DJIM #23 2011
Monday, June 6, 2011 at 07:05AM A month (May) long slow bleed became infectious as insult to injury carried into June. You can’t sum up the ‘insult’ any better than in the abrupt eco’ data slide, notably in Global PMI’s showing a broadening slowdown compounded by a terrible labour report. A 3.7% SP decline from peak (Tuesday) to trough (low on Fri.)
A ray of hope in the doom and gloom week is the Japan IP guidance, but for now the potential big boost down the line is not enough for the startled marketplace. A quicker than expected reversal will definitely play a role in global #’s, but commodities (oil first of all) need to continue to stabilize so consumer spending comes back(US labour market = consumption ). Despite the doom and gloom shock , this is likely the recent temporary abnormal factors playing themselves out in Global numbers, but again, the labour mkt/consumer is a fresh risk here after this week’s figures.
Unless this week’s data forces gov’t/feds hands to ‘fix and act’, (how is unimaginable) and ends up serving as a positive catalyst, we as traders are in no man’s land as corporate EPS reports will only start to trickle in this month, plus we’ll have no substantial eco data for a month to rebut this week’s numbers. We had JOYG (eps), big bankers, FDX give hope at conferences/shows.
One big hold up (Greece) and this week’s re-bailout news is likely an overhang almost removed and thus a positive, but we still have debt ceiling unresolved and a few other factors to get around. Any signs of stabilization in Europe will improve market sentiment.
As for Friday’s trade, ADP# related carnage on Wednesday quickly slashed views to low's of 75-100k (GS and others) vs. the overall consensus forecast of 175k by Friday morning. The market had a ‘poor’ number (75-100k) baked in most likely, but the horrific 54k best result would have been some capitulation for the market. Instead, damage was done in ES/SPY premarket with most single stocks and many sectors hanging in real well in the morning as market resiliency is still present. There was actually more weakness late in the afternoon in single stocks, which eventually led to the market giving up the intraday reversal and closing at lows of day.
DJIM has avoided providing a daily Shadowlist component update since becoming cautious on the market at the start of May. As end of May sector breakdown below illustrates there was no need to as de-risking has turned into 5 consecutive weeks of declines. Hopefully, we’ll start up providing such soon again. Note, related to this was Thursday’s strong action in China Internets, which we battled with including in the Journal. Well as of late Friday’s reversal beatings in SINA, BIDU,QIHU,YOKU indicates it was the right decision not to take one day action very seriously in any market component and begin the Shadowlist breakdown again.
As noted after Thursday’s trade, market turns to focus to Bernanke (Tues.pm) and a lesser eye on Trichet later in the week. A re-widening of monetary policy between the two should be coming back now, which has been best for the markets.
