Friday's trading session will wrap up a volatile and very strange trading week before the holiday weekend. Monday's market provided one of the best positive days of the year. Since then, the market has reversed its early direction in late day trading for three straight days . Given Friday's projected low volume as a lot of traders head to the Hamptons for the Memorial Day weekend, I think there is a good possibility that we have a significant down day due mainly to Europe and slowing worldwide growth. European bourses are open on Monday, so I think traders will be extremely cautious today and early downward momentum could quickly accelerate. If that turns out to be the case, I will be looking to put some dry powder to work in the beaten down, defensive healthcare sector at the end of the day including adding to my positions in Teva Pharmaceuticals (NYSE:TEVA), Life Technologies (NASDAQ:LIFE) and Walgreens (WAG).
5 fears for Friday's market:
- On the front page of the New York Times today was a well written article on the increasing transfers happening out of the Spanish banks. This is on top of myriad stories recently about mini-bank runs happening in Greece, where 25% have already left over the last two years. Bank runs can happen lightning quick if depositors lose confidence in financial institutions. Obviously this would add a major obstacle to solving the European crisis if it occurs on a larger scale.
- If that wasn't enough, another front page story covered the slowing Chinese economy. Retail sales are showing their slowest growth in three years and foreign direct investment is down to its lowest level since 2001.
- European fund managers are dumping euro assets. This has been one of the key contributors to the 5% decline in the Euro over the past three weeks, which has undermined commodity prices and the stocks of commodity producers.
- Worldwide confidence seems to be eroding. The U.S. had a poor durable goods report the other day, European business sentiment is slipping, and important Chinese manufacturing index just registered its seventh straight monthly decline.
- The talk of Greece exiting the Euro and going back to the Drachma is escalating. This would have severe impacts to Greece, Europe and the worldwide markets and economies. This is rapidly looking like it is becoming a self-fulfilling prophecy and it is hard to see our market staging a meaningful rally until this issue is resolved. The next Greek elections are three weeks away.