Into the trading week, (June 25- )

 While the markets entered the week focused on Europe, notably what was called here the anti-climatic Greek elections, we headed ‘Into the trading week’  focused on:

 

FOMC, “hopefully market doesn’t rally into that (outright QE) speculation or it sets itself up for a big disappointment”.

   

Eco’data, “with flash Global PMI’s will be first indication of what is happening in the month of June. Market will likely be happy with any signs of stabilization after May disappointing #’s.”

 

Corporate earnings, “The market also gets back to some corporate news with some notable earnings for May end reporting companies. It kicks off Tuesday with FDX, followed by the likes of ADBE, RHT, ORCL for tech later in the week…BBBY on deck..”

   

In the latter half of the week, market reversed strongly (30SP handles) on the heels of all of the above ‘disappointing’ and many investors still don’t know what hit them or why.   Simply market had lost sight of reality on this side of the pond (besides FOMC) as all chatter has been about Greece, Spain and Italy (stirring up again, might be next topic).  Goldman Sachs, covers the overlooked facts at hand,” .. our client discussions reveal that portfolio managers are not aware of the wave of negative preannouncements across the market.”   They go on to mention ADBE, BBBY, FDX amongst a slew of other firms lowering quarterly earnings guidance.  RHT,ORCL were soft too, so all names noted into week were light on guidance.  All in, it’s a small sampling of companies, but something to watch closely ahead.  

 

As far as FOMC, we discussed the ‘less dovish’ result and the possibility of market selling Thursday off after a night’s sleep.  Entering Thursday, although some Global PMI’s showed some stabilization , it wasn’t enough to satisfy market as the main global drivers all disappointed with June data offering no relief to April/May’s slump…(Europe’s engine Germany (-0.8 to 48.5), and China (-0.3 to 48.1), US (-1.1  to 52.9)).  End result was a stock dump and an early note on the ‘market roundabout’ to the economies and away from a European ‘fix’ equalling a reason as to not buy this day’s ‘big dip’.  Although some late buying (likely nothing more than short covers)on Friday into the weekend, SP only got back to level of our market update on Thursday as it had taken on more losses afterwards. 

 

In all, the swift sell- off was likely a very significant event on Thursday and an end to the corrective rally.  Also, thinking the mindset towards the EU summit may have changed as well.  Expectations that have invoked during ‘hope’ rally might be too high now.  Whatever they produce may not satisfy the markets any longer with the economic backdrop taking over market sentiment.  Realization Europe is still in a flux of confusion over Greece, Spain after the immediate fixes may also play a role, as may Italy’s potential coalition gov’t fall.  

  

Loud forthcoming days as pre -summit newslow will dictate intraday swings.  Any ‘ real’ positives may cause some short covering into last week’s top, but need a few closes above ~SP1335 first.  See it as a reason to take profits for investors caught in last week’s sell off. 

  

All in, see market most likely headed into Q3 downside. Firstly, SP1300 on downside break of recent ~1309 low of ‘crammed soldiers together’ with SP June lows next in line or even lower later in summer.  (We’ve seen 3 / 30 to 40 SP handle one day drops in the last 17 sessions). That’s not a healthy market and we should expect more, thus making those downside targets not difficult to achieve.  A lot of positive things need to change for this bearish summer view to change.  Market doesn’t act well without hope of QE, now left in dark following Bernanke’s statement with next meeting 6 weeks away.

Ahead of the open, (26-06)

Our weekend comment in respect to upcoming EU summit, “…expectations…might be too high now.  Whatever they produce may not satisfy the markets any longer…” were taken a notch higher past our underwhelming premise by Soros’ comments ..” warns that the summit this week could wind up being a “fiasco which may well prove fatal…”. Adding more premarket downside fuel were German leaders comments that investors are hoping too much for ‘ easy solutions’ (most significantly the wish for shared liability).   The importance of Soros’ comments is simply because it is becoming the overwhelming market narrative, although not as extreme.  A building block it may only be with final solutions only coming at later summits.   Only hope now is for a credible step, a step the market may just accept and live with as the week proceeds. 

 

Another leg lower hit at the opening bell and 10 minutes into the trading day market broke through last week’s lows and was in jeopardy of a 50% retracement of the June rally.(SP1315 off 20 handles). By lunch hour with 20MA easily sliced through already support at SP1309 was being tested.. “..see market headed into Q3 downside. Firstly, SP1300 on downside break of recent ~1309 low of ‘crammed soldiers together.”.  Some stabilization was found at these ~1309 June levels.

  

All in, the downside action isn’t panicked as lowered expectations get priced in quickly allowing for bounces here and there, but overall market lies in an air pocket (growth clouds included) with little in the way of inflating it higher for any duration.

Ahead of the open, (27-06)

 As market found its footing once again at SP~1309, a mild ~6 pts SP bounce commenced as, “..lowered expectations get priced in quickly allowing for bounces here and there”.  

 

Nothing incremental occurred today, just the market coming to grips as speculated yesterday with idea that nothing substantial will happen Thursday/ Friday at EU summit.   You could say expectations are low enough at ~SP1309, if a credible map is presented at the summit.   After the recent ‘hope’ rally, optimism dwindled for the past few sessions and now a wait and see approach has taken hold. Those are seemingly the usual 3 market attributes that come before any summit as market goes up on hope, falls as optimism shrinks and then sits back and waits. Today’s trade was mostly ES/ETF’s as single stock action was pretty slim indicating only fast traders getting juiced up on hourly headlines, while investors sit back.

  

It will be hard for market to gain any momentum here mid-week as calendar is quite light on the eco’/corporate side.  Today, a few companies with Global reach made the markets other cloud grow darker after managements comments, so maybe it’s best there are not many things on the calendar besides the EU summit.

Ahead of the open, (28-06)

Thirty minutes and then it was over, sums up the trading day.

  

Flows, volumes seemed to stop after the initial ramp higher off better than expected housing data….(Yep ,US housing as Pending sales followed up some related number yesterday).  It may be June 27^th, but market is back to early June ways stuck in the ~1309 to ~1335 range. Intraday market was thwarted at the ~1335 top 2-3 times for about 2 hrs in total.   The action was narrow with the home linked stocks and energy doing most of the moving.  Anything retail linked from dollar stores to LULU to restaurants CMG was humbled 3-5% today.  Not exactly a great tape with the ‘leaders’ retail action that could only be explained by Q end fixing.  Any way you slice it, today’s upside seemed very artificial.  Everything else was pretty quiet in single stock land as fast traders dominate. (WPRT initiated June 6 struck another deal and is now up ~25% since).

Ahead of the open, (29-06)

Any doubt if the previous day’s morning rally was artificial was answered by the Dow ~170+, SP’s 18 handle drop at its trough.  Any question if it’s a fast traders market was answered by the Dow ~150/ SP+ 15 recovery surge in the last hours off a ‘cancelled Merkel conference’ headline leading to the possibility of a EU deal at hand.   The fact it’s a ‘renters’ ES/ETF market was also evident as single stocks hardly participated in the rally with most coming little off their lows with many ‘growth’ names still off 2-5%..KORS ,FFIV, VMW  just some names at the high end. (MA,  PCLN off 10pts and even AAPL -5pts).  Hardly what you’d call an inspiring tape for the longer than an hour or day.

 

 

...but wait...

  

A deal has really been struck tonight and the euphoria has pushed ES over 1340.  The question on many minds tomorrow will be how long before this shine wears off and we have another anti-climactic moment as we did following Spain’s bailout and Greece’s elections??. Those fading the upside tomorrow on that notion may be in for a surprise.  We discussed only needing a credible deal and at this juncture it seems to be, which should allow the market to end decent on the week, month and Q.   It will be interesting to see how long the short covering lasts and if 'longs' emerge afterwards.  '24-48hr renters' need to go, investors need to show signs of life.. In all, the fact we finally got a surprise out of a EU summit is a positive and it would be a disappointment (and surprise here) if market doesn't end the Q on a good note.

  

The immediate summit need of reducing Spain’s borrowing costs/ sov’ balance sheet woes due to banks debts was ratified with Germany caving in on bond buying.  Italy also gets a lighter set of conditions to reduce its borrowing costs.  Question here is ‘show me the money’ as there is over ~2 trillion of debt in Spain’s /Italy’s sheets and about a ~1/4 of that is in the ESM/EFSF funds.  Overall, this the big surprise with a gift for Ireland who take home a ‘surprise’ cake as well.  Breaking up the sov’/ bank link seems to be broken.  Also, a proposal of direct control covering all banks by a European ‘banking supervision system’ seems to be on track to recap the banks if need be. Still the details need to be seen and analyzed.  This is the first step to the ‘banking union’ expectation discussed here in the past leading up to the summit.

 

All in, a humbling 24hrs for Germany and a celebration for Italy and Spain.  Germany backed into a corner politically by Italy/Spain not signing off on the (small)120bln growth pact until borrowing costs issues addressed and for its football team on the pitch with Italy and Spain up for the Euro cup now this weekend.  As for the markets, it’s time to look at ahead to the ECB on July 5^th and earnings season around the corner.  Yep, that’s how the market works..on to the next!.  Expectation now will rise for ECB rate cuts and some LTRO as ECB should be pleased with the summit results to go ahead with easing measures.  Also, earnings expectations are depressed, thus any surprises (better than feared) and/or signs it’s not that bad should also be a market positive to go with possible ECB actions.

Into the trading week, (July 2- )

Before the ink could dry on any EZ summit documents and it’s measures,  the usual ‘Bear ’suspects were out crying the ‘devil is in the details’ (plan)…just another band-aid…this is going to be a repeat ‘fade’ of Greek bailout in October and/or the recent Spanish bailout when the market did a 40SP handle reversal.  Considering the ES futures were already up 1%> ~20 to 1340 in overnight/premarket on top of the ~15 spike from Thursday afternoon equalling ~35 handles, a case could have been made for a ‘fade’ job just due to the oversized move.  The recent up/ down volatility likely added to this ‘fade’ idea as the easy trade.

 

A different premise was taken here and it started a few days before in speculating the ‘pessimism’ that crept had back into the market with a floor set at SP 1309…”….  You could say expectations are low enough at ~SP1309,  if a credible map is just presented at the summit”.   As recognized (see details covered…ie. sov’/bank link broken/ Banking supervisory system(ECB)…steps to banking union), the market got more than credible, it got a ‘surprise’…No fade job was the premise going into the day,… “..Those fading the upside on that notion may be surprised.  We discussed only needing a credible deal and at this juncture it seems to be, which should allow the market to end decent on the week, month and Q.  The fact we finally got a surprise out of a summit is a positive..” ..Not only was there no fading at all during the day, the market euphoria actually added another ~20 intraday handles to a close of 1362 SP cash.   In all, can’t remember a market day this year when you could add/ buy on a hearty gap and still see gradual gains on single stocks throughout the day.  Simply, what was recognized here and published 1.5hrs before the open became the overwhelming interpretation of the measures proposed. (DJIA +278 2.2%,NASD +85 3%, SP 33, 2.5%)

   

Yes,  many obstacles/ hiccups will emerge over weeks/ months as measures begin to be implemented, but that should not be an immediate concern.  If your main concern to be invested or not was the EZ crisis, the summit measures should be a welcomed relief/surprise and be given benefit of the doubt at this time.  All in, SP ~1400 is more likely than SP~1300 near term, however the latter or lower is still a possibility in the back end of summer.

  

'Into the trading week', remember an integral part in the bullish premise Friday was..” Expectation now will rise for ECB rate cuts and some LTRO as ECB should be pleased with summit to go ahead with easing measures. Also, earnings expectations are depressed, thus any surprises (better than feared) and/or signs it’s not that bad should also be a market positive to go with possible ECB actions".  All in, the holiday shortened week and it’s thin liquidity could only be a positive into ECB meeting before earnings kick off the week after.  Thus, don’t think the move was an impulse reaction that will disappear in a few days like Greece in ’11/or Spain as speculated differently a few weeks back ..”The chances are this event (Spain bailout) will not be a game changer in the big ‘European’ picture and fading will eventually occur as most of the positives were likely built in last week..”  Also, I don’t think that the rally benefited by more than usual short covering and/or QTR end window dressing action as many are claiming. 

  

Upcoming week, corporate schedule is void of any important reports.  It is a time of pre- announcements, but holiday week might make this less likely.  Global PMI’s are due, but recent Flash # makes this an unlikely market driver.  A poor NFP# can only bring back QE chatter into FOMC (Aug.1), so can’t see this driving market negativity.  ECB disappointing is really the only thing to watch late in the week, but it seems unlikely they won't return a favor or two for the EZ leaders' efforts.

Ahead of the open, (03-07)

Collectively Global PMI’s have faltered into contraction over the time due to one culprit and that is the EZ crisis.  It is no surprise that eventually US PMI would the same under the ongoing troubles and today, it finally did.   The recession calls started to reverberate with market sliding to ~6-7SP handles off the 3.8 PMI drop, but soon the market realized the EZ progress should make the US PMI a lagging indicator and the market reversed to inch out an SP gain.  If the EZ crisis clears the air going forward, it would make the US June PMI a blip as things should only improve going forward.  

  

All in, a pretty good indictor today of market accepting summit measures to along with the fact that no selling occurred globally (DAX, FTSE, CAC up another 1% )after a weekend of digesting the news.  Also, the headlines of a few European countries moving towards blocking the bond buying plans was the first hiccup (as noted many implementation aches to come), but this first was positively shrugged off.

  

The picture remains the same into 1pm market close tomorrow (Tues.) and July 4^th, but before the next bell the ECB decision will be out and a BOE Q ease should occur.  ECB may announce a 12m LTRO, a 36mth LTRO and we get see a gap into that bell.  Expectation is for a .25% rate cut, may get .50%.  All in, as discussed a lack of action would disappoint markets, but unlikely as ECB needs to return some favors.

 

A Happy and safe 4^th…

Ahead of the open, (05-07)

String of gains continued into Tuesday’s half day adding (DJIA +72, NAS +25, SP ~5 to 1370).  The gains were led by the commodity complex as focus really turned into ECB and potential LTRO/ QE and to a lesser BOE adding to its QE.  IE. Precious metals (gold up nearly 2%, Silver ~3%, many base metals ~2-3%, copper 2.5% all point to a risk on QE speculation trade.  (The heavy commodity laced Canadian TSX logged its biggest advance of the year).  This ‘illiquid’ market exuberance falls back to speculation here following summit and 'Into the trading week', ….”Expectation now will rise for ECB rate cuts and some LTRO as ECB should be pleased with summit to go ahead with easing measures”.

   

In all, global markets probably got ahead of itself the last few days, if it’s due to anticipation of LTRO (12months or longer) as it was designed to help with liquidity in the banks.  This is not an issue now.  So beware, market may end up disappointed even it gets a consensus .25 ease cut (7:45am), but no new LTRO at the press conference that follows.   It wouldn’t be a surprise to see (ie Tuesday’s) gains that came on tepid volumes erased if that occurs.  Still, any disappointment is likely to be short lived (summit still #1 now) and a buy the dip oppy’, although no action at all would exacerbate the selling.

Ahead of the open, (06-07)

The holiday shortened week concludes with the NFP# following a few favorable labor numbers on Thursday.  The whispers have grown to about ~115k, but unless the numbers comes in closer to 200k the market reaction should be muted.  Still, the odds are better for an upside surprise than a QE provoking chatter number of say 50K. 

 

The ECB action and market reaction trade blueprint played out just as outlined with Tuesday's gains evaporating a few minutes into the trading day. A new wrinkle emerged as the ECB cut the deposit rate to zero and Denmark went into negative territory with its deposit cut.  This surprising action was the cause of weakness in the financials (ie.JPM) as it pressures the banks bottom lines and fear is FED may follow suit. How long this fear lasts will be seen in the share prices, hopefully it goes away.

Into the trading week, (July 9- )

Although the NFP# came in below consensus and was cited as the culprit behind the markets losses on Friday, it really wasn’t.  Only problem with the NFP# was it wasn’t bad enough to prompt QE3 speculation.  It’s hard to believe 80K isn’t bad enough to do something August 1, but that’s the impression market has right now of the FED’s timetable to act.  The report was really in no- man’s land.  Not bad enough to spur policy action and not good enough for recovery junkies.  The main driver behind the day was Europe.  A disappointing (no LTROS) ECB meeting from the previous day and cracks in the summit measures with some solutions coming into doubt overshadowed the NFP# report in this view. (see Sov’ yields climbing to critical levels).  All in, it seems market is losing faith in CB’s capabilities to really change things.  That’s quite the change, if it’s the case.  The running out of bullets idea in laymans terms may be creeping into the market.  Don't forget there was a co-ordinated action (incl. PBOC/China) of sorts on Thursday and market has seemingly blown it off.

  

‘Into the trading week’, market kick off with Q2 reports, but it’s the unscheduled companies and potential pre-announcements that will likely rule the week, if Friday is any indication.  A couple of pre-announcements from INFA, APKT did an incredible amount of damage to anything enterprise or cloud relating to end the week.  A slaughter in high beta tech land is the best way to describe it as market didn’t look at it as a company specific event.

This week’s Finance summit will likely produce nothing concrete and only cause intraday headline swings.

Ahead of the open, (10-07)

A market day void of chatter (and/or) any real drivers made for a typical summer ‘doldrum’ day with the SP off a couple of points.

 

 The current 3 part market concerns of : speculation of policy responses from FED (lots of dovish member FED speak today) following NFP#,  summit ‘detail’ uncertainty (Spain yields on watch) and US corporate growth/ pick up in pre-announcements (QLIK, AMD more bad for tech) continued to weigh on investor sentiment.  The market wary is in the volumes. 

  

Sitting back and waiting for ‘surprise 2H outlook’ earning report from single stocks and/ or a juicy  'buyers dip’ in the broad market to step in.

Ahead of the open, (11-07)

Following the EZ summit, noted, “... Also, earnings expectations are depressed, thus any surprises (better than feared) and/or signs it’s not that bad should also be a market positive to go with possible ECB actions.”

   Unfortunately, ECB and earnings (as in pre-announcements) have both disappointed and now the market finds itself hoping for a dead cat bounce off this afternoons visit to the 50MA.  The pre-announcements have started to pile on with no signs of being priced in.  We saw the depressed levels can get even lower following Friday’s cloud/enterprise shellacking and today the major driver for the markets swoon was long time fave’ engine makerCMI (-11%).  Industrial space took it on the chin due to CMI surprise revenue cut, but semi’ sector was clearly also a notable victim of pre-announcements today. At this point anyone hoping to hold into single stock earnings this Q is likely shaking in their boots as expectations are seemingly not low enough (yet).  The turning point for the market will be when bad reports start to turn and go ‘green’.

  

A hope today was the market would set its sight on the FOMC minutes due Wednesday afternoon for hints of QE. This hope is likely tomorrow morning now. (Clearly we’re just grasping at straws). 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.

Ahead of the open, (12-07)

Any chance of the market getting out of bed this week faltered once again today. The FOMC minutes provided nothing but more conflicting signals to the market on if and/or when they would join in the co-ordinated global easing ways. If anything the market knows now it will be later than (sooner-next FOMC Aug1).  Considering the underwhelming minutes and lack of positive clarity on any of the markets biggest concerns noted to start the week, it’s little comfort market held 50MA for a second consecutive day.

All in, narrative here this week stays same.  A rough chart attached shows the ‘wedge/ triangle’ the market is in and why odds are clearly looking to the downside.

Ahead of the open, (13-07)

Market losing streak hits 6 days, but magnet to the 50MA extends for a 3^rd day increasing the odds that a dead cat bounce began today.  The state of the market is so dour that today’s bounce off lows to its peak (~15 SP handles) was a celebration of sorts.  Unfortunately, 10 minutes before the close the party goers petered out and SP gave back half of the bounce to end off ~7 pts.  Still, market did reclaim the 50MA by a whisker and the longer this lasts, the better the odds this downward trend exhausts itself short term.   If anything, today showed the shorts are not so confident to press the market lower in fear of upside risk headlines. This usually indicates the market stays range bound until a fresh catalyst emerges as both sides lack conviction.

 

In all, an extension of the bounce is possible off the better than feared China data dump, but if sitting back and waiting as discussed early in the week for surprises in single stock 2H outlooks…why not wait it out some more.  Although the L-streak is at 6 days, it’s hardly been ‘juicy’ to step in size as the market is hardly off that much. 

  

Adding a few stocks to the Shadowlist, good ole NFLX (~$85) makes a return and YELP (~$22), the former for the squeeze factor and the latter for a bounce at this point (was just ~28).

Overall both may have a Shadowlist shelf life for longer term and not just be chartist’ potential plays as they appear to be now. 

Into the trading week, (July 16- )

The premise ahead of Friday’s rally was that of a dead cat bounce continuing from previous session due purely to the odds increasing of one by virtue of 50MA holding day 3 and lack of shorts conviction to press lower after 6 days of losses.  Once again upside risk headlines (below) got the better of the shorts.

  

The above notion was greatly enhanced by mildly positive (better than feared) China data dump overnight, but notably from what was discussed earlier in the previous days, ..” earnings expectations are depressed, thus any surprises (better than feared) and/or signs it’s not that bad should also be a market positive…” and “..the turning point for the market will be when bad reports start to turn and go ‘green’.  Simply, banks surprised with ‘better than feared’ reports fueling to squeeze the market as soon as the gates opened.   Most sectors were up >1%, but single stock action seemed to lag as far as strength is concerned.  Would have liked to see more activity in the ‘growth’ names as market pressed into resistance levels. (low SP1360's)

 

All of the above factors are elements of a dead cat bounce and not necessarily a market turn unless the heavy loaded earnings week ahead is greeted with the same ‘good enough’ sentiment.

  

Market also gets first July data points and Bernanke speak to trade around this week.