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

lunedì 13 febbraio 2012

Market Comment - February 13

(Marco Bonelli) The rally is over! - ...but you will have a few more opportunities over the next two or three weeks to lighten up positions or take profits while the market might attempt to break out to new highs again. After that the broad indices may give up 15% or more over the next six months in some sluggish and partly painful trading!

Consequently, I would no longer build new positions in the high-flying financial, industrial and technology sectors but use any strength in the short-term future to reduce exposure and only go selectively long in cheap defensive stocks or special situations across all sectors that haven't been recognized yet.

Why is the rally most likely over?

The main driver behind any upcoming correction will be the recognition of fundamental reality! Now, the recent rally departed too far from this reality and anticipates a happy-ending scenario on all stages, which is highly unlikely it will unfold as fundamental reality ranges from zero or low single-digit earnings growth (by now, S&P500 earnings growth estimates dropped to 0.1% in Q1 and 1.6% in Q2) to a global economic slowdown, lead by a recession in Europe and chances of further deteriorating growth in China.

The longer-term uptrend and last bull market started three years ago (and famously ended in August last year), initially driven by hopes for a rebound from the recession but then mainly driven by double-digit record earnings growth and a little bit of holding-hands by the Fed. I believe that a trend doesn't only have the technical function but also mirrors the fundamental situation and on top of that, also has a symbolic meaning. The Nasdaq Composite, NDX, Russell 2000 and many sector-indexes in the technology, consumer and cyclical space already recovered back to the original trend from three years ago, which mirrored a completely different fundamental picture than we face today. Although there might be an attempt to break back into this trend, it won't work as the symbolic and technical resistance will prove to be too strong.

By now, the impressive rally in the past two months and the 20 to 25% advance since the lows from November anticipates a steady recovery of the US economy including a rebound in the troubled housing sector, a return to solid earnings growth in 2H, a stabilization of or even departure from the European crisis and a soft-landing in China. Almost all statistics and data supported these scenarios (which lead to a high degree of complacency!) but rarely this trend remains for a long time. Especially with structural changes like we saw and still see in the US and in Europe, there will be disappointing economic data (i.e. recent industrial statistics in Europe or trade data in China) and there will be major new uncertainties in Europe that will remind investors that the crisis is not over (does anybody care about the implosion of the Spanish and Portuguese economy and if Greece exits the Eurozone, will it be anything else but disorderly?). Interestingly the past rally seems to almost fully discount many events in a very short period of time that are supposed to happen over the course of the year. Beside the mentioned macro-economic scenarios, you could also include events like the Facebook IPO or the launch of iPhone5, iPad3 and iTV - so if all this is already more or less discounted what's the next real catalyst? Finally politics: if the economic recovery in the US continues, the chances are high that President Obama gets re-elected and this is probably not one of Wall Streets favorite scenarios!

So again, this won't be about a certain event, a shock, the re-emergence of a crisis or uncertainties but an acknowledgement of the current economic picture with a strong emphasis on sharply lower earnings growth in the US and tremendous uncertainties regarding economic growth in China! The more bullish and complacent sentiment becomes over the next few days and weeks, the more likely the market gets set up for major disappointments once fundamental reality kicks in!

Why will the market still attempt to move higher first?

(Negative) sentiment was one the biggest driver of the rally in the past eight weeks. Only recently this measure turned decisively to the positive as more and more market participants embrace the rally. At the same time, many investors remained (and some still are) cautious over most part of the rally and missed or lost performance, which could easily result in more buy-the-dips action. Also, market sentiment just turned to the bullish side and hasn't reached any extreme levels yet (for example, the AAII data shows the number of individual investors expecting stocks to rise over the next six months at a 12-months high (51.6%) and the number of newsletter writers (according to the weekly II survey) reached an 8-month high at 52%), so even if the market has one or two down-days, this newly-gained confidence won't flip to the negative immediately.

The same what caused some profit taking on Friday (concerns about Greece) could have the opposite effect once a short-term temporary plan gets eventually agreed on (the approval of a new austerity plan yesterday is one step towards it), which will feed the complacency towards the depth and the duration of problems. On the opposite, any clearer indication (similar to strikes, violence on streets, partial government break-up etc, as we have seen during the last few days) that Greece may exit the currency union could also trigger an initial positive reaction ("...finally it's over..."), only to reverse once everybody realizes that a development like this will neither be isolated nor contained.

Upcoming economic numbers, particularly tomorrow's January retail sales (on back of strong same-store-sales), could surprise to the upside and act as catalyst for the rally to resume and as confirmation of a broad-based economic recovery (at least on the surface).

Although more better-than-expected economic data reduced the likelihood of any QE3 announcement, there are still plenty of hopes for further stimulus from the Fed that continues to lift the Monetary Base (now up 2.3% since November after "shrinking" the broadest measure of money supply from July until November).

Friday's market represented unconvinced profit-taking backed by shallow explanations: "Stocks decline with commodities on Greece bailout concerns, treasuries rise." Press reports also dramatically outlined "the biggest losses of the year". Basically what happened was a bit of profit-taking on average volume that already ran out of steam when the SPX hit short-term support at the lows from February 6 and the NDX rebounded from the lows from February 7 (according to a short-term 10-day chart) - bottom-line, not the most compelling scenario for the start of a major correction.

P.S. The Barron's front page totally confirms the content of my comment today. "If Europe gets its debt crisis under control and the US economy keeps growing, we could easily see Dow 15000 by the end of next year. American companies are in terrific shape and history strongly suggests that stocks are ready to break to new highs".

Trade well.

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

1 commento:

  1. S&P Down grade of Technology, {as Apple hits all time high} does not convince you? Transports weak? Utilities?

    Am a bit worried by the astonishingly great performance so far this year. May be top slicing, rotating into steady earners. Rails. Gas Pipelines.

    Appreciate your insights. Thanks.


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