Ahead of the open, (17-07)

A lethargic day at best as market chops around in anticipation Bernanke’s testimony starting Tuesday morning. The poor retail sales #’s for June makes this event all the more interesting as investors look for QE clues and a change in Bernanke’s conviction.  The prepared remarks begin at 10am before congress gets at it.

Earnings get rolling and if today’s action is any indication tech (SOX) really needs some good news. INTC is the notable AH’s report.

Ahead of the open, (18-07)

Bernanke’s prepared text took the market down, Bernanke’s Q&A took the market up.  Yep, that pretty well sums up the schizoid market today!.

  

In the end, equities might have gained, but USD/Gold/TSY’s signalled no conviction in the belief QE was coming in August (although odds went up for action in September).  Also, SP may have gained 10pts, but higher beta hardly participated as single stock action was lagging. 

 

Besides a few recent IPO’S like YELP, GWRE up 7 and 5% respectively, it is hard to find a beta stock up even 2% today.  R2K gains were half of SP’s. The SOX chart remains ugly and hit fresh multi-months lows today and 52w high list includes all the safest havens (REITs, utilities, Pharma).  This is hardly a strong rally into resistance in the low SP1360’s and so caution is needed.  Until this market narrative changes, it is best to concentrate on upcoming earnings surprises than chasing previous ‘growth’ winners at this point.

Ahead of the open, 19-07

Market continues its bounce to post EZ Summit highs as micro outduels the macro.  Incidentally, the words ECB, EU summits, sov’ yields…..have not been appeared on these pages since the move from July 13 lows began.  Hopefully this reference to EZ doesn’t jinx things!.  The trough to peak move of over ~45 SP has been off earnings, but also because of the quietness in the EZ.

As far as earnings..

A few faults noted last week and yesterday (lagging higher beta ‘growth’/ SOX) reversed today off the notable INTC report, while missing and lowering guidance INTC traded up 3% and led the SOX to bounce 3% after it hit multi month lows yesterday.  INTC was called notable here prior to report because of the numerous pre-announcements in the sector.  INTC relates and falls into the catagory…“..the turning point for the market will be when bad reports start to turn and go ‘green’.  EMC QCOM  fall into this premise as well.   Bad reports this Q are any that simply don’t beat the watered down consensus estimates already in place.

The other sector causing recent concern was the industrials, especially since CMI’s warnings.  Today HON, GWW  had better than expected earnings.

The third type of report was just a pure good old fashion beating with VMW up 10%, (which helped all the higher beta software, cloud types today)....

..and MLNX  (up 40%) after hours showcased.. ..”A silver lining in the approach, “Sitting back and waiting for ‘surprise outlook’ earning report from single stocks”… is these stocks will likely be handsomely rewarded as traders look for any signs of corporate ‘growth’ life. 

As noted to start the week following good enough bank earnings,…” All of the above factors are elements of a dead cat bounce unless the heavy loaded earnings week ahead is greeted with the same ‘good enough’ sentiment”…is playing out!.   A dead cat bounce has turned into more due to earnings reactions, but the truth still lies in getting over post-summit highs.  The combination of good enough earnings trend seen and quietness in EZ needs to stay on track for this to occur and escape the range binding summer.

Ahead of the open, (20-07)

EZ summit highs were penetrated in the morning, rinsed back before finishing right on the SPY swing high from early July.  All in, an interesting day.  Why?.  Although small cap RUT was the only red finish amongst the indices many of our ‘higher beta’ Shadowed growth stocks outperformed substantially.  This smells of rotation, but at this point it’s just a lot of covering in tech linked stocks.(SOX up nearly 6% off lows).  Still, its possibly enough to reach SP1400 as long as bad eco’ data is ignored (Existing home sales -5% vs +1% expectation, Phily Fed today) and EZ stays quiet.  Financials stepping up would enhance the possibilities of a higher SP price.

  

MLNX  significant growth outlook followed up VMW slightly positive report to lead tech linked stocks , VFC  earnings led ‘retail’ growth names..(RL, COH, FOSL +5%).  FCX’s helped base metal linked stocks.  Other single stocks closings, BSFT +7%, YELP, LVS, GWRE +5%, FFIV WPRT, LNKD, LULU, CRM,  WYNN,  BIDU >3%.  FFIV  weak guidance is another example in tech/internet where…”Bad reports this Q are any that simply don’t beat the watered down consensus estimates”.  The stock climbed $10 off printed lows.  These reactions are especially prominant in tech, which ranks as the most beaten down sector recently as far as sentiment is concerned.

Into the trading week, (23-07)

As noted ahead of Thursday’s trade, better earnings off watered down expectations (specifically SOX/tech) had pushed market to EZ summit levels, but it was also the quietness in Europe responsible for the feat.   A break over summit highs rested with…” quietness in EZ needs to stay on track for this to occur”.   Unfortunately not only did a break not occur, but a gradual sell off ensued (DJIA -120, NASD -40, SP -14), Friday as Spanish yields surged nearly to 7.5%, pushing U.S markets to close at the lows of the day. (Spain IBEX suffered its worst day in 2 years as its Valencia region announced it would seek a bailout.).  This is somewhat separate from the recent ‘bank’ bailout, but shows regionals will affect the Federal gov’t balance sheet as well.

  

In all, Spain’s regional problems have little to do with the EZ summit blueprint, thus today was likely an overreaction by markets.  A rally with so many question marks in investor minds is vulnerable and easily diverted.  In all, there are more important things heading into next week’s trading due to Friday’s market internals….

  

Firstly,  rally in tech off ‘good enough’ earnings is likely over with and priced in as we head into the meat of reporting season.(inc. AAPL)  A week of such behaviour will change to stocks needing to beat and have better 2H outlooks now to have similar reactions to last week’s.   Also, one underlying momo’  growth market left was the consumer discretionary space and it too now has been dissected due to CMG’s report as it took the likes of MNST, BLWD, WFM types down > 4% with it.   ISRG , also showed if you’ve become a growth story with high expectations over time, you must be perfect or you’ll be hit.  Although the ‘growth’ story outperformed on Thursday, Consumer discretionary growth theme action doesn’t bode well as the smell evaporated quickly…”This smells of rotation, but at this point it’s still just a lot of covering in tech linked stocks”.  Lastly, “Financials stepping up would enhance the possibilities of a higher SP price. There was no sign of such emerging to end the week.

  

Besides earnings spotlight, market gets the flash July Global PMI’s as the first major July releases by Tuesday morning.

Ahead of the open, (24-07)

Today’s DJIA 200+, SP drop to ~1335 by the open was completely ‘out of the box’.  The circle of newsflow from China (comments that growth in China could slow further to 7.4% ) to Greece (IMF told the EU it will provide no additional funds for Greece = imminent insolvency?) to Spain (speculation of losing debt market access ) leading the decline seemed more like excuses than anything else for the Global market beatings. 

  

Simply, the magnitude of the US market drop didn’t correlate to the so-called news.  A steady reversal began shortly after, erasing half of the losses by close as policy (ECB) speculation took over.  As bad as the headlines may seem, ECB intervention chatter will eventually provide support as it did today.

  

Morning update: China Flash PMI better and best since Feb, European overall inline, but Germany worse which should fuel more ECB action chatter

Ahead of the open, (25-07)

A second consecutive day where intraday market loses are cut in half by close due to CB policy speculation.  Yesterday it was the ECB, today it was the FED as a WSJ article talked of earlier action and was specific on details for the first time, (thus Jackson Hole/ FOMC next week may set details for what will follow).  If anything the odds on dates changed some and importantly put pressure on ECB to do something on 02/08.

 

  

Although todays downward draft was blamed on more EZ stresses, (note at day’s trough, US markets were underperforming EZ markets by over 1%), the real culprit was U.S earnings as the higher bar premise noted entering the week was the driver….(A week of such behaviour will change to stocks needing to beat and have better 2H outlooks now to have similar reactions to last week’s.). Simply what was working last week isn’t this week as weak earnings are not rallying any longer. ( DD TXN, UPS ).  This is even more visible AH’s as growth/higher beta names get slaughtered after missing, (AAPL, BWLD, NFLX, TRIP).  It will interesting to see if the bar gets re-set back again due to AAPL's miss particularly in tech links.  All in, UPS’ call put it all (economy/earnings) into perspective as it talked of certain conditions only seen in recessions).

As bad as EZ stresses, Eco/ earnings momentum slowdown might be, it is also raising the odds of CB policy response. This in turn keeps market in its summer range.  The upside risk of action is keeping a floor to the market as shorts don’t want be involved in another upward surge.

Ahead of the open, (26-07)

‘Longs’ may have dueled to a draw today, but you can still sense the nervousness of market possibly falling off a cliff.  A few more articles (like WSJ’s) overnight and everyone was trying to anticipate the policy makers next move to save such from occurring,  while limiting downside in the meantime.   Expectations definitely rose in the last 24hrs for action from the ECB &FED with Precious metals signalling such  'expectation' today. 

  

Positive to start the day was sov’ yields tightened, Euro rallied due to ECB Novotny'scomments,…“there are arguments to be made for the ESM to get a banking license”...  This took market by surprise, ECB talking about it shows they will get involved ‘if ‘ Spain/Italy were to lose market access.   Simply this is reassuring to the market although it would be weeks away.  

  

Although AAPL was the big story on Tuesday night, it was overshadowed by CB chatter today.

 

(Semi’s/ networking stocks had some good earnings, but nothing too exciting considering last week’s reports have surrendered their initial gains already).

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Morning update:  Pretty Strong ECB Draghi comments....

Eurozone more stronger than people anticipate and added that the ECB will do whatever is takes to preserve the euro (“ and believe me, it will be enough…EBC has power to defeat market speculation”).

Ahead of the open, (27-07)

Verbal  intervention from ECB soared equity markets as sov’ yields tightened and EURO surged.  It seems FED has pushed ECB as speculated following WSJ story with Novotny/Draghi coming to forefront immediately after, ..”. and importantly put pressure on ECB to do something on 02/08”.   At the end it’s only verbal intervention and market is not really falling for it yet despite the surge. At this point it is only short covering.   If these comments are not refuted to any degree in the next few days by senior officials from say Germany/ ECB, the market should climb further and through summit highs.

 

  

In all, verbal intervention is keeping a floor to the market as discussed all week.  Today the upside risk/fear factor of being short and faced with a market surge was the reality as ES surged ~20 ES handles before open…..“The upside risk of action is keeping a floor to the market as shorts don’t want be involved in another upward surge”.

  

   

Debate will commence if anything new was said by Draghi, just like Bernanke’s every word goes through analysis time after time.   What’s important is his strong language is setting the bar higher for ECB to do something worthwhile on 02/08/.   Anything less (underwhelming) will now will be a market disappointment and there are limitations abound. (ie.within ECB mandates).  This is the problem now.   Again, if Draghi’s comments are corrected in any manner to let the market know expects too much, we’ll have large intraday swings before the ECB meet up.