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 5 marzo 2012

Market Comment - March 5

(Marco Bonelli) What is more important?

Ø  Is Friday's performance of the Dow Jones of -2.73 points or the SPX of -4.46 points more important or the fact that small-cap stocks accelerated their underperformance and the Russell 2000 broke short-term support levels, along with the Value Line Index, the Dow Jones Transportation Index and a number of industry sector indexes in the technology and cyclical space?

Ø  Are better than expected macro-economic data from the past more important than more and more current statistics that get reported below expectations, suggesting that future expectations as a derivative from the past data may be too optimistic?

Ø  Are absolute earnings multiples more important (according to Bloomberg data, corporate profits that doubled since 2009 have left the S&P 500 Index cheaper than at all 34 peaks since 1989, even as options traders push the cost of protecting against losses to the highest in four years) or is the trend of earnings growth (currently estimated to be -0.6% in Q1 and +1.2% in Q2 after +5.0% in Q4) more dominant?

With only a few macro-economic data out this week beside the all-important labor market reports from ADP and the BLS, let's have a closer look at some charts and see what's going on under the blanket of the major averages:

Maybe the most interesting chart is the broad Value Line Index, that already gave the clearest signals in July and August last year. After advancing 17.6% since middle of December, the index broke slightly below the trading range from February and a long-term support at 362.16 (which certainly needs to be confirmed!). More importantly, the average developed a rising wedge pattern since August and knocked at the resistance line twice in February, now trading almost 3% below. If the wedge were to hold its pattern, the index could have a 3.8% downside risk from Friday's close to reach the steeper support line above the 350 level.

As mentioned, the Russell 2000 broke its uptrend from November after failing to break back into the uptrend from 2008, broke the tight trading range from February to the downside and continued the relative underperformance that started beginning of last month. Mid-cap stocks, according to the S&P400 Index still trade within their short-term up-trends but otherwise show similar signs of a top formation in development.

The Dow Jones Transport Index was the first of the major indexes to break its uptrend from November, developed a short-term head-and-shoulder pattern and traded around its 50day MA several times. On Friday, the index closed again below the average (at 5190.38) and below the neckline of the h&s pattern at 5166.75. The highs from October and December at 5067, the 200day MA at 4953 and the calculated downside of 4932.50 (-4.4%) would be support levels if the chart confirms the topping formation.

In the technology sector, the broad MSH, the SOX and also internet index broke its short-term uptrend from December; the SOX even broke again below its uptrend from 2008 after breaking above it on January 2.

Cyclical sectors continue to look the most vulnerable. Not only broke transportation related sectors support levels, electric equipment, homebuilding, building material and metals showed the same developments.

While many indexes either face resistances from the highs from last year or longer-term resistance levels, one of the best looking sector charts come from financials! With lows in October and November, most sub-sectors developed a wide double-bottom formation and broke above the resistance from the October highs beginning of February. So wouldn't it be a positive for the overall market if financials lead the way? It would, the question is if financials follow through, are able to de-couple from the broad averages and other sectors and will have the momentum to break through various resistance levels from past three years. Let's keep an eye on it!

Currencies, commodities, bonds and stocks pretty much reversed the moves that resulted from the no-QE3 interpretation of Ben Bernanke's Humphrey Hawkins testimony last week. Stocks continue to show resilience amid a crowded call for a short-term correction. So far, weaker than expected economic numbers didn't cause too much damage and were often offset by a couple of better statistics, which pushed the expected pull-back out as any weakness got bought. Let's see if the better than expected Factory Orders from January and February's ISM Non-Manufacturing Index lead to the same pattern.

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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