Almost a perfect consolidation day as the SPX continued the weeks pattern to SPX 1204 on ‘little’ or no news with no selling pressure (only ES/ETF), only to be met with dip buying and a reversal of ~15pts SPX. This 3-4 day period, which in reality started last Friday, post NFP# was the perfect digestion, a market that at end of day had given up maybe 1% of the previous weeks 3.5% rally and /or 16% of the entire run.
Unfortunately, AMC, CSCO dropped a bombshell with it’s guidance. We always point out that CSCO is the first major to report a Q that includes an extra month of business post the prevailing earnings season. In this reports case, following a strong earnings season in tech, they give a look of what business was looking like in October going forward. Every company that reported strong in tech, FFIV, BRCM etc was up to end of Sept Q. Something in the economy deteriorated rapidly in October and if it doesn’t spell trouble immediately for the market (ES not even at days bottom tonight), the ramifications of this will eventually hit as all related reports next earnings season will see this slowdown in their reports on the bottom line and they will miss or pre-announce the missed guidance. CSCO said all co’s involved in space will feel it when questioned as to why no others have talked about this. It’s all a question of being one month ahead and if you understand CSCO, you know this can’t be a CSCO specific problem. If CSCO says they gained market share in the majority of their largest businesses, up to 7 of them… well, you do the math of the consequences for others that deal with public state sectors/cable co’s . Also, spending cutting extended into Euroland..globally. You won’t hear too much about this v.small co tomorrow, but look at the shredding of revenue guidance at KLIC (semi) tonight..wow, almost half!
Any other Q this would be immediate trouble, but the market is so struck with QE2 and the first purchase ahead on Friday of 100bln+ that it's not responding as negatively as would be expected initially. A good wash back to the gap pointed out as support recently 1184-1188 would be perfect here, but it doesn’t look like it will happen as the ES hangs in tonight. Maybe the market things QE2 came in time to save things like this from occurring all over tech land and beyond. Market is really missing the ball so far on this and/or has rose colored glasses on. Staying clear of tech as the analysts pick through this in days to come and discover other victims. As far as the broad market, let’s hope for rotation and allocation of equity money flow elsewhere for support to close off the year.