Il Primo Ministro greco Lucas Papademos riceve l'approvazione del governo su tagli al bilancio che corrispondono al 7% del Pil nei prossimi tre anni e su una ristrutturazione finalizzata a ridurre di €100 mld gli oltre €200 mld di debito detenuto dai creditori privati, atteso il voto del parlamento • Standard & Poor's declassa il merito creditizio di 34 banche italiane tra cui UniCredit a BBB+ da A, Intesa Sanpaolo a BBB+ da A e Banca Monte dei Paschi di Siena a BBB da BBB+, S&P anticipa "una redditività decisamente debole per le banche italiane nei prossimi anni" • La produzione industriale italiana aumenta a dicembre +1,4% da novembre +0,3%, oltre le stime degli economisti +0,5%, anche se i dati del quarto trimestre -2,1% suggeriscono che la terza economia della zona euro è entrata nella seconda recessione dal 2009 • I Btp decennali salgono per la quinta settimana consecutiva, il periodo di recupero più lungo in oltre cinque anni, la prossima settimana il Tesoro vende €4 mld di buoni al 6% con scadenza 2014 • L'euro cala dal massimo di due mesi contro il dollaro, il mercato azionario europeo cala dal massimo di sei settimane e l'azionario Usa registra la prima settimana di perdite del 2012 dopo che i ministri delle finanze europee non hanno concesso il pacchetto di aiuto necessario a prevenire il collasso economico della Grecia

venerdì 29 luglio 2011

Market Comment - July 29

(Marco Bonelli) The broad market continues to deteriorate but at least investors are happy to own a premium loose-leaf tea retailer as the IPO of Teavana Holdings Inc (TEA) opened with a 70% premium to its $17.00 pricing. Interestingly TEA appears to be a growth story with real sales and earnings, but it's still sort of strange to look at both stories.

So if you just came back from a two month vacation on a remote island, would you buy the market here or not?
Maybe you take a look at the Value Line Index (VGY), an index with 1650 equally weighted and geometrically averaged components. The index broke the original two-year uptrend beginning of June but held at the levels from April 2010 which acted as support and also turned out to be the level where the second two-year uptrend line ran. The index recovered almost precisely back to the original uptrend, turned south and finally broke the second trend-line again to the downside on Wednesday, confirming this move again yesterday and today. Next stop June 2011 lows. A break of these levels could point to a calculated 12% downside from yesterday's close.
Yesterday, better than expected Initial Jobless Claims and Pending Home Sales from June couldn't really offset the uncertainty from the circus in Washington. So the weak technical rebound faded around noon and further selling accelerated in the last two hours. With that the major indexes moved even closer to the two-year uptrend that famously held in the May/ June correction. The levels to watch are 12156 in the Dow Jones, 1292 in the SPX, 2713 in the Nasdaq Composite, 2240 in the NDX and 785.50 in the Russell 2000.

What's different in the current sell-off compared to the prior two months is that many cyclical sectors and industrials in particular lead the move. Quite a few sectors (capital goods, E&C, industrial conglomerates, defense and building materials) already broke the lows from June and the Dow Jones Transportation, that made a new all-time-high three weeks ago, now trades 7.8% below that level, closed 4 points above the two-year uptrend line and 45 points above the 200day MA. This is important because it was the manufacturing sector that lead the economy out of the recession. With industrials starting to feel the headwind from a global manufacturing slowdown and the consumers still struggling, the question is what is left to keep economic growth going? Maybe AAPL can produce a few million more iPhones and iPads and bail the world out?

Another noticeable difference is the weakness in biotechs, a sector that usually trades in tandem with the NDX and often even leads the Nasdaq while generally multiplying the performance of the NDX (to the upside and downside). The biotech sector is also a random indicator how much risk investors are willing to take on. Also trading at or close to the all-time-high in the past few weeks, the BTK Index sold off sharply this week which might not be a good pre-cursor for the broader Nasdaq.

With about two thirds of SPX companies reported, the focus will shift more and more to the macro-economic front. The GDP data was a disaster as not only Q2 grew at a mere 1.3% but Q1 was revised down from 1.9% to an almost flat 0.4%. The July Chicago PMI to be reported later after the opening is unlikely to change the not so happy mood of this Friday.

Overall, macro-data will be the most important indicators for the next weeks and each of the upcoming economic numbers will count to determine how long the economic weakness will still last. The outcome in Washington won't change that.
So let's hope we don't get disappointed for too long.

Trade well and have a great weekend.

(Marco Bonelli is the Managing Director - International for CL King & Associate in New York. The opinions expressed are his own)

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