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.