It's been a while, but worries about the state of Europe's banking industry are back in a big way this morning. Specifically, concerns about the health of Portugal's largest listed bank are causing a rout of 1% or more across Europe. Banco Espirito Santo, which has delayed payments on short-term debt, is down more than 15% in trading across the pond.
Next, weak industrial production numbers out of France continue to cause concern about the state of the European Economy. And Finally, bond yields in Greece have jumped this morning on the back of modest demand for the embattled country's 3-year bond sale. So, it looks like worries about Europe are back on traders' radar.
In economic news, we will get weekly jobless claims at 8:30 am eastern as well as the report on wholesale trade. On the Fed-speak front, Fed Vice Chairman Stanley Fischer will speak at 4:30 pm.
U.S. stock futures are down hard in the early going and point to a triple-digit loss for the Dow on the open.
This continues to be one of the most hated bull markets in history. Despite an improving economy and a lack of any meaningful declines for the past year and a half, a great many analysts continue to espouse doom and gloom regarding the outlook for the U.S. stock market. It appears that the bears will have yet another opportunity to get something going to the downside today as worries about banks in Europe and the potential for rate contagion has futures on the run in the early going. However, we should keep in mind that all declines lasting 2 days or more have been bought recently. As such, it will be interesting to see if the dip buyers come in this week. For now, our market models remain moderately positive.
At first blush, yesterday's rally appeared to be positive as the 2-day decline was halted. However, upon closer inspection of the technical action, we find that Wednesday's action produced an "inside day" (a session in which the day's high is below the prior day's high and the low is above the prior day's low) on the charts of the major indices. And the technical analysis textbooks tell us that "inside days" suggest that the trend which was in place prior to the day is likely to continue. Therefore, chart purists contend that there are lower lows ahead. From a near-term perspective, it looks like the immediate support at S&P 1960 will be broken at the open. However, we continue to believe that the 1945 level is the key to the intermediate-term trend.
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Here are the Pre-Market indicators we review each morning before the opening bell...
Major Foreign Markets:
- Japan: -0.57%
- Hong Kong: +0.27%
- Shanghai: -0.03%
- London: -0.94%
- Germany: -1.59%
- France: -1.49%
- Italy: -2.07%
- Spain: -2.34%
Crude Oil Futures: -$0.34 to $101.95
Gold: +$19.70 at $1344.00
Dollar: higher against the yen, euro and pound.
10-Year Bond Yield: Currently trading at 2.511%
Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: -16.13
- Dow Jones Industrial Average: -131
- NASDAQ Composite: -34.21
We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).
1. The Outlook for U.S. Economic Growth
2. The State of European Banking System
3. The State of Fed Policy
4. The State of the Geopolitical 'Issues' in Ukraine and Iraq
We believe it is important to analyze the market using multiple time-frames. We define short-term as 3 days to 3 weeks, intermediate-term as 3 weeks to 3 months, and long-term as 3 months or more. Below are our current ratings of the three primary trends:
Short-Term Trend: Moderately Positive
(Chart below is S&P 500 daily over past 1 month)
Intermediate-Term Trend: Positive
(Chart below is S&P 500 daily over past 6 months)
Long-Term Trend: Positive
(Chart below is S&P 500 daily over past 12 months)
Key Technical Areas:
Traders as well as computerized algorithms are generally keenly aware of the important technical levels on the charts from a short-term basis. Below are the levels we deem important to watch today:
Momentum indicators are designed to tell us about the technical health of a trend - I.E. if there is any "oomph" behind the move. Below are a handful of our favorite indicators relating to the market's "mo"...
Markets travel in cycles. Thus we must constantly be on the lookout for changes in the direction of the trend. Looking at market sentiment and the overbought/sold conditions can provide "early warning signs" that a trend change may be near.
One of the keys to long-term success in the stock market is stay in tune with the market's "big picture" environment in terms of risk versus reward because different market environments require different investing strategies. To help us identify the current environment, we look to our longer-term State of the Market Model. This model is designed to tell us when risk factors are high, low, or uncertain. In short, this longer-term oriented, weekly model tells us whether the odds favor the bulls, bears, or neither team.
Weekly State of the Market Model Reading: Positive
"Being ignorant is not so much a shame, as being unwilling to learn." -- Benjamin Franklin
Wishing you green screens and all the best for a great day,
David D. Moenning
Founder, StateoftheMarkets.com
President, Chief Investment Officer Heritage Capital Management