It’s Back

Daily State of the Markets 
Tuesday Morning – June 15, 2010  

After a brief hiatus, during which time the bulls managed to pull themselves up off of the mat and push the Dow higher by about 400 points, the daily dose of bad news returned to the corner of Broad and Wall Monday. While we wouldn’t quite call it a triumphant return, the negative headline regarding sovereign debt from across the pond managed to turn a nice gain and what appeared to be a technical breakout, into a minor loss by the time the closing bell rang. And regardless of the fact that the Dow only fell 20 points on the day, it was definitely a setback for the bull camp.

As you are likely aware, stocks rallied in the early going on Monday morning. With everyone fixated on Europe and the Euro, the fact that Industrial Production in the beleaguered Eurozone came in well above expectations was indeed a welcome surprise. Yes, yes, we recognize that the data was from April and that up until the beginning of May everything appeared to be going along swimmingly in most markets around the globe. But, after the relentless dosing of bad news relating to Europe lately, it was nice to see some good news for a change – even if it was rear-view mirror data.

But the fun ended nearly as quickly as it began after Moody’s (MCO) announced that they had finally gotten around to downgrading Greece’s credit rating. With just about everybody on the planet aware of the fact that the rating agencies once again find themselves behind the curve on the current topic at hand, Moody’s decided to make up for lost time by dropping Greece’s sovereign rating by four notches to Ba1, which, for those of you keeping score at home, is “junk” status.

Although the news didn’t have an immediate impact (the word, “duh” could be heard in the background if you listened hard enough), the downgrade may have reminded traders that there really isn’t an easy (or quick) solution to Greece’s debt problems. And when you realize that there is virtually no way that Greece will be able to avoid either an outright default or a de facto default via a debt restructuring, the resulting reality isn’t terribly uplifting. As such, a steady flow of selling (and not of the high-frequency variety) ensued.

For the life of me, I don’t really understand the media’s fixation with the 200-day moving average or why it is referred to as the holy grail of indicators. But, in this business, if everyone is watching something, it is important that you watch it as well. So, it was disappointing to see the Dow and S&P 500 both bump their heads on their respective 200-day ma’s and then promptly head south. In short, the action represented a textbook definition of resistance.

So, with the bad news returning from Europe, new uncertainty surrounding the contents of the financial regulatory reform package, and some fairly weak chart action, we weren’t terribly surprised to see the bulls roll over on Monday. And until one of the teams can break on through to the other side of either support or resistance, we’re going to continue to call this a basing pattern.

Turning to this morning… European markets have shrugged off the Greece downgrade as well as a disappointing German ZEW Index report as traders chose to focus on the fact that both Spain and Belgium were able to successfully raise money in the open market today.

On the economic front… First up, the government reported that Import Prices for the month of May fell by -0.6%, which was actually less than the consensus for a decline of -1.2%. In addition, the Empire Manufacturing Index (designed to indicate the state of the manufacturing sector in the New York region) for June was reported at 19.57, which was below the consensus expectations for a reading of 20.00.

Finally, here’s a thought for today: Remember that it pays to be open minded (in more ways than one)…

Pre-Game Indicators

Here are the important indicators we review each morning before the opening bell…

• Major Foreign Markets:
  • Australia: +0.02%
  • Shanghai: NA
  • Hong Kong: +0.05%
  • Japan: +0.08%
  • France: +0.61%
  • Germany: +0.44%
  • London: +0.38%

   

• Crude Oil Futures: + $0.51 to $75.60
• Gold: – $3.10 to $1227.60
• Dollar: Higher against Yen and Pound, lower vs Euro
• 10-Year Bond Yield: Currently trading higher at 3.28%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value): 
  • S&P 500: +7.03
  • Dow Jones Industrial Average: +68
  • NASDAQ Composite: +9.2  

Wall Street Research Summary

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