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

venerdì 20 luglio 2012

Market Comment - July 20

(Marco Bonelli) Does weak market breadth just reflect the highly selective earnings picture or is it more a sign of a weak rally overall?

During the last three trading session, NYSE and Nasdaq market breadth according the advance/decline ratios was surprisingly weak compared to other rally days. The ratio on Nasdaq even dropped to negative yesterday after barely staying above zero the previous days. In addition, up-volume on NYSE declined over the last three days and overall volume is close to the lows of the year; up-volume on Nasdaq at least didn't decline during the same time and overall volume rose from the low to the upper end of the yearly range.

While this picture usually points to a weak rally, another explanation could be that market players are and have to be even more selective during this earnings season as only a few companies beat the top and bottom-line estimates. Although INTC and IBM disappointed on the top-line, you could say that earnings from the Big Four in the technology sector, INTC, IBM, GOOG and MSFT surprised on the upside while the periphery crumbled. So why buy one of the many mid-cap names that just reported a disappointing quarter and guided down for the next when a handful of blue-chips continue to shine, right? Let's see if this selective rally will push the Nasdaq decisively higher with the downtrend from April right in their face, 2961.35 for the Nasdaq Composite and 2645.24 for the NDX.

Are we any smarter than a week ago before the SPX started its 3.14% rally (from Thursday's close) and the NDX its 4.34% rally?

Probably not: Not surprisingly, nothing really changed but sentiment played a weird role during the last few days as a desperate confusion among the bears grew with every day trading higher. At the same time, the bull camp didn't get more crowded either although a few more comments emerged, emphasizing Ben Bernanke, the housing recovery and partly better than expected earnings as well as the good old rule "don't fight the tape". The fundamental picture received another hit yesterday when all four economic data disappointed by a substantial margin compared to median estimates. We have to wait another two weeks to find out if the historically close correlation between the employment component of the Philadelphia Fed Index and the Nonfarm Payrolls still stands - during the time the general index and 6-months business outlook disappointed for four consecutive months, the employment component dropped sharply to the lowest levels since September 2009!

The interesting development yesterday was that the market didn't sell off on back of the disappointing Philadelphia Fed Index as it did during the last three months (the SPX lost 0.59%, 1.5% and 2.23% at each time since the April data was released)! This may suggest that the bad economic news may be already priced in, right?

But how can the bad news be priced in when the SPX and Nasdaq trade close to the levels from beginning of May, when investors apparently started becoming aware of the fundamental deterioration? The answer to that question may involve a mix of overall (but undefined) cautious to negative sentiment, a high level of complacency and the practice of applying the same assessment tools that worked during times of global economic expansion, moderate to strong US economic growth and high earnings growth. Realizing that times have changed and that different kinds of rules may need to be applied is a long process that probably started in April, May and might last a bit longer than investors currently anticipate.

In the meantime, the market celebrates better than expected earnings and weak economic data that raise the perceived likelihood of any QE-like announcement in the near future. Traders will continue to play certain chart levels and even try to play the new-found "buy-the-dips-game" but for investors it may turn out to be a better strategy to wait for (much) more interesting entry points!

Trade well and have a great weekend.

(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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