By Mr. Ice
As Greece edges closer to selective default and banks in the U.K. and Italy comes under closer scrutiny, the confidence shown by the bulls after President Obama’s gloomy debt speech Tuesday vanished. The internal divergences finally caught up to the market and the slowing economy caught traders by surprise.
The action Wednesday was truly ugly with terrible breadth, heavier volume, and closing below the 50-day moving average. That said, we are much oversold on several matrices and the bulls should muster a bounce, especially if we can get some more panic put buying early in the day Thursday. Perhaps another debt deal rumor?
With the weekend fast approaching and if there is no deal on the horizon, I would be hard pressed to find buyers of stocks and Treasuries into the weekend. In addition, CME Group is raising margin requirements for Treasuries in an attempt to dampen potential volatility. If there are no deals soon, the first oversold bounce may fail quickly as the dip buyers at the close Wednesday lock in profits.
On the Nasdaq, which had held up admirably as the Dow and S&P came under pressure on Tuesday and Wednesday, is entering a seasonally soft third quarter. From Wednesday night’s earnings, we have Juniper (NYSE:JNPR) and Akamai (NASDAQ:AKAM) both signaling a weak networking environment and ARM Holdings mentioning that fourth quarter revenue may be soft due to macro concerns. ARM Holdings (NASDAQ:ARMH) owns the processing space in the red hot smart phone and tablet space and its royalties are collected in arrear from the quarter before. So they are signaling potential soft demand going into the traditional third quarter build up period. For some anecdotal evidence, my friend at the electronic parts supplier said the hiring plan did not materialize and things have slowed down.
If the NASDAQ can’t find its footing soon, it may have some catch down side and could hold back other indices.