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 agosto 2012

Market Comment - August 16

(Marco Bonelli) Doing nothing turns out to be a painful waiting game!

Although the major averages trade close to their March, April highs, treading water for seven consecutive trading days became a cruel exercise, which moves questions about the next market direction again to the forefront. This tension will most likely lead to a small eruption one way or the other in the near-term future.

Comments about low and even deteriorating trading volume come up frequently but something that hasn't been discussed too much is market breadth and one of the representing indicators is the advance/decline ratio for the NYSE and Nasdaq:

§  On both exchanges, the ratio fluctuated in a wide down-trending channel between middle of December and middle of May (on the NYSE) , end of May (on Nasdaq), respectively, suggesting that the "quality" of the rally in Q1 already deteriorated much earlier than the major averages reached their highs of the year.

§  Between middle of May and middle of July, breadth on NYSE improved considerably and progressively, while there was early improvement on Nasdaq beginning of June but breadth again deteriorated until middle of July; in other words, NYSE shares looked a lot healthier during the June rally, a development that is also mirrored in the frequent "pockets" of underperformance of the Nasdaq versus the SPX in that timeframe.

§  Starting middle of July, market breadth on both, NYSE and Nasdaq has shown a weird pattern of weakness that showed a lot of volatility and peak levels well below regular peaks on "normal" strong days. Most recently the indicator shows deteriorating breadth since August 3.

While weak market breadth only puts another low-quality stamp on the recent rally, it doesn't give any suggestions where the market might go next. The many moving parts in the news-flow also don't come up with more specific conclusions: Earnings in the retail sector come in mixed to slightly better but question-marks remain regarding the back-to-school season; July Building Permits and HD's earnings report from a couple of days ago get used to confirm the recovery in the housing sector although Housing Starts continue to point to a rather muted recovery from depressed levels; CSCO and NTAP guided Q3 in line while AMAT and A warned of lower results - although some of these results fall into the category "better than feared", given the fact that Q3 estimates in the technology sector got reduced 6-7% in each of the last four weeks, CSCO's and NTAP's guidance is nothing to get excited about; finally economic data sort of leave the impression of stabilizing, although non-farm payrolls, retail sale and industrial production were the only statistics that came in better than expected (nevertheless, the famous Citigroup Economic Surprise Index improved quite sharply since July 19, rising from -64 to -19 yesterday).

But why do we worry and analyze the macro and micro-trends anyway? This is a (sort of) liquidity driven trader's rally and main-stream arguments like record-low valuation, decent Q2 earnings, attractive earnings and dividend yield, Europe taking the right steps, monetary policy remaining accommodative, strategist's asset allocation most bearish, investors sentiment extremely negative, asset allocation shifts out of bonds, record cash amounts on corporate balance sheets, positive election cycle, similarities to other risk-on rallies or China's economy recovering in the second half (2012 or 2013?) and responding well to recent stimulus measures just play on top of the positive momentum that might push the major indexes to new yearly highs.

Having said that, the fragile character or the rally and the questionable hopes it is based on could turn profit-taking into a successful investment decision looking back in a couple of months from now.

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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