Wednesday, June 30, 2010

Market Update – another ugly session for equities (start buying supplies for the bunker); Merkel’s candidate for president was voted into office $SPX

  • Market Update – another ugly session for equities, w/all the decline coming within the last hour of trading; the sp500 has closed in the red for 7 of the last 8 sessions and today broke through the technically important 1040 level; there was no particular catalyst for the weakness today other than a resumption of the selling pressure that has been weighing for a few days now (the 200day MA upside break on 6/15 has brought out nothing but selling and this has picked up in the last few sessions); the
  • Moody’s Spain announcement hit at 2pm (an hour before the selling started) and while it didn’t help things today, it doesn’t seem to have been the sole catalyst behind the weakness.
  • Coming into today, traders had been lulled into a sense of optimism, w/many arguing for a decent bounce following Tues’ close (the fact we were able to hang onto the 1040 level), the ECB 3-month tender results (where demand was below worst case), and Q-end (many thought Q-end rebalancing would help give a bid to stocks given how much they lagged Treasuries over the last 3 months).
  • However, there was never any real buying this morning (other than some short covering right at the open).
  • Real long-only buyers haven’t been participating in this tape for a while (they never chased after we broke above the 200day MA a couple wks back and aren’t stepping in to support on this weakness) while any lift has been used as an opportunity to peel off exposure. Ominously, the SP500’s 50day MA is about to cross under the 200day (the 50day stands at 1119 vs. the 200day at 1112; the last time the 50 was under the 200 was back in Jun ’09).
  • The ECB 3- month tender demand (coming in lighter than anticipated) helped rally the futures early this morning but those gains were quickly surrendered following the tepid ADP jobs update.
  • The Moody’s Spain press release didn’t hit the markets initially when it crossed at 2pm (Moody’s placed Spain on watch for a downgrade), although this contributed to the afternoon sell-off. Recall that S&P downgraded Spain back in late Apr and ever since then people have speculated that Moody’s would follow (Moody’s still has the country at Aaa). Moody’s today said it would only downgrade one or two notches at most and that it wasn’t worried about Spain meeting its Jul redemptions.
  • In Germany, Merkel’s candidate for president was voted into office, although this is hardly being seen as an endorsement of the chancellor (it took three votes for Wulff to make it across the line as Merkel continues to hold only slim majorities in parliament).
  • The bigger picture debate continues to rage – the “double dip” prediction is increasingly gaining adherents (the Krugman “The Third Depression” article remains one of the top 10 most popular on despite having been written Mon night), driven by simultaneous worldwide fiscal austerity measures (the Senate looks like it will again fail to extend unemployment benefits while the G20 release this weekend made clear what direction Europe is heading in) and contracting CBs (ECB’s covered bond program ending; 12-month tender expiring; Fed showing no willingness to ramp up asset purchases again, etc)

No comments:

Post a Comment