Publishing Note: I have family visiting through Wednesday evening of this week. Thus, I will publish my "Daily State" report as time (and sleep levels) permit.
Good morning. On Monday afternoon, I heard an awful lot of talk about the "great action" seen in the major indices. While I initially argued that a drop of 240 Dow points could hardly be considered "constructive action" in my book, I knew full well that I was being petty due to the fact that it was the big rebound from the lows that was being referenced. And while I countered with the idea that much of Monday's eye-popping bounce was due to rumors of this and that, the bottom line to pure market technicians was and always will be the action on the chart.
To be sure, I am not a pure technician. No, I'm more like the kiddy version of a technician. While I would never dream of taking a position without consulting a chart and I will admit to spending the vast majority of each day poring over six screens full of squiggly lines and flashing quotes, I prefer the old-school stuff like trendlines, support and resistance, and some almost-fancy moving averages. So, before I hung up the phone with my techy buddy, I did manage to slip in the idea that if Monday's rumors proved false (again) then the bulls might be in for some trouble.
Then came Tuesday. To put it mildly, the news flow was abysmal and stocks reacted appropriately. Suddenly the "great action" - which, to me at least, was indeed tied to the rumors du jour on Monday - was gone. There was some good news to report in the early going as China's PMI was the best in several months. But after that, things went downhill in a hurry.
So let's review. First, after the bell on Monday, Moody's, having gotten bored with the easy stuff, decided to up the ante and cut their ratings outlook on Germany, Netherlands, and Luxembourg (I know, even Luxembourg!). Moody's cited "rising uncertainty regarding the outcome of the euro area debt crisis" and "the increased susceptibility to event risk stemming from the increased likelihood of Greece's exit from the euro area" as reasons to hint that they may soon be downgrading Europe's biggest and baddest economy.
Next came the early morning earnings where DuPont (DD), Altria (MO), and AT&T (T) all followed the current trend of missing revenue estimates. Then came United Parcel (UPS), which hit the trifecta by missing on both the top and bottom lines, cutting their guidance for next quarter, and then talking of uncertainty going forward. Thus, even the most enthusiastic bulls are going to have a hard time arguing that earnings continue to be great.
Next up was the economic data, which wasn't pretty on either side of the Atlantic. The European Flash PMI's were weak with the eurozone manufacturing number at 44.1 and the Services at 47.6. And then the new Flash version for the U.S. (aka a guesstimate for the ISM numbers to come) came in at the weakest level in 19 months. Ouchie. Now toss in nothing short of an implosion in the Richmond Fed index and PIMCO's Bill Gross was prompted to suggest that that the U.S. economy might be getting dangerously close to the zero-line.
Oh, and lest we forget, Greece somehow made a big comeback on Tuesday as EU officials, who were auditing Greece's books to check on the progress the country had made on its fiscal targets, basically said there is no way in heck that Greece was going to hit their targets. I know what you're thinking - who cares, right? The point is that with the IMF saying this week that it just might cut off aid to Greece and Athens only having cash to cover expenses through September, well, it looks like that "Grexit" everyone was talking about a while back could become a reality. And with the ECB and Europe's central banks still holding a big batch of debt at par, this could become a problem.
Speaking of bond yields, the 10-year bonds of Spain and Italy closed the day at all-time euro-era highs (not a good thing) while the benchmark 10-year in the U.S. moved to an all-time low during the session. And then yields in Germany remain negative on paper with durations up to 2 years. Thus, analysts looking for the flight-to-safety trade didn't have to look very far yesterday.
Finally, there is the fact that the pattern being traced out in the stock market right now is eerily similar to that seen a year ago. And with my calendar showing that August 1st is right around the corner, there is a certain segment of the trading population that expects things to get downright ugly again - and soon.
All of the above brings me to the question of the day. We all know that Mr. Bernanke likes to lead the cavalry charge to come to the rescue when things look bleak. And to be fair, stock prices in the U.S. are hardly in trouble from a longer-term standpoint. However, based on the big-picture macro view, there are those who argue that now is time for Bernanke, Draghi, et al to pull the trigger on "the bazooka" (aka a globally coordinated central bank response with some "shock and awe" involved) before things get out of hand. And while I can argue both sides here, there are a great many traders who are wondering if now is the time to go ahead and pull that trigger. (And the WSJ's Jon Hilsenrath's late-day rumor that the Fed is "getting closer to taking action" certainly supported this thesis into yesterday's close.)
Turning to this morning ... Although Apple (AAPL) shocked the street with a big earnings and revenue miss after the close, lower yields in Spain and expectations for central bank intervention is causing a rally in Europe today. And of course, the S&P and Dow futures are following suit (NASDAQ remains down hard in response to Apple's nearly 5% decline).
- Major Foreign Markets:
- Australia: -0.43%
- Shanghai: -0.49%
- Hong Kong: -0.14%
- Japan: -1.44%
- France: +1.00%
- Germany: +1.04%
- Italy: +2.22%
- Spain: +1.94%
- London: +0.25%
- Crude Oil Futures: +$0.25 to $88.75
- Gold: +$16.000 to $1596.80
- Dollar: lower against the yen, and euro, higher vs. pound
- 10-Year Bond Yield: Currently trading at 1.438%
- Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +2.04
- Dow Jones Industrial Average: +84
- NASDAQ Composite: -21.21