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 18 luglio 2012

Market Comment - July 18

(Marco Bonelli) Will traders be able to play the "it's not as bad as feared" - rally?

The few earnings that are out so far almost get greeted with "solid", "could have been worse" or "not as bad as feared" flags as almost all stocks that reported earnings yesterday closed higher, no matter if the company beat or missed consensus estimates.
Also INTC reported "solid" numbers, beating estimates and lower guidance in year revenues and capital spending probably "could have been worse". Undoubtedly, the market shows some remarkable resilience, which leaves the impression that all estimates reductions over the last weeks are already priced in and as a result, earnings beats get embraced, as it usually happened in the past 12 quarters.


Then there was Ben Bernanke testifying in front of the Senate Banking Committee, describing economic activity in a more negative way (what else should he do when the majority of economic statistics disappoint on the downside...) but didn't give any hints of the next QE3 implementation (the omnipotent tool whose anticipated announcement partly drove stock prices higher in the first three months of the year and almost entirely contributed to the market rebound in June). The initial disappointment was quickly traded for different interpretations, probably helped by overly aggressive requests from a few members of the Committee to support economic growth more: "By describing the economy more negatively than in previous press-conferences and speeches, he laid the groundwork for a now round of bond purchases!" / "Nobody would have expected any specific announcement!" / "He said that the Fed is prepared to act!" / "The Fed has to do something, probably at the meeting end of this month because the September 11/12 FOMC meeting gets too close to the election." Even there, the market showed remarkable resilience as it easily brushed off the disappointing remarks.

What's the base for the market's resilience towards earnings? Those earnings that beat estimates, beat by the smallest margin in years, despite the sharply reduces numbers and despite beating some expectations most earnings are flat to slightly down compared to last year. Most earnings from banks are highly inflated by massive releases of loan loss reserves (so far, BAC wins the gold medal in that race, followed by JPM) while others benefit from lower effective tax rates (KO opened the race in this discipline, other candidates, mainly from the technology field will follow). So, the market's resilience suggests that it's happy with zero to negative earnings growth. To put things into perspective, the SPX trades at the levels from beginning of March and middle of April, when Q2 earnings growth was still expected to be up 1.7% and Q3 up 7% (now Q2 earnings growth is expected to be down 2.1% and Q3 only up 2.5%). So given the market's resilience, where is the perspective? Is the market really happy with another quarter with no earnings growth?

Maybe stronger housing starts for June (that confirm the trend and go well with the highest NAHB Housing Market Index since March 2007) pose as the famous light at the end of the tunnel. Industrial production in June was also a touch better than forecasted yesterday, keeping hopes alive that the US economy will be able to escape the global downdraft. Some hope in the technology sector also makes some sense as the sector is one of the most oversold and many stocks even trade close to the lows from last fall. Results from IBM, EBAY and QCOM will give more clarity after the close.

Trader will continue to dominate the picture, will play levels like 2900 in the Nasdaq Composite and its 50day MA at 2874.50, will try to hold the SPX and Russell 2000 above their 100day MA (1359.50 and 795.75, respectively) and will try to push the SPX towards the critical 1370.50 level. Let's watch the Dow Jones Transportation Index that was the weakest performer yesterday and read the tea-leaves in Ben Bernanke's second testimony as well as the Beige Book later today.

While traders might be able to successfully play the long-side for a short-term rally, investors may wait for better entry points as the base and the perspective of any rally is quite questionable!

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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