Lookout Below (part 63)
Here we go again: Futures look very weak, with the Dow indicating a drop of 175 at the open.
The cascade is weak Euro (Greek related or not). The soft EU currency means a strong dollar, and that is pressuring Gold, Oil, and stocks. The 200-day moving averages have been minor support, but indices (Dow & S&P500) are in spitting distance. If we open where the futures suggest, we are blow right through them.
As noted yesterday, watch the May 6th intra-day lows –especially the volume as we approach that level.
I honestly don’t see what the Greek riots have to do with equities — despite the usual chatter. This has been going on for 6 months — why the sudden impact now? The good visuals make for good TV, but lousy equity strategy.
More likely, market weakness is based on other factors: We are sitting on top of 70%+ gains; mutual fund managers are all in, impacting liquidity; Supply is in control over Demand. Overall, the market simply looks tired.
Once again, with markets just a few weeks from their 18 months highs, I have to ask: Can you really believe equities “forecast” anything?
I find it so much more accurate to say they are a future discounting mechanism, one that reflects a million monkey’s probalistic expectations of future events. Often right, sometimes wrong, occasionally spectacularly so. But a leading indicator that accurately forecasts the future? Don’t make me laugh . . .
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click for updated Futures
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(Boy I hate being on West coast time — how do you guys do it?)
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May 20th, 2010 at 8:21 am
Perhaps the “Look Out Below” thread needs to be renamed, seeing as how frequently its been getting play on your blog. I will nominate “Future Sucks” or “Shoulda sold yesterday” as potential renames.
May 20th, 2010 at 8:26 am
Not only a million monkeys. Don’t forget the thousands of programs they wrote on their millions of [typewriters/computers] to predict what the other monkeys are doing.
May 20th, 2010 at 8:37 am
A million monkeys and their code bots ~!
May 20th, 2010 at 8:37 am
Re. “West Coast Time” – it just seems normal after a while: The cables CNN, Fox, and CNBC all start their daily programming at 3AM; economic indicators (e.g., jobs today) come out, like right now (5:30AM); markets open at 6:30AM; etc.
So, you must still be at Bellagio. I’m about ½ mile to your west; across I-15, and behind the Gold Coast. But it may as well be on another planet … never set foot in the resort corridor…
–K
May 20th, 2010 at 8:38 am
The banksters are getting frustrated that the puppet Senate failed to pass the no-reform “financial system reform” bill. Just 2 weeks ago, the puppet Senate did pass a significantly diluted version of the “audit the Fed” bill, only minutes after the “flash-crash.” I guess the Senate has to be reminded what is going to happen with mom-and-pop 401(k)s if Senate doesn’t play ball….
No, i do not subscribe to the global banking conspiracy theory. but i believe that banksters have figured out the ultimate leverage that they hold: they can make markets crater, and the Gov’t will react by helping/bailing out the industry. And even if the gov’t doesn’t help – the worst that can happen is the banks will repurchase same shares at lower prices.
May 20th, 2010 at 8:40 am
and let’s not forget the icing on the cake-
UE claims up 25,000-
robust recovery?
May 20th, 2010 at 8:40 am
Well with the 471k initial claims you can bump the 150 to near 200. SPY ETF is trading below the day’s downside ATR target and below the low of Friday 5/7. Put’s it into a bit of a support black hole until you get to the range of the February lows.
May 20th, 2010 at 8:42 am
FYI – Currencies not confirming this move down in equities….
May 20th, 2010 at 8:45 am
Well, one interesting correlation that was pointed out in Gary Shilling’s Insight a while back was that in a recession, the stock indexes tend to follow national GDP pretty closely. Not sure exactly why that is, but it would seem to correlate with what we are seeing now; GDP is certainly expected to be lower than the first quarter. We’ll see…
May 20th, 2010 at 8:45 am
It has ran up off the March low, because of 1.3 trillion of gov. spending, and money managers trying to hype everything higher and higher, but the truth will soon set us free!
May 20th, 2010 at 8:48 am
UE was up more than than the most pessimistic forecast
foreclosures hit a new high yesterday and building permits hit some sort of low following the end of the homebuyer stim
I was talking to a modular home sales guy yesterday and he told me to buy soon, prices are going up, he had a couple highlighted articles about lumber prices etc. I told him I thought it was just homebuyers stim, maybe some commodities speculation, I got home and checked lumber commodities when I got home – dropping like a rock the past 4 weeks, -30%.
May 20th, 2010 at 8:50 am
Looks like a lot of money coming out of commodities, broadly, and it shows in the commodity related currencies. Treasuries are getting the associated launch. It’s duck-and-cover time for some large pools of capital.
May 20th, 2010 at 8:52 am
the line seems to be:
major European fiscal belt-tightening/GDP decline, plus possible China slowdown
already being reflected in commodity prices
notice odd collapse of AUD from 93¢ to 83¢ in the past 3 weeks
AUD/USD chart 1 year:
http://uk.finance.yahoo.com/q/bc?s=AUDUSD=X&t=1y&l=on&z=l&q=l&c=
May 20th, 2010 at 8:57 am
west coast time— LOL
you get used to it in time–and plenty of golf in the afternoon!!
I sleep in till 5 30 on weekends!!!
May 20th, 2010 at 9:01 am
Never underestimate the “buy-the-dip” mentality. S&P will print positive at some point today. Whether it holds or not is another story. Unless the politicians ban short selling, there will always be folks buying on strong sell-offs.
May 20th, 2010 at 9:02 am
BR its just that magnetic pull of support on the mkt. 1080/81, 1024/25 & 1011.
If the first one breaks there is alot of room below for the monkeys to play with.
That cash position is looking good.
May 20th, 2010 at 9:02 am
After several trillions…
weekly jobless claims count. Initial claims for the week ended May 15 totaled 471,000,
Europe crashing
Taxes raising
Housing dropping
Bankers bonuses way up
For the rest of us: We can always eat cake…
May 20th, 2010 at 9:02 am
“The cascade is weak Euro (Greek related or not). The soft EU currency means a strong dollar, and that is pressuring Gold, Oil, and stocks.”
I disagree. The euro has been acting well since it bottomed at 1.2144. It’s everything else that is falling apart. It looks like we may be in for a period where stocks, commodities, and gold decline while the euro is strong.
May 20th, 2010 at 9:05 am
Let’s see…Oil has dropped from $87 a barrel to almost $65 because speculative money has come out. So what does allowing Wall Streetto buy commodities do for us again?
May 20th, 2010 at 9:11 am
I agree b_thunder, while a correction of 10% was long overdue, and the disorganization of Europe is enough to make your stomach churn, there is no doubt that the markets appear to be holding yet again a gun to the heads of the politicians. How convenient for us to get a flash crash at the time of critical legislation and yet again markets overselling because they can…
What did we expect to happen if we start taxing banks, hedge funds, take away their toys of mass-leveraging and ask them to stop lying, cheating and stealing…?
This group of boys dont play nice…
May 20th, 2010 at 9:26 am
My unscientific guess, besides what’s going on in Europe (and the trade implications—see Michael Pettis’s blog), China, GOM, etc. The elections on Tuesday portend a more fiscally conservative legislature after the November elections. Normally a good thing, but if that happens, likely no more fiscal stimulus which would, short-term, IMO, be a negative for the economy and the equity markets.
May 20th, 2010 at 9:30 am
I just noticed – eSignal adjusted the daily and longer 5/6 low to 110.56, making the 5/7 low the May low (before today). Intraday charts still show the flash crash.
May 20th, 2010 at 9:31 am
There’s also the oil spill, financial reform, China slowing, the Korean War II, …
May 20th, 2010 at 9:36 am
From an individual investors perspective, as we go through yet another bloodletting in the markets, it just gets harder and harder each time to trust that money sitting in the 401k. No matter how hard guys like myself sell “long term investing”, you can’t ignore these 1 step forward, 2 step back markets. Where does this market head from here? The volatility is just maddening. We’ve all been watching the steady upward drift for over a year now, and just when it seems safe to back into the water, the water starts to get deep again.
May 20th, 2010 at 9:37 am
“what does allowing Wall Streetto buy commodities do for us again” – jobz for paperboys .. inflation for everyone else .. and a push to hit #s by business in their own papers
as far as the UE#s .. wondering if the DisCap jobs from the Gulf spew will outflank the jobs lost to the standard everyday economy
May 20th, 2010 at 9:38 am
BR writes:
I would agree that the Greek situation has little effect over the direction of U.S. stock prices – it, and the more generalized concern over other countries in Europe as well as the state of the Euro, does contribute an element of noise to the market, but as best as I can tell, just a small one.
Stock prices are, at best, a coincident-to-slightly-lagging indicator of economic conditions.
Same as you East coast guys. We get up early and drink lots of coffee….
May 20th, 2010 at 9:43 am
“it just gets harder and harder each time to trust that money sitting in the 401k. No matter how hard guys like myself sell “long term investing”, you can’t ignore these 1 step forward, 2 step back markets”
exactly my TBP point – kill the markets .. make corps borrow from labor again .. on market terms .. not corp terms
May 20th, 2010 at 9:50 am
the salvation could be that, ultimately, the US stock market bears little resemblance to the real economy
May 20th, 2010 at 9:56 am
Barry,
What happened to your rosy economic forecast? Dump those Amazon shares in time?
May 20th, 2010 at 9:57 am
We have various US stimuli ending as China cracks down on speculation and Team Euro imposes austerity on the baad PIIGS. If you think Greek riots are an exception just wait til the Spanish gov has to impose austerity on a population with 20% unemployment. Maybe the cablecos can start a riot channel, all riots, all the time.
Austerity and public sector layoffs in the PIIGS, CA and many deeply deficit ridden states will throttle this artificial recovery. Will China be able to back away from their bubble(s) without bursting them?
May 20th, 2010 at 9:59 am
The market is a manic-depressive. Its only predictive usefulness is that it won’t do anything for long.
May 20th, 2010 at 10:12 am
Recovery right on target. Sure thing.
May 20th, 2010 at 10:12 am
A lot fat fingers and toes lately.
May 20th, 2010 at 10:27 am
“I honestly don’t see what the Greek riots have to do with equities ”
Its not just the Greek or Romanian riots – that is one small symptom of the financial rot.
Try to look at the Big Picture. The recovery has been based on “extend and pretend.” But they “pretend” part is not possible anymore and Europe is the first to start puking blood. Now even the governments cannot pretend.
The Market is calling this 18 month BLUFF.
May 20th, 2010 at 10:39 am
Barry,
I agree with your assessment on the market condition, specifically the potential end of a correction ~10,000.
However I think you are missing out on some major macro issues on the European Debt mess and the quietly forced austerity measures of state/local governments right now. You have the data down, no doubt. I just think it might need a second read and thought session.
I think we might be on the verge of a severe reversal of decisionmaking and national thinking.
For example, the riots in Greece are important because every politician here is under the gun for finances. The implications of a 2010 election focused on the issue of deficits at a time when we arguably need to continue running them is definitely something “the market” might be forecasting/discounting.
Just look at how much of the market movement is based on political actors and their decisions then dig down to what drives those decisions. The political winds are blowing hard. I wouldn’t ignore them just because you recognize the waters of the market are predictably choppy.
May 20th, 2010 at 10:42 am
More likely, market weakness is based on other factors: We are sitting on top of 70%+ gains; mutual fund managers are all in, impacting liquidity; Supply is in control over Demand. Overall, the market simply looks tired.
——
There’s a lot more going on than, and others have touched on it above. That jobs data this morning added a whole new twist re: a recovering economy. If this falters there’s going to be a lot of political turmoil before November – what options are there? – and consumer confidence is going to take a dive. This on top of Europe.
May 20th, 2010 at 10:51 am
Trading on west coast time worked well with being a farmer. Up before dawn, pumped full of coffee by 0530. When I would be baling hay, I’d have been up since about 0100 local. Got to take a nap from about 1500 to 1800 in the afternoon.
May 20th, 2010 at 10:57 am
From where we have been thus far, a move to positive prints today would be a very unusual move. Back into yesterday’s range would be an accomplishment.
Earlier I noted eSignal had apparently adjusted the 5/6 low on SPY. A few minutes ago that adjustment disappeared – back to as it was. Makes you wonder about the data you use.
May 20th, 2010 at 11:23 am
BR says-
“I honestly don’t see what the Greek riots have to do with equities — despite the usual chatter. This has been going on for 6 months — why the sudden impact now?”
then says-
“Overall, the market simply looks tired.”
so using your logic- inversely- can we say the following-
“the market has been looking tired the last several months- why the sudden impact now? Overall- the market is being impacted by world wide debt woes and deflationary forces as evidenced by government’s such as Greece being forced to implement spending restraints and austertiy programs”
LOL- BR- tell me what I just said is wrong?
I mean c’mon- do you believe half of what you say- or do you just work on the fly?
May 20th, 2010 at 11:42 am
Now you know why us west coast traders are so whacky. We’re out of sync. ;)
The Aussie buck is not the only one getting kicked. The loonie is getting disciplined also.
It looks like liquidity is leaving the building and isn’t interested in discussing the issue.
May 20th, 2010 at 12:13 pm
As noted when Greece first caught the media’s attention, the better place to look for reasons behind current weakness in US equities is China, South Korea, CRB, oil, copper, Aussie $, 2-year TSY yield, etc., etc. All are signaling cooler economic weather ahead. And here today you get the Conference Board’s LEI gone negative.
May 20th, 2010 at 12:15 pm
I might point out that folks using three weeks of market declines to predict the end of the world as we know it are little different from those who used 9 months of stocks gains as an excuse to sound the all clear to the economy. Just different sides of the same coin. I agree with Curmudgeon, the market is predictive of very little these days.
May 20th, 2010 at 12:23 pm
Rosenberg: Expect a 31 per cent correction
http://www.theglobeandmail.com/globe-investor/markets/markets-blog/rosenberg-expect-a-31-per-cent-correction/article1575651/
May 20th, 2010 at 12:25 pm
Remember when I was touting SDS at 11,200??? Well, guy’s, I can only say “I told you so” so many times…… Where is Cognos??? Haven’t seen many of his posts lately. Also, it’s just a matter of time before Steve Barry makes a cameo isn’t it?
May 20th, 2010 at 12:38 pm
“(Boy I hate being on West coast time — how do you guys do it?)”
In some ways it’s less stressful – just wake up and see what the morning has brought.
May 20th, 2010 at 1:01 pm
@How the Common Man Sees It:
So it is claimed in the headline of the The Globe and Mail article. And I wonder how can anyone make such a prediction about the stock market correcting exactly by 31 percent. However, in the article itself I read something else:
“Today’s normalized P/E ratio is 21 for the S&P 500. Over the past 130 years, whenever the ratio rises above 20.6, the stock market encounters a “significant correction” averaging 31 per cent over 16 months. ”
This statement is different to the one in the headline. It says something how much the drop was on average under a given condition. It doesn’t say the market will correct exactly by 31 percent this time.
What a shitty journalism by The Globe and Mail again. Now I would like to know what Rosenberg really said.
May 20th, 2010 at 1:13 pm
The monkeys (and their bots) are getting spanked. Me included.
May 20th, 2010 at 1:20 pm
@Common Man:
Interesting reading the comments to the Rosenberg piece in the Globe and Mail, from calling him a permabear to saying he is just talking Gluskin & Sheff’s book (alleging they are short the market in prop trading).
I find Rosenberg to be very compelling when he is diagnosing macroeconomic weaknesses, which IMO he is VERY good at. But whether he matches up diagnoses with market timing advice that makes money, not so sure…
Still, IMO he is often a must-read to get a balanced view.
May 20th, 2010 at 1:42 pm
West Coast time? Come on out and try Hawaiian Standard. Some masochists get up really early (though the ones I know generally work the morning fish auction). I just take the morning trading action as a given and work on the longer term.
May 20th, 2010 at 1:51 pm
Up at 5a.m. or so. Golf in p.m.
May 20th, 2010 at 2:16 pm
@Evoo
Bears tend to make the G&M crowd nervous. At least Rosenberg puts some reasoning behind what he says
May 20th, 2010 at 3:40 pm
Today show had a promising beginning. But did not live up to it. Beware bears. You never know (never do I BTW).