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

giovedì 16 febbraio 2012

Market Comment - February 16

(Marco Bonelli) Is the time still right to jump on the expected good news (NAHB, Housing Starts and Jobless Claims) and ignore the unexpected bad news (Industrial Production)?

How much positive is already discounted and how much negative can get absorbed by sentiment-driven resilience?


Ok, one bad data doesn't make a trend, I know. At the same time, there is also the cycle of economic data. Similar to a trend in the stock market (where prices usually swing around that trend), economic data also tend to swing around the underlying economic trend (for instance, weaker production leads to weaker orders, lower expectations for demand, drop in sentiment etc., until the situation of the game turns). Quite frankly, with six out of nine sub-components lower, it's very hard to believe how the top-line number if the Empire Manufacturing Index can sharply rise, so I look at the underlying components and count that data as negative (why? - because there is no rule that I can't!). You had top-line retail sales below expectations, now industrial production. Federal Reserve Bank of Dallas President Richard Fisher bluntly said yesterday, that "QE3 is a fantasy of Wallstreet" and that "there won't be any QE3" because "there is no need for it". Plus, the speculation about any decision on Greece getting pushed out came true and another temporary solution gets delayed - it's adding up.

Not surprising after a two-month one-way road in the stock-market, there are several signs that show that the rally gets tired:


§  The Dow Jones fell again below 12876, the high from May last year.

§  The SPX, trading in a tight channel for the last 10 days, failed to break out of the top-line of the channel (1354.50) for the third time in five days.

§  Yesterday the broad market only staged its second intraday reversal to the downside this year (32 trading days), compared to 17 reversals to the upside, all accompanied by deteriorating market breadth.

§  We saw a $28.6 intraday drop in AAPL's share-price (for whatever reasons) after a parabolic rise and a whopping 39% advance in just two months; with its high weighting in the Nasdaq, AAPL's sell-off lead to one of the very rare double-digit declines in the index this year and put the sharp relative outperformance since December 22 to a hold.

§  The Dow Jones Transportation Index showed the biggest drop since middle of December, further confirmed the break of its 4 ½ month uptrend and continued its decisive underperformance versus the broad market since January 27.

None of these short-term developments points to anything more than a little technical pull-back, so why do I even mention something that doesn't surprise anybody? Actually this is not one of these value-added comments that "the market ran too far too fast", the market "is overbought" and "given the run we had, it wouldn't surprise me if we saw some profit-taking". This is a much more broad-based call, that the market anticipated a very favorable economic scenario (of course, better January Housing Starts are part of it) but moved too far away from fundamental reality. I expect that the reality of zero or low single-digit earnings growth, a global economic slowdown, lead by a recession in Europe and chances of further deteriorating growth in China will get reflected in lower stock prices over the next weeks and months.

Here is another story:
While the recognition of fundamental reality doesn't need a trigger, a decline in commodity prices, triggered by a stronger Dollar and backed up by weaker than expected economic numbers over the next few weeks (just a thought!) could drag the market down in the near-term. The CRB Index never really broke back into its uptrend from 2009 (currently at 315); the same trend for crude oil runs at $107; metals (including gold and silver) already started correcting some of its huge gains in January, so a short-term pull-back in commodities could become something bigger and will pull energy, basic materials and industrials down with it.

The upcoming Philadelphia Fed Index for February will be the last economic data worth watching this week! A better number will "confirm" yesterday's Empire Manufacturing Index and play along the other better than expected numbers today and the market may attempt a rebound from yesterday's losses. However, a disappointing number will "confirm" the weaker sub-components of the Empire Index, will add to disappointing data like yesterday's industrial production and will feed into a historically lower Friday ahead of a long President's Day weekend, while February option expiration will add some extra-fun. Watch out!

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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