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

mercoledì 3 agosto 2011

Market Comment - August 3

Well, this was a clear statement and not the usual two-steps-back-one-step-forward approach! I'm certainly talking about better than expected July auto sales, but coincidentally it also applies to the stock-market in general...:

- SPX, Russell 2000, Dow Jones Transportation Index YTD performance negative

- Dow Jones, SPX, Nasdaq Composite, S&P 400 Midcap, Russell 2000 close well below the 200day MA

- Dow Jones, SPX, Nasdaq Composite, S&P 400 Midcap, Russell 2000 close below the two-year uptrend

- Dow Jones, SPX, S&P 400 Midcap, Russell 2000 and Value Line Index close below the 'neck-line' of a head-and-shoulder formation

- Dow Jones, Dow Jones Transportation, SPX, S&P 400 Midcap, Russell 2000 closed below their June lows

In the middle of the re-emerging discussion about double-dip recession and QE3, economy-sensitive commodities (energy, copper) slowly joining the party, gold going through the roof and bond-yields continuing to plummet, it's interesting to see a head-and-shoulder formation unfold for various indexes. Usually head-and-shoulder formations get discovered after they developed, so it is almost exciting (as exciting as it could be with markets tanking) and rare to see a text-book formation like we currently do.  Although a lot of indexes closed below the so-called neck-line, it was the first attempt and also relevant indexes closed only slightly below that line. To call the formation completed, we definitely need further confirmation, however if that happens, the downside is roughly around 10% from here!

Let's talk a bit more about the bond market. 30yr yield dropped from 4.34% to 3.90%, 10yr yields from 3.04% to 2.60% and 2yr yields from 0.46% to 0.32% in the past five trading days. Investors always try to figure out what both, stock and bond-market is forecasting regarding the economy. Historically the bond-market's forecast was on average more accurate. Undoubtedly, the drop in yields suggests that bonds are afraid of something major. Looking at the recent economic numbers, this observation is not too far off. Even though the ADP Employment Change for July showed that 114k jobs have been added in the private sector, it doesn't really change the perception that the US economy is in a deeper than expected slow-mode for a longer than expected time. So on one hand there is the message the bond-market sends, on the other hand, investors look at the valuation compared to stocks which is compelling in favor of stocks. The Million Dollar Question is whether the macro-economic outlook or the valuation argument is predominant. As not all money can go into gold, the argument of lack of alternative investments is definitely fair, although not new.

Between now and Friday's release of the Government's Labor report, the market will engage in some nervous and unconvinced day-trading activity, probably attempting to rebound after the worst single-day loss in months, however a lot of damage has been done and it needs a bit more than a mediocre rebound to make the picture look bright again. It's hard to catch sentiment at the moment with investors looking at a year-to-date stock-market gain of zero but there haven't been too many really negative comments out recently. To the contrary a few more or less prominent market watchers make bullish calls this morning and suggest to buy the current weakness. Over the next few weeks, we will see who is right.

Let's also see if the self-fulfilling prophecy in regard of the contagion for the European debt crisis further develops and let's watch out for any hints regarding a global QE3.

Trade well.

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

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