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 12 ottobre 2011

Market Comment - October 12

(Marco Bonelli) Welcome to the Q3 earnings season! AA reported last night and one message might be representative of what is lying ahead in general:

"For the first time this year, ongoing productivity improvements across our businesses were insufficient to overcome slowing market conditions and prevailing cost head-winds."

This probably describes the developments in many industrial sectors accurately and it is likely that investors will hear a similar message from many other companies over the next few weeks.

On a side note, the fact that AA raised its demand forecast from China, stating that the higher demand will offset weakness anywhere else in the world, sounds more like a cheap explanation to maintain their yearly forecast for global demand and avoid a major revision to the downside.

One of the most interesting developments with the current rally in the stock market is the fast change of sentiment. While pessimism still reigned last week and the week before, now a lot of bears suddenly talk positively and express confidence that the market has seen a bottom and the outlook appears more promising. Currently sentiment appears to be in reactionary mode and changes with every headline out of Europe and each economic number released. Short-term developments always swing around an existing trend line, if it's an economic trend or a trend in the stock market. While two weeks ago, economic data and expectations swung below the fundamental trend and anticipated worse, right now economic data and expectations quickly move above the fundamental trend, anticipating better times. The important observation is that there is nothing out there that really indicates a change in the trend itself. Whether the fundamental trend leads to a recession or just shows no or little growth in the months ahead, expectations will always come back to the trend. Sentiment and expectations are very important market drivers but at the end the fundamental trend dictates the overall direction.

So in the ongoing flip-flop game, sentiment and expectations already moved stock prices sharply higher and continue to do so. Chart pictures improve and traders get excited which usually extends the ride on the rising wave and moves expectations further away from reality. Maybe it's cherry-picking, but if other companies repeat what AA said about market conditions, the short-term optimism will soon fade. So far fundamental macro trends stay in place and Europe will be busy fixing its structural problems over the next quarters and years while fighting a possible recession.

Anyway, market participants watched the Dow Jones, SPX and Nasdaq break their 50day MAs (the Russell 2000, the S&P Midcap and the Value Line Index closed righty at the MA line yesterday). The Dow Jones, SPX and Nasdaq also formed a wide up-sloping channel from the August lows. This lower channel line got broken to the downside end of September and almost all major averages briefly broke down to new lows. Now the rally that started last Tuesday pushed prices again up to the lower up-sloping trend of the mentioned trading range, which now poses as a resistance.
Finally the NDX is also close to revisiting the 2-year uptrend line (currently at 2342), a resistance that wasn't broken in the middle of September.
The fact that overall trading volume was on the light side on Monday and yesterday isn't really bullish but probably shouldn't get over-rated as short-term sentiment and the "road of least resistance" may still move prices higher. Nevertheless, the mentioned chart levels are worth watching.

Let's see if Slovakia's second vote on the EFSF expansion will further feed the resurging optimism and the ongoing short-covering rally until reality kicks in again.

Trade well.

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

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