as they are, I’d be willing to bet that something good is about to happen at some point soon. Turning to this morning… Talk of Eurobonds and support for Greece from the G-8 seems to be giving the bulls a lift in the early going. However, the key today will be where the market closes – not where it opens. On the Economic front… There are no releases scheduled for today. Thought for the day… “Be the ball, Billy”… Pre-Game Indicators Here are the Pre-Market indicators we review each morning before the opening bell… !========>
Positions in stocks mentioned: AAPL, CMG For more of Mr. Moenning’s thoughts and research, visit StateoftheMarkets.com !========> 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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