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David Moenning is a the proprietor of StateoftheMarkets.com. In addition to providing free and subscription-based portfolios on "State", Dave is a full-time money manager and the President and Chief Investment Strategist of a Chicago-based Registered Investment Advisory firm. Dave... More
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Daily State of the Markets
  • Bears Have To Be Disappointed So Far 0 comments
    Mar 20, 2013 8:47 AM

    Daily State of the Markets
    Wednesday, March 20, 2013

    Good Morning. Given that stocks came into the week in a very overbought condition, that just about everyone in the game has been calling for a correction, a pullback, or at the very least a "sloppy period" to commence, and that the situation in Cyprus appeared to give the bears the catalyst they needed to get control of the game, our furry friends have to be disappointed with their efforts so far.

    Although there has been a fair amount of intraday volatility this week surrounding the headlines out of Cyprus (the S&P fell 13 points in about 15 minutes yesterday on word Cyprus's Fin Min had resigned and then dove another 8 when the country's Parliament rejected the bank levy proposal), it is important to recognize that the total damage to the stock market so far this week has been minimal. If my $8 calculator is functioning properly this morning, it appears that the S&P has fallen just -0.95% from Thursday's high point and the DJIA has only given up 83 points, or -0.57%. So, at least at this stage, we can't exactly call the situation in Cyprus a crisis for the U.S. stock market.

    In terms of identifying the drivers of the current market action, we will have to stick with Cyprus as the frontrunner at the present time. Although with an announcement from Bernanke's bunch on tap today at 2:00 pm eastern with a quarterly press conference to follow, the focus could easily and quickly shift this afternoon.

    Recall that equity and bond traders alike have been keen on any hint (subtle or otherwise) as to when the Fed might consider pulling their QE punch bowl from the party. The general thinking is that any indication that Bernanke might be thinking about making a move sooner rather than later could be a big problem for the prices of both stocks and bonds.

    But before we get to the Fed announcement, the algos will be focused on the situation in Cyprus. As such, here is an executive summary of where things stand this morning:

    • The Eurozone stands ready to help Cyprus - On Tuesday evening, Eurogroup head Jeroen Dijsselbloem released a statement saying that the Eurozone "stands ready to assist Cyprus in its reform efforts". However, the demand that Cyprus contribute 5.8 billion euros to the effort has not changed.
    • The ECB promises to provide liquidity - After the Cyprus Parliament rejected the initial bank tax Tuesday afternoon, the ECB announced that it remains committed to providing liquidity as needed. However, it also said that it would do so "within the existing rules". And THIS is the tricky part. ECB rules do not allow the central bank to lend to insolvent banks. And the ECB's Asmussen said Wednesday that banks in Cyprus are not solvent without them being quickly recapitalized via a bailout program.
    • A deal with Russia may still be on the table - Cypriot Finance Minister Michael Sarris (who tried to resign yesterday but the resignation was rejected) said that his country and Russia have not reached a deal on a loan. However, the talks were described as "very constructive". He added that discussions are expected to continue. The latest headline this morning indicates that Cyprus and Russia are discussing a possible exchange of bank assets and islands.
    • Cyprus Bank Holiday may be extended further - While Cypriot banks are currently scheduled to reopen on Thursday, Bloomberg reported Wednesday that the bank holiday may be extended through the end of the week.
    • Speculation of an exit from Eurozone - Comments from ECB Governing Council member Nowotny have brought up the possibility of an exit from the Eurozone. Nowotny said in an interview that "It is in the interests of the euro zone, and of course the interests of all members states, (for Cyprus) to stay in. But you also have to say that membership in the euro zone demands a kind of discipline and the readiness to act rationally."
    • THIS JUST IN... European indices as well as U.S. futures have moved higher on rumors of an initial agreement with Russian investors to buy Cyprus Popular Bank. This could be viewed as a first step in the resolution of the bank recapitalization plans.

    So, while the drama is likely to continue and the algos will likely react to each and every headline, I think it is safe to say that so far at least, the situation in Cyprus is not (yet?) the debacle that the bears have been looking for. Stay tuned.

    Let's talk strategy... Forget the fast money and the latest, greatest option trade. What investors need is a strategy to keep them "in" the stock market during bull markets and on the sidelines (or short) during bear markets. The Daily Decision System Can Help.

    Turning to this morning... Although all eyes are on Cyprus again this morning, the general thinking seems to be that there will be a resolution to the "crisis" in the near-term. As such, traders are likely to shift their attention to the Fed this afternoon.

    Pre-Game Indicators

    Here are the Pre-Market indicators we review each morning before the opening bell...

    Major Foreign Markets:
    - Shanghai: +2.64%
    - Hong Kong: +0.97%
    - Japan: closed
    - France: +0.32%
    - Germany: +0.39%
    - Italy: +0.44%
    - Spain: +0.17%
    - London: -0.04%

    Crude Oil Futures: +$0.67 to $92.83

    Gold: -$2.00 to $1609.30

    Dollar: lower against the yen, euro and pound

    10-Year Bond Yield: Currently trading at 1.934%

    Stock Futures Ahead of Open in U.S. (relative to fair value):
    - S&P 500: +9.25
    - Dow Jones Industrial Average: +83
    - NASDAQ Composite: +20.02

    Thought For The Day...

    You can do anything if you have enthusiasm. Enthusiasm is the yeast that makes your hopes rise to the stars. -Henry Ford

    Positions in stocks mentioned: none

    Follow Me on Twitter: @StateDave


    The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.

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    The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

    The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (NASDAQ:HCM) a Chicago-based money management firm. HCM is registered as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.

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    Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.

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